FR Doc 06-9079

[Federal Register: November 24, 2006 (Volume 71, Number 226)]
[Rules and Regulations]
[Page 67959-68401]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24no06-9]

[[Page 67959]]

-----------------------------------------------------------------------

Part II

Department of Health and Human Services

-----------------------------------------------------------------------

Centers for Medicare & Medicaid Services

-----------------------------------------------------------------------

42 CFR Parts 410, 416 et al.

Medicare Program--Revisions to Hospital Outpatient Prospective Payment
System and Calendar Year 2007 Payment Rates; Final Rule

[[Page 67960]]

-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 416, 419, 421, 485, and 488

[CMS-1506-FC; CMS-4125-F]
RIN 0938-AO15

Medicare Program; Hospital Outpatient Prospective Payment System
and CY 2007 Payment Rates; CY 2007 Update to the Ambulatory Surgical
Center Covered Procedures List; Medicare Administrative Contractors;
and Reporting Hospital Quality Data for FY 2008 Inpatient Prospective
Payment System Annual Payment Update Program--HCAHPS Survey, SCIP, and
Mortality

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule with comment period and final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule with comment period revises the Medicare
hospital outpatient prospective payment system to implement applicable
statutory requirements and changes arising from our continuing
experience with this system, and to implement certain related
provisions of the Medicare Prescription Drug, Improvement, and
Modernization Act (MMA) of 2003 and the Deficit Reduction Act (DRA) of
2005. In this final rule with comment period, we describe changes to
the amounts and factors used to determine the payment rates for
Medicare hospital outpatient services paid under the prospective
payment system. These changes are applicable to services furnished on
or after January 1, 2007. In addition, this final rule with comment
period implements future CY 2009 required reporting on quality measures
for hospital outpatient services paid under the prospective payment
system.
This final rule with comment period revises the current list of
procedures that are covered when furnished in a Medicare-approved
ambulatory surgical center (ASC), which are applicable to services
furnished on or after January 1, 2007.
This final rule with comment period revises the emergency medical
screening requirements for critical access hospitals (CAHs).
This final rule with comment period supports implementation of a
restructuring of the contracting entities responsibilities and
functions that support the adjudication of Medicare fee-for-service
(FFS) claims. This restructuring is directed by section 1874A of the
Act, as added by section 911 of the MMA. The prior separate Medicare
intermediary and Medicare carrier contracting authorities under Title
XVIII of the Act have been replaced with the Medicare Administrative
Contractor (MAC) authority.
This final rule continues to implement the requirements of the DRA
that require that we expand the ``starter set'' of 10 quality measures
that we used in FY 2005 and FY 2006 for the hospital inpatient
prospective payment system (IPPS) Reporting Hospital Quality Data for
the Annual Payment Update (RHQDAPU) program. We began to adopt expanded
measures effective for payments beginning in FY 2007. In this rule, we
are finalizing additional quality measures for the expanded set of
measures for FY 2008 payment purposes. These measures include the
HCAHPS survey, as well as Surgical Care Improvement Project (SCIP,
formerly Surgical Infection Prevention (SIP)), and Mortality quality
measures.

DATES: Effective Date: The provisions of these final rules are
effective on January 1, 2007.
Comment Period: We will consider comments on the payment
classification assigned to HCPCS codes identified in Addendum B with
the NI comment code, and other areas specified throughout the preamble,
at the appropriate address, as provided below, no later than 5 p.m.
January 23, 2007.
Application Deadline--New Class of New Technology Intraocular Lens:
Requests for review of applications for a new class of new technology
intraocular lenses must be received by close of business April 1, 2007.

ADDRESSES: In commenting, please refer to file code CMS-1506-FC.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click

on the link ``Submit electronic comments on CMS regulations with an
open comment period.'' (Attachments should be in Microsoft Word,
WordPerfect, or Excel; however, we prefer Microsoft Word.)
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-1506-FC, P.O. Box 8011, Baltimore, MD
21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1506-FC, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses: Room
445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-
1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal Government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain proof of filing by
stamping in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
Applications for a new class of new technology intraocular lenses:
Requests for review of applications for a new class of new technology
intraocular lenses must be sent by regular mail to: ASC/NTIOL, Division
of Outpatient Care, Mailstop C4-05-17, Centers for Medicare and
Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

FOR FURTHER INFORMATION CONTACT:
Alberta Dwivedi, (410) 786-0378, Hospital outpatient prospective
payment issues.
Dana Burley, (410) 786-0378, Ambulatory surgery center issues.
Suzanne Asplen, (410) 786-4558, Partial hospitalization and community
mental health centers issues.

[[Page 67961]]

Mary Collins, (410) 786-3189, Critical access hospital emergency
medical planning issues.
Sandra M. Clarke, (410) 786-6975, Medicare Administrative Contractors
issues.
Mark Zobel, (410) 786-6905, Medicare Administrative Contractors issues.
Liz Goldstein, (410) 786-6665, FY 2008 IPPS RHQDAPU HCAHPS issues.
Bill Lehrman, (410) 786-1037, FY 2008 IPPS RHQDAPU HCAHPS issues.
Sheila Blackstock, (410) 786-3506, FY 2008 IPPS RHQDAPU SCIP and
mortality issues.

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments
from the public on the payment classification and status indicator
assigned to HCPCS codes identified in Addendum B of this final rule
with comment period with comment indicator NI and on the ambulatory
surgical center procedures that were not proposed for addition to the
ambulatory surgical center list in the CY 2007 OPPS proposed rule to
assist us in fully considering issues and developing policies. You can
assist us by referencing filed code CMS-1506-FC.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking.
Click on the link ``Electronic Comments on

CMS Regulations'' on that Web site to view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, MD 21244, on Monday through Friday of each week from 8:30
a.m. to 4:00 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Electronic Access

This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web; the Superintendent of Documents' home page address
is http://www.gpoaccess.gov/index.html, by using local WAIS client

software, or by telnet to swais.access.gpo.gov, then log in as guest
(no password required). Dial-in users should use communications
software and modem to call (202) 512-1661; type swais, then log in as
guest (no password required).

Alphabetical List of Acronyms Appearing in the Final Rule

ACEP American College of Emergency Physicians
AHA American Hospital Association
AHIMA American Health Information Management Association
AMA American Medical Association
APC Ambulatory payment classification
AMP Average manufacturer price
ASC Ambulatory Surgical Center
ASP Average sales price
AWP Average wholesale price
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance
Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113
BCA Blue Cross Association
BCBSA Blue Cross and Blue Shield Association
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000, Pub. L. 106-554
CAH Critical access hospital
CBSA Core-Based Statistical Area
CCR Cost-to-charge ratio
CMHC Community mental health center
CMS Centers for Medicare & Medicaid Services
CNS Clinical nurse specialist
CORF Comprehensive outpatient rehabilitation facility
CPT [Physicians'] Current Procedural Terminology, Fourth Edition, 2006,
copyrighted by the American Medical Association
CRNA Certified registered nurse anesthetist
CY Calendar year
DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies
DMERC Durable medical equipment regional carrier
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DSH Disproportionate share hospital
EACH Essential Access Community Hospital
E/M Evaluation and management
EPO Erythropoietin
ESRD End-stage renal disease
FACA Federal Advisory Committee Act, Pub. L. 92-463
FAR Federal Acquisition Regulations
FDA Food and Drug Administration
FFS Fee-for-service
FSS Federal Supply Schedule
FY Federal fiscal year
GAO Government Accountability Office
HCPCS Healthcare Common Procedure Coding System
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act of 1996, Pub.
L. 104-191
ICD-9-CM International Classification of Diseases, Ninth Edition,
Clinical Modification
IDE Investigational device exemption
IOL Intraocular lens
IPPS [Hospital] Inpatient prospective payment system
IVIG Intravenous immune globulin
MAC Medicare Administrative Contractors
MedPAC Medicare Payment Advisory Commission
MDH Medicare-dependent, small rural hospital
MMA Medicare Prescription Drug, Improvement, and Modernization Act of
2003, Pub. L. 108-173
MPFS Medicare Physician Fee Schedule
MSA Metropolitan Statistical Area
NCCI National Correct Coding Initiative
NCD National Coverage Determination
NTIOL New technology intraocular lens
OCE Outpatient Code Editor
OMB Office of Management and Budget
OPD [Hospital] Outpatient department
OPPS [Hospital] Outpatient prospective payment system
PHP Partial hospitalization program
PM Program memorandum
PPI Producer Price Index
PPS Prospective payment system
PPV Pneumococcal pneumonia (virus)
PRA Paperwork Reduction Act
QIO Quality Improvement Organization
RFA Regulatory Flexibility Act
RHQDAPU Reporting hospital quality data for annual payment update
RHHI Regional home health intermediary
SBA Small Business Administration
SCH Sole community hospital
SDP Single Drug Pricer
SI Status indicator
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248
TOPS Transitional outpatient payments
USPDI United States Pharmacopoeia Drug Information

[[Page 67962]]

In this document, we address three payment systems under the
Medicare program: the hospital outpatient prospective payment system
(OPPS), the hospital inpatient prospective payment system (IPPS), and
the ambulatory surgical center (ASC) payment system. The provisions
relating to the OPPS are included in sections I. through XIII., XV.,
XVI., XIX., XXIII., XXIV., XXV., and XXVI. of the preamble and in
Addenda A, B, C (Addendum C is available on the Internet only; see
section XXIII. of the preamble of this final rule with comment period),
D1, D2, and E of this final rule with comment period. The provisions
related to the IPPS are included in sections XXII. and XXVI.E. of the
preamble. The provisions related to ASCs are included in sections XVII.
and XXV., and XXVI.C. of the preamble and in Addenda AA of this final
rule with comment period.
In addition, in this document, we address our implementation of the
Medicare contracting reform provisions of the MMA that replace the
prior Medicare intermediary and carrier authorities formerly found in
sections 1816 and 1842 of the Act with Medicare administrative
contractor (MAC) authority under a new section 1874A of the Act. The
provisions relating to MACs are included in sections XVIII. and XXV.D.
of this preamble. To assist readers in referencing sections contained
in this document, we are providing the following table of contents:

Table of Contents

I. Background for the OPPS
A. Legislative and Regulatory Authority for the Hospital
Outpatient Prospective Payment System
B. Excluded OPPS Services and Hospitals
C. Prior Rulemaking
D. APC Advisory Panel
1. Authority of the APC Panel
2. Establishment of the APC Panel
3. APC Panel Meetings and Organizational Structure
E. Provisions of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003
1. Reduction in Threshold for Separate APCs for Drugs
2. Special Payment for Brachytherapy
F. Provisions of the Deficit Reduction Act (DRA) of 2005
1. 3-Year Transition of Hold Harmless Payments
2. Medicare Coverage of Ultrasound Screening for Abdominal
Aortic Aneurysms
3. Colorectal Cancer Screening
G. Summary of the Provisions of the CY 2007 OPPS Proposed Rule
1. Updates to the OPPS Payments for CY 2007
2. Ambulatory Payment Classification (APC) Group Policies
3. Payment Changes for Devices
4. Payment Changes for Drugs, Biologicals, and
Radiopharmaceuticals
5. Estimate of Transitional Pass-Through Spending in CY 2007 for
Drugs, Biologicals, and Devices
6. Brachytherapy Payment Changes
7. Coding and Payment for Drugs Administration
8. Hospital Coding and Payments for Visits
9. Payment for Blood and Blood Products
10. Payment for Observation Services
11. Procedures That Will Be Paid Only as Inpatient Services
12. Nonrecurring Policy Changes
13. Emergency Medical Screening in Critical Access Hospitals
(CAHs)
14. Payment Status and Comment Indicator Assignments
15. OPPS Policy and Payment Recommendations
16. Policies Affecting Ambulatory Surgical Centers (ASCs) for CY
2007
17. Revised ASC Payment System for Implementation January 1,
2008
18. Medicare Contracting Reform Mandate
19. Reporting Quality Data for Improved Quality and Costs Under
the OPPS
20. Promoting Effective Use of Health Information Technology
21. Health Care Information Transparency Initiative
22. Additional Quality Measures and Procedures for Hospital
Reporting of Quality Data for FY 2008 IPPS Annual Payment Update
23. Impact Analysis
H. Public Comments Received in Response to the CY 2007 OPPS and
Reporting Hospital Quality Data for FY 2008 IPPS Annual Payment
Update Program--HCAHPS Survey, SCIP, and Mortality Proposed Rules
I. Public Comments Received on the November 10, 2005 OPPS Final
Rule with Comment Period
II. Updates Affecting OPPS Payments for CY 2007
A. Recalibration of APC Relative Weights for CY 2007
1. Database Construction
a. Database Source and Methodology
b. Use of Single and Multiple Procedure Claims
c. Revised Overall Cost-to-Charge Ratio (CCR) Calculation
2. Calculation of Median Costs for CY 2007
3. Calculation of Scaled OPPS Payment Weights
4. Changes to Packaged Services
B. Payment for Partial Hospitalization
1. Background
2. PHP APC Update for CY 2007
3. Separate Threshold for Outlier Payments to CMHCs
C. Conversion Factor Update for CY 2007
D. Wage Index Changes for CY 2007
E. Statewide Average Default CCRs
F. OPPS Payments to Certain Rural Hospitals
1. Hold Harmless Transitional Payment Changes Made by Pub. L.
109-171 (DRA)
2. Adjustment for Rural SCHs Implemented in CY 2006 Related to
Pub. L. 108-173 (MMA)
G. CY 2007 Hospital Outpatient Outlier Payments
1. CY 2007 Proposal
2. CY 2007 Final Rule Outlier Calculation
H. Calculation of the OPPS National Unadjusted Medicare Payment
I. Beneficiary Copayments for CY 2007
1. Background
2. Copayment for CY 2007
3. Calculation of an Adjusted Copayment Amount for an APC Group
for CY 2007
III. OPPS Ambulatory Payment Classification (APC) Group Policies
A. Treatment of New HCPCS and CPT Codes
1. Treatment of New HCPCS Codes Included in the Second and Third
Quarterly OPPS Updates for CY 2006
2. Treatment of New CY 2007 Category I and III CPT Codes and
Level II HCPCS Codes
3. Treatment of New Mid-Year CPT Codes
B. Variations Within APCs
1. Background
2. Application of the 2 Times Rule
3. Exceptions to the 2 Times Rule
C. New Technology APCs
1. Introduction
2. Movement of Procedures from New Technology APCs to Clinical
APCs
a. Nonmyocardial Positron Emission Tomography (PET) Scans (APC
0308)
b. PET/Computed Tomography (CT) Scans (APC 0308)
c. Stereotactic Radiosurgery (SRS) Treatment Delivery Services
(APCs 0065, 0066, and 0067)
d. Magnetoencephalography (MEG) Services (APCs 0038 and 0209)
e. Other Services in New Technology APCs
(1) Breast Brachytherapy (APCs 0029 and 0030)
(2) Radiofrequency Ablation (APCs 0050 and 0423)
(3) Extracorporeal Shock Wave Treatment (APC 0050)
(4) Insertion of Venuous Access Device with Two Ports (APC 0623)
(5) Stereoscopic X-Ray Guidance (APC 0257)
(6) Whole Body Tumor Imaging (APC 0408)
(7) Gastroesophageal Reflux Test With pH Electrode (APC 0361)
(8) Home International Normalized Ratio (INR) Monitoring (APC
0604)
(9) Tositumomab Administration and Supply (APC 0442)
(10) Summary of Other New Technology Procedures Assigned to
Clinical APCs for CY 2007
D. APC-Specific Policies
1. Radiology Procedures
a. Radiology Procedures (APCs 0333, 0662, and Other Imaging
APCs)
b. Computerized Reconstruction (APC 0417)
c. Cardiac Computed Tomography and Computed Tomographic
Angiography (APCs 0282, 0376, 0377, and 0398)
d. Radiologic Evaluation of Central Venous Access Device (APC
0340)
2. Nuclear Medicine and Radiation Oncology Procedures
a. Myocardial Positron Emission Tomography (PET) Scans (APC
0307)
b. Complex Interstitial Radiation Source Application (APC 0651)
c. Proton Beam Therapy (APCs 0664 and 0667)

[[Page 67963]]

d. Urinary Bladder Residual Study (APC 0340)
e. Hyperthermia Treatment (APC 0314)
f. Unlisted Procedure for Clinical Brachytherpy (APC 0312)
3. Cardiac and Vascular Procedures
a. Electrophysiologic Recording/Mapping (APC 0087)
b. Endovenous Laser Ablation Procedures (APC 0092)
c. Repair/Repositioning of Defibrillator Leads (APC 0106)
d. Thrombectomy Procedures (APCs 0103 and 0653)
4. Gastrointestinal and Genitourinary Procedures
a. Insertion of Mesh or Other Prosthesis (APC 0195)
b. Percutaneous Renal Cryoablation (APC 0423)
c. Ultrasound Ablation of Uterine Fibroids with Magnetic
Resonance Guidance (MRgFUS) (APCs 0195 and 0202)
d. Laser Vaporization of Prostate (APC 0429)
e. Gastrointestinal Procedures with Stents (APC 0384)
f. Endoscopy with Thermal Energy to Sphincter (APC 0422)
5. Ocular Procedures
a. Keratoprosthesis (APC 0293)
b. Eye Procedures (APCs 0232, 0235, and 0241)
c. Amniotic Membrane for Ocular Surface Reconstruction
6. Other Procedures
a. Skin Replacement Surgery and Skin Substitutes (APC 0025)
b. Treatment of Fracture/Dislocation (APCs 0062, 0063, and 0064)
c. Complex Skin Repair (APC 0024)
d. Insertion of Posterior Spinous Process Distraction Device
7. Medical Services
a. Medication Therapy Management Services
b. Single Allergy Tests (APC 0381)
c. Hyperbaric Oxygen Therapy (APC 0659)
d. Guidance for Chemodenervation (APC 0215)
e. Pathology Services (APC 0344)
IV. OPPS Payment Changes for Devices
A. Treatment of Device-Dependent APCs
1. Background
2. CY 2007 Payment Policy
3. Devices Billed in the Absence of an Appropriate Procedure
Code
4. Payment Policy When Devices are Replaced Without Cost or
Where Credit for a Replaced Device is Furnished to the Hospital
B. Pass-Through Payments for Devices
1. Expiration of Transitional Pass-Through Payments for Certain
Devices
a. Background
b. Policy for CY 2007
2. Provisions for Reducing Transitional Pass-Through Payments to
Offset Costs Packaged into APC Groups
a. Background
b. Policies for CY 2007
V. OPPS Payment Changes for Drugs, Biologicals, and
Radiopharmaceuticals
A. Transitional Pass-Through Payment for Additional Costs of
Drugs and Biologicals
1. Background
2. Drugs and Biologicals With Expiring Pass-Through Status in CY
2006
3. Drugs and Biologicals With Pass-Through Status in CY 2007
B. Payment for Drugs, Biologicals, and Radiopharmaceuticals
Without Pass-Through Status
1. Background
2. Criteria for Packaging Payment for Drugs, Biologicals, and
Radiopharmaceuticals
3. Payment for Drugs, Biologicals, and Radiopharmaceuticals
Without Pass-Through Status That Are Not Packaged
a. Payment for Specified Covered Outpatient Drugs
(1) Background
(2) Payment Policy for CY 2007
(3) CY 2007 Payment Policy for Radiopharmaceuticals
(a) Background and Proposed CY 2007 Radiopharmaceutical Payment
Policy
(b) CY 2007 Final Radiopharmaceutical Payment Policy
b. CY 2007 Payment for Nonpass-Through Drugs, Biologicals,
Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital
Claims Data
(1) Background
(2) CY 2007 Proposed and Final Payment Policy for
Radiopharmaceuticals With HCPCS Codes, But Without Hospital Claims
Data
(3) CY 2007 Proposed and Final Payment Policy for Drugs and
Biologicals With HCPCS Codes, But Without OPPS Hospital Claims Data
(4) CY 2007 Proposed and Final Payment Policy for Drugs,
Biologicals, and Radiopharmaceuticals With HCPCS Codes, But Without
OPPS Hospital Claims Data and Without ASP-Related Data
VI. Estimate of OPPS Transitional Pass-Through Spending in CY 2007
for Drugs, Biologicals, Radiopharmaceuticals, and Devices
A. Total Allowed Pass-Through Spending
B. Estimate of Pass-Through Spending for CY 2007
VII. Brachytherapy Source Payment Changes
A. Background
B. Government Accountability Office's Final Report on Devices of
Brachytherapy
C. Payments for Brachytherapy Sources in CY 2007
VIII. Changes to OPPS Drug Administration Coding and Payment for CY
2007
A. Background
B. CY 2007 Drug Administration Coding Changes
C. CY 2007 Drug Administration Payment Changes
IX. Hospital Coding and Payment for Visits
A. Background
1. Guidelines Based on the Number or Type of Staff Interventions
2. Guidelines Based on the Time Staff Spent with the Patient
3. Guidelines Based on a Point System Where a Certain Number of
Points Are Assigned to Each Staff Intervention Based on the Time,
Intensity, and Staff Type Required for the Intervention
4. Guidelines Based on Patient Complexity
B. CY 2007 Proposed and Final Coding Policies
1. Clinic Visits
2. Emergency Department Visits
3. Critical Care Services
C. CY 2007 Payment Policy
D. CY 2007 Treatment of Guidelines
1. Background
2. Outstanding Concerns with the AHA/AHIMA Guidelines
a. Three Versus Five Levels of Codes
b. Lack of Clarity for Some Interventions
c. Treatment of Separately Payable Services
d. Some Interventions Appear Overvalued
e. Concerns of Specialty Clinics
f. American with Disabilities Act
g. Differentiation Between New and Established Patients and
Between Standard Visits and Consultations
h. Distinction Between Type A and Type B Emergency Departments
X. Payment for Blood and Blood Products
A. Background
B. Policy Changes for CY 2007
XI. OPPS Payment for Observation Services
XII. Procedures That Will be Paid Only as Inpatient Procedures
A. Background
B. Changes to the Inpatient List
C. CY 2007 Payment for Ancillary Outpatient Services When
Patient Expires (-CA Modifier)
1. Background
2. Policy for CY 2007
XIII. Nonrecurring Policy Changes
A. Removal of Comprehensive Outpatient Rehabilitation Facility
(CORF) Services from the List of Services Paid under the OPPS
B. Addition of Ultrasound Screening for Abdominal Aortic
Aneurysms (AAAs) (Section 5112 of Pub. L. 109-171 (DRA))
1. Background
2. Assignment of New HCPCS Code and Payment for Ultrasound
Screening for Abdominal Aortic Aneurysm (AAA)
XIV. Emergency Medical Screening in Critical Access Hospitals (CAHs)
A. Background
B. Proposed Policy Change
C. Public Comments Received on the Proposal
D. Final Policy
XV. OPPS Payment Status and Comment Indicators
A. CY 2007 Status Indicator Definitions
1. Payment Status Indicators to Designate Services That Are Paid
under the OPPS
2. Payment Status Indicators to Designate Services That Are Paid
under a Payment System Other Than the OPPS
3. Payment Status Indicators to Designate Services That Are Not
Recognized under the OPPS But That May Be Recognized by Other
Institutional Providers
4. Payment Status Indicators to Designate Services That Are Not
Payable by Medicare
B. CY 2007 Comment Indicator Definitions
XVI. OPPS Policy and Payment Recommendations
A. MedPAC Recommendations
B. APC Panel Recommendations
C. GAO Recommendations
XVII. Policies Affecting Ambulatory Surgical Centers (ASCs) for CY
2007

[[Page 67964]]

A. ASC Background
1. Legislative History
2. Current Payment Method
3. Published Changes to the ASC List
B. ASC List Update Effective for Services Furnished On or After
January 1, 2007
1. Criteria for Additions To or Deletions From the ASC List
2. Rationale for Payment Assignment
3. Response to Comments to the May 4, 2005 Interim Final Rule
for the ASC Update
4. Procedures Proposed for Additions to the ASC List
5. Specific Requests for Payment Group Changes
6. Requests for Additions to the ASC List from Comments to the
August 23, 2006 Proposed Rule
a. Requests Accepted for Additions to the ASC List for CY 2007
b. Requests Not Accepted for Additions to the ASC List for CY
2007
7. Requests for Payment Increases for Procedures on the Current
ASC List
8. Other Comments on the May 4, 2005 Interim Final Rule
C. Regulatory Changes for CY 2007
D. Implementation of Section 1834(d) of the Act
E. Implementation of Section 5103 of Pub. L. 109-171 (DRA)
F. Modification of the Current ASC Process for Adjusting Payment
for New Technology Intraocular Lenses (NTIOLs)
1. Background
a. Current ASC Payment for Insertion of IOLs
b. Classes of NTIOLs Approved for Payment Adjustment
2. Proposed and Final Changes
a. Process for Recognizing IOLs as Belonging to an Active IOL
Class
b. Public Notice and Comment Regarding Adjustments of NTIOL
Payment Amounts
c. Factors CMS Considers in Determining Whether an Adjustment of
Payment for Insertion of a New Class of NTIOL is Appropriate
d. Revision of the Content of a Request to Review
e. Notice of CMS Determination
f. Payment Adjustment
G. Announcement of CY 2007 Deadline for Submitting Requests for
CMS Review of Appropriateness of ASC Payment for Insertion Following
Cataract Surgery of an NTIOL
XVIII. Medicare Contracting Reform Mandate
A. Background
B. CMS's Vision for Medicare Fee-for-Service and Medicare
Administrative Contractors (MAC)
C. Provider Nomination and the Former Medicare Acquisition
Authorities
D. Summary of Changes Made to Section 1816 of the Act
E. Provisions of the Proposed and Final Regulations
1. Definitions
2. Assignments of Providers and Suppliers to MACs
3. Other Technical and Conforming Changes
a. Definition of ``Intermediary''
b. Intermediary Functions
c. Options Available to Providers and CMS
d. Nomination for Intermediary
e. Notification of Actions on Nominations, Changes to Another
Intermediary or to Direct Payment, and Requirements for Approval of
an Agreement
f. Considerations Relating to the Effective and Efficient
Administration of the Medicare Program
g. Assignment and Reassignment of Providers by CMS
h. Designation of National or Regional Intermediaries and
Designation of Regional and Alternative Designated Regional
Intermediaries for Home Health Agencies and Hospices
i. Awarding of Experimental Contracts
XIX. Reporting Quality Data for Improved Quality and Costs under the
OPPS
XX. Promoting Effective Use of Health Information Technology
XXI. Health Care Information Transparency Initiative
XXII. Additional Quality Measures and Procedures for Hospital
Reporting of Quality Data for the FY 2008 IPPS Annual Payment Update
A. Background
B. Additional Quality Measures for FY 2008
1. Introduction
2. HCAHPS Survey and the Hospital Quality Initiative
3. Surgical Care Improvement Project (SCIP) Quality Measures
4. Mortality Outcome Measures
C. General Procedures and Participation Requirements for the FY
2008 IPPS RHQDAPU Program
D. HCAHPS Procedures and Participation Requirements for the FY
2008 IPPS RHQDAPU Program
1. Introduction
2. HCAHPS Hospital Pledge and Beginning Date for Data Collection
3. HCAHPS Dry Run
4. HCAHPS Data Collection Requirements
5. HCAHPS Registration Requirements
6. Additional Steps for HCAHPS Participation
7. HCAHPS Survey Completion Requirements
8. HCAHPS Public Reporting
9. Reporting HCAHPS Results for Multi-Campus Hospitals
E. SCIP & Mortality Measure Requirements for the FY 2008 RHQDAPU
Program
F. Conclusion
XXIII. Files Available to the Public Via the Internet
XXIV. Collection of Information Requirements
XXV. Response to Comments
XXVI. Regulatory Impact Analysis
A. Overall Impact
1. Executive Order 12866
2. Regulatory Flexibility Act (RFA)
3. Small Rural Hospitals
4. Unfunded Mandates
5. Federalism
B. Effects of OPPS Changes in This Final Rule with Comment
Period
1. Alternatives Considered
a. Alternatives Considered for Coding and Payment Policy for
Visits
b. Alternatives Considered for Brachytherapy Source Payments
c. Alternatives Considered for Payment of Radiopharmaceuticals
2. Limitation of Our Analysis
3. Estimated Impact of This Final Rule with Comment Period on
Hospitals
4. Estimated Effect of This Final Rule with Comment Period on
Beneficiaries
5. Conclusion
6. Accounting Statement
C. Effects of Changes to the ASC Payment System for CY 2007
1. Alternatives Considered
2. Limitations on Our Analysis
3. Estimated Effects of This Final Rule with Comment Period on
ASCs
4. Estimated Effects of This Final Rule with Comment Period on
Beneficiaries
5. Conclusion
6. Accounting Statement
D. Effects of the Medicare Contracting Reform Mandate
E. Effects of Additional Quality Measures and Procedures for
Hospital Reporting of Quality Data for IPPS FY 2008
1. Alternatives Considered
2. Estimated Effects of This Final Rule with Comment Period
a. Effects on Hospitals
b. Effects on Other Providers
c. Effects on the Medicare and Medicaid Program
F. Executive Order 12866

Regulation Text

Addenda

Addendum A--OPPS List of Ambulatory Payment Classification (APCs)
with Status Indicators (SI), Relative Weights, Payment Rates, and
Copayment Amounts--CY 2007
Addendum AA--List of Medicare Approved ASC Procedures for CY 2007
With Additions and Payment Rates; Including Rates That Result From
Implementation of Section 5103 of the DRA
Addendum B--OPPS Payment Status By HCPCS Code and Related
Information CY 2007
Addendum D1--Payment Status Indicators
Addendum D2--Comment Indicators
Addendum E--CPT Codes That Are Paid Only As Inpatient Procedures
Addendum L--Out-Migration Adjustment

I. Background for the OPPS

A. Legislative and Regulatory Authority for the Hospital Outpatient
Prospective Payment System

When the Medicare statute was originally enacted, Medicare payment
for hospital outpatient services was based on hospital-specific costs.
In an effort to ensure that Medicare and its beneficiaries pay
appropriately for services and to encourage more efficient delivery of
care, the Congress mandated replacement of the reasonable cost-based
payment methodology with a prospective payment system (PPS). The
Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33), added section
1833(t)

[[Page 67965]]

to the Social Security Act (the Act) authorizing implementation of a
PPS for hospital outpatient services (OPPS).
The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act
(BBRA) of 1999 (Pub. L. 106-113), made major changes in the hospital
OPPS. The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act (BIPA) of 2000 (Pub. L. 106-554), made further changes
in the OPPS. Section 1833(t) of the Act was also amended by the
Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of
2003 (Pub. L. 108-173). The Deficit Reduction Act (DRA) of 2005 (Pub.
L. 109-171), enacted on February 8, 2006, made additional changes in
the OPPS. A discussion of the provisions contained in Pub. L. 109-171
that are specific to the calendar year (CY) 2007 OPPS is included in
section II.F. of this preamble.
The OPPS was first implemented for services furnished on or after
August 1, 2000. Implementing regulations for the OPPS are located at 42
CFR Part 419.
Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the ambulatory payment
classification (APC) group to which the service is assigned. We use
Healthcare Common Procedure Coding System (HCPCS) codes (which include
certain Current Procedural Terminology (CPT) codes) and descriptors to
identify and group the services within each APC group. The OPPS
includes payment for most hospital outpatient services, except those
identified in section I.B. of this preamble. Section 1833(t)(1)(B)(ii)
of the Act provides for Medicare payment under the OPPS for hospital
outpatient services designated by the Secretary (which includes partial
hospitalization services furnished by community mental health centers
(CMHCs)) and hospital outpatient services that are furnished to
inpatients who have exhausted their Part A benefits or who are
otherwise not in a covered Part A stay. Section 611 of Pub. L. 108-173
added provisions for Medicare coverage of an initial preventive
physical examination, subject to the applicable deductible and
coinsurance, as an outpatient department service, payable under the
OPPS.
The OPPS rate is an unadjusted national payment amount that
includes the Medicare payment and the beneficiary copayment. This rate
is divided into a labor-related amount and a nonlabor-related amount.
The labor-related amount is adjusted for area wage differences using
the inpatient hospital wage index value for the locality in which the
hospital or CMHC is located.
All services and items within an APC group are comparable
clinically and with respect to resource use (section 1833(t)(2)(B) of
the Act). In accordance with section 1833(t)(2) of the Act, subject to
certain exceptions, services and items within an APC group cannot be
considered comparable with respect to the use of resources if the
highest median (or mean cost, if elected by the Secretary) for an item
or service in the APC group is more than 2 times greater than the
lowest median cost for an item or service within the same APC group
(referred to as the ``2 times rule''). In implementing this provision,
we use the median cost of the item or service assigned to an APC group.
Special payments under the OPPS may be made for new technology
items and services in one of two ways. Section 1833(t)(6) of the Act
provides for temporary additional payments which we refer to as
``transitional pass-through payments'' for at least 2 but not more than
3 years for certain drugs, biological agents, brachytherapy devices
used for the treatment of cancer, and categories of other medical
devices. For new technology services that are not eligible for
transitional pass-through payments and for which we lack sufficient
data to appropriately assign them to a clinical APC group, we have
established special APC groups based on costs, which we refer to as new
technology APCs. These new technology APCs are designated by cost bands
which allow us to provide appropriate and consistent payment for
designated new procedures that are not yet reflected in our claims
data. Similar to pass-through payments, an assignment to a new
technology APC is temporary; that is, we retain a service within a new
technology APC until we acquire sufficient data to assign it to a
clinically appropriate APC group.

B. Excluded OPPS Services and Hospitals

Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to
designate the hospital outpatient services that are paid under the
OPPS. While most hospital outpatient services are payable under the
OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for
ambulance, physical and occupational therapy, and speech-language
pathology services, for which payment is made under a fee schedule.
Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the
Act to exclude OPPS payment for screening and diagnostic mammography
services. The Secretary exercised the authority granted under the
statute to exclude from the OPPS those services that are paid under fee
schedules or other payment systems. Such excluded services include, for
example, the professional services of physicians and nonphysician
practitioners paid under the Medicare Physician Fee Schedule (MPFS);
laboratory services paid under the clinical diagnostic laboratory fee
schedule; services for beneficiaries with end-stage renal disease
(ESRD) that are paid under the ESRD composite rate; and, services and
procedures that require an inpatient stay that are paid under the
hospital inpatient prospective payment system (IPPS). We set forth the
services that are excluded from payment under the OPPS in Sec. 419.22
of the regulations.
Under Sec. 419.20(b) of the regulations, we specify the types of
hospitals and entities that are excluded from payment under the OPPS.
These excluded entities include Maryland hospitals, but only for
services that are paid under a cost containment waiver in accordance
with section 1814(b)(3) of the Act; critical access hospitals (CAHs);
hospitals located outside of the 50 States, the District of Columbia,
and Puerto Rico; and Indian Health Service hospitals.

C. Prior Rulemaking

On April 7, 2000, we published in the Federal Register a final rule
with comment period (65 FR 18434) to implement a prospective payment
system for hospital outpatient services. The hospital OPPS was first
implemented for services furnished on or after August 1, 2000. Section
1833(t)(9) of the Act requires the Secretary to review certain
components of the OPPS not less often than annually and to revise the
groups, relative payment weights, and other adjustments to take into
account changes in medical practice, changes in technology, and the
addition of new services, new cost data, and other relevant information
and factors.
Since initially implementing the OPPS, we have published final
rules in the Federal Register annually to implement statutory
requirements and changes arising from our experience with this system.
We last published such a document on November 10, 2005 (70 FR 68516).
In that final rule with comment period, we revised the OPPS to update
the payment weights and conversion factor for services payable under
the CY 2006 OPPS on the basis of claims data from January 1, 2004,
through December 31, 2004, and to implement certain provisions of Pub.
L. 108-173. In addition, we responded to public comments received on
the provisions of November 15, 2004 final rule with comment period
pertaining to

[[Page 67966]]

the APC assignment of HCPCS codes identified in Addendum B of that rule
with the new interim (NI) comment indicators; and public comments
received on the July 25, 2005 OPPS proposed rule for CY 2006 (70 FR
42674).
We published a correction of the November 10, 2005 final rule with
comment period on December 23, 2005 (70 FR 76176). This correction
document corrected a number of technical errors that appeared in the
November 10, 2005 final rule with comment period.

D. APC Advisory Panel

1. Authority of the APC Panel
Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of
the BBRA, requires that we consult with an outside panel of experts to
review the clinical integrity of the payment groups and their weights
under the OPPS. The Act further specifies that the panel will act in an
advisory capacity. The Advisory Panel on Ambulatory Payment
Classification (APC) Groups (the APC Panel), discussed under section
I.D.2. of this preamble, fulfills these requirements. The APC Panel is
not restricted to using data compiled by CMS and may use data collected
or developed by organizations outside the Department in conducting its
review.
2. Establishment of the APC Panel
On November 21, 2000, the Secretary signed the initial charter
establishing the APC Panel. This expert panel, which may be composed of
up to 15 representatives of providers subject to the OPPS (currently
employed full-time, not as consultants, in their respective areas of
expertise), reviews and advises CMS about the clinical integrity of the
APC groups and their weights. For purposes of this Panel, consultants
or independent contractors are not considered to be full-time
employees. The APC Panel is technical in nature and is governed by the
provisions of the Federal Advisory Committee Act (FACA). Since its
initial chartering, the Secretary has twice renewed the APC Panel's
charter: on November 1, 2002, and on November 1, 2004. The current
charter indicates, among other requirements, that the APC Panel
continues to be technical in nature; is governed by the provisions of
the FACA; may convene up to three meetings per year; has a Designated
Federal Officer (DFO); and is chaired by a Federal official who also
serves as a CMS medical officer.
The current APC Panel membership and other information pertaining
to the Panel, including its charter, Federal Register notices, meeting
dates, agenda topics, and meeting reports can be viewed on the CMS Web
site at http://www.cms.hhs.gov/FACA/ 05AdvisoryPanelonAmbulatory

PaymentClassification Groups.as#TopOFPage.
3. APC Panel Meetings and Organizational Structure
The APC Panel first met on February 27, February 28, and March 1,
2001. Since that initial meeting, the APC Panel has held 10 subsequent
meetings, with the last meeting taking place on August 23 and 24, 2006.
(The APC Panel did not meet on August 25, 2006, as announced in the
meeting notice published on June 23, 2006 (71 FR 36118).) Prior to each
meeting, we publish a notice in the Federal Register to announce the
meeting and, when necessary, to solicit and announce nominations for
APC Panel membership.
The APC Panel has established an operational structure that, in
part, includes the use of three subcommittees to facilitate its
required APC review process. The three current subcommittees are the
Data Subcommittee, the Observation Subcommittee, and the Packaging
Subcommittee. The Data Subcommittee is responsible for studying the
data issues confronting the APC Panel and for recommending options for
resolving them. The Observation Subcommittee reviews and makes
recommendations to the APC Panel on all issues pertaining to
observation services paid under the OPPS, such as coding and
operational issues. The Packaging Subcommittee studies and makes
recommendations on issues pertaining to services that are not
separately payable under the OPPS, but are bundled or packaged APC
payments. Each of these subcommittees was established by a majority
vote of the APC Panel during a scheduled APC Panel meeting and their
continuation as subcommittees was approved at the August 2006 APC Panel
meeting. All subcommittee recommendations are discussed and voted upon
by the full APC Panel.
Discussions of the recommendations resulting from the APC Panel's
March 2006 and August 2006 meetings are included in the sections of
this preamble that are specific to each recommendation. For discussions
of earlier APC Panel meetings and recommendations, we reference
previous hospital OPPS final rules or the Web site mentioned earlier in
this section.

E. Provisions of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003

The Medicare Prescription Drug, Improvement, and Modernization Act
(MMA) of 2003, Pub. L. 108-173, made changes to the Act relating to the
Medicare OPPS. In the January 6, 2004 interim final rule with comment
period and the November 15, 2004 final rule with comment period, we
implemented provisions of Pub. L. 108-173 relating to the OPPS that
were effective for services provided in CY 2004 and CY 2005,
respectively. In the November 10, 2005 final rule with comment period,
we implemented provisions of Pub. L. 108-173 relating to the OPPS that
went into effect for services provided in CY 2006 (70 FR 68521). We
note below those provision of Pub. L. 108-173 that will expire at the
end of CY 2006.
1. Reduction in Threshold for Separate APCs for Drugs
Section 621(a)(2) of Pub. L. 108-173 amended section 1833(t)(16) of
the Act to set a threshold of $50 per administration for the
establishment of separate APCs for drugs and biologicals furnished from
January 1, 2005, through December 31, 2006. Because this statutory
provision will no longer be in effect for CY 2007, we have included in
section V. of this preamble a discussion of the methodology that we
will use to determine a threshold for establishing separate APCs for
drugs and biologicals for CY 2007.
2. Special Payment for Brachytherapy
Section 621(b)(1) of Pub. L. 108-173 amended section 1833(t)(16) of
the Act to require that payment for brachytherapy devices consisting of
a seed or seeds (or radioactive source) furnished on or after January
1, 2004, and before January 1, 2007, be paid based on the hospital's
charge for each device furnished, adjusted to cost. Because this
statutory provision will no longer be in effect for CY 2007, we discuss
our methodology for payment for brachytherapy devices for CY 2007 in
section VII.B. of this preamble.

F. Provisions of the Deficit Reduction Act (DRA) of 2005

The Deficit Reduction Act (DRA) of 2005, Pub. L. 109-171, enacted
on February 8, 2006, included three provisions affecting the OPPS, as
discussed below.
1. 3-Year Transition of Hold Harmless Payments
Section 5105 of Pub. L. 109-171 provides a 3-year transition of
hold harmless OPPS payments for hospitals

[[Page 67967]]

located in a rural area with not more than 100 beds that are not
defined as sole community hospitals (SCHs). This provision provides an
increased payment for such hospitals for covered OPD services furnished
on or after January 1, 2006, and before January 1, 2009, if the OPPS
payment they receive is less than the pre-BBA payment amount that they
would have received for the same covered OPD services. This provision
specifies that, in such cases, the amount of payment to the specified
hospitals shall be increased by the applicable percentage of such
difference. Section 5105 specifies the applicable percentage as 95
percent for CY 2006, 90 percent for CY 2007, and 85 percent for CY
2008. This provision is discussed in section II.F.1. of the preamble.
2. Medicare Coverage of Ultrasound Screening for Abdominal Aortic
Aneurysms (AAAs)
Section 5112 of Pub. L. 109-171 amended section 1861 of the Act to
include coverage of ultrasound screening for abdominal aortic aneurysms
for certain individuals on or after January 1, 2007. The provision will
apply to individuals (a) who receive a referral for such an ultrasound
screening as a result of an initial preventive physical examination;
(b) who have not been previously furnished with an ultrasound screening
under Medicare; and (c) who have a family history of abdominal aortic
aneurysm or manifest risk factors included in a beneficiary category
recommended for screening (as determined by the United States
Preventive Services Task Force). Ultrasound screening for abdominal
aortic aneurysm will be included in the initial preventive physical
examination. Section 5112 also added ultrasound screening for abdominal
aortic aneurysm to the list of services for which the beneficiary
deductible does not apply. These amendments apply to services furnished
on or after January 1, 2007. See section XIII.B. of this preamble for a
detailed discussion of this provision.
3. Colorectal Cancer Screening
Section 5113 of Pub. L. 109-171 amended section 1833(b) of the Act
to add colorectal cancer screening to the list of services for which
the beneficiary deductible does not apply. This provision applies to
services furnished on or after January 1, 2007. See the Medicare
Physician Fee Schedule (MPFS) CY 2007 final rule for a detailed
discussion of this provision.

G. Summary of the Provisions of the CY 2007 OPPS Proposed Rule

On August 23, 2006, we published a proposed rule in the Federal
Register (71 FR 49506) that set forth proposed changes to the Medicare
hospital OPPS for CY 2007 to implement statutory requirements and
changes arising from our continuing experience with the system and to
implement certain provisions of Pub. L. 109-171 specified in sections
II.F.1. and XIII.B. of this preamble. We also proposed to revise the
standard for critical access hospital personnel that are allowed to
perform emergency medical screenings. In addition, we proposed changes
to the Medicare ASC payment system for CY 2007 and CY 2008 and to the
way we process fee-for-service (FFS) claims under Medicare Part A and
Part B.
Finally, we set forth a proposed rule seeking comments on the
RHQDAPU program under the Medicare hospital IPPS for FY 2008. These
changes will be effective for payments beginning with FY 2008. The
following is a summary of the major changes included in the CY 2007
OPPS proposed rule:
1. Updates to the OPPS' Payments for CY 2007
In the proposed rule, we set forth--
The methodology used to recalibrate the proposed APC
relative payment weights and the proposed median costs for CY 2007.
The proposed payment for partial hospitalization,
including the proposed separate threshold for outlier payments for
CMHCs.
The proposed update to the conversion factor used to
determine payment rates under the OPPS for CY 2007.
The proposed retention of our current policy to apply the
IPPS wage indices to wage adjust the APC median costs in determining
the OPPS payment rate and the copayment standardized amount for CY
2007.
The proposed update of statewide average default cost-to-
charge ratios.
Proposed changes relating to the hold harmless payment
provision and Sec. 419.70(d).
Proposed changes relating to payment for rural SCHs,
including Essential Access Community Hospitals (EACHs) for CY 2007.
The proposed retention of our current policy for
calculating hospital outpatient outlier payments for CY 2007.
Calculation of the proposed national unadjusted Medicare
OPPS payment.
The proposed beneficiary copayment for OPPS services for
CY 2007.
2. Ambulatory Payment Classification (APC) Group Policies
In the proposed rule, we discussed establishing a number of new
APCs and making changes to the assignment of HCPCS codes under a number
of existing APCs based on our analyses of Medicare claims data and
recommendations of the APC Panel. We also discussed the application of
the 2 times rule and proposed exceptions to it; proposed changes for
specific APCs; proposed movement of procedures from the New Technology
APCs; and the proposed additions of new procedure codes to the APC
groups.
3. Payment Changes for Devices
In the proposed rule, we discussed proposed changes to the device-
dependent APCs and to payment for pass-through devices. We also
discussed the proposed payment policy for devices that are replaced
without cost or credit to the hospital for a replaced device and the
proposed related regulation under Sec. 419.45.
4. Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals
In the proposed rule, we discussed proposed payment changes for
drugs, biologicals, and radiopharmaceuticals.
5. Estimate of Transitional Pass-Through Spending in CY 2007 for Drugs,
Biologicals, and Devices
In the proposed rule, we discussed the proposed methodology for
estimating total pass-through spending and whether there should be a
pro rata reduction for transitional pass-through drugs, biologicals,
radiopharmaceuticals, and categories of devices for CY 2007.
6. Brachytherapy Payment Changes
In the proposed rule, we included a discussion of our proposal
concerning coding and payment for the sources of brachytherapy.
7. Coding and Payment for Drugs Administration
In the proposed rule, we discussed our proposed coding and payment
changes for drug administration services.
8. Hospital Coding and Payments for Visits
In the proposed rule, we discussed our analyses of various
guidelines for coding hospital visits and the proposed HCPCS codes and
payment policy for those visits.

[[Page 67968]]

9. Payment for Blood and Blood Products
In the proposed rule, we discussed our proposed criteria and coding
changes for the blood and blood products.
10. Payment for Observation Services
In the proposed rule, we discussed our proposed continuation of
applying the criteria for separate payment for observation services and
the coding methodology for observation services implemented in CY 2006.
11. Procedures That Will Be Paid Only as Inpatient Services
In the proposed rule, we discussed the procedures that we proposed
to remove from the inpatient list and assign to APCs.
12. Nonrecurring Policy Changes
In the proposed rule, we discussed a proposed technical change to
Sec. 419.21(d) of the regulations related to Comprehensive Outpatient
Rehabilitation Facility (CORF) services and proposed coding and payment
for ultrasound screening for abdominal aortic aneurysms (AAAs) as a new
service paid under the OPPS in CY 2007.
13. Emergency Medical Screening in Critical Access Hospitals (CAHs)
In the proposed rule, we discussed our proposal to revise Sec.
485.618(d) of the regulations pertaining to the standards for critical
access hospital personnel available to perform emergency medical
screening services.
14. Payment Status and Comment Indicator Assignments
In the proposed rule, we discussed our list of status indicators
assigned to APCs and presented our comment indicators that we proposed
to use in this final rule with comment period.
15. OPPS Policy and Payment Recommendations
In the proposed rule, we addressed recommendations made by MedPAC,
the APC Panel, and the GAO regarding the OPPS for CY 2007.
16. Policies Affecting Ambulatory Surgical Centers (ASCs) for CY 2007
In the proposed rule, we discussed changes to the ASC list of
covered procedures for CY 2007; implementation of section 5103 of Pub.
L. 108-173; our proposal for modifying the current ASC process for
adjusting payment for new technology intraocular lenses; and related
regulatory changes.
17. Revised ASC Payment System for Implementation January 1, 2008
In the proposed rule, we set forth our proposal to revise the
current ASC payment system in accordance with Pub. L. 108-173,
effective January 1, 2008. We note that we are not finalizing this
proposal in this final rule with comment period. Rather, we will issue
a separate document in the Federal Register that will address public
comments received and finalize the ASC payment system effective January
1, 2008.
18. Medicare Contracting Reform Mandate
In the proposed rule, we set forth changes to the way we process
FFS claims under Medicare Part A and Part B.
19. Reporting Quality Data for Improved Quality and Costs Under the
OPPS
In the proposed rule, we proposed to adapt the quality improvement
mechanism provided by the IPPS RHQDAPU program for use under the OPPS.
20. Promoting Effective Use of Health Information Technology
In the proposed rule, we discussed our plans to promote and adopt
effective use of health information technology to improve the quality
of care for Medicare beneficiaries.
21. Health Care Information Transparency Initiative
In the proposed rule, we announced our plans to launch a major
health care transparency initiative in 2006.
22. Additional Quality Measures and Procedures for Hospital Reporting
of Quality Data for FY 2008 IPPS Annual Payment Update
In the proposed rule, we discussed our proposal to expand the IPPS
Reporting Hospital Quality Data for Annual Payment program measurement
set for FY 2008 beyond the measures adopted for the FY 2007 IPPS
update.
23. Impact Analysis
In the proposed rule, we set forth an analysis of the impact that
the proposed changes will have on affected entities and beneficiaries.

H. Public Comments Received in Response to the CY 2007 OPPS Proposal
Rule and on the Reporting Hospital Quality Data for FY 2008 IPPS Annual
Payment Update Program--HCAHPS Survey, SCIP, and Mortality Proposed
Rule

We received approximately 1,100 timely items of correspondence
containing multiple comments on the CY 2007 OPPS proposed rule. We note
that we received some comments that were outside of the scope of the CY
2007 OPPS proposed rule. These comments are not addressed in the CY
2007 final rule. We also received approximately 20 timely items of
correspondence on Reporting Hospital Quality Data for FY 2008 Inpatient
Prospective Payment System Annual Payment Update Program--HCAHPS
Survey, SCIP, and Mortality proposed rule. Summaries of the public
comments and our responses to those comments are set forth under the
appropriate headings.

I. Public Comments Received on the November 10, 2005 OPPS Final Rule
with Comment Period

We received approximately 41 timely items of correspondence on the
November 10, 2005 OPPS final rule with comment period, some of which
contained multiple comments on the APC assignment of HCPCS codes
identified with the NI comment indicator in Addendum B of that final
rule with comment period. Summaries of those public comments and our
responses to those comments are set forth in the various sections under
the appropriate headings.

II. Updates Affecting OPPS Payments for CY 2007

A. Recalibration of APC Relative Weights for CY 2007

1. Database Construction
a. Database Source and Methodology
Section 1833(t)(9)(A) of the Act requires that the Secretary review
and revise the relative payment weights for APCs at least annually. In
the April 7, 2000 OPPS final rule with comment period (65 FR 18482), we
explained in detail how we calculated the relative payment weights that
were implemented on August 1, 2000, for each APC group. Except for some
reweighting due to a small number of APC changes, these relative
payment weights continued to be in effect for CY 2001. This policy is
discussed in the November 13, 2000 interim final rule (65 FR 67824
through 67827).

[[Page 67969]]

In the CY 2007 OPPS proposed rule, we proposed to use the same
basic methodology that we described in the April 7, 2000 final rule
with comment period to recalibrate the APC relative payment weights for
services furnished on or after January 1, 2007, and before January 1,
2008. That is, we would recalibrate the relative payment weights for
each APC based on claims and cost report data for outpatient services.
We proposed to use the most recent available data to construct the
database for calculating APC group weights. For the purpose of
recalibrating the APC relative payment weights for CY 2007, we used
approximately 142.5 million final action claims for hospital OPD
services furnished on or after January 1, 2005, and before January 1,
2006. Of the 142.5 million final action claims for services provided in
hospital outpatient settings, 110.2 million claims were of the type of
bill potentially appropriate for use in setting rates for OPPS services
(but did not necessarily contain services payable under the OPPS). Of
the 110.2 million claims, approximately 51.7 million were not for
services paid under the OPPS or were excluded as not appropriate for
use (for example, erroneous cost-to-charge ratios or no HCPCS codes
reported on the claim). We were able to use 54.1 million whole claims
of the remaining 58.5 million claims to set the OPPS APC relative
weights for CY 2007 OPPS. From the 54.1 million whole claims, we
created 98.5 million single records, of which 68.5 million were
``pseudo'' single claims (created from multiple procedure claims using
the process we discuss in this section).
As proposed, the final APC relative weights and payments for CY
2007 in Addenda A and B to this final rule with comment period were
calculated using claims from this period that had been processed before
June 30, 2006, and continue to be based on the median hospital costs
for services in the APC groups. We selected claims for services paid
under the OPPS and matched these claims to the most recent cost report
filed by the individual hospitals represented in our claims data.
Comment: Several commenters supported the use of the most recent
claims and cost report data to calculate the median costs for use in
the CY 2007 OPPS.
Response: We appreciate the commenters' support and have used the
claims for services paid under the CY 2005 OPPS as processed through
the common working file as of June 30, 2006, in the calculation of the
median costs on which the CY 2007 OPPS rates are based. In addition, we
have used the most recently submitted cost report data as reported to
the HCRIS system as of June 30, 2006, to calculate the cost-to-charge
ratios (CCRs) used to reduce the billed charges to costs for purposes
of calculating the median costs on which the CY 2007 OPPS rates are
based.
After carefully considering all comments received, we are
finalizing our data source and methodology for the recalibration of CY
2007 APC relative payment weights as proposed without modification, as
described in this section.
b. Use of Single and Multiple Procedure Claims
For CY 2007, we proposed to continue to use single procedure claims
to set the medians on which the APC relative payment weights would be
based. We have received many requests asking that we ensure that the
data from claims that contain charges for multiple procedures are
included in the data from which we calculate the relative payment
weights. Requesters believe that relying solely on single procedure
claims to recalibrate APC relative payment weights fails to take into
account data for many frequently performed procedures, particularly
those commonly performed in combination with other procedures. They
believe that, by depending upon single procedure claims, we base
relative payment weights on the least costly services, thereby
introducing downward bias to the medians on which the weights are
based.
We agree that, optimally, it is desirable to use the data from as
many claims as possible to recalibrate the APC relative payment
weights, including those with multiple procedures. We generally use
single procedure claims to set the median costs for APCs because we
are, so far, unable to ensure that packaged costs can be appropriately
allocated across multiple procedures performed on the same date of
service. However, by bypassing specified codes that we believe do not
have significant packaged costs, we are able to use more data from
multiple procedure claims. In many cases, this enables us to create
multiple ``pseudo'' single claims from claims that, as submitted,
contained multiple separately paid procedures on the same claim. For
the CY 2007 OPPS, we proposed to use the date of service on the claims
and a list of codes to be bypassed to create ``pseudo'' single claims
from multiple procedure claims, as we did in recalibrating the CY 2006
APC relative payment weights. We refer to these newly created single
procedure claims as ``pseudo'' single claims because they were
submitted by providers as multiple procedure claims.
For CY 2003, we created ``pseudo'' single claims by bypassing HCPCS
codes 93005 (Electrocardiogram, tracing), 71010 (Chest x-ray), and
71020 (Chest x-ray) on a submitted claim. However, we did not use
claims data for the bypassed codes in the creation of the median costs
for the APCs to which these three codes were assigned because the level
of packaging that would have remained on the claim after we selected
the bypass code was not apparent and, therefore, it was difficult to
determine if the medians for these codes would be correct.
For CY 2004, we created ``pseudo'' single claims by bypassing these
three codes and also by bypassing an additional 269 HCPCS codes in
APCs. We selected these codes based on a clinical review of the
services and because it was presumed that these codes had only very
limited packaging and could appropriately be bypassed for the purpose
of creating ``pseudo'' single claims. The APCs to which these codes
were assigned were varied and included mammography, cardiac
rehabilitation, and Level I plain film x-rays. To derive more
``pseudo'' single claims, we also split the claims where there were
dates of service for revenue code charges on that claim that could be
matched to a single procedure code on the claim on the same date.
For the CY 2004 OPPS, as in CY 2003, we did not include the claims
data for the bypassed codes in the creation of the APCs to which the
269 codes were assigned because, again, we had not established that
such an approach was appropriate and would aid in accurately estimating
the median costs for those APCs. For CY 2004, from approximately 16.3
million otherwise unusable claims, we used approximately 9.5 million
multiple procedure claims to create approximately 27 million ``pseudo''
single claims. For CY 2005, we identified 383 bypass codes and from
approximately 24 million otherwise unusable claims, we used
approximately 18 million multiple procedure claims to create
approximately 52 million ``pseudo'' single claims. For CY 2005, we used
the claims data for the bypass codes combined with the single procedure
claims to set the median costs for the bypass codes.
For CY 2006, we continued using the codes on the CY 2005 OPPS
bypass list and expanded it to include 404 bypass codes, including 3
bladder catheterization codes (CPT codes 51701, 51702, and 51703),
which did not meet the empirical criteria discussed below for the
selection of bypass codes. We added these three codes to the CY 2006

[[Page 67970]]

bypass list because a decision to change their payment status from
packaged to separately paid would have resulted in a reduction of the
number of single bills on which we could base median costs for other
major separately paid procedures that were billed on the same claim
with these three procedure codes. That is, single bills which contained
other procedures would have become multiple procedure claims when these
bladder catheterization codes were converted to separately paid status.
We believed and continue to believe that bypassing these three codes
does not adversely affect the medians for other procedures because we
believe that when these services are performed on the same day as
another separately paid service, any packaging that appears on the
claim would be appropriately associated with the other procedure and
not with these codes.
Consequently, for CY 2006, we identified 404 bypass codes for use
in creating ``pseudo'' single claims and used some part of 90 percent
of the total claims that were eligible for use in OPPS ratesetting and
modeling in developing the final rule with comment period. This process
enabled us to use, for the CY 2006 OPPS, 88 million single bills for
ratesetting: 55 million ``pseudo'' singles and 34 million ``natural''
single bills (bills that were submitted containing only one separately
payable major HCPCS code). (These numbers do not sum to 88 million
because more than 800,000 single bills were removed when we trimmed at
the HCPCS level at +/-3 standard deviations from the geometric mean.)
For CY 2007, we proposed to continue using date-of-service matching
as a tool for creation of ``pseudo'' single claims and to continue the
use of a bypass list to create ``pseudo'' single claims. The process we
proposed for the CY 2007 OPPS resulted in our being able to use some
part of 92.6 percent of the total claims that are eligible for use in
the OPPS ratesetting and modeling in developing this final rule with
comment period. This process enabled us to use, for CY 2007, 68.5
million ``pseudo'' singles and 31.6 million ``natural'' single bills.
We proposed to bypass the 454 codes identified in Table 1 of the
proposed rule (71 FR 49517) to create new single claims and to use the
line-item costs associated with the bypass codes on these claims,
together with the single procedure claims, in the creation of the
median costs for the APCs into which they are assigned. Of the codes on
this list, 404 codes were used for bypass in CY 2006. We proposed to
continue the use of the codes on the CY 2006 OPPS bypass list and to
expand it by adding codes that, using data presented to the APC Panel
at its March 2006 meeting, meet the same empirical criteria as those
used in CY 2006 to create the bypass list, or which our clinicians
believe would contain minimal packaging if the services were correctly
coded (for example, ultrasound guidance). (Bypass codes shown in Table
1 with an asterisk indicated the HCPCS codes we proposed to add to the
CY 2006 OPPS listed codes for bypass in CY 2007.) Our examination of
the data against the criteria for inclusion on the bypass list, as
discussed below for the addition of new codes, shows that the
empirically selected codes used for bypass for the CY 2006 OPPS
generally continue to meet the criteria or come very close to meeting
the criteria, and we have received no comments against bypassing them.
As proposed, the following empirical criteria that we used to
determine the additional codes to add to the CY 2006 OPPS bypass list
to create the bypass list for the CY 2007 OPPS were developed by
reviewing the frequency and magnitude of packaging in the single claims
for payable codes other than drugs and biologicals. We assumed that the
representation of packaging on the single claims for any given code is
comparable to packaging for that code in the multiple claims:
There were 100 or more single claims for the code. This
number of single claims ensured that observed outcomes were
sufficiently representative of packaging that might occur in the
multiple claims.
Five percent or fewer of the single claims for the code
had packaged costs on that single claim for the code. This criterion
results in limiting the amount of packaging being redistributed to the
payable procedure remaining on the claim after the bypass code is
removed and ensures that the costs associated with the bypass code
represent the cost of the bypassed service.
The median cost of packaging observed in the single claims
was equal to or less than $50. This limits the amount of error in
redistributed costs.
The code is not a code for an unlisted service.
In addition, we proposed to add to the bypass list codes that our
clinicians believe contain minimal packaging and codes for specified
drug administration services for which hospitals have requested
separate payment but for which it is not possible to acquire median
costs unless we add these codes to the bypass list. A more complete
discussion of the effects of adding these drug administration codes to
the bypass list is contained in the discussion of drug administration
payment changes in section VIII.C. of this preamble.
In the CY 2007 OPPS proposed rule, we specifically invited public
comment on the ``pseudo'' single process, including the bypass list and
the criteria.
Comment: The commenters urged CMS to continue to find ways to use
all data from multiple procedure claims to set the median costs on
which the payment rates are based. Many commenters supported the bypass
list as a vehicle to enable use of all claims data. However, some
commenters were concerned that placing HCPCS codes on the bypass list
would lead to those codes being undervalued because no packaging from
the multiple procedure bill is attributed to them. These commenters
urged CMS to validate that these services were not being systematically
undervalued by being bypassed and thus having many units of the service
used for median setting with no attribution of packaging to the code.
In many cases, the commenters did not offer specific discussion of what
packaging they believe would be appropriately attached to the codes on
the bypass list. One commenter suggested that CMS add CPT code 77421
(Steroscopic X-ray guidance for localization of target volume for the
delivery of radiation therapy) to secure more single procedure claims
data for median setting. Another commenter asked that CMS add CPT code
88307 (Level V-Surgical pathology, gross and microscopic examination)
to the bypass list because it would be consistent with the inclusion of
CPT codes 88304 (Level III-Surgical pathology, gross and microscopic
examination) and 88305 (Level IV-Surgical pathology, gross and
microscopic examination) on the bypass list.
Response: We agree that the bypass list has been very useful in
enabling us to use data from multiple procedure claims to set median
costs for many services. The use of date of service stratification and
the bypass list enabled us to create 68.5 million ``pseudo'' single
claims that would not otherwise have been used to set median costs for
the CY 2007 OPPS. However, we recognize that it is necessary to be
cautious in this approach to minimize the possibility that we could
mistakenly apply packaging on the claim to the wrong service. For that
reason, each year we investigate the amount of packaging on natural
single bills and consider whether changes should be made to the bypass
list. However, in some cases, we know that the natural single bills are
incorrect, and it is not

[[Page 67971]]

reasonable to base a decision on their level of packaging from what we
believe are incorrectly coded claims. In these cases, we use clinical
judgment to determine whether, on a correctly coded claim, the
packaging would be associated with the code as defined or whether the
packaging would more appropriately be associated with other procedures.
For example, a single procedure bill for an ultrasound guidance service
which is used only for guidance during an associated surgical procedure
would not be correctly coded and therefore, clinically, we would not
expect the packaged costs observed on these single claims to be
correctly attributed to the guidance procedure. We believe that the
ultrasound guidance procedure itself could not be the service that
required the drugs, devices, or operating room use that would usually
also be billed on a correctly coded claim. In these cases, we would
place the ultrasound guidance procedure on the bypass list and
attribute the packaged costs that appear on the same claim to the
surgical procedure on the claim.
We have been actively investigating options for using all claims
data in the establishment of median costs, and we intend to be ready to
discuss our findings in the CY 2008 OPPS proposed rule. With respect to
the suggestions for additions to the bypass list, we will evaluate the
potential for adding CPT codes 77421 and 88307 to the bypass list for
purposes of the CY 2008 OPPS ratesetting.
Comment: One commenter asked that CMS use all claims data on
multiple procedure claims by allocating the packaging on a claim with
multiple surgical procedures based on the currently existing relative
weights to create ``pseudo'' single claims from all multiple procedure
claims. The commenter suggested that if CMS is concerned about that
process causing the weights being calculated to not reflect changes in
cost, CMS might use this process only in cases in which the number of
units for HCPCS codes on natural single bills are below some tolerance
so that these claims would be used only on low volume procedures.
Response: We are concerned that use of the current relative weights
to allocate the packaging on multiple procedure claims may cause
packaging to be allocated inappropriately in some cases. As we indicate
above, we are continuing to explore ways that packaging could be
allocated on multiple procedure claims in such a way that we would have
confidence in the allocation.
Comment: One commenter requested that CMS remove CPT code 76942
(Ultrasonic guidance for needle placement (eg biopsy, aspiration,
injection, localization device), imaging supervision and
interpretation) from the bypass list, because the commenter believed it
would raise the median cost for APC 0268, the APC where CPT code 76942
is assigned for CY 2007. According to the commenter, the natural single
claims for CPT code 76942 have a higher median cost than the ``pseudo''
single claims. The commenter indicated that when all packaged costs are
removed from the natural singles, their median is close to the median
for the ``pseudo'' single claims. If removing this code from the bypass
list altogether results in too few ``pseudo'' single claims, the
commenter requested that CMS calculate the median cost for APC 0268
using only natural single claims.
Response: We agree with the commenter that the median of APC 0268
is higher with the exclusion of ``pseudo'' singles that are created
from claims that include CPT code 76942 than it would be if we only
used true single claims that include CPT code 76942. However, we
believe that the single bills for CPT code 76942 are miscoded and,
therefore, inappropriately attribute the procedural costs (for example,
the needle placement for biopsy and injection) to ultrasound guidance
rather than the biopsy or aspiration procedures. We note that CPT code
76942 is the code with the highest frequency in APC 0268 and,
therefore, contributes greatly to the median cost of the APC. The
commenter provided no information regarding the specific packaging
associated with CPT code 76942; therefore, we continue to believe that
its inclusion on the bypass list, and the resulting calculation of the
APC median cost for APC 0268, is appropriate.
After carefully considering all public comments received on our
proposal, we are adopting as final the proposed ``pseudo'' single
process and the bypass codes listed in Table 1.
BILLING CODE 4120-01-P

[[Page 67972]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.000

[[Page 67973]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.001

[[Page 67974]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.002

[[Page 67975]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.003

[[Page 67976]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.004

[[Page 67977]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.005

[[Page 67978]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.006

[[Page 67979]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.007

[[Page 67980]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.008

[[Page 67981]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.009

[[Page 67982]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.010

[[Page 67983]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.011

BILLING CODE 4120-01-C

c. Revised Overall Cost-to-Charge Ratio (CCR) Calculation
We calculate both an overall CCR and cost center-specific cost-to-
charge ratios (CCRs) for each hospital. For the CY 2007 OPPS, we
proposed to change the methodology for calculating the overall CCR. The
overall CCR is used in many components of the OPPS. We use the overall
CCR to estimate costs from charges on a claim when we do not have an
accurate cost center CCR. This does not happen very often. For the vast
majority of services, we are able to use a cost center CCR to estimate
costs from charges. However, we also use the overall CCR to identify
the outlier threshold, to model payments for services that are paid at
charges reduced to cost, and, during implementation, to determine
outlier payments and payments for other services.
As stated in the CY 2007 OPPS proposed rule (71 FR 49528), we have
discovered that the calculation of the overall CCR that the fiscal
intermediaries are using to determine outlier payments and payments for
services paid at charges reduced to cost differs from the overall CCR
that we use to model the OPPS. In Program Transmittal A-03-04 on
``Calculating Provider-Specific Outpatient Cost-to-Charge Ratios (CCRs)
and Instructions on Cost Report Treatment of Hospital Outpatient
Services Paid on a Reasonable Cost Basis'' (January 17, 2003), we
revised the overall CCR calculation that the fiscal intermediaries use
in determining outlier and other cost payments. Until this point, each
fiscal intermediary had used an overall CCR provided by CMS, or
calculated an updated CCR at the provider's request using the same
calculation. The calculation in Program Transmittal A-03-04, that is,
the fiscal intermediary calculation, diverged from the ``traditional''
overall CCR that we used for modeling. It should be noted that the
fiscal intermediary overall CCR calculation noted in Program
Transmittal A-03-04 was created with feedback and input from the fiscal
intermediaries.
CMS' ``traditional'' calculation consists of summing the total
costs from Worksheet B, Part I (Column 27), after removing the costs
for nursing and paramedical education (Columns 21 and 24), for those
ancillary cost centers that we believe contain most OPPS services,
summing the total charges from Worksheet C, Part I (Columns 6 and 7)
for the same set of ancillary cost centers, and dividing the former by
the latter. We exclude selected ancillary cost centers from our overall
CCR calculation, such as 5700 Renal Dialysis, because we believe that
the costs and

[[Page 67984]]

charges in these cost centers are largely paid for under other payment
systems. The specific list of ancillary cost centers, both standard and
nonstandard, included in our overall CCR calculation is available on
our Web site in the revenue center-to-cost center crosswalk workbook:
http://www.cms.hhs.gov/HospitalOutpatientPPS.

The overall CCR calculation provided in Program Transmittal A-03-
04, on the other hand, takes the CCRs from Worksheet C, Part I, Column
9, for each specified ancillary cost center; multiplies them by the
Medicare Part B outpatient specific charges in each corresponding
ancillary cost center from Worksheet D, Part V (Columns 2, 3, 4, and 5
and subscripts thereof); and then divides the sum of these costs by the
sum of charges for the specified ancillary cost centers from Worksheet
D, Part V (Columns 2, 3, 4, and 5 and subscripts thereof). The
elimination of the reference to Part VI in this final rule with comment
period is not a change from the proposed methodology. We used only data
from Worksheet D, Part V of the HCRIS electronic cost report to
calculate the overall CCRs for both the proposed rule and final rule
with comment period. We previously referenced both Part V and Part VI
in the proposed rule and in prior rules because both Part V and Part VI
appear on the same page in Worksheet D on the paper cost report,
although no data from Part VI on the electronic cost report were used
in the calculation.
Compared with our ``traditional'' overall CCR calculation that has
been used for modeling OPPS and to calculate the median costs, this
fiscal intermediary calculation of overall CCR fails to remove allied
health costs and adds weighting by Medicare Part B charges.
In comparing these two calculations, we discovered that, on
average, the overall CCR calculation being used by the fiscal
intermediaries resulted in higher overall CCRs than under our
``traditional'' calculation. Using the most recent cost report data
available for every provider with valid claims for CY 2004 as of
November 2005, we estimated the median overall CCR using the
traditional calculation to be 0.3040 (mean 0.3223) and the median
overall CCR using the fiscal intermediary calculation to be 0.3309
(mean 0.3742). There also was much greater variability in the fiscal
intermediary calculation of the overall CCR. The standard deviation
under the ``traditional'' calculation was 0.1318, while the standard
deviation using the fiscal intermediary's calculation was 0.2143. In
part, the higher median estimate for the fiscal intermediary
calculation is attributable to the inclusion of allied health costs for
the over 700 hospitals with allied health programs. It is inappropriate
to include these costs in the overall CCR calculation, because CMS
already reimburses hospitals for the costs of these programs through
cost report settlement. The higher median estimate and greater
variability also is a function of the weighting by Medicare Part B
charges. Because the fiscal intermediary overall CCR calculation is
higher, on average, CMS has underestimated the outlier payment
thresholds and, therefore, overpaid outlier payments. We also have
underestimated spending for services paid at charges reduced to cost in
our budget neutrality estimates.
In examining the two different calculations, we decided that
elements of each methodology had merit. Clearly, as noted above, allied
health costs should not be included in an overall CCR calculation.
However, weighting by Medicare Part B charges from Worksheet D, Part V,
makes the overall CCR calculation more specific to OPPS. Therefore, we
proposed to adopt a single overall CCR calculation that incorporates
weighting by Medicare Part B charges but excludes allied health costs
for modeling and payment. Specifically, the proposed calculation
removes allied health costs from cost center CCR calculations for
specified ancillary cost centers, as discussed above, multiplies them
by the Medicare Part B charges on Worksheet D, Part V, and sums these
estimated Medicare costs. This sum is then divided by the sum of the
same Medicare Part B charges for the same specified set of ancillary
cost centers.
As we indicated in the proposed rule (71 FR 49528), using the same
cost report data in this study, we estimated a median overall CCR for
the proposed calculation of 0.3081 (mean 0.3389) with a standard
deviation of 0.1583. The similarity to the median and standard
deviation of the ``traditional'' overall CCR calculation noted above
(median 0.3040 and standard deviation of 0.1318) masks some sizeable
changes in overall CCR calculations for specific hospitals due largely
to the inclusion of Medicare Part B weighting.
In order to isolate the overall impact of adopting this methodology
on APC medians, we used the first 9 months of CY 2005 claims data to
estimate APC median costs varying only the two methods of determining
overall CCR. As stated in the CY 2007 OPPS proposed rule (71 FR 49528),
we expected the impact to be limited because the majority of costs are
estimated using a cost center-specific CCR and not the overall. As
predicted, we observed minor changes in APC median costs from the
adoption of the proposed overall CCR calculation. We largely observed
differences of no more than 5 percent in either direction. The median
overall percent change in APC cost estimates was -0.3 percent. We
typically observe comparable changes in APC medians when we update our
cost report data. Using updated cost report data for the calculations
in this final rule with comment period, we estimate a median overall
CCR across all hospitals of 0.3015 using the new overall CCR
calculation.
We believe that a single overall CCR calculation should be used for
all components of the OPPS for both modeling and payment. Therefore, we
proposed to use the modified overall CCR calculation as discussed above
when the hospital-specific overall CCR is used for any of the following
calculations: in the CMS calculation of median costs for OPPS
ratesetting, in the CMS calculation of the outlier threshold, in the
fiscal intermediary calculation of outlier payments, in the CMS
calculation of statewide CCRs, in the fiscal intermediary calculation
of pass-through payments for devices, and for any other fiscal
intermediary payment calculation in which the current hospital-specific
overall CCR may be used now or in the future.
Comment: Several commenters supported the proposed change to the
calculation of the overall CCR to be weighted by Part B charges and to
exclude the costs of nursing and allied health professional education
programs. One commenter asked that CMS provide examples at the line
level of how the revenue code to cost center crosswalk is applied to
sample claims to illustrate to hospitals how selection of the revenue
code for any particular item or service controls the resulting cost
that is used in median calculation. The commenter also asked that CMS
instruct fiscal intermediaries to allow hospitals to reclassify expense
and revenue whenever the hospital believes it is appropriate, to ensure
that the charges on the claim result in appropriate costs for median
setting and order the fiscal intermediaries not to reverse
reclassification of costs in audit adjustments. The commenter also
suggested that CMS should have fiscal intermediaries conduct a survey
of their audit staff with regard to the validity of the revenue code to
cost center crosswalk.
Response: We continue to believe that the proposed change to the
CCR calculation is appropriate, and we have used the revised formula to
calculate the

[[Page 67985]]

overall CCRs used to set the medians on which the CY 2007 payment rates
are based.
With respect to the request for detailed examples to illustrate how
selection of a revenue code will control the cost that is used in the
median calculation, we believe that hospitals, like any business, are
responsible for performing their own analysis regarding issues that
affect their revenue stream. We have gone to great lengths in the
preamble of our proposed and final rules to discuss how we derive costs
from charges and how we crosswalk the charge from the revenue code
reported for the charge to the cost center on the cost report.
Moreover, the revenue code to cost center crosswalk has been on the CMS
Web site for several years, open continuously to public comment. We do
not believe it is necessary to create and publish examples at the
claim-line level to further elaborate on how we convert charges to
costs for purposes of establishing median costs. Hospitals that are
interested should have sufficient information available already on this
topic. Moreover, Medicare auditing rules have been well-established and
standardized over many years, and we rely on our contractors to enforce
them appropriately.
Comment: One commenter suggested that CMS study the crosswalk that
is used in the completion of the Provider Statistical and Reimbursement
Report (PS&R) to determine whether changes to the CMS crosswalk of
revenue codes to cost centers might be appropriate. Specifically, the
commenter suggested the following revisions: Revenue code 0413
(hyperbaric oxygen therapy) should be crosswalked to the hospital
overall CCR; Revenue code 026X (IV therapy) could have cost center 5600
(Drugs charges to patients) as the secondary default CCR before
defaulting to the overall CCR; Revenue code 046X (Pulmondary therapy)
should have cost center 4600 (respiratory therapy) as secondary and
cost center 3160 as tertiary; and Revenue code 074X (EEG) should have
cost center 5400 (EEG) as primary and cost center 3280 (EKG and EEG) as
secondary.
Response: We have not made any changes in response to the
commenter's suggestions for CY 2007. However, we will carefully examine
the commenter's suggestions with regard to the calculation of CCRs for
the CY 2008 OPPS.
After carefully considering all the public comments received, we
are adopting our proposal for CY 2007 without modification. As stated
in the CY 2007 proposed rule (71 FR 49529), we will issue a Medicare
program instruction to fiscal intermediaries that will instruct them to
recalculate and use the hospital-specific overall CCR as we have
finalized for the above stated purposes.
2. Calculation of Median Costs for CY 2007
In this section of the preamble, we discuss the use of claims to
calculate the proposed OPPS payment rates for CY 2007. The hospital
outpatient prospective payment page on the CMS Web site on which this
final rule with comment period is posted provides an accounting of
claims used in the development of the final rates: http://www.cms.hhs.gov/HospitalOutpatientPPS.
The accounting of claims used in

the development of this final rule with comment period is included on
the Web site under supplemental materials for the CY 2007 final rule
with comment period. That accounting provides additional detail
regarding the number of claims derived at each stage of the process. In
addition, below we discuss the files of claims that comprise the data
sets that are available for purchase under a CMS data user contract.
Our CMS Web site, http://www.cms.hhs.gov/HospitalOutpatientPPS,

includes information about purchasing the following two OPPS data
files: ``OPPS Limited Data Set'' and ``OPPS Identifiable Data Set.''
As proposed, we used the following methodology to establish the
relative weights to be used in calculating the OPPS payment rates for
CY 2007 shown in Addenda A and B to this final rule with comment
period. This methodology is as follows:
We used outpatient claims for the full CY 2005, processed before
June 30, 2006, to set the relative weights for CY 2007. To begin the
calculation of the relative weights for CY 2007, we pulled all claims
for outpatient services furnished in CY 2005 from the national claims
history file. This is not the population of claims paid under the OPPS,
but all outpatient claims (including, for example, CAH claims, and
hospital claims for clinical laboratory services for persons who are
neither inpatients nor outpatients of the hospital).
We then excluded claims with condition codes 04, 20, 21, and 77.
These are claims that providers submitted to Medicare knowing that no
payment will be made. For example, providers submit claims with a
condition code 21 to elicit an official denial notice from Medicare and
document that a service is not covered. We then excluded claims for
services furnished in Maryland, Guam, and the U.S. Virgin Islands,
American Samoa, and the Northern Marianas because hospitals in those
geographic areas are not paid under the OPPS.
We divided the remaining claims into the three groups shown below.
Groups 2 and 3 comprise the 110 million claims that contain hospital
bill types paid under the OPPS.
1. Claims that were not bill types 12X, 13X, 14X (hospital bill
types), or 76X (CMHC bill types). Other bill types are not paid under
the OPPS and, therefore, these claims were not used to set OPPS
payment.
2. Claims that were bill types 12X, 13X, or 14X (hospital bill
types). These claims are hospital outpatient claims.
3. Claims that were bill type 76X (CMHC). (These claims are later
combined with any claims in item 2 above with a condition code 41 to
set the per diem partial hospitalization rate determined through a
separate process.)
For the CCR calculation process, we used the same general approach
as we used in developing the final APC rates for CY 2006 (70 FR 68537),
with a change to the development of the overall CCR as discussed above.
That is, we first limited the population of cost reports to only those
for hospitals that filed outpatient claims in CY 2005 before
determining whether the CCRs for such hospitals were valid.
We then calculated the CCRs at a cost center level and overall for
each hospital for which we had claims data. We did this using hospital-
specific data from the Healthcare Cost Report Information System
(HCRIS). We used the most recent available cost report data, in most
cases, cost reports for CY 2004. As proposed, for this final rule with
comment period, we used the most recently submitted cost report to
calculate the CCRs to be used to calculate median costs for the CY 2007
OPPS. If the most recent available cost report was submitted but not
settled, we looked at the last settled cost report to determine the
ratio of submitted to settled cost using the overall CCR, and we then
adjusted the most recent available submitted but not settled cost
report using that ratio. We calculated both an overall CCR and cost
center-specific CCRs for each hospital. We used the final overall CCR
calculation discussed in II.A.1.c. of this preamble for all purposes
that require use of an overall CCR.
We then flagged CAH claims, which are not paid under the OPPS, and
claims from hospitals with invalid CCRs. The latter included claims
from hospitals without a CCR; those from hospitals paid an all-
inclusive rate; those from

[[Page 67986]]

hospitals with obviously erroneous CCRs (greater than 90 or less than
.0001); and those from hospitals with CCRs that were identified as
outliers (3 standard deviations from the geometric mean after removing
error CCRs). In addition, we trimmed the CCRs at the cost center level
by removing the CCRs for each cost center as outliers if they exceeded
3 standard deviations from the geometric mean. This is the
same methodology that we used in developing the final CY 2006 CCRs. For
CY 2007, we proposed to trim at the departmental CCR level to eliminate
aberrant CCRs that, if found in high volume hospitals, could skew the
medians. We used a four-tiered hierarchy of cost center CCRs to match a
cost center to every possible revenue code appearing in the outpatient
claims, with the top tier being the most common cost center and the
last tier being the default CCR. If a hospital's cost center CCR was
deleted by trimming, we set the CCR for that cost center to
``missing,'' so that another cost center CCR in the revenue center
hierarchy could apply. If no other departmental CCR could apply to the
revenue code on the claim, we used the hospital's overall CCR for the
revenue code in question. For example, if a visit was reported under
the clinic revenue code, but the hospital did not have a clinic cost
center, we mapped the hospital-specific overall CCR to the clinic
revenue code. The hierarchy of CCRs is available for inspection and
comment at the CMS Web site: http://www.cms.hhs.gov/HospitalOutpatientPPS
.

We then converted the charges to costs on each claim by applying
the CCR that we believed was best suited to the revenue code indicated
on the line with the charge. Table 2 of the proposed rule (71 FR 49532)
contained a list of the allowed revenue codes. Revenue codes not
included in Table 2 are those not allowed under the OPPS because their
services cannot be paid under the OPPS (for example, inpatient room and
board charges) and thus, charges with those revenue codes were not
packaged for creation of the OPPS median costs. One exception is the
calculation of median blood costs, as discussed in section X. of this
preamble.
Thus, we applied CCRs as described above to claims with bill types
12X, 13X, or 14X, excluding all claims from CAHs and hospitals in
Maryland, Guam, and the U.S. Virgin Islands, American Samoa, and the
Northern Marianas and claims from all hospitals for which CCRs were
flagged as invalid.
We identified claims with condition code 41 as partial
hospitalization services of hospitals and moved them to another file.
These claims were combined with the 76X claims identified previously to
calculate the partial hospitalization per diem rate.
We then excluded claims without a HCPCS code. We also moved claims
for observation services to another file. We moved to another file
claims that contained nothing but influenza and pneumococcal pneumonia
(``PPV'') vaccine. Influenza and PPV vaccines are paid at reasonable
cost and, therefore, these claims are not used to set OPPS rates. We
note that the two above mentioned separate files containing partial
hospitalization claims and observation services claims are included in
the files that are available for purchase as discussed above.
We next copied line-item costs for drugs, blood, and devices (the
lines stay on the claim, but are copied off onto another file) to a
separate file. No claims were deleted when we copied these lines onto
another file. These line-items are used to calculate a per unit mean
and median and a per day mean and median for drugs, radiopharmaceutical
agents, blood and blood products, and devices, including but not
limited to brachytherapy sources, as well as other information used to
set payment rates, including a unit to day ratio for drugs.
We then divided the remaining claims into the following five
groups:
1. Single Major Claims: Claims with a single separately payable
procedure (that is, status indicator S, T, V, or X), all of which would
be used in median setting.
2. Multiple Major Claims: Claims with more than one separately
payable procedure (that is, status indicator S, T, V, or X), or
multiple units for one payable procedure. As discussed below, some of
these can be used in median setting.
3. Single Minor Claims: Claims with a single HCPCS code that is
packaged (that is, status indicator N) and not separately payable.
4. Multiple Minor Claims: Claims with multiple HCPCS codes that are
packaged (that is, status indicator N) and not separately payable.
5. Non-OPPS Claims: Claims that contain no services payable under
the OPPS (that is, all status indicators other than S, T, V, X, or N).
These claims are excluded from the files used for the OPPS. Non-OPPS
claims have codes paid under other fee schedules, for example, durable
medical equipment or clinical laboratory, and do not contain either a
code for a separately paid service or a code for a packaged service.
In previous years, we made a determination of whether each HCPCS
code was a major code, or a minor code, or a code other than a major or
minor code. We used those code-specific determinations to sort claims
into these five identified groups. For the CY 2007 OPPS, we proposed to
use status indicators, as described above, to sort the claims into
these groups. We believed that using status indicators was an
appropriate way to sort the claims into these groups and also to make
our process more transparent to the public. We further believed that
this proposed method of sorting claims would enhance the public's
ability to derive useful information and become a more informed
commenter on the proposed rule.
We note that the claims listed in numbers 1, 2, 3, and 4 above are
included in the data files that can be purchased as described above.
We set aside the single minor, multiple minor claims and the non-
OPPS claims (numbers 3, 4, and 5 above) because we did not use these
claims in calculating median costs. We then examined the multiple major
claims for date of service to determine if we could break them into
single procedure claims using the dates of service on all lines on the
claim. If we could create claims with single major procedures by using
date of service, we created a single procedure claim record for each
separately paid procedure on a different date of service (that is, a
``pseudo'' single).
We then used the ``bypass codes'' listed in Table 1 of the proposed
rule (71 FR 49517) and discussed in section II.A.1.b. of this preamble
to remove separately payable procedures that we determined contain
limited costs or no packaged costs, or were otherwise suitable for
inclusion on the bypass list, from a multiple procedure bill. When one
of the two separately payable procedures on a multiple procedure claim
was on the bypass code list, we split the claim into two single
procedure claims records. The single procedure claim record that
contained the bypass code did not retain packaged services. The single
procedure claim record that contained the other separately payable
procedure (but no bypass code) retained the packaged revenue code
charges and the packaged HCPCS charges.
We also removed lines that contained multiple units of codes on the
bypass list and treated them as ``pseudo'' single claims by dividing
the cost for the multiple units by the number of units on the line.
Where one unit of a single separately paid procedure code remained on
the claim after removal of the multiple units of the bypass code, we
created a ``pseudo'' single claim

[[Page 67987]]

from that residual claim record, which retained the costs of packaged
revenue codes and packaged HCPCS codes. This enabled us to use claims
that would otherwise be multiple procedure claims and could not be
used. We excluded those claims that we were not able to convert to
singles even after applying all of the techniques for creation of
``pseudo'' singles.
We then packaged the costs of packaged HCPCS codes (codes with
status indicator ``N'' listed in Addendum B to this proposed rule) and
packaged revenue codes into the cost of the single major procedure
remaining on the claim. The list of packaged revenue codes was shown in
Table 2 of the CY 2007 OPPS proposed rule (71 FR 49532) and below.
After removing claims for hospitals with error CCRs, claims without
HCPCS codes, claims for immunizations not covered under the OPPS, and
claims for services not paid under the OPPS, 58.4 million claims were
left. Of these 58.4 million claims, we were able to use some portion of
54.1 million whole claims (92.6 percent of the 58.4 million potentially
usable claims) to create the 98.5 million single and ``pseudo'' single
claims for use in the CY 2007 median development and for ratesetting.
We also excluded (1) claims that had zero costs after summing all
costs on the claim and (2) claims containing packaging flag 3.
Effective for services furnished on or after July 1, 2004, the
Outpatient Code Editor (OCE) assigns packaging flag number 3 to claims
on which hospitals submitted token charges for a service with status
indicator ``S'' or ``T'' (a major separately paid service under OPPS)
for which the fiscal intermediary is required to allocate the sum of
charges for services with a status indicator equaling ``S'' or ``T''
based on the weight for the APC to which each code is assigned. We do
not believe that these charges, which were token charges as submitted
by the hospital, are valid reflections of hospital resources.
Therefore, we deleted these claims. In the proposed rule, we deleted
claims with payment flag 3 (not packaging flag 3) because we believed
that payment flag 3 identified claims for which the charges were not as
submitted by the provider as described above. As we were processing
claims for this final rule with comment period, we realized that this
was not the case and corrected the process to eliminate claims which,
as described above, have charges that are not as submitted by the
provider. See the CY 2007 final rule claims accounting under supporting
documentation posted on our Web site, http://www.cms.hhs.gov/HospitalOutpatientPPS
, for this final rule with comment period for

further explanation. We note that in this final rule with comment
period, as stated in both the proposed rule and here, we have excluded
those claims that we believed were not valid reflections of hospital
resources.
We also deleted claims for which the charges equal the revenue
center payment (that is, the Medicare payment) on the assumption that
where the charge equals the payment, to apply a CCR to the charge would
not yield a valid estimate of relative provider cost.
For the remaining claims, we then standardized 60 percent of the
costs of the claim (which we have previously determined to be the
labor-related portion) for geographic differences in labor input costs.
We made this adjustment by determining the wage index that applied to
the hospital that furnished the service and dividing the cost for the
separately paid HCPCS code furnished by the hospital by that wage
index. As has been our policy since the inception of the OPPS, we
proposed to use the pre-reclassified wage indices for standardization
because we believed that they better reflect the true costs of items
and services in the area in which the hospital is located than the
post-reclassification wage indices, and would result in the most
accurate adjusted median costs.
We also excluded claims that were outside 3 standard deviations
from the geometric mean of units for each HCPCS code on the bypass list
(because, as discussed above, we used claims that contain multiple
units of the bypass codes). We then deleted 438,440 single bills
reported with modifier 50 that were assigned to APCs that contained
HCPCS codes that are considered to be conditional or independent
bilateral procedures under the OPPS and that are subject to special
payment provisions implemented through the OCE. Modifier 50 signifies
that the procedure was performed bilaterally. Although these are
apparently single claims for a separately payable service and although
there is only one unit of the code reported on the claim, the presence
of modifier 50 signifies that two services were furnished. Therefore,
costs reported on these claims are for two procedures and not for a
single procedure. Hence, we deleted these multiple procedure records,
which we would have treated as single procedure claims in prior OPPS
updates.
We used the remaining claims to calculate median costs for each
separately payable HCPCS code and each APC. The comparison of HCPCS and
APC medians determines the applicability of the ``2 times'' rule. As
stated previously, section 1833(t)(2) of the Act provides that, subject
to certain exceptions, the items and services within an APC group
cannot be considered comparable with respect to the use of resources if
the highest median (or mean cost, if elected by the Secretary) for an
item or service in the group is more than 2 times greater than the
lowest median cost for an item or service within the same group (``the
2 times rule''). Finally, we reviewed the medians and reassigned HCPCS
codes to different APCs as deemed appropriate. Section III.B. of this
preamble includes a discussion of the HCPCS code assignment changes
that resulted from examination of the medians and for other reasons.
The APC medians were recalculated after we reassigned the affected
HCPCS codes. Both the HCPCS medians and the APC medians were weighted
to account for the inclusion of multiple units of the bypass codes in
the creation of pseudo single bills.
A detailed discussion of the medians for blood and blood products
is included in section X. of this preamble. A discussion of the medians
for APCs that require one or more devices when the service is performed
is included in section IV.A. of this preamble. A discussion of the
median for observation services is included in section XI. of this
preamble, and a discussion of the median for partial hospitalization is
included below in section II.B. of this preamble.
We specifically invited public comment on the relative benefits of
deleting claims reported with modifier 50 signifying two procedures
were performed versus dividing the costs for the two procedures by two
to create two ``pseudo'' single claims. We received one comment on this
issue.
Comment: One commenter supported deletion of the conditional or
independent bilateral service claims because the commenter believes
that the total cost of a bilateral procedure (including packaged costs)
is generally less than 2 times the total cost of a unilateral
procedure, and such cost savings are already reflected in each
hospital's CCR. The commenter stated that to divide the cost of the
bilateral procedure by two would result in ``pseudo'' singles that
would underrepresent the full cost of a single procedure.
Response: We have excluded claims for conditional and independent
bilateral procedures from the claims we used to calculate the median
costs for the CY 2007 OPPS. We will carefully consider how to treat
these claims for future years.

[[Page 67988]]

For the final CY 2007 OPPS ratesetting process, we deleted these
claims, as we did for the proposed rule.
We received many comments on our proposed CY OPPS data process. A
summary of the comments and our responses follows:
Comment: The commenters objected to what they view as wide
fluctuations in the APC payment rates from CY 2006 to CY 2007, because
such variability makes it difficult to plan and budget for the services
that the hospital will provide in the upcoming year. The commenters
objected to changes in proposed OPPS rates that are greater than 5
percent from the prior year's rates and urged CMS to adjust rates so
that no payment rate in CY 2007 declined by more than 5 percent
compared to its payment in CY 2006. The commenters stated that more
than 250 APC rates declined compared to their CY 2006 rates, some by 10
to 20 percent or more. In contrast, they noted that over 300 APC rates
increased, many substantially and by up to 30 percent compared to their
CY 2006 rates. The commenters stated that they did not believe that the
changes in the median costs were reflective of changes in hospital
costs, because hospital costs do not vary so widely from year to year.
The commenters indicated that they expected that after more than 5
years of experience, the rates would no longer show such significant
volatility and urged CMS to use more multiple claims data to set the
median costs.
Response: There are a number of factors pertinent to the OPPS that
cause median costs to change from one year to the next. These include
reassignment of HCPCS codes to APCs to rectify 2 times violations and
to respond to public comments; the need to split costs derived from
claims data among the many different HCPCS codes, which results in very
few usable claims for some services; and annual changes in reported
hospital charges and costs that provide the source of the cost data on
which the system is based.
Although the APC number and title may remain the same from year to
year, we routinely reassign HCPCS codes to different APCs to resolve
violations of the 2 times rule as required by law or reconfigure APCs
to create more levels in a series. We also reassign codes in response
to public comments when we believe that the requested reassignment will
result in improved clinical homogeneity and more similar resource use
for a particular service or group of services. To the extent that there
has been a reassignment either into or out of an APC or a
reconfiguration of an APC into multiple levels, a comparison of the APC
median from 1 year to the next is often not a valid comparison of the
costs for the same services. In addition, every year new HCPCS codes
that were initially assigned to clinical APCs for payment purposes may
begin to contribute claims data to those APC median costs, also leading
to ill-founded comparisons across years.
Moreover, many of the claims we receive for OPPS services are
multiple procedure claims that must be fragmented for use in
establishing the median costs for single procedures. Unlike other
prospective payment systems in which the costs of multiple services are
aggregated into a single payment for a defined encounter (for example,
inpatient stay and home health episode of care), under the OPPS the
costs that reflect the charges on Medicare claims that contain more
than a single service on the same date must be fragmented into pieces
to provide costs at a unit level, rather than being aggregated to
provide the total cost for a set of services furnished in a single
encounter. The more the costs on claims are split to accommodate
payment for individual items and services described by HCPCS codes, and
the fewer single bills that are available for ratesetting because the
costs cannot be fragmented into unique services, the more variability
is introduced into the cost. Because of the difficulty in assigning the
revenue code charge data that hospitals submit on multiple procedure
claims to the separately payable HCPCS codes that form the basis of
payment in the OPPS, we must often use small numbers of claims to set
the median costs for some services. We believe that the small numbers
of single claims are the source of much of the volatility in the
payment system. When we examine claims data for APCs like the Visit
APCs, for which we have large and stable numbers of services, we do not
see the median cost fluctuations that typically occur in those APCs for
which we regularly have small numbers of single bills.
However, we are rarely asked for larger APCs that contain more
codes or for more packaging of payment for HCPCS codes into the APC
rates, both of which would enable us to use more claims and, we
believe, provide more stable payment rates. Indeed, payment in the OPPS
has become more specific each year, largely in response to our
willingness to accommodate the requests of stakeholders when we believe
they are justified and supported by the data. Each year, we are asked
for increasingly more APCs that contain fewer HCPCS codes, as well as
more precise costing of particular services. Generally, the comments
received in response to our proposed rule asked for more separate
payment, less packaging, and greater service-specific precision in the
calculation of median costs for specifically identified services in the
OPPS. We are also often asked to specifically recalculate median costs
by using subsets of claims that meet specific criteria or by applying
alternative methodologies for identified services. While these special
approaches are generally intended to increase payments for their
particular services of interest, they likely contribute to less
stability in the system in general. Inevitably, such specificity would
lead to more, not less, volatility as it would reduce the number of
claims that can be used to set median costs.
Lastly, hospital charges and costs are the foundation of the
payment weights, but hospitals change the mix of services they furnish
and thereby also change their cost structure to some extent each year.
Moreover, hospitals increase, sometimes decrease, or hold steady their
charges each year based on a variety of business reasons, but these
changes to charges often vary across the different services they
furnish. Thus, hospital decisions to change their mix of services or to
change their charges for some services differentially also contribute
to the volatility in payment rates.
We recognize that it could be desirable for a payment system's
rates to not vary by a certain percentage from the prior year's payment
rates, but there is no reason to believe that limiting the changes in
payment rates to prevent a decline by any percentage each year would be
accurately reflective of changes in relative costs. Although the
commenters asked that no payment for any service decline by more than 5
percent, none addressed a limitation for a payment increase. We do not
believe that it is appropriate to artificially impose limits on a
payment rate's increase or decrease from one year to the next, because,
as noted above, comparisons between APC payment rates from year to year
have little meaning for the many APCs that have experienced HCPCS
migration. Moreover, to limit the increases or decreases in payment to
a set amount for all services would conflict with the statutory
requirement that at least annually we revise APCs and other components
of the OPPS using new cost data and other relevant information.
Therefore, we are not adjusting the rates as requested to account for a
decline of more than 5 percent from CY 2006 in the final CY 2007 OPPS
payment rates. We will continue to explore ways to use the data from
multiple procedure claims because we agree that a high level of

[[Page 67989]]

volatility is not desirable in the OPPS, and we also believe that the
most viable long term solution to instability is the use of all the
claims data. However, we also believe that changes in median costs from
one year to the next are unavoidable in a relative weight payment
system which also depends on hospital charges and costs and in which
reassignment of HCPCS codes from one APC to another is required by law
in cases of 2 times violations. As the commenters noted, some CY 2007
APC payment rates decrease but others increase in comparison with the
CY 2006 rates, consistent with expectations for a budget neutral
payment system like the OPPS.
Comment: One commenter objected to the inclusion of charges from
the following revenue codes as packaged services under the OPPS: (1)
Revenue code 274 (Prosthetic/orthotic devices) on the basis that the
revenue code is for nonimplanted devices that require a HCPCS code, are
paid under the MPFS, and have a status indicator of ``A'' under the
OPPS; (2) Revenue code 280 (Oncology) on the basis that there is no
oncology service that would not be coded by a HCPCS code, and,
therefore, any charge without a HCPCS code should not be packaged; (3)
Revenue code 290 (Durable Medical Equipment (DME)) on the basis that
DME is for use in the home and not in the outpatient setting; (4)
Revenue codes 343 and 344 (Diagnostic radiopharmaceuticals and
therapeutic radiopharmaceuticals) on the basis that they are required
to be billed with a HCPCS code, and, therefore, charges without a HCPCS
code should not be packaged; and (5) Revenue code 560 (Medical Social
Services) on the basis that they are separately billable only by home
health agencies and are, therefore, suspect and should not be packaged.
Response: With a few limited exceptions, CMS does not specify the
revenue codes hospitals must use to report their charges. Therefore, we
selected a generous set of revenue codes to maximize the likelihood
that we would capture all of the costs of a particular service for
purposes of calculating the median costs on which the OPPS payment
rates are based. To cease packaging costs under these revenue codes
where there is no HCPCS code reported on the line may result in
erroneous reductions in median costs and, therefore, in the related
OPPS payment rates. With regard to the specific concerns of the
commenter, our responses regarding the rationale for packaging the
revenue code charges for each revenue code of interest follow: (1)
Revenue code 274 is one of the revenue codes we previously instructed
hospitals to use to report devices that had been paid as pass-through
devices; (2) Revenue code 280 is packaged because we believe that it is
possible that a hospital could have costs related to packaged OPPS
services for which it would choose not to bill a HCPCS code, and we
want to ensure that those costs are not lost in median calculation; (3)
Revenue code 290 (DME) is governed by the statute which explicitly
states that implantable DME provided in hospitals is paid under the
OPPS, and we believe that it is possible that hospitals may charge for
implantable DME but not bill a HCPCS code for the items; (4) Revenue
codes 343 and 344 (diagnostic and therapeutic radiopharmaceuticals) are
included as hospitals may charge for these items without placing a
HCPCS code on the line; (5) Revenue code 560 (Medical Social Services)
is included because hospitals may charge without billing a HCPCS code
for the services of a medical social worker that are related to a visit
service and thus would otherwise not be packaged into the median cost
for the visit. We note that National Uniform Billing Committee
guidelines on use of revenue code 560 recognize that it may be reported
by hospitals in some circumstances.
Comment: One commenter asked that CMS implement an indirect medical
education adjustment under the CY 2007 OPPS to address what the
commenter states is a 23-percent shortfall to the market basket for
OPPS services. The commenter indicated that this adjustment was needed
to reimburse hospitals for the higher costs incurred by major teaching
hospitals to provide outpatient care to Medicare beneficiaries.
Response: We do not believe an indirect medical education add-on
payment is appropriate in a budget neutral payment system where such
changes would result in reduced payments to all other hospitals.
Moreover, in this final rule with comment period, we have developed
payment weights that we believe resolve many of the public concerns
regarding appropriate payments for new technology services and device-
dependent procedures that we believe are furnished largely by teaching
hospitals. We believe this and other payment changes should help ensure
adequate and appropriate payment for teaching hospitals.
Comment: One commenter supported CMS' proposal to discard claims
that contain token charges for packaged devices but opposed discarding
claims when there is only one separately paid procedure on the claim,
although there are other packaged services billed with token charges on
other lines of the claim.
Response: We have not discarded claims that contain token charges
where there is only one separately paid procedure on the claim if there
are other packaged services billed with token charges on other lines of
the claim. We discarded claims with token charges only when such claims
included token charges for devices with procedure codes that are
assigned to device-dependent APCs, because we instructed hospitals to
bill token charges for devices that were replaced without cost to the
provider due for example, to warranty, field action or recall. We also
discarded claims that, as submitted, contained token charges for
separately paid (not packaged) procedure codes, which during claims
processing were converted to imputed charges for purposes of applying
the outlier policy and which came to us through the national claims
history with the imputed charges. These claims are identified with a
packaging flag 3 and are excluded because the charges shown on the
claim we receive were not the charges submitted by the provider. We
discuss this in more detail in the CY 2007 final rule claims accounting
on the CMS OPPS Web page at http://www.cms.hhs.gov/HospitalOutpatientPPS/
.

After carefully considering all public comments received, we are
finalizing the list of packaged services by revenue code shown in Table
2 and our data process for calculating the median costs for OPPS
services furnished on or after January 1, 2007, without modification.
Table 2 below contains the list of packaged services by revenue code
that we used in developing the APC relative weights listed in Addenda A
and B of this final rule with comment period.

Table 2.--CY 2007 Packaged Services by Revenue Code
------------------------------------------------------------------------
Revenue code Description
------------------------------------------------------------------------
250............................... PHARMACY.

[[Page 67990]]

251............................... GENERIC.
252............................... NONGENERIC.
254............................... PHARMACY INCIDENT TO OTHER
DIAGNOSTIC.
255............................... PHARMACY INCIDENT TO RADIOLOGY.
257............................... NONPRESCRIPTION DRUGS.
258............................... IV SOLUTIONS.
259............................... OTHER PHARMACY.
260............................... IV THERAPY, GENERAL CLASS.
262............................... IV THERAPY/PHARMACY SERVICES.
263............................... SUPPLY/DELIVERY.
264............................... IV THERAPY/SUPPLIES.
269............................... OTHER IV THERAPY.
270............................... M&S SUPPLIES.
271............................... NONSTERILE SUPPLIES.
272............................... STERILE SUPPLIES.
274............................... PROSTHETIC/ORTHOTIC DEVICES.
275............................... PACEMAKER DRUG.
276............................... INTRAOCULAR LENS SOURCE DRUG.
278............................... OTHER IMPLANTS.
279............................... OTHER M&S SUPPLIES.
280............................... ONCOLOGY.
289............................... OTHER ONCOLOGY.
290............................... DURABLE MEDICAL EQUIPMENT.
343............................... DIAGNOSTIC RADIOPHARMS.
344............................... THERAPEUTIC RADIOPHARMS.
370............................... ANESTHESIA.
371............................... ANESTHESIA INCIDENT TO RADIOLOGY.
372............................... ANESTHESIA INCIDENT TO OTHER
DIAGNOSTIC.
379............................... OTHER ANESTHESIA.
390............................... BLOOD STORAGE AND PROCESSING.
399............................... OTHER BLOOD STORAGE AND PROCESSING.
560............................... MEDICAL SOCIAL SERVICES.
569............................... OTHER MEDICAL SOCIAL SERVICES.
621............................... SUPPLIES INCIDENT TO RADIOLOGY.
622............................... SUPPLIES INCIDENT TO OTHER
DIAGNOSTIC.
624............................... INVESTIGATIONAL DEVICE (IDE).
630............................... DRUGS REQUIRING SPECIFIC
IDENTIFICATION, GENERAL CLASS.
631............................... SINGLE SOURCE.
632............................... MULTIPLE.
633............................... RESTRICTIVE PRESCRIPTION.
681............................... TRAUMA RESPONSE, LEVEL I.
682............................... TRAUMA RESPONSE, LEVEL II.
683............................... TRAUMA RESPONSE, LEVEL III.
684............................... TRAUMA RESPONSE, LEVEL IV.
689............................... TRAUMA RESPONSE, OTHER.
700............................... CAST ROOM.
709............................... OTHER CAST ROOM.
710............................... RECOVERY ROOM.
719............................... OTHER RECOVERY ROOM.
720............................... LABOR ROOM.
721............................... LABOR.
762............................... OBSERVATION ROOM.
810............................... ORGAN ACQUISITION.
819............................... OTHER ORGAN ACQUISITION.
942............................... EDUCATION/TRAINING.
------------------------------------------------------------------------

3. Calculation of Scaled OPPS Payment Weights
Using the median APC costs discussed previously, we calculated the
final relative payment weights for each APC for CY 2007 shown in
Addenda A and B of this final rule with comment period. In prior years,
we scaled all the relative payment weights to APC 0601 (Mid Level
Clinic Visit) because it is one of the most frequently performed
services in the hospital outpatient setting. We assigned APC 0601 a
relative payment weight of 1.00 and divided the median cost for each
APC by the median cost for APC 0601 to derive the relative payment
weight for each APC.
As proposed, for the CY 2007 OPPS, we scaled all of the relative
payment weights to APC 0606 (Level 3 Clinic Visits) because we deleted
APC 0601, as part of the reconfiguration of the visit APCs. We chose
APC 0606 as the scaling base because under our proposal to reconfigure
the APCs where clinic visits are assigned for CY 2007, APC 0606 is the
middle level clinic visit APC (that is, Level 3 of five levels). We
have historically used the median cost of the middle level clinic visit
APC (that is APC 0601 through CY 2006) to calculate unscaled weights
because mid-level clinic visits are among the most frequently performed
services in the hospital outpatient setting. Therefore, to maintain
consistency in using a median

[[Page 67991]]

for calculating unscaled weights representing the median cost of some
of the most frequently provided services, we proposed to continue to
use the median cost of the middle level clinic APC, proposed APC 0606,
to calculate unscaled weights. Following our standard methodology, but
using the CY 2007 median for APC 0606, we assigned APC 0606 a relative
payment weight of 1.00 and divided the median cost of each APC by the
median cost for APC 0606 to derive the unscaled relative payment weight
for each APC. The choice of the APC on which to base the relative
weights for all other APCs does not affect the payments made under the
OPPS because we scale the weights for budget neutrality.
Section 1833(t)(9)(B) of the Act requires that APC reclassification
and recalibration changes, wage index changes, and other adjustments be
made in a manner that assures that aggregate payments under the OPPS
for CY 2007 are neither greater than nor less than the aggregate
payments that would have been made without the changes. To comply with
this requirement concerning the APC changes, we compared aggregate
payments using the CY 2006 relative weights to aggregate payments using
the CY 2007 final relative payment weights. Based on this comparison,
we adjusted the relative weights for purposes of budget neutrality. The
unscaled relative payment weights were adjusted by 1.364598352 for
budget neutrality. We recognize the scaler, or weight scaling factor,
for budget neutrality that we proposed for CY 2007 is higher than any
previous OPPS weight scaler as a result of our proposal to use APC 0606
as the base for calculation of relative weights. Our use of the median
cost for APC 0606 of $83.39 based on final rule with comment period
data causes the unscaled weights to be lower than they would have been
if we had chosen APC 0605 (Level 2 Clinic Visits; median $60.13 as the
scaling base. The CY 2007 median cost of APC 0606 is significantly
higher than the CY 2006 median cost of APC 0601 for mid-level clinic
visits, which was used in CY 2006 and earlier years to calculate
unscaled weights. Historically, the median cost for APC 0601 has been
similar to the CY 2007 proposed median cost for APC 0605. In order to
appropriately scale the total weight estimated for OPPS in CY 2007 to
be similar to the total weight in OPPS for CY 2006, we calculated a
scaler of 1.364598352 for this final rule with comment period, which is
higher using APC 0606 as the base than it would be if we used APC 0605
as the base. In addition to adjusting for increases and decreases in
weight due the recalibration of APC medians, the scaler also accounts
for any change in the base.
The final relative payment weights listed in Addenda A and B of
this final rule with comment period incorporate the recalibration
adjustments discussed in sections II.A.1. and 2. of this preamble.
Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of
Pub. L. 108-173, states that ``Additional expenditures resulting from
this paragraph shall not be taken into account in establishing the
conversion factor, weighting and other adjustment factors for 2004 and
2005 under paragraph (9) but shall be taken into account for subsequent
years.'' Section 1833(t)(14) of the Act provides the payment rates for
certain ``specified covered outpatient drugs.'' Therefore, the cost of
those specified covered outpatient drugs (as discussed in section V. of
this preamble) is now included in the budget neutrality calculations
for CY 2007 OPPS.
Under section 1833(t)(16)(C) of the Act, as added by section
621(b)(1) of Pub. L. 108-173, payment for devices of brachytherapy
consisting of a seed or seeds (or radioactive source) is to be made at
charges adjusted to cost for services furnished on or after January 1,
2004, and before January 1, 2007. As we stated in our January 6, 2004
interim final rule, charges for the brachytherapy sources were not used
in determining outlier payments, and payments for these items were
excluded from budget neutrality calculations for the CY 2006 OPPS. We
excluded these payments from budget neutrality calculations, in part,
because of the challenge posed by estimating hospital-specific cost
payment. As proposed, for CY 2007, we calculated specific payment rates
for brachytherapy sources, which were subjected to scaling for budget
neutrality. (We provide a discussion of brachytherapy payment issues,
including their CY 2007 treatment with respect to outlier payments,
under section VII. of this preamble.) Therefore, the costs of
brachytherapy sources are accounted for in the scaler of 1.364598352.
4. Changes to Packaged Services
Payments for packaged services under the OPPS are bundled into the
payments providers receive for separately payable services provided on
the same day. Packaged services are identified by the status indicator
``N.'' Hospitals include charges for packaged services on their claims,
and the costs associated with these packaged services are then bundled
into the costs for separately payable procedures on those same claims
in establishing payment rates for the separately payable services. This
is consistent with the principles of a prospective payment system based
upon groupings of services and in contrast to a fee schedule that
provides individual payment for each service billed. Hospitals may use
CPT codes to report any packaged services that were performed,
consistent with CPT coding guidelines.
As a result of requests from the public, a Packaging Subcommittee
to the APC Panel was established to review all the procedural CPT codes
with a status indicator of ``N.'' Providers have often suggested that
many packaged services could be provided alone, without any other
separately payable services on the claim, and requested that these
codes not be assigned status indicator ``N.'' In deciding whether to
package a service or pay for a code separately, we consider a variety
of factors, including whether the service is normally provided
separately or in conjunction with other services; how likely it is for
the costs of the packaged code to be appropriately mapped to the
separately payable codes with which it was performed; and whether the
expected cost of the service is relatively low.
The Packaging Subcommittee identified areas for change for some
packaged CPT codes that it believed could frequently be provided to
patients as the sole service on a given date and that required
significant hospital resources as determined from hospital claims data.
Based on the comments received, additional issues, and new data
that we shared with the Packaging Subcommittee concerning the packaging
status of codes for CY 2007, the Packaging Subcommittee reviewed the
packaging status of numerous HCPCS codes and reported its findings to
the APC Panel at its March 2006 meeting. The APC Panel accepted the
report of the Packaging Subcommittee, heard several presentations on
certain packaged services, discussed the deliberations of the Packaging
Subcommittee, and recommended that--
CMS pay separately for HCPCS code 0069T (Acoustic heart
sound recording and computer analysis; acoustic heart sound and
computer analysis only).
CMS maintain the packaged status of HCPCS code 0152T
(Computer aided detection with further physician review for
interpretation, with or without digitization of films radiographic
images; chest radiograph(s)).

[[Page 67992]]

CMS maintain the packaged status of CPT code 36500 (Venous
catheterization for selective blood organ sampling).
CMS pay separately for CPT code 36540 (Collection of blood
specimen from a completely implantable venous access device) if there
are no separately payable OPPS services on the claim.
CMS pay separately for CPT code 36600 (Arterial puncture;
withdrawal of blood for diagnosis) if there are no separately payable
OPPS services on the claim.
CMS pay separately for CPT code 38792 (Injection procedure
for identification of sentinel node) if there are no separately payable
OPPS services on the claim.
CMS maintain the packaged status of CPT codes 74328
(Endoscopic catheterization of the biliary ductal system, radiological
supervision and interpretation), 74329 (Endoscopic catheterization of
the pancreatic ductal system, radiological supervision and
interpretation), and 74330 (Combined endoscopic catheterization of the
biliary and pancreatic ductal systems, radiological supervision and
interpretation).
CMS pay separately for CPT code 75893 (Venous sampling
through catheter, with or without angiography (eg, for parathyroid
hormone, rennin), radiological supervision and interpretation) if there
are no separately payable OPPS services on the claim.
CMS continue to separately pay for CPT code 76000
(Fluoroscopy (separate procedures), up to one hour physician time,
other than 71023 or 71024 (eg, cardiac fluoroscopy)).
CMS maintain the packaged status of CPT codes 76001
(Fluoroscopy, physician time more than one hour, assisting a non-
radiologic physician (eg, nephrostolithotomy, ERCP, bronchoscopy,
transbronchial biopsy)), 76003 (Fluoroscopic guidance for needle
placement (eg, biopsy, aspiration, injection, localization device)),
and 76005 (Fluoroscopic guidance and localization of needle or catheter
tip for spine or paraspinous diagnostic or therapeutic injection
procedures (epidural, transforaminal epidural, subarachnoid,
paravertebral fact joint, paravertebral facet joint nerve or sacroiliac
joint), including neurolytic agent destruction).
CMS maintain the packaged status of CPT codes 76937
(Ultrasound guidance for vascular access requiring ultrasound
evaluation of potential access sites, documentation of selected vessel
patency, concurrent realtime ultrasound visualization of vascular
needle entry, with permanent recording and reporting) and 75998
(Fluoroscopic guidance for central venous access device placement,
replacement (catheter only or complete), or removal (includes
fluoroscopic guidance for vascular access and catheter manipulation,
any necessary contrast injections through access site or catheter with
related venography radiologic supervision and interpretation, and
radiographic documentation of final catheter position)).
CMS provide separate payment for CPT codes 94760
(Noninvasive ear or pulse oximetry for oxygen saturation; single
determination), 94761 (Noninvasive ear or pulse oximetry for oxygen
saturation; multiple determinations), and 94762 (Noninvasive ear or
pulse oximetry for oxygen saturation by continuous overnight
monitoring) if there are no separately payable OPPS services on the
claim.
CMS pay separately for CPT code 96523 (Irrigation of
implanted venous access device for drug delivery systems) if there are
no separately payable OPPS services on the claim.
CMS maintain the packaged status of HCPCS code G0269
(Placement of occlusive device into either a venous or arterial access
site).
CMS pay separately for HCPCS code P9612 (Catheterization
for collection of specimen, single patient) if there are no separately
payable OPPS services on the claim.
CMS bring data to the next APC Panel meeting that show the
following: (a) how the costs of packaged items and services are
incorporated into the median costs of APCs and (b) how the costs of
these packaged items and services influence payments for associated
procedures.
The Packaging Subcommittee continue until the next APC
Panel meeting.
At its August 2006 meeting, the Packaging Subcommittee further
discussed the packaging status of several of the HCPCS codes described
above and reported its findings to the APC Panel. The APC Panel
accepted the report of the Packaging Subcommittee, heard one
presentation, reviewed one written comment, and discussed the
deliberations of the Packaging Subcommittee. The APC Panel made the
following recommendations for CY 2007:
+ That CMS package new CPT codes 0174T, Computer aided detection
(CAD) (computer algorithm analysis of digital image data for lesion
detection) with further physician review for interpretation and report,
with or without digitization of film radiographic images, chest
radiograph(s), performed concurrent with primary interpretation (List
separately in addition to code for primary procedure), and 0175T,
Computer aided detection (CAD ) (computer algorithm analysis of digital
image data for lesion detection) with further physician review for
interpretation and report, with or without digitization of film
radiographic images, chest radiograph(s), performed remote from primary
interpretation).
+ That CMS continue to package revised CPT code 0069T (Acoustic
heart sound recording and computer analysis; acoustic heart sound
recording and computer analysis only).
+ That CMS assign CPT code 96523 (Irrigation of implanted venous
access device for drug delivery systems) status indicator ``Q'' as a
``special'' packaged code.
For CY 2007, we proposed to maintain CPT code 0069T as a packaged
service and not adopt the APC Panel's March 2006 recommendation to pay
separately for this code. The service uses signal processing technology
to detect, interpret, and document acoustical activities of the heart
through special sensors applied to a patient's chest. This code was a
new Category III CPT code implemented in the CY 2005 OPPS and assigned
a new interim status indicator of ``N'' in the CY 2005 OPPS final rule
with comment period. The APC Panel recommended packaging CPT code 0069T
for CY 2006, and we accepted that recommendation when we finalized the
status indicator ``N'' assignment to 0069T for CY 2006. CPT code 0069T
is an add-on code to an electrocardiography (ECG) service for CYs 2005
and 2006. However on July 1, 2006, the AMA released to the public a
code descriptor change to remove the add-on code designation for CPT
code 0069T. The effective date of this change is January 1, 2007, at
which point the descriptor will be ``Acoustic heart sound recording and
computer analysis; acoustic heart sound recording and computer analysis
only.'' We do not include Category III CPT codes that are released in
July of a given year in the OPPS proposed rule for the following
calendar year because of timing restraints. We include these codes in
the OPPS final rule where they are assigned interim comment indicator
``NI'' to denote that they are open for public comment.
In its March 2006 presentation to the APC Panel, a manufacturer
requested that we pay separately for CPT code 0069T and assign it to
APC 0099 (Electrocardiograms), based on its estimated cost and clinical
characteristics. The manufacturer stated

[[Page 67993]]

that the acoustic heart sound recording and analysis service may be
provided with or without a separately reportable electrocardiogram.
Members of the APC Panel engaged in extensive discussion of clinical
scenarios as they considered whether CPT code 0069T could or could not
be appropriately reported alone or in conjunction with several
different procedure codes.
During the August 2006 meeting, the Packaging Subcommittee further
discussed CMS's proposal to package CPT 0069T for CY 2007 and the CY
2007 code descriptor change, and ultimately recommended to the APC
Panel that CMS continue to package this code for CY 2007. The APC Panel
accepted this recommendation.
Comment: One commenter requested that CMS pay separately for CPT
code 0069T for CY 2007, mapping the code to an APC paying between $63
and $97. The commenter clarified that this service is sometimes
provided with an ECG and sometimes provided without an ECG, according
to its revised descriptor for CY 2007. The commenter could not explain
the low median cost that was calculated from the claims data, but
suggested that the nine claims used to calculate the median were
miscoded. The commenter estimated the cost of the service to be
approximately $80 per procedure, significantly higher than the median
cost for APC 0099 (Electrocardiograms), which was $23.60 based on the
CY 2005 data that were used to calculate the CY 2007 proposed median
costs. Though the commenter agreed that it would be rare for the
acoustic heart sound procedure to be performed alone without any other
OPPS services, the commenter disagreed that the procedure would be
``associated'' with other services. Instead, the commenter clarified
that it could be provided with a broad range of services, such as an
emergency department visit, clinic visit, chest x-ray, or ECG. In
addition, the commenter did not expect this service to have a
meaningful impact on the median costs of those services because
acoustic heart services are expected to be provided infrequently,
compared to the total number of emergency department and clinic visits,
chest x-rays, and ECGs.
Response: Despite the change in add-on status for CPT code 0069T
for CY 2007, based on the clinical uses that were described during the
March 2006 APC Panel meeting and in the public comments, we believe
that it is highly unlikely that CPT code 0069T would be performed in
the hospital outpatient department as a sole service without other
separately payable OPPS services. Payment for CPT code 0069T could
always be packaged into payments for those other services. Therefore,
we believe that CPT code 0069T is appropriately packaged because it
would usually be closely linked to the performance of an ECG, and would
rarely, if ever, be the only OPPS service provided to a patient. We
understand that the commenter is clarifying that this service is not
required to be provided in conjunction with an ECG. However, we
continue to believe that it is likely that an ECG or other separately
payable service would be performed on the patient in conjunction with
the acoustic heart sound service. Therefore, we believe that it is
appropriate to continue packaging CPT code 0069T for CY 2007. In
addition, this service is estimated to require only minimal hospital
resources. Using CY 2005 claims that have been updated with more recent
CCRs, we had only nine single claims for CPT code 0069T, with a median
line-item cost of $2.45, consistent with its low expected cost.
Packaging payment for CPT code 0069T is consistent with the principles
of a prospective payment system that provides payments for groups of
services. To the extent that the acoustic heart sounding recording
service may be more frequently provided in the future in association
with ECGs or other OPPS services as its clinical indications evolve, we
expect that its cost would also be increasingly reflected in the median
costs for those other services, particularly ECG procedures.
After carefully considering all comments received, we are adopting
the APC Panel's August 2006 recommendation to continue to package this
code for CY 2007. Therefore we are finalizing our proposal without
modification to maintain CPT code 0069T as a packaged service for CY
2007.
For CY 2007, we proposed to accept the APC Panel's recommendation
to maintain the packaged status of CPT code 0152T. The service involves
the application of computer algorithms and classification technologies
to chest x-ray images to acquire and display information regarding
chest x-ray regions that may contain indications of cancer. This code
was a new Category III CPT code implemented in the CY 2006 OPPS and
assigned a new interim status indicator of ``NI'' in the CY 2006 OPPS
final rule with comment period. For CY 2006, the code is indicated as
an add-on code to chest x-ray CPT codes, according to the AMA's CY 2006
CPT book. However, on July 1, 2006, the AMA released to the public an
update that deletes code 0152T for CY 2007 and replaces it with two new
Category III CPT codes, 0174T and 0175T. Effective January 1, 2007, the
descriptor for CPT code 0174T will be ``Computer aided detection (CAD)
(computer algorithm analysis of digital image data for lesion
detection) with further physician review for interpretation and report,
with or without digitization of film radiographic images, chest
radiograph(s), performed concurrent with primary interpretation (List
separately in addition to code for primary procedure) and the
descriptor for 0175T will be ``Computer aided detection (CAD) (computer
algorithm analysis of digital image data for lesion detection) with
further physician review for interpretation and report, with or without
digitization of film radiographic images, chest radiograph(s),
performed remote from primary interpretation.''
As indicated above, we do not include Category III CPT codes that
are released in July of a given year in the OPPS proposed rule for the
following calendar year because of timing restraints. We include these
codes in the OPPS final rule, where they are assigned new interim
comment indicator ``NI'' to denote that they are open to comment.
In its March 2006 presentation to the APC Panel, before the AMA had
released the CY 2007 changes to this code, the manufacturer requested
that we pay separately for this service and assign it to a New
Technology APC with a payment rate of $15, based on its estimated cost,
clinical considerations, and similarity to other image post-processing
services that are paid separately. We proposed to accept the APC
Panel's recommendation to package CPT code 0152T for CY 2007.
In its August 2006 presentation to the APC Panel, after the AMA had
released the CY 2007 code changes, the manufacturer requested that we
assign both of these two new codes to a New Technology APC with a
payment rate of $15. The APC Panel members discussed these codes
extensively. They considered the possibility of treating CPT code 0175T
as a ``special'' packaged code, thereby assigning payment to the code
only when it was performed by a hospital without any other separately
payable OPPS service also provided on the same day. They questioned the
meaning of the word ``remote'' in the code descriptor for CPT code
0175T, noting that is was unclear as to whether ``remote'' referred to
time, geography, or a specific provider. They thought it was likely
that a hospital without a CAD system that performed a chest x-ray and
sent the x-ray to another hospital for performance of the CAD would be
providing the CAD service under arrangement and, therefore, would be
providing at least one other

[[Page 67994]]

service (chest x-ray) that would be separately paid. Thus, even in
these cases, payment for the CAD service could be appropriately
packaged. After significant deliberation, the Panel recommended that we
package both of the new CPT codes, 0174T and 0175T, for CY 2007.
Comment: One commenter requested that CMS pay separately for CPT
codes 0174T and 0175T, mapping them to New Technology APC 1492, with a
payment rate of $15. The commenter indicated that there is no basis for
believing that chest x-ray computer-aided detection (CAD) will increase
the number of chest x-rays performed in the outpatient setting, because
chest x-ray CAD is not a screening tool and should only be applied to
chest x-rays that are suspicious for lung cancer. The commenter also
indicated that separate resources are required for chest x-ray CAD that
are not required for a standard chest x-ray. In addition, the commenter
stated that chest x-ray CAD can be performed at a different time or
location or by a different provider than the chest x-ray. In these
cases, the commenter believed that separate payment would be
appropriate. The commenter was concerned that if hospitals are not paid
separately for this technology, they will not be able to provide it,
thereby limiting beneficiary access to chest x-ray CAD.
Response: We agree with the APC Panel that packaged payment for
chest x-ray CAD under a prospective payment methodology for outpatient
hospital services is appropriate because of the close relationship of
chest x-ray CAD to chest x-ray services and its projected modest cost.
We do not believe that CPT code 0174T would ever be performed as a sole
service without other separately payable OPPS services, based on the
code definition as an add-on service performed concurrent with the
primary interpretation of a chest x-ray. We believe that payment for
CPT code 0174T is appropriately packaged into payment for the chest x-
ray services it accompanies. Payment for chest x-rays is provided
through APC 0260 (Level I Plain Film Except Teeth), with a CY 2007
median cost of $43.35. The median costs for the individual x-ray
services that can be reported with the CAD technology range from $36.00
to $56.11, easily overlapping the modest additional costs of providing
chest x-ray CAD services. Although CPT code 0175T applies to chest x-
ray CAD that is ``remote'' from the primary interpretation, the
definition of ``remote'' as used in the code descriptor is vague, with
respect to time, geography, or a specific provider, so the
circumstances in which it would be the only service provided by a
hospital are also unclear. As discussed by the APC Panel if an x-ray
were sent to another hospital for performance of the CAD, the CAD
service would likely be provided under arrangement, in which case the
hospital that performed the x-ray would bill for both the x-ray and the
CAD service. It is unnecessary to treat CPT code 0175T as a ``special''
packaged code because generally the payment for the x-ray CAD would be
bundled into the payment for the chest x-ray. While we have no costs
from claims data because 0152T was a new CPT code for CY 2006, and
0174T and 0175T are new codes for CY 2007, we estimate that the CAD
service requires only modest resources. We expect that a hospital's
cost per chest x-ray CAD service would largely depend on the volume of
CAD services provided. To the extent that CAD may be more frequently
provided in the future to aid in the review of diagnostic chest x-rays
as its clinical indications evolve, we expect that its cost would also
be increasingly reflected in the median costs for chest x-ray
procedures.
After carefully considering all public comments received on this
proposal, we are accepting the APC Panel's August 2006 recommendation
to package new CPT codes 0174T and 0175T for CY 2007 on an interim
final basis.
For CY 2007, we proposed to accept the recommendation of the APC
Panel and maintain the packaged status of CPT code 36500. As noted in
the CY 2007 OPPS proposed rule (71 FR 49535) we have heard that CPT
code 36500 is sometimes billed only with its corresponding radiological
supervision and interpretation code, 75893, but with no other
separately payable OPPS services. In those cases, the provider would
not receive any payment. For CY 2006, we accepted the APC Panel's
recommendation to package both CPT codes 36500 and 75893 and to examine
claims data. Our initial review of several clinical scenarios submitted
by the public seemed to suggest that other separately payable
procedures, such as venography, would likely be billed on the same
claim. Our claims data indicate that there are usually separately
payable codes that are billed on claims with CPT codes 36500 and 75893.
However, we acknowledge that these two codes may occasionally be
provided without any separately payable procedures. In these uncommon
instances, the provider historically has not received any payment under
the OPPS. We also understand that there is a cost associated with
registering a patient and providing these services. Using CY 2005
claims, we have approximately 200 single claims for CPT code 75893,
with a median cost of $269.13. As proposed for CY 2007 and described
below for ``special'' packaged codes, when CPT codes 36500 and 75893
are billed on a claim with no separately payable OPPS services, CPT
code 75893 would become separately payable and would receive payment
for APC 0668. In this circumstance, payment for CPT code 36500 would be
packaged into the separate payment for CPT code 75893.
We received no public comments on our proposal. Therefore, we are
finalizing our proposal to accept the APC Panel's recommendation to
maintain the packaged status of CPT code 36500 without modification.
For CY 2007, we proposed to accept the APC Panel's recommendation
and pay separately for CPT codes 36540, 36600, 38792, 75893, 94762, and
96523 when any of these codes appear on a claim with no separately
payable OPPS services also reported for the same date of service. We
will refer to this subset of codes as ``special'' packaged codes. We
acknowledge that there is a cost to the hospital associated with
registering and treating a patient, regardless of whether the specific
service provided requires minimal or significant hospital resources.
While we continue to believe that these ``special'' packaged codes are
almost always provided along with a separately payable service, our
claims analyses indicate that there are rare instances when one of
these services is provided without another separately payable OPPS
service on the claim for the same date of service. In these instances,
providers do not currently receive any payment. Therefore, we proposed
to provide payment for the ``special'' packaged codes listed above when
they are billed on a claim without another separately payable OPPS
service on the same date. When any of the ``special'' packaged codes
are billed with other codes that are separately payable under the OPPS
on the same date of service, the ``special'' packaged code would be
treated as a packaged code, and the cost of the packaged code would be
bundled into the costs of the other separately payable services on the
claim. The payments that the provider receives for the separately
payable services would include the bundled payment for the packaged
code(s).
During the August 2006 APC Panel meeting, the APC Panel reviewed a
request from the public to assign payment to CPT code 96523 when it
appears on a claim with no separately payable OPPS services also
reported for the same date of service. The Panel

[[Page 67995]]

recommended that we treat CPT code 96523 as a ``special'' packaged code
for CY 2007.
We have heard concerns from the public stating that they are unable
to submit claims to CMS that report only packaged codes. We note that
although these claims are processed by the OCE and are ultimately
rejected for payment, they are received by CMS, and we have cost data
for packaged services based upon these claims. However, we recognize
that the data used in our analyses to assess the frequencies with which
packaged services are provided alone and their median costs are
somewhat limited. It is possible that an unknown number of hospitals
chose not to submit claims to CMS when a packaged code(s) was provided
without other separately payable services on their claims, realizing
that they would not receive payment for those claims. While we have
been told that some hospitals may bill for a low-level visit if a
packaged service only is provided so that they receive some payment for
the encounter, we note that providers should bill a low-level visit
code in such circumstances only if the hospital provides a significant,
separately identifiable low-level visit in association with the
packaged service.
Through OCE logic, the PRICER would automatically assign payment
for a ``special'' packaged service reported on a claim if there are no
other services separately payable under the OPPS on the claim for the
same date of service. In all other circumstances, the ``special''
packaged codes would be treated as packaged services. We assign status
indicator ``Q'' to these ``special'' packaged codes to indicate that
they are usually packaged, except for special circumstances when they
are separately payable. Through OCE logic, the status indicator of a
``special'' packaged code would be changed either to ``N'' or to the
status indicator of the APC to which the code is assigned for separate
payment, depending upon the presence or absence of other OPPS services
also reported on the claim for the same date. Table 3 included in the
CY 2007 OPPS proposed rule (71 FR 49536) and shown below listed the
proposed status indicators and APC assignments for these ``special''
packaged codes when they are separately payable. We note that the
payment for these ``special'' packaged codes is intended to make
payment for all of the hospital costs, which may include patient
registration and establishment of a medical record, in an outpatient
hospital setting even when no separately payable services are provided
to the patient on that day.
In the case of a claim with two or more ``special'' packaged codes
only reported on a single date of service, the PRICER would assign
separate payment only to the ``special'' packaged code that would
receive the highest payment. The other ``special'' codes would remain
packaged and would not receive separate payment.
Comment: Many commenters complimented the Packaging Subcommittee
for their efforts to improve payment under the OPPS. In addition, the
commenters further commended the Packaging Subcommittee and CMS for
proposing to provide payment for ``special'' packaged codes under
certain circumstances. One commenter stated that ``special'' packaged
codes further complicate an already complicated system and requested
that CMS consistently either package a code or pay separately for a
code, but not both.
Response: We appreciate the commenters' support and plan to
continue working with the Packaging Subcommittee to review other
packaged codes that are brought to our attention by the public. While
we acknowledge that ``special'' packaged codes add a layer of
complexity to a complicated payment system, we continue to believe that
it is appropriate to assign payment to ``special'' codes under certain
circumstances. We note the ``special'' packaged code policy should
impose no additional reporting burden on hospital billing staff because
the OCE is automatically programmed to assign payment when appropriate.
Comment: One commenter appreciated that CMS clarified that a
hospital cannot bill a CPT E/M code simply because the hospital would
like to receive payment for the packaged service that was provided. The
commenter asked that CMS also clarify whether this applies only to
packaged services, or if it also applies to a service for which there
is no applicable HCPCS code. Another commenter noted that CMS is now
contradicting Transmittal A-02-129, which states that hospitals can
bill a low level clinic visit with CPT code 97602 (Removal of
devitalized tissue from wound(s), non-selective debridement, without
anesthesia (eg, wet-to-moist dressings, enzymatic, abrasion), including
topical application(s), wound assessment, and instruction(s) for
ongoing care, per session) to receive payment.
Response: Providers should bill a low-level visit code only if the
hospital provides a significant, separately identifiable visit from any
other service provided. This general rule applies to any service
provided by a hospital. As discussed below in section IX.A, we would
expect that the hospital resources associated with a visit would be
reflected in the hospital's internal guidelines used to select the
level of reporting for the visit. The hospital should bill the clinic
visit code that most appropriately describes the service provided. We
acknowledge that Transmittal A-02-129 is based upon our past policy
that a hospital could bill a low level visit code in addition to CPT
code 97602, which was then packaged in CY 2003, at the time of the
instruction. However, beginning in CY 2006 we have provided separate
payment for CPT 97602 when it is performed as a nontherapy service in
the hospital outpatient setting. Therefore, the instruction is no
longer relevant and will be revised, because hospitals are now able to
report and be paid for this wound care service with the most specific
CPT code available. This OPPS payment policy for nontherapy,
nonselective wound care services will continue for CY 2007. In
circumstances where there is no applicable HCPCS code to describe a
distinct service, hospitals should continue to report the most
appropriate unlisted procedure or unlisted services CPT code. In
summary, with respect to the billing of low level visit CPT codes, as
described above, our current policy dictates that hospitals may only
bill a low-level visit code if the hospital provides a significant,
separately identifiable visit from any other service provided.
Comment: One commenter thanked CMS for clarifying that CMS receives
claims with only packaged codes that may be used for data analysis. The
commenter also stated that it hoped that the ``special'' packaged codes
policy would convince its hospital billing department to submit claims
with only packaged services on them, so that CMS would have cost data
for these codes. Other commenters asked that CMS clarify that it
receives claims with only packaged codes and no separately payable
codes.
Response: We will clarify again that claims with only packaged
codes are received and processed by the OCE. We can access cost data
for all of the packaged codes on the claim. We encourage hospitals to
continue to submit claims to CMS with only packaged codes because these
submissions will allow us to continue to gather cost data for these
codes, and help us determine whether it would be appropriate to add
additional packaged codes to the ``special'' packaged codes list.

[[Page 67996]]

After carefully considering the public comments received, we are
adopting without modification, our proposal to accept the APC Panel's
March 2006 recommendation to treat CPT codes 36540, 36600, 38792,
75893, 94762, and 96523 as ``special'' packaged codes. We note that we
also are adopting the APC Panel's August 2006 recommendation to treat
CPT code 96523 as a ``special'' packaged code. The APC assignments for
these codes are shown in Table 3 below. These codes are assigned status
indicator ``Q'' in Addendum B to this final rule with comment period.

Table 3.--Status Indicators and APC Assignments for ``Special'' Packaged CPT Codes
----------------------------------------------------------------------------------------------------------------
CY 2007 APC
CPT code Descriptor CY 2007 APC Status indicator median
----------------------------------------------------------------------------------------------------------------
36540..................... Collect blood, venous 0624 S........................ $31.44
access device.
36600..................... Arterial puncture; 0035 T........................ 12.22
withdrawal of blood for
diagnosis.
38792..................... Sentinel node 0389 S........................ 84.05
identification.
75893..................... Venous sampling through 0668 S........................ 381.71
catheter, with or
without angiography,
radiological supervision
and interpretation.
94762..................... Noninvasive ear or pulse 0443 X........................ 63.61
oximetry for oxygen
saturation by continuous
overnight monitoring.
96523..................... Irrigation of implanted 0624 S........................ 31.44
venous access device.
----------------------------------------------------------------------------------------------------------------

We will monitor and analyze the claims frequency and claims detail
for situations in which these codes are billed alone and then
separately paid. This will allow us to determine both which providers
are billing these codes most often and under what circumstances these
codes are billed and separately paid. We expect that hospitals
scheduling and providing services efficiently to Medicare beneficiaries
will continue to generally provide these minor services in conjunction
with other medically necessary services.
For CY 2007, we proposed to accept the APC Panel's recommendation
and maintain the packaged status of CPT codes 74328, 74329, and 74330.
The AMA notes that these radiological supervision and interpretation
codes should be reported with procedure CPT codes 43260-43272. In fact,
our data indicate that these supervision and interpretation codes are
billed with 43260-43272 more than 90 percent of the time, indicating
their routine use. We believe that some providers may be concerned that
although the payment for the endoscopic procedure includes the bundled
payment for the supervision and interpretation performed by the
radiology department, the payment for the comprehensive service may be
directed to the hospital department that performed the endoscopic
procedure, rather than to the radiology department. While we understand
this concern, the OPPS pays hospital for services provided, and we
believe that hospitals are responsible for attributing payments to
hospital departments as they believe appropriate. We do not believe
that packaging these radiological supervision and interpretation codes
leads to inaccurate payments for the full hospital resources associated
with endoscopic retrograde cholangiopancreatography procedures.
We received no public comments on our proposal. Therefore, we are
adopting our proposal to accept the APC Panel's recommendation and
maintain the packaged status of CPT codes 74328, 74329, and 74330 for
CY 2007.
For CY 2007, we proposed to accept the APC Panel's recommendation
to continue to package CPT codes 76001, 76003, and 76005 and to
continue to pay separately for CPT code 76000. As noted in the CY 2007
proposed rule (71 FR 49536), we received a comment which stated that it
was inconsistent to pay separately for CPT code 76000 but to package
CPT code 76001, when CPT code 76001 appears to be a similar code,
except that it is for a longer period of physician time. The Packaging
Subcommittee believed that many of the claims that listed CPT code
76001 were erroneously billed, as many of the procedure codes that were
billed with CPT code 76001 included fluoroscopy as an integral part of
the procedure. In other cases, the Packaging Subcommittee noted that a
procedure-specific fluoroscopy code should probably have been billed,
instead of CPT code 76001. The Packaging Subcommittee believed that CPT
code 76000 could often be provided as a sole service, with no other
separately payable procedures. The Packaging Subcommittee recommended
that CMS continue to pay separately for CPT code 76000, consistent with
the AMA's definition of this code, which specifies that it is a
separate procedure, and to continue to package CPT codes 76001, 76003,
and 76005.
We received no public comments that objected to our proposal.
Therefore, we are adopting our proposal, without modification, to
accept the APC Panel's recommendation to continue to package CPT codes
76001, 76003, and 76005 and to continue to pay separately for CPT code
76000 for OPPS services furnished on or after January 1, 2007.
For CY 2007, we proposed to accept the APC Panel's recommendation
to continue to package CPT codes 76937 and 75998. In the CY 2006 OPPS
final rule with comment period (70 FR 68544 and 68545), we reviewed in
detail the data related to these two codes and promised to share CY
2004 and early CY 2005 data with the Packaging Subcommittee. We
reviewed current data with the Packaging Subcommittee, and it
recommended that we continue to package these codes. In summary, we
believe that these services would always be provided with another
separately payable procedure, so their costs would be appropriately
bundled with the definitive vascular access device procedures. We found
that the costs for these guidance procedures are relatively low
compared to the CY 2007 proposed payment rates for the separately
payable services they most frequently accompany. If we were to
unpackage CPT codes 76937 and 75998, the single bills available to
develop median costs for vascular access device insertion services
would be significantly reduced. Therefore, we proposed to continue to
package both CPT codes 76937 and 75998 for CY 2007.
CPT code 75998 will be replaced with CPT code 77001, effective
January 1, 2007. The code descriptor will remain the same.
Comment: Several commenters requested that CMS pay separately for
CPT code 76937 because they believe that packaged payment creates a
disincentive for use of this technology. Three commenters cited a June
2001 report published by the Agency for Healthcare Research and Quality
that claims that use of ultrasound guidance reduced the relative risk
for complications during a central venous

[[Page 67997]]

catheter insertion. In addition, two commenters submitted claims data
analyses that suggested that for those vascular access procedures that
CPT code 76937 could be reported with, CPT code 76937 was reported, on
average, only 14 percent of the time, with the greatest utilization
rate no more than 25 percent. The commenters stated that these analyses
confirmed that ultrasound guidance is not standard practice while
performing vascular access procedures.
Response: We appreciate the data analyses submitted by the
commenters. In fact, we published the results of our similar analysis
in the CY 2006 final rule with comment period (70 FR 68544). To
summarize our previous analysis, using CY 2004 single claims data, we
determined that for the four most commonly billed venous access device
insertion codes (CPT codes 36556, 36558, 36561, and 36569), one or more
forms of guidance (fluoroscopic and/or ultrasound) were reported on 41
to 64 percent of the single claims utilized for ratesetting.
Specifically, ultrasound guidance was reported from 16 to 34 percent of
the time and fluoroscopic guidance was billed from 29 to 52 percent of
the time. Thus, overall for these vascular access device insertion
services, guidance was used in at least 41 percent of the single claim
cases, a very significant portion of the time. We note that all of the
commenters are specifically concerned about unpackaging CPT code 76937
and do not appear to be concerned with the packaged status of CPT
75998. In fact, the commenters' analyses only included ultrasound
guidance and did not specify the number of venous access device
insertions that involved fluoroscopic guidance. We believe that
hospital staff choose whether to use no guidance or fluoroscopic
guidance or ultrasound guidance on an individual basis, depending on
the clinical circumstances of the vascular access device insertion
procedure. We also note that the two commenters studied the frequency
of CPT code 76937 when billed with CPT codes 36555-36585, which
includes central venous access device insertions, repairs, and
replacements. In fact, the study that the commenters reference
indicates that ultrasound guidance is appropriate for central venous
access device insertions. Interestingly, the data now show that 16
percent of all central venous access device insertions are billed with
ultrasound guidance while only 2 percent of repairs and replacements
are billed with ultrasound guidance. We believe that this indicates
that it may be less useful to use ultrasound guidance in conjunction
with central venous access device repairs and replacements. Our
hospital claims data demonstrate that in CY 2004 guidance services were
used frequently for the insertion of vascular access devices, and we
have no evidence that patients lacked appropriate access to guidance
services necessary for the safe insertion of vascular access devices in
the hospital outpatient setting. To the extent that ultrasound guidance
may be more frequently provided in the future in association with the
insertions of venous access devices or other OPPS services, we expect
that its cost would also be increasingly reflected in the median costs
for those services.
Also in the CY 2006 final rule (FR 70 68544), we reported our
analysis of claims data related to ultrasound guidance for vascular
access device insertion procedures from another perspective. Rather
than determining how often central venous access device insertions were
billed with ultrasound guidance, we determined how often ultrasound
guidance was billed with central venous access device insertions. The
OPPS hospital claims data reviewed at that time revealed that out of
the total instances of CPT code 76937 appearing on the claims used for
setting payment rates for CY 2006, CPT code 76937 was billed with four
separately payable codes for insertion of central venous access devices
84 percent of the time. This indicated, as might have been expected,
that the costs for CPT code 76937 were typically packaged into payment
for four CPT codes, 36566, 36558, 36561, and 36569, the most commonly
billed codes under the OPPS for vascular access device insertion.
Because we believe that ultrasound guidance would always be provided
with another separately payable procedure, its costs would be
appropriately bundled with the handful of vascular access device
insertion procedures with which it is most commonly performed. In
addition, packaging is also appropriate because the cost of ultrasound
guidance is relatively low compared to the CY 2007 payment rates for
the separately payable services it most frequently accompanies.
After carefully considering the public comments received, we are
adopting our proposal without modification to accept the APC Panel's
March 2006 recommendation to continue to package CPT codes 76937 and
77001, which replaces CPT code 75998.
For CY 2007, we proposed to accept the APC Panel's recommendation
to continue to package HCPCS code G0269. This code should never be
billed without another separately payable procedure. Recent data
indicate that 94 percent of the time HCPCS code G0269 was billed with
either CPT code 93510 (Left heart catheterization, retrograde, from the
brachial artery, axillary artery or femoral artery; percutaneous) or
93526 (Combined right heart catheterization and retrograde left heart
catheterization). In addition, the median cost of G0269 is low compared
to the costs of the procedures with which it is typically associated.
We received no public comments on our proposal. Therefore, we are
finalizing our proposal, without modification, to package HCPCS code
G0269 for CY 2007.
For CY 2007, we proposed to continue packaging CPT codes 94760 and
94761 and not adopt the APC Panel's recommendation to provide separate
payment for these services if there are no other separately payable
OPPS services on the claim for the same date of service. Our data
review revealed that these services are very frequently provided in the
OPPS, with over 1.18 million claims in CY 2005 for the single pulse
oximetry determination service and over 485,000 claims for the multiple
determinations service. These high frequencies may actually be
understated as both of these services are packaged codes, and we have
been told that some hospitals may not report the HCPCS codes for
services for which they receive no separate payments. Single and
multiple pulse oximetry determinations are almost always provided in
association with other services that are separately payable under the
OPPS, into which their costs may be appropriately packaged.
Specifically, OPPS hospital claims data revealed that out of the total
instances of CPT code 94760 appearing on claims used for setting
payment rates for this CY 2007 OPPS final rule with comment period, CPT
code 94760 was billed only 4 percent of the time in association with no
other separately payable OPPS services, with a median cost of $14.
Using the same data, CPT code 94761 was billed only 7 percent of the
time in association with no other separately payable OPPS services,
with a median cost of $36. These pulse oximetry services have a
relatively low cost compared with the OPPS services they frequently
accompany. If we were to provide separate payment for these pulse
oximetry determinations when performed as stand alone procedures by
hospitals, we are concerned that hospitals would lose their incentive
to provide these basic, low cost, and brief services as efficiently as
possible, generally during the same encounters where they are providing
other services to the same patients. We believe their

[[Page 67998]]

appropriate provision as single services should be very rare.
Therefore, for CY 2007 we proposed not to include these codes on the
list of ``special'' packaged codes, so their payment would remain
packaged in all circumstances.
We received no public comments on our proposal. Therefore, we are
adopting our proposal to continue packaging CPT codes 94760 and 94761
and are not adopting the APC Panel's March 2006 recommendation to
provide separate payment for these services if there are no other
separately payable OPPS services on the claim for the same date of
service.
For CY 2007, we proposed to assign status indicator ``A'' to HCPCS
code P9612 and reject the APC Panel's recommendation to pay separately
under the OPPS for this code when it is billed without any separately
payable OPPS services. This code is currently payable on the clinical
lab fee schedule. Its status indicator of ``A'' would provide payment
for the service whenever it is billed, regardless of the presence or
absence of other reported services. In addition, for consistency we are
proposing to assign status indicator ``A'' to HCPCS code P9615 as it is
also payable on the clinical lab fee schedule. In general, when a code
is payable on the clinical lab fee schedule, we defer to that fee
schedule and do not assign payment under the OPPS.
We received no public comments on our proposal. Therefore, we are
adopting our proposal without modification to assign status indicator
``A'' to HCPCS code P9612 and reject the APC Panel's recommendation to
pay separately under the OPPS for this code when it is billed without
any separately payable OPPS services.
For CY 2007, we proposed to assign status indicator ``N'' to CPT
code 0126T (Common carotid intima-media thickness (IMT) study for
evaluation of atherosclerotic burden or coronary heart disease risk
factor). We received one public comment on this proposal.
Comment: One commenter disagreed with our status indicator
assignment of ``N'' for CPT code 0126T and stated that CMS should pay
separately for the common carotid IMT procedure because this is often
the sole service that is performed in the hospital outpatient setting.
As clarified by the commenter, common carotid IMT is a standardized
ultrasound procedure that enables physicians to safely and accurately
measure and monitor atherosclerosis, which is the underlying cause of
heart attacks and stroke. The commenter reported that this code became
effective on January 1, 2006. According to the commenter, unlike
certain other ultrasound procedures that must be provided with other
services, common carotid IMT is a stand-alone diagnostic test because
it requires special imaging of the arterial wall and quantitative
analysis. The commenter further added that based on the CPT code book
instruction for other carotid procedures (that is, CPT codes 93880 and
93882), CPT coding does not permit bundling of 0126T with other
procedure codes. The commenter urged CMS to pay separately for common
carotid IMT and assign this code to New Technology APC 1504--Level IV
($200-$300), with a payment rate of $250.
Response: We continue to believe that it would be unlikely for this
code to be provided without any other separately payable services on
the same day. However, we also think that the commenter's suggestion
bears closer examination. Therefore, we will review this code with the
Packaging Subcommittee of the APC Panel, as is our standard procedure
for codes that we are asked to review during the comment period, and as
we have previously done for the other services discussed above. We will
discuss with the Packaging Subcommittee, on an ongoing basis, packaged
procedures for which status indicator changes have been suggested by
the public.
We note that the APC Panel Packaging Subcommittee remains active,
and additional issues and new data concerning the packaging status of
codes will be shared for its consideration as information becomes
available. We continue to encourage submission of common clinical
scenarios involving currently packaged HCPCS codes to the Packaging
Subcommittee for its ongoing review. Additional detailed suggestions
for the Packaging Subcommittee should be submitted to
APCPanel@cms.hhs.gov, with ``Packaging Subcommittee'' in the subject

line.

B. Payment for Partial Hospitalization

1. Background
Partial hospitalization is an intensive outpatient program of
psychiatric services provided to patients as an alternative to
inpatient psychiatric care for beneficiaries who have an acute mental
illness. A partial hospitalization program (PHP) may be provided by a
hospital to its outpatients or by a Medicare-certified community mental
health center (CMHC). Section 1833(t)(1)(B)(i) of the Act provides the
Secretary with the authority to designate the hospital outpatient
services to be covered under the OPPS. The Medicare regulations at 42
CFR 419.21(c) that implement this provision specify that payments under
the OPPS will be made for partial hospitalization services furnished by
CMHCs. Section 1883(t)(2)(C) of the Act requires that we establish
relative payment weights based on median (or mean, at the election of
the Secretary) hospital costs determined by 1996 claims data and data
from the most recent available cost reports. Payment to providers under
the OPPS for PHPs represents the provider's overhead costs associated
with the program. Because a day of care is the unit that defines the
structure and scheduling of partial hospitalization services, we
established a per diem payment methodology for the PHP APC, effective
for services furnished on or after August 1, 2000. For a detailed
discussion, we refer readers to the April 7, 2000 OPPS final rule with
comment period (65 FR 18452).
Historically, the median per diem cost for CMHCs has greatly
exceeded the median per diem cost for hospital-based PHPs and has
fluctuated significantly from year to year while the median per diem
cost for hospital-based PHPs has remained relatively constant ($200-
$225). We believe that CMHCs may have increased and decreased their
charges in response to Medicare payment policies. As discussed in more
detail in section II.B.2. of the preamble of this final rule with
comment period and in the CY 2004 OPPS final rule with comment period
(68 FR 63470), we believe that some CMHCs manipulated their charges in
order to inappropriately receive outlier payments.
In the CY 2003 OPPS update, the difference in median per diem cost
for CMHCs and hospital-based PHPs was so great, $685 for CMHCs and $225
for hospital-based PHPs, that we applied an adjustment factor of .583
to CMHC costs to account for the difference between ``as submitted''
and ``final settled'' cost reports. By doing so, the CMHC median per
diem cost was reduced to $384, resulting in a combined hospital-based
and CMHC PHP median per diem cost of $273. As with all APCs in the
OPPS, the median cost for each APC was scaled relative to the cost of a
mid-level office visit and the conversion factor was applied. The
resulting per diem rate for PHP for CY 2003 was $240.03.
In the CY 2004 OPPS update, the median per diem cost for CMHCs grew
to $1,038, while the median per diem cost for hospital-based PHPs was
again $225. After applying the .583 adjustment factor in the CY 2004
proposed rule to the median CMHC per diem cost, the median CMHC per
diem cost was $605. Because the CMHC median per diem cost exceeded the

[[Page 67999]]

average per diem cost of inpatient psychiatric care, we proposed a per
diem rate for CY 2004 based solely on hospital-based PHP data. The
proposed PHP per diem for CY 2004, after scaling, was $208.95. However,
by the time we published the OPPS final rule with comment period for CY
2004, we had received updated CCRs for CMHCs. Using the updated CCRs
significantly lowered the CMHC median per diem cost to $440. As a
result, we determined that the higher per diem cost for CMHCs was not
due to the difference between ``as submitted'' and ``final settled''
cost reports, but was the result of excessive increases in charges
which may have been done in order to receive higher outlier payments.
Therefore, in calculating the PHP median per diem cost for CY 2004, we
did not apply the .583 adjustment factor to CMHC costs to compute the
PHP APC. Using the updated CCRs for CMHCs, the combined hospital-based
and CMHC median per diem cost for PHP was $303. After scaling, we
established the CY 2004 PHP APC of $286.82.
For CY 2005, the PHP per diem amount was based on 12 months of
hospital and CMHC PHP claims data (for services furnished from January
1, 2003, through December 31, 2003). We used data from all hospital
bills reporting condition code 41, which identifies the claim as
partial hospitalization, and all bills from CMHCs because CMHCs are
Medicare providers only for the purpose of providing partial
hospitalization services. We used CCRs from the most recently available
hospital and CMHC cost reports to convert each provider's line-item
charges as reported on bills, to estimate the provider's cost for a day
of PHP services. Per diem costs were then computed by summing the line-
item costs on each bill and dividing by the number of days on the bill.
In a Program Memorandum issued on January 17, 2003 (Transmittal A-
03-004), we directed fiscal intermediaries to recalculate hospital and
CMHC CCRs by April 30, 2003, using the most recently settled cost
reports. Following the initial update of CCRs, fiscal intermediaries
were further instructed to continue to update a provider's CCR and
enter revised CCRs into the outpatient provider-specific file.
Therefore, for CMHCs, we used CCRs from the outpatient provider-
specific file.
In the CY 2005 OPPS update, the CMHC median per diem cost was $310
and the hospital-based PHP median per diem cost was $215. No
adjustments were determined to be necessary and, after scaling, the
combined median per diem cost of $289 was reduced to $281.33. We
believed that the reduction in the CMHC median per diem cost indicated
that the use of updated CCRs had accounted for the previous increase in
CMHC charges, and represented a more accurate estimate of CMHC per diem
costs for PHP.
For the CY 2006 OPPS final rule with comment period, we analyzed 12
months of the most current claims data available for hospital and CMHC
PHP services furnished between January 1, 2004, and December 31, 2004.
We also used the most currently available CCRs to estimate costs. The
median per diem cost for CMHCs was $154, while the median per diem cost
for hospital-based PHPs was $201. Based on the CY 2004 claims data, the
average charge per day for CMHCs was $760, considerably greater than
hospital-based per day costs but significantly lower than what it was
in CY 2003 ($1,184). We believed that a combination of reduced charges
and slightly lower CCRs for CMHCs resulted in a significant decline in
the CMHC median per diem cost between CY 2003 and CY 2004.
Following the methodology used for the CY 2005 OPPS update, the CY
2006 OPPS update combined hospital-based and CMHC median per diem cost
was $161, a decrease of 44 percent compared to the CY 2005 combined
median per diem amount. We believed that this amount was too low to
cover the cost for all PHPs.
Therefore, as stated in the CY 2006 OPPS final rule with comment
period (70 FR 68548 and 68549), we considered the following three
alternatives to our update methodology for the PHP APC for CY 2006 to
mitigate this drastic reduction in payment for PHP services: (1) base
the PHP APC on hospital-based PHP data alone; (2) apply a different
trimming methodology to CMHC costs in an effort to eliminate the effect
of data for those CMHCs that appeared to have excessively increased
their charges in order to receive outlier payments; and (3) apply a 15-
percent reduction to the combined hospital-based and CMHC median per
diem cost that was used to establish the CY 2005 PHP APC. (We refer
readers to the CY 2006 OPPS final rule with comment period for a full
discussion of the three alternatives (70 FR 68548).) After carefully
considering these three alternatives and all comments received on them,
we adopted the third alternative for CY 2006. We adopted this
alternative because we believed and continue to believe that a
reduction in the CY 2005 median per diem cost would strike an
appropriate balance between using the best available data and providing
adequate payment for a program that often spans 5-6 hours a day. We
believe that 15 percent is an appropriate reduction because it
recognizes decreases in median per diem costs in both the hospital data
and the CMHC data, and also reduces the risk of any adverse impact on
access to these services that might result from a large single-year
rate reduction. However, we adopted this policy as a transitional
measure, and stated in the CY 2006 OPPS final rule with comment period
that we would continue to monitor CMHC costs and charges for these
services and work with CMHCs to improve their reporting so that
payments can be calculated based on better empirical data, consistent
with the approach we have used to calculate payments in other areas of
the OPPS (70 FR 68548).
To apply this methodology for CY 2006, we reduced $289 (the CY 2005
combined unscaled hospital-based and CMHC median per diem cost) by 15
percent, resulting in a combined median per diem cost of $245.65 for CY
2006.
2. PHP APC Update for CY 2007
For CY 2007, we proposed to calculate the CY 2007 PHP per diem
payment rate using the same update methodology that we adopted in CY
2006. That is, we proposed to apply an additional 15-percent reduction
to the combined hospital-based and CMHC median per diem cost that was
used to establish the CY 2006 per diem PHP payment.
As discussed in the CY 2007 OPPS proposed rule (71 FR 49538), we
analyzed 12 months of data for hospital and CMHC PHP claims for
services furnished between January 1, 2005, and December 31, 2005. We
used the most currently available CCRs to estimate costs. Using these
CY 2005 claims data, the median per diem cost for CMHCs was $165 and
the median per diem cost for hospital-based PHPs was $209. Following
the methodology used for the CY 2005 update, the CY 2007 combined
hospital-based and CMHC median per diem cost is $172.
While the combined hospital-based and CMHC median per diem cost is
about $10 higher using the CY 2005 data compared to the CY 2004 data
($172 compared to $161), we believe this amount is still too low to
cover the cost for PHPs. As a result, we proposed the same policy we
adopted for CY 2006--a 15-percent reduction applied to the current
median cost. Therefore, to calculate the proposed PHP per diem rate for
CY 2007, we applied an additional 15-percent reduction to the

[[Page 68000]]

combined hospital-based and CMHC median per diem cost.
To calculate the proposed CY 2007 APC PHP per diem cost, we reduced
$245.65 (the CY 2005 combined hospital-based and CMHC median per diem
cost of $289 reduced by 15 percent) by 15 percent, which resulted in a
proposed combined median per diem cost of $208.80.
We received numerous public comments in response to our proposal. A
summary of the comments received and responses follow:
Comment: A number of commenters expressed concern about the
magnitude of the reduction, particularly in light of last year's 15
percent reduction. The majority of commenters requested that CMS freeze
the PHP rate at the CY 2006 level. Representatives of CMHCs argued that
their costs are higher than those of hospitals, with most in the $300
to $400 range. Another commenter indicated that a per-day rate of $325
to $375 was more appropriate than the proposed amount. The commenters
also suggested alternatives to calculating the PHP rate, such as
including prior years' CMHC data trended forward based on medical
inflation or market basket update. In addition, several patients were
concerned that a 15-percent reduction in payment would negatively
impact their ability to continue therapy.
Response: For this CY 2007 final rule with comment period, we
analyzed 12 months of more current data for hospital and CMHC PHP
claims for services furnished between January 1, 2005 and December 31,
2005. These claims data are more current because the data include
claims paid through June 30, 2006. We also used the most currently
available CCRs to estimate costs. Using these updated data, we
recreated the analysis performed for the CY 2007 proposed rule to
determine if the significant factors we used in determining the
proposed PHP rate had changed. The median per diem cost for CMHCs
increased $8 to $173, while the median per diem cost for hospital-based
PHPs decreased $19 to $190. The CY 2005 average charge per day for
CMHCs was $675 similar to the figure noted in the CY 2007 proposed rule
($673) but still significantly lower than what is noted for CY 2003
($1,184).
Following the 15-percent reduction methodology used for the CY 2005
update, the combined hospital-based and CMHC median per diem cost would
be $175, only slightly more than the figure noted in the CY 2007
proposed rule ($172). We continue to believe this amount is too low to
cover the cost of PHPs. However, we believe that freezing the current
rate would not reflect the downward trend in data. Although the data
continue to show a low per diem cost for PHP, we believe that a
transition to the reduced amount may be more appropriate to ensure
access for the vulnerable population served in PHPs. We recognize that
many CMHCs are located in areas affected by Hurricanes Katrina and Rita
where access to intensive mental health treatment is now limited. We
note that the median per diem cost for hospital-based PHPs, which has
been in the $200 to $225 range since the OPPS was implemented, went
from $201 in CY 2004 to $190 in CY 2005, a decrease of 5 percent. We
believe this percentage decrease provides a valid transitional
percentage measure reflecting the downward trend in PHP cost.
Therefore, for CY 2007, we are making a 5-percent reduction to the
CY 2006 median per diem rate. This amount accounts for the downward
direction of the data and addresses concerns about the magnitude of a
15-percent reduction in 1 year. To calculate the CY 2007 APC PHP per
diem cost, we reduced $245.65 (the CY 2005 combined hospital-based and
CMHC median per diem cost of $289 reduced by 15 percent) by 5 percent,
which resulted in a combined per diem cost of $233.37. If the PHP per
diem cost continues to be low in CY 2008, we expect to continue the
transition of decreasing the PHP median per diem cost to an amount that
is reflective of the PHP data.
Comment: The commenters requested that CMS better define how it is
monitoring and working with CMHCs to improve their reporting.
Response: CMS has provided guidance to all providers, through
transmittals and manuals. In addition, when necessary, CMS has worked
closely with fiscal intermediaries to provide guidance to targeted PHP
providers to improve reporting.
Comment: Several commenters stated that CMS has applied its own
assumptions and methodology on a different basis to compute the PHP
rate each year from CY 2003 to CY 2006. The commenters also stated that
the only years CMS used the same method was CY 2006 and CY 2007, when
CMS made a simple 15-percent reduction from the previous year's rate.
Response: We do not agree with the commenters' assessment of our
methodology for computing the PHP median per diem cost. Although a
0.583 adjustment factor was applied to CMHC costs in the CY 2003
update, all other aspects of the methodology that the commenter
referenced have been the same each year until CY 2006. We have
consistently calculated the PHP median per diem cost by using combined
hospital-based and CMHC median cost data and scaled the figure relative
to the cost of a mid-level office visit and then applied the conversion
factor. However, in CY 2006, the combined hospital-based and CMHC
median cost data produced an amount we believed was so low that it
would result in too large of a single year rate reduction that we
modified our methodology by limiting this decrease to 15 percent.
Comment: One commenter replicated the CMS methodology and computed
rates very close to the CY 2007 proposed per diem rate, as well as the
separate median per diem costs for CMHCs and hospital-based PHPs. The
commenter also created a 3-year rolling median cost that also resulted
in a rate similar to the proposed PHP rate. However, the commenter
recommended that CMS use the hospital-specific cost center CCR for
partial hospitalization instead of the overall outpatient CCR to
calculate PHP median costs. The commenter believed that CMS has
understated the PHP median costs by not using the hospital-specific
CCRs for partial hospitalization.
Response: We note that most hospitals do not have a cost center for
partial hospitalization; therefore, we have used the CCR as specific to
PHP as possible. The following link contains the Revenue Cost to Cost
Center Crosswalk: http://www.cms.hhs.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage
.

This crosswalk indicates how (and if) charges on a claim are mapped
to a cost center for the purpose of converting charges to cost. One or
more cost centers are listed for every revenue code that is used in the
OPPS median calculations, starting with most specific, and ending with
most general. CMS maps the revenue code to the most specific cost
center with a provider-specific CCR. If the hospital does not have a
CCR for any of the listed cost centers, the overall hospital CCR is the
default. The PHP revenue centers are mapped to a Primary Cost Center
3550 ``Psychiatric/Psychological Services.'' If that cost center is not
available, then the Secondary Cost Center is 6000 ``Clinic.'' We use
the overall facility CCR for CMHCs because PHP is the CMHCs' only
Medicare cost and CMHCs do not have the same cost centers as hospitals.
Therefore, for CMHCs, we use the CCR from the outpatient provider-
specific file.
Comment: One commenter stated that its internal computations
reflect PHP per diem costs of $262.82 for its facility. The commenter
urged CMS to increase the CY 2006 PHP rate of $245.65 by 6.8 percent so
that the commenter's

[[Page 68001]]

program would break even. Another commenter questioned why CMS did not
use actual cost report data to obtain true costs instead of estimating
cost using CCRs applied to charges. A third commenter stated that CMS
is required to include average costs for all providers and that CMS
claims to utilize data representative of the mean of actual operating
costs.
Response: We appreciate the commenter sharing its facility's per
diem costs for its facility. However, PHP providers are paid under the
OPPS. Under the OPPS, we generally determine rates based on median cost
using charges from bill data and then estimate costs using CCRs. The
OPPS is a PPS and will reflect generally the cost of providing
services. A PPS may pay more or less than a provider's costs and is not
a reasonable cost reimbursement system.
Comment: One commenter observed a decline of 19 percent in the
number of hospital-based PHPs from CY 2003 to CY 2005 and a decline of
21 percent in the number of hospital-based PHP claims. The commenter
expected further reductions in the number of hospital-based PHPs if CMS
implements the proposed 15-percent rate cut in CY 2007.
Response: We do not believe this is an appropriate comparison
because the commenter did not use the complete year of CY 2005 claims
data. Rather, the commenter used CY 2005 claims processed through
December 31, 2005. Using comparable CYs 2003 and 2005 data, (both CY
2003 and CY 2005 claims processed through June 30, 2004 and June 30,
2006, respectively), the declines are 11 percent and 5 percent,
respectively. During the same time period, the number of CMHCs
increased 13 percent and the number of CMHC PHP claims increased 36
percent. While there may have been fewer hospital-based PHPs, the
number of CMHCs increased from 136 in CY 2003 to 179 in CY 2005. In CY
2005, CMHC and hospital-based PHPs combined provided 1.2 million days
of PHP care, compared to approximately 0.8 million days of PHP care in
CY 2003. We believe our payment rates continue to ensure adequate
access to PHP care.
Comment: Several commenters suggested establishing a task force to
develop a new rate methodology that captures all relevant data and
reflects the actual costs to providers to deliver PHP services. The
commenters recommended that the new ratesetting task force be composed
of CMS staff and a diverse group of stakeholders that include front-
line providers of PHP services and representatives from national
industry organizations.
Response: We agree that the payment rate for PHP needs to be
accurate and appropriate to sustain access to care. As we consider
changes to the current methodology, we believe input from the industry
is an important part of that process. Therefore, we welcome any input
and information that the industry can provide about the costs of their
programs and encourage providers to submit information on their costs.
We note that any significant change in payment methodology would
require a statutory change.
Comment: A few commenters stated that wage index adjustment does
not accurately reflect the cost of labor in areas affected by
Hurricanes Katrina and Rita.
Response: The hospital wage data used to compute the FY 2007
hospital wage index is from the FY 2003 hospital cost reports for all
hospitals. This is the standard lag timeframe in determining the
hospital wage index. It will be another 2 years before the FY 2005 data
will be reflected in the FY 2009 hospital wage index. The wage index is
a relative measure of differences in area hourly wage levels. It
compares a labor market's average hourly wage to the national average
hourly wage. To the extent that post-hurricane hospital labor costs are
higher relative to the national average, the wage index will reflect
the higher relative labor cost beginning when the FY 2005 data will be
used in the FY 2009 IPPS hospital wage index (which will be applied to
the CY 2009 OPPS rate year). In addition, the statutory authority for
the OPPS wage index policy in section 1833(t)(2)(D) of the Act requires
that wage adjustments be made in a budget neutral manner. Therefore, we
cannot raise one wage area and still maintain budget neutrality.
Comment: A few commenters disagreed with the CMS approach to
establishing the median per diem cost by summarizing the line-item
costs on each bill and dividing by the number of days on the bills. The
commenters indicated that this calculation can severely dilute the rate
and penalize providers. The commenters stated that all programs are
strongly encouraged by the fiscal intermediaries to submit all PHP
service days on claims, even when the patient receives less than three
services. They further stated that programs must report these days to
be able to meet the 57 percent attendance threshold and avoid potential
delays in the claim payment. The commenters were concerned that
programs are only paid their per diem when three or more qualified
services are presented for a day of service. The commenters stated that
if only one or two services are assigned a cost and the day is divided
into the aggregate data, the cost per day is significantly compromised
and diluted. They claimed that even days that are paid but only have
three services dilute the cost factors on the calculations.
Response: If a provider has charges on a bill for which they do not
receive payment, this will be reflected in that provider's CCRs. This
lower CCR will be applied to the larger charges and will result in the
appropriate cost per diem. To gauge the effect that days with one or
two services had on the per diem cost, we trimmed all days with less
than three services, and the recalculated median per diem cost only
increased by $4.00. As such, we do not believe the calculations are
adversely affected by the inclusion of these days.
Comment: A few commenters expressed concern that their financial
status is affected where States limit payment of beneficiary
coinsurance if the amount of Medicare payment made to a provider
exceeds the State's payment rate for PHP.
Response: This is a Medicaid issue and beyond the scope of this
final rule.
Comment: With respect to the methodology used to establish the PHP
APC amount, commenters were concerned that data from settled cost
reports fails to include costs reversed on appeal. The commenters
stated that there are inherent problems in using claims data from a
different time period than the CCRs from settled cost reports. The
commenters indicated this would artificially lower the computed median
costs, even though when cost reports are settled, generally 2 years or
more after the actual year of services, as the providers have operated
on actual revenues of 80 percent of the per diem.
Response: We use the best available data in computing the APCs. We
issued a Program Memorandum on January 17, 2003 directing fiscal
intermediaries to update the CCRs on an on-going basis whenever a more
recent full year cost report is available. In this way, we minimize the
time lag between the CCRs and claims data and continue to use the best
available data.
Comment: One commenter stated that administrative costs for CMHCs
continue to be a major impediment to operating PHPs for Medicare
beneficiaries. The commenter was concerned that Medicare does not cover
transportation to and from programs and does not cover meals. The
commenter stated that almost all programs offer transportation because
in most cases

[[Page 68002]]

Medicare beneficiaries with serious mental illnesses would not be able
to access these programs without the transportation.
Response: The services that are covered as part of a PHP are
specified in section 1861(ff) of the Act. Meals and transportation are
specifically excluded under section 1861(ff)(2)(I) of the Act.
Comment: Several commenters summed the payment rate for four Group
Therapy sessions (APC 0325) and requested that amount as the minimum
for a day of PHP (that is, 4 x $66.40=$265.60). Another commenter
presented two different typical days using proposed CY 2007 rates.
Typical Day 1 had three Group Therapy sessions (CPT code 90853, APC
0325, 3 x $66.40) and one Individual Psychotherapy session (CPT code
90818, APC 0325, $105.68). The commenter priced Typical Day 1 at
$304.88. Typical Day 2 had one Group Therapy session (CPT code 90853,
APC 0325, $66.40), one Individual Psychotherapy session (CPT code
90818, APC 0323, $105.68), and one Family Therapy session (CPT code
90847, APC 0324, $135.95). The commenter priced Typical Day 2 at
$308.03. Based on the commenter's presented material, the commenter
stated that the typical days yield an average componentized rate of
$306. The commenters questioned how CMS can set rates for APCs 0322
through 0325, yet are unable to determine a payment rate for a day that
is comprised of a minimum of three to four of those services. Another
commenter stated that CMS requires a minimum of four treatments per day
to qualify for a day of PHP and the proposed per diem rate of $208.27
for PHP that is less than what CMS would pay for four Group Therapy
sessions (4 x $66.40=$265.60).
Response: We do not believe this is an appropriate comparison. The
commenter does not use the PHP APC, APC 0033. The payment rates for APC
services cited by the commenter (APC 0323, APC 0324 and APC 0325) are
not computed from PHP bills. As stated earlier, we used data from PHP
programs (both hospitals and CMHCs) to determine the median cost of a
day of PHP. PHP is a program of services where savings can be realized
by hospitals and CMHCs over delivering individual psychotherapy
services.
We structured the PHP APC (0033) as a per diem methodology in which
the day of care is the unit that reflects the structure and scheduling
of PHPs and the composition of the PHP APC consists of the cost of all
services provided each day. Although we require that each PHP day
include a psychotherapy service, we do not specify the specific mix of
other services provided and our payment methodology reflects the cost
per day rather than the cost of each service furnished within the day.
We note that CMS does not require a minimum of four services.
Comment: One commenter requested that the same provisions given to
rural hospital outpatient departments also be given to rural CMHCs.
Response: We believe the commenter may be referring to the
statutory hold harmless provisions. Section 1833(t)(7)(D) of the Act
authorizes such payments, on a permanent basis, for children's
hospitals and cancer hospitals and, through CY 2005, for rural
hospitals having 100 or fewer beds and SCHs in rural areas. Section
1866(t)(7)(D) of the Act does not authorize hold harmless payments to
CMHC providers. Section 411 of Pub. L. 108-173 required CMS to
determine the appropriateness of additional payments for certain rural
hospitals. That authority also does not extend to CMHCs.
Comment: Representatives of several CMHCs claimed that their costs
are higher because ``hospitals can share and spread their costs to
other departments.'' The commenters believed that the CMHC patient
acuity level is more intense than that for hospital patients because
hospital outpatient departments need only provide one or two therapies,
yet still receive the full PHP per diem.
Response: CMHCs are required to furnish an array of outpatient
services including specialized outpatient services for children, the
elderly, individuals with a serious mental illness, and residents of
its service area who have been discharged from inpatient treatment.
Accordingly, CMHCs have the same ability to share costs among its
programs as needed. Further, we believe hospital costs in some areas,
for example, capital and 24-hour maintenance costs, likely exceed CMHC
costs.
Comment: A few commenters stated that hospitals that offer partial
hospitalization services should not be penalized for the instability in
data reporting of CMHCs. Another commenter requested that CMS require
that CMHCs improve their reporting or have that provider group face
economic consequences.
Response: We believe that hospital-based programs may have
benefited from the inclusion of CMHC data, as generally the median
calculated from hospital outpatient department PHPs was consistently
far less then the median amount that is computed for CMHCs. We have
also taken steps to better educate the CMHCs in the cost reporting
requirements.
Comment: One commenter asked why there are no CMHCs shown in the
impact statement. The commenter asked if this is required by
regulation.
Response: CMHCs do not share the same characteristics as hospitals
and do not fit into the traditional impact categories (like bed size).
Therefore, we have not included them in the impact chart. As PHP is the
only Medicare service CMHCs provide, the impact is the percentage
change in the APC amount from year to year. Assuming that the number
days of PHP provided by CMHCs stays the same as it was in CY 2005, the
estimated impact on CMHCs as a result of the CY 2007 PHP payment rate
compared to the CY 2006 PHP payment rate is a 5-percent decrease.
3. Separate Threshold for Outlier Payments to CMHCs
In the November 7, 2003 final rule with comment period (68 FR
63469), we indicated that, given the difference in PHP charges between
hospitals and CMHCs, we did not believe it was appropriate to make
outlier payments to CMHCs using the outlier percentage target amount
and threshold established for hospitals. There was a significant
difference in the amount of outlier payments made to hospitals and
CMHCs for PHP. In addition, further analysis indicated that using the
same OPPS outlier threshold for both hospitals and CMHCs did not limit
outlier payments to high cost cases and resulted in excessive outlier
payments to CMHCs. Therefore, for CYs 2004, 2005, and 2006, we
established a separate outlier threshold for CMHCs. For CYs 2004 and
2005, we designated a portion of the estimated 2.0 percent outlier
target amount specifically for CMHCs, consistent with the percentage of
projected payments to CMHCs under the OPPS in each of those years,
excluding outlier payments. For CY 2006, we set the estimated outlier
target at 1.0 percent and allocated a portion of that 1.0 percent, 0.6
percent (or 0.006 percent of total OPPS payments), to CMHCs for PHP
services. The CY 2006 CMHC outlier threshold is met when the cost of
furnishing services by a CMHC exceeds 3.40 times the PHP APC payment
amount. The CY 2006 OPPS outlier payment percentage is 50 percent of
the amount of costs in excess of the threshold.
The separate outlier threshold for CMHCs became effective January
1, 2004, and has resulted in more commensurate outlier payments. In CY
2004, the separate outlier threshold for

[[Page 68003]]

CMHCs resulted in $1.8 million in outlier payments to CMHCs. In CY
2005, the separate outlier threshold for CMHCs resulted in $0.5 million
in outlier payments to CMHCs. In contrast, in CY 2003, more than $30
million was paid to CMHCs in outlier payments. We believe this
difference in outlier payments indicates that the separate outlier
threshold for CMHCs has been successful in keeping outlier payments to
CMHCs in line with the percentage of OPPS payments made to CMHCs.
As discussed in section II.B.2. of this preamble, we believe the CY
2005 CMHC data produce median per diem cost too low to use for the CY
2007 partial hospitalization payment rate. Due to the continued
volatility of the CMHC charge data, we proposed to maintain the
existing outlier threshold for CMHCs for CY 2007 at 3.40 times the APC
payment amount and the CY 2007 outlier payment percentage applicable to
costs in excess of the threshold at 50 percent.
As noted in section II.G. of this preamble, for CY 2007, we
proposed to continue our policy of setting aside 1.0 percent of the
aggregate total payments under the OPPS for outlier payments. We
proposed that a portion of that 1.0 percent, an amount equal to 0.25
percent of outlier payments and 0.0025 percent of total OPPS payments
would be allocated to CMHCs for PHP service outliers. As discussed in
section II.G. of this preamble, we again proposed to set a dollar
threshold in addition to an APC multiplier threshold for OPPS outlier
payments. However, because the PHP is the only APC for which CMHCs may
receive payment under the OPPS, we would not expect to redirect outlier
payments by imposing a dollar threshold. Therefore, we did not propose
to set a dollar threshold for CMHC outliers. As noted above, we
proposed to set the outlier threshold for CMHCs for CY 2007 at 3.40
percent times the APC payment amount and the CY 2007 outlier payment
percentage applicable to costs in excess of the threshold at 50
percent.
We received no public comments on our proposal. As discussed in
section II.G. of this preamble, using more recent data for this final
rule with comment period, we set the target for hospital outpatient
outlier payments at 1.0 of total OPPS payments. We allocate a portion
of that 1.0 percent, an amount equal to 0.15 percent of outlier
payments and 0.0015 percent of total OPPS payments to CMHCs for PHP
service outliers. For CY 2007, we set the outlier threshold for CMHCs
for CY 2007 at 3.40 percent times the APC payment amount and the CY
2007 outlier percentage applicable to costs in excess of the threshold
at 50 percent.

C. Conversion Factor Update for CY 2007

Section 1833(t)(3)(C)(ii) of the Act requires us to update the
conversion factor used to determine payment rates under the OPPS on an
annual basis. Section 1833(t)(3)(C)(iv) of the Act provides that, for
CY 2007, the update is equal to the hospital inpatient market basket
percentage increase applicable to hospital discharges under section
1886(b)(3)(B)(iii) of the Act.
The hospital market basket increase for FY 2007 published in the
IPPS final rule on August 18, 2006 is 3.4 percent (71 FR 48146), the
same as the forecast published in the FY 2007 IPPS proposed rule on
April 25, 2006 (71 FR 24148). To set the OPPS proposed conversion
factor for CY 2007, we increased the CY 2006 conversion factor of
$59.511, as specified in the November 10, 2005 final rule with comment
period (70 FR 68551), by 3.4 percent.
In accordance with section 1833(t)(9)(B) of the Act, we further
adjusted the conversion factor for CY 2006 to ensure that the revisions
we are making to our updates for a revised wage index and expanded
rural adjustment are made on a budget neutral basis. We calculated a
budget neutrality factor of 0.999331979 for wage index changes by
comparing total payments from our simulation model using the FY 2007
IPPS final wage index values as finalized to those payments using the
current (FY 2006) IPPS wage index values. To reflect the inclusion of
essential access community hospitals (EACHs) as rural SCHs (discussed
in section II.F. of this preamble), we calculated an additional budget
neutrality factor of 0.999975941 for the rural adjustment, including
EACHs. For CY 2007, we estimate that allowed pass-through spending
would equal approximately $65.6 million, which represents 0.21 percent
of total OPPS projected spending for CY 2007. The final conversion
factor also is adjusted by the difference between the 0.17 percent
pass-through dollars set-aside in CY 2006 and the 0.21 percent estimate
for CY 2007 pass-through spending. Finally, payments for outliers
remain at 1.0 percent of total payments for CY 2007.
The market basket increase update factor of 3.4 percent for CY
2007, the required wage index budget neutrality adjustment of
approximately 0.999331979, the adjustment of 0.04 percent for the
difference in the pass-through set-aside, and the adjustment for the
rural payment adjustment for rural SCHs, including rural EACHs, of
0.999975941 result in a standard conversion factor for CY 2007 of
$61.468.
We received many public comments on the calculation of the proposed
conversion factor updates for CY 2007 with regard to the proposal to
reduce the CY 2007 conversion factor for failure to report the IPPS
RHQDAPU data. These comments are addressed in section XIX. of this
preamble. We received no other comments on the proposed conversion
factor update for CY 2007.

D. Wage Index Changes for CY 2007

Section 1833(t)(2)(D) of the Act requires the Secretary to
determine a wage adjustment factor to adjust, for geographic wage
differences, the portion of the OPPS payment rate and the copayment
standardized amount attributable to labor and labor-related cost. Since
the inception of the OPPS, CMS policy has been to wage adjust 60
percent of the OPPS payment, based on a regression analysis that
determined that approximately 60 percent of the costs of services paid
under OPPS were attributable to wage costs. We did not propose to
revise this policy for CY 2007 OPPS. See section II.H. of this final
rule with comment period for a description and example of how the wage
index for a particular hospital is used to determine the payment for
the hospital.
This adjustment must be made in a budget neutral manner. As we have
done in prior years, we proposed to adopt the IPPS wage indices and
extend these wage indices to hospitals that participate in the OPPS but
not the IPPS (referred to in this section as ``non-IPPS'' hospitals).
As discussed in section II.A. of this preamble, we standardize 60
percent of estimated costs (labor-related costs) for geographic area
wage variation using the IPPS wage indices that are calculated prior to
adjustments for reclassification to remove the effects of differences
in area wage levels in determining the OPPS payment rate and the
copayment standardized amount.
As published in the original OPPS April 7, 2000 final rule with
comment period (65 FR 18545), OPPS has consistently adopted the final
IPPS wage indices as the wage indices for adjusting the OPPS standard
payment amounts for labor market differences. Thus, the wage index that
applies to a particular hospital under the IPPS will also apply to that
hospital under the OPPS. As initially explained in the September 8,
1998 OPPS proposed rule, we believed and continue to believe that

[[Page 68004]]

using the IPPS wage index as the source of an adjustment factor for
OPPS is reasonable and logical, given the inseparable, subordinate
status of the hospital outpatient within the hospital overall. In
accordance with section 1886(d)(3)(E) of the Act, the IPPS wage index
is updated annually. In the CY 2007 OPPS proposed rule, in accordance
with our established policy, we proposed to use the FY 2007 final
version of these wage indices to determine the wage adjustments for the
OPPS payment rate and copayment standardized amount that would be
published in our final rule with comment period for CY 2007 which will
include the finalized wage indices in effect through March 31, 2007,
and those in effect on or after April 1, 2007, to accommodate the
expiring reclassification provisions under section 508 of Pub. L. 108-
173 to determine the wage adjustments for the OPPS payment rate and
copayment standardized amount.
On May 17, 2006 (71 FR 28644), in response to a court order in
Bellevue Hosp. Ctr. v. Leavitt, we published a second IPPS proposed
rule that would revise the methodology for calculating the occupational
mix adjustment for FY 2007. We proposed to replace in full the
descriptions of the data and methodology that would be used in
calculating the occupational mix adjustment discussed in the first FY
2007 IPPS proposed rule. The second proposed rule also states that,
because of the collection of new occupational mix data, we would
publish the FY 2007 occupational mix adjusted wage index tables and
related impacts on the CMS Web site shortly after we published the FY
2007 IPPS final rule, and in advance of October 1, 2006. The weights
and factors would also be published on the CMS Web site after the FY
2007 IPPS final rule, but in advance of October 1, 2006 (71 FR 28650).
On October 11, 2006 (71 FR 59886), we published an IPPS notice in the
Federal Register that, in part, finalized the adjusted occupational mix
wage indices published in the FY 2007 IPPS final rule. Readers are
directed to refer to the wage index tables that were published on the
CMS Web site before October 1, 2006.
We note that the FY 2007 IPPS wage indices continue to reflect a
number of changes implemented in FY 2005 as a result of the revised
Office of Management and Budget (OMB) standards for defining geographic
statistical areas, the implementation of an occupational mix adjustment
as part of the wage index, and new wage adjustments provided for under
Pub. L. 108-173. The following is a brief summary of the changes in the
FY 2005 IPPS wage indices, continued for FY 2007, and any adjustments
that we are applying to the OPPS for CY 2007. We refer the reader to
the FY 2007 IPPS final rule (71 FR 48005 through 48028) for a detailed
discussion of the changes to the wage indices. Readers should refer
also to our IPPS notice published in the Federal Register on October
11, 2006, for finalized changes to the adjusted occupational mix wage
indices and related issues (71 FR 59886). In this final rule with
comment period, we are not reprinting the FY 2007 IPPS wage indices
referenced in the discussion below, with the exception of the out-
migration wage adjustment table (Addendum L of this final rule with
comment period). We also refer readers to the CMS Web site for the OPPS
at http://www.cms.hhs.gov/providers/hopps. At this Web site, the reader

will find a link to the finalized FY 2007 IPPS wage indices tables.
1. The continued use of the Core Based Statistical Areas (CBSAs)
issued by the OMB as revised standards for designating geographical
statistical areas based on the 2000 Census data, to define labor market
areas for hospitals for purposes of the IPPS wage index. The OMB
revised standards were published in the Federal Register on December
27, 2000 (65 FR 82235), and OMB announced the new CBSAs on June 6,
2003, through an OMB bulletin. In the FY 2005 IPPS final rule, CMS
adopted the new OMB definitions for wage index purposes. In the FY 2007
IPPS final rule, we again stated that hospitals located in MSAs will be
urban and hospitals that are located in Micropolitan Areas or outside
CBSAs will be rural. To help alleviate the decreased payments for
previously urban hospitals that became rural under the new geographical
definitions, we allowed these hospitals to maintain for the 3-year
period from FY 2005 through FY 2007, the wage index of the MSA where
they previously had been located. To be consistent with the IPPS, we
will continue the policy we began in CY 2005 of applying the same
urban-to-rural transition to non-IPPS hospitals paid under the OPPS.
That is, we would maintain the wage index of the MSA where the hospital
was previously located for purposes of determining a wage index for CY
2007. Beginning in FY 2008, the 3-year transition will end and these
hospitals will receive their statewide rural wage index. However,
hospitals paid under the IPPS will be eligible to apply for
reclassification.
For the occupational mix adjustment, we refer readers to the FY
2007 IPPS final rule and the October 11, 2006 IPPS notice discussed
above. Under that final rule, the wage indices are adjusted 100 percent
for occupational mix. In addition, as stated above, the finalized
version of the FY 2007 IPPS wage index tables and other adjustment
factors were published in the October 11, 2006 IPPS notice and are
applicable to discharges occurring on or after October 1, 2006.
As noted above, for purposes of estimating an adjustment for the
OPPS payment rates to accommodate geographic differences in labor costs
in this final rule with comment period, we have used the finalized FY
2007 IPPS wage indices identified in the October 11, 2006 IPPS notice
that are fully adjusted for differences in occupational mix using the
new survey data, effective October 1, 2006. As proposed, in all cases,
we are using the finalized FY 2007 IPPS wage indices, which include the
wage indices to be in effect through March 31, 2007, and those to be in
effect on or after April 1, 2007, with any subsequent corrections, for
calculating OPPS payment in CY 2007.
2. The reclassifications of hospitals to geographic areas for
purposes of the wage index. For purposes of the OPPS wage index, we
proposed to adopt all of the IPPS reclassifications for FY 2007,
including reclassifications that the Medicare Geographic Classification
Review Board (MGCRB) approved under the one-time appeal process for
hospitals under section 508 of Pub. L. 108-173. We note that section
508 reclassifications will terminate March 31, 2007, and that this
expiration, along with the calendar year operating period of OPPS,
impacts the calculation of the OPPS payment and the budget neutrality
adjustment for the wage index. In the FY 2007 IPPS final rule (71 FR
48024 and 48025), we finalized the procedural rules for hospitals that
wished to reclassify for the second half of FY 2007 (April 1, 2007,
through September 30, 2007) under section 1886(d)(10) of the Act. These
rules essentially provided procedures for some hospitals to retain
section 508 reclassifications for the first half of FY 2007 and also be
eligible to maintain an approved reclassification under section
1886(d)(10) for the second half of FY 2007. Rather than calculating one
wage index that reflected all final reclassification adjustments, we
will calculate two separate wage indices for FY 2007, one to be in
effect October 1 through March 31, 2007, and one to be in effect April
1 through September 30, 2007.
These procedural rules also impact a hospital's eligibility to
receive the out-migration wage adjustment, discussed

[[Page 68005]]

in greater detail in section III.I. of the FY 2007 IPPS final rule (71
FR 48026) and under section II.D.4. of this preamble. A hospital cannot
receive an out-migration wage adjustment if it is reclassified under
section 1886(d)(10) of the Act. Hospitals declining reclassification
status for any part of the year become eligible to receive the out-
migration wage adjustment if they are located in an adjustment county.
We note that because the OPPS operates on a calendar year (January 1
through December 31) and not a fiscal year, the expiring
reclassification status under section 508 of Pub. L. 108-173 results in
different wage indices for OPPS for the first quarter of CY 2007
(January 1, 2007, through March 31, 2007) and the last three quarters
of CY 2007 (April 1, 2007, through December 31, 2007).
3. The out-migration wage adjustment to the wage index. In FY 2007
IPPS final rule (71 FR 48026), we discussed the out-migration
adjustment under section 505 of Pub. L. 109-173 for counties under this
adjustment. Hospitals paid under the IPPS located in the qualifying
section 505 ``out-migration'' counties receive a wage index increase
unless they have already been otherwise reclassified. (See the IPPS FY
2007 final rule for further information on out-migration.) For OPPS
purposes, we proposed to continue our policy from CY 2006 to allow non-
IPPS hospitals paid under the OPPS to qualify for out-migration
adjustment if they are located in a section 505 out-migration county.
Because non-IPPS hospitals cannot reclassify, they are eligible for the
out-migration wage adjustment. Tables identifying counties eligible for
the out-migration adjustment were published after the FY 2007 IPPS
final rule on October 11, 2006 (71 FR 59886). These tables reflect
updated county listing to reflect changes to the occupation mix
adjustment made in response to Bellevue court case discussed above.
Because we proposed to adopt the final FY 2007 IPPS wage index, we are
adopting any changes in a hospital's classification status that will
make them either eligible or ineligible for the out-migration wage
adjustment both through March 31, 2007, and on or after April 1, 2007.
With the exception of reclassifications resulting from the
implementation of the one-time appeal process under section 508 of Pub.
L. 108-173, all changes to the wage index resulting from geographic
labor market area reclassifications or other adjustments must be
incorporated in a budget neutral manner. Accordingly, in calculating
the OPPS budget neutrality estimates for CY 2007, in this final rule
with comment period, we have included the wage index changes that would
result from MGCRB reclassifications, implementation of section 505 of
Pub. L. 108-173, and other refinements made in the FY 2007 IPPS final
rule, such as the hold harmless provision for hospitals changing status
from urban to rural under the new CBSA geographic statistical area
definitions. However, section 508 sets aside $900 million to implement
the section 508 reclassifications. We considered the increased Medicare
payments that the section 508 reclassifications would create in both
the IPPS and OPPS when we determined the impact of the one-time appeal
process. Because the increased OPPS payments already count against the
$900 million limit, we did not consider these reclassifications when we
calculated the OPPS budget neutrality adjustment.
Under the procedural rules described under section II.D.3. of this
final rule with comment period and in section III.H.6. of the FY 2007
IPPS final rule (71 FR 48024) regarding expiring section 508
reclassifications, different wage indices may be in effect for the
first quarter of the calendar year and the last three quarters of the
calendar year. These rules have implications for budget neutrality
adjustments. Any additional payment attributable to reclassifications
due to section 508 between January 1 and April 1, 2007, must be
excluded from a budget neutrality adjustment, and all other adjustments
to the wage index are subject to budget neutrality. Rather than
calculating two different conversion factors, with different budget
neutrality adjustments, we proposed to calculate one budget neutrality
adjustment that reflects the combined adjustments required for the
first quarter and last three quarters of the calendar year,
respectively. We followed the same approach in the FY 2007 IPPS final
rule (71 FR 48026).
We received several comments on the proposed wage index policy for
the CY 2007 OPPS.
Comment: One commenter urged CMS to use the IPPS labor-related
adjustment to determine reimbursements for outpatient services.
Specifically, the commenter requested that the labor-related percentage
for the OPPS be revised from the 60 percent currently proposed to 69.7
percent, consistent with what is stated in the FY 2007 IPPS rule. The
commenter further requested that, at a minimum, CMS update the OPPS
labor-related share in effect for CY 2007 from 60 percent to 63
percent, the labor-related percentage referenced by CMS in the CY 2006
OPPS final rule.
Response: We did not propose a change to the labor share, but we do
not believe that such a change is appropriate. The determination to
wage adjust 60 percent of the payment of each APC was made based on a
regression analysis at the beginning of the OPPS. We repeated this
analysis as part of the rural adjustment study we performed for the CY
2006 OPPS based on CY 2004 claims data. This study examined the extent
to which the body of costs for services furnished in the outpatient
department was split between wage and nonwage costs and, based on our
most recent findings, we believe that it remains appropriate to wage
adjust 60 percent of the APC payment (70 FR 68533).
Comment: One commenter urged CMS to postpone the implementation of
100 percent of the occupational mix survey adjustment until the DRG
severity refinements can be fully implemented and their possible
unrecognized adverse effects on quality of care and outcomes can be
resolved. Another commenter expressed concern about the application of
the 100-percent occupational mix adjustment for CY 2007. The commenter
encouraged CMS to approach Congress for authority to transition the
occupational mix and to repeal the mandate that CMS apply an
occupational mix adjustment to wage indices.
Response: We appreciate the comments concerning this issue and
refer readers to the CMS final rule for the CY 2007 IPPS ( 71 FR 48006)
for a discussion of the reasons that CMS adopted a 100 percent
occupational mix adjusted wage index for hospitals receiving payments
under the IPPS. As first published in the original OPPS final rule on
April 7, 2000 (65 FR 18545), the OPPS has consistently adopted the
final IPPS wage indices as the wage indices for adjusting the OPPS
standard payment amounts for labor market differences. We continue to
believe that using the IPPS wage index as the source of an adjustment
factor for the OPPS is reasonable and logical given the inseparable,
subordinate status of the hospital outpatient department within the
hospital overall. Therefore, given that a 100 percent occupational mix
adjusted wage index was adopted in the IPPS, we will also adopt the
same index for the OPPS.
After carefully considering all public comments received, we are
finalizing our wage index adjustment policy for the CY 2007 OPPS as
proposed without modification.

[[Page 68006]]

E. Statewide Average Default CCRs

CMS uses CCRs to determine outlier payments, payments for pass-
through devices, and monthly interim transitional corridor payments
under the OPPS. Some hospitals do not have a valid CCR. These hospitals
include, but are not limited to, hospitals that are new and have not
yet submitted a cost report, hospitals that have a CCR that falls
outside predetermined floor and ceiling thresholds for a valid CCR, or
hospitals that have recently given up their all-inclusive rate status.
Last year, we updated the default urban and rural CCRs for CY 2006 in
our final rule with comment period published on November 10, 2005 (70
FR 68553 through 68555). As we proposed, in this final rule with
comment period, we have updated the default ratios for CY 2007 using
the most recent cost report data.
We calculated the statewide default CCRs using the same overall
CCRs that we use to adjust charges to costs on claims data. Refer to
section II.A.1.c. of this preamble for a discussion of our revision to
the overall CCR calculation. Table 4 published in the CY 2007 OPPS
proposed rule listed the proposed CY 2007 default urban and rural CCRs
by State and compared them to last year's default CCRs (71 FR 49542
through 49545). These CCRs are the ratio of total costs to total
charges from each provider's most recently submitted cost report, for
those cost centers relevant to outpatient services weighted by Medicare
Part B charges. We also adjusted these ratios to reflect final settled
status by applying the differential between settled to submitted costs
and charges from the most recent pair of settled to submitted cost
reports.
For the proposed rule, 81.79 percent of the submitted cost reports
represented data for CY 2004. We have since updated the cost report
data we use to calculate CCRs with additional submitted cost reports
for CY 2005. For this final rule with comment period, 66.41 percent of
the submitted cost reports utilized in the default ratio calculation
were for CY 2004, whereas 34.95 percent were for CY 2005. We only used
valid CCRs to calculate these default ratios. That is, we removed the
CCRs for all-inclusive hospitals, CAHs, and hospitals in Guam and the
U.S. Virgin Islands because these entities are not paid under the OPPS,
or in the case of all-inclusive hospitals, because their CCRs are
suspect. We further identified and removed any obvious error CCRs and
trimmed any outliers. We limited the hospitals used in the calculation
of the default CCRs to those hospitals that billed for services under
the OPPS during CY 2004.
Finally, we calculated an overall average CCR, weighted by a
measure of volume for CY 2004, for each State except Maryland. This
measure of volume is the total lines on claims and is the same one that
we use in our impact tables. For Maryland, we used an overall weighted
average CCR for all hospitals in the Nation as a substitute for
Maryland CCRs. Very few providers in Maryland are eligible to receive
payment under the OPPS, which limits the data available to calculate an
accurate and representative CCR. The observed differences between last
year's default statewide CCRs and the CY 2007 CCRs are a combination of
the general decline in the ratio between costs and charges widely
observed in the cost report data and the change in the proposed overall
CCR calculation.
As stated above, CMS uses default statewide CCRs for several groups
of hospitals, including, but not limited to, hospitals that are new and
have not yet submitted a cost report, hospitals that have a CCR that
falls outside predetermined floor and ceiling thresholds for a valid
CCR, and hospitals that have recently given up their all-inclusive rate
status. Current OPPS policy also requires hospitals that experience a
change of ownership, but that do not accept assignment of the previous
hospital's provider agreement, to use the previous provider's CCR.
For CY 2007, we proposed to apply this treatment of using the
default statewide CCR to include an entity that has not accepted
assignment of an existing hospital's provider agreement in accordance
with Sec. 489.18, and that has not yet submitted its first Medicare
cost report. We proposed that this policy be effective for hospitals
experiencing a change of ownership on or after January 1, 2007. We
believed that a hospital that has not accepted assignment of an
existing hospital's provider agreement is similar to a new hospital
that will establish its own costs and charges. We believed that the
hospital that has chosen not to accept assignment may have different
costs and charges than the existing hospital. Furthermore, we believed
that the hospital should be provided time to establish its own costs
and charges. Therefore, we proposed to use the default statewide CCR to
determine cost-based payments until the hospital has submitted its
first Medicare cost report.
We did not receive any public comments concerning the proposed
statewide average default CCR. Therefore, we are finalizing the
statewide average default CCRs shown in Table 4 below for OPPS services
furnished on or after January 1, 2007 without modification.
BILLING CODE 4120-01-P

[[Page 68007]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.012

[[Page 68008]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.013

[[Continued on page 68009]]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]

[[pp. 68009-68058]] Medicare Program; Hospital Outpatient Prospective Payment System
and CY 2007 Payment Rates; CY 2007 Update to the Ambulatory Surgical
Center Covered Procedures List; Medicare Administrative Contractors;
and Reporting Hospital Quality Data for FY 2008 Inpatient [[Page 68009]]

[[Continued from page 68008]]

[[Page 68009]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.014

BILLING CODE 4120-01-C

F. OPPS Payments to Certain Rural Hospitals

1. Hold Harmless Transitional Payment Changes Made by Pub. L. 109-171
(DRA)
When the OPPS was implemented, every provider was eligible to
receive an additional payment adjustment (transitional corridor
payment) if the payments it received for covered OPD services under the
OPPS were less than the payments it would have received for the same
services under the prior reasonable cost-based system. Section
1833(t)(7) of the Act provides that the transitional corridor payments
are temporary payments for most providers, with two exceptions, to ease
their transition from the prior reasonable cost-based payment system to
the OPPS system. Cancer hospitals and children's hospitals receive the
transitional corridor payments on a permanent basis. Section
1833(t)(7)(D)(i) of the Act originally provided for transitional
corridor payments to rural hospitals with 100 or fewer beds for covered
OPD services furnished before January 1, 2004. However, section 411 of
Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of the Act to extend
these payments through December 31, 2005, for rural hospitals with 100
or fewer beds. Section 411 also extended the transitional corridor
payments to sole community hospitals (SCHs) located in rural areas for
services furnished during the period that begins with the provider's
first cost reporting period beginning on or after January 1, 2004, and
ends on December 31, 2005. Accordingly, the authority for making
transitional corridor payments under section 1833(t)(7)(D)(i) of the
Act, as amended by section 411 of Pub. L. 108-173, expired for rural
hospitals having 100 or fewer beds and SCHs located in rural areas on
December 31, 2005.
Section 5105 of Pub. L. 109-171 reinstituted the hold harmless
transitional outpatient payments (TOPs) for covered OPD services
furnished on or after January 1, 2006, and before January 1, 2009, for
rural hospitals having 100 or fewer beds that are not SCHs. When the
OPPS payment is less than the payment the provider would have received
under the previous reasonable cost-based system, the amount of payment
is increased by 95 percent of the amount of the difference

[[Page 68010]]

between those two payment systems for CY 2006, by 90 percent of the
amount of that difference for CY 2007, and by 85 percent of the amount
of that difference for CY 2008.
For CY 2006, we have implemented section 5105 of Pub. L. 109-171
through Transmittal 877, issued on February 24, 2006. We did not
specifically address whether TOPs payments apply to essential access
community hospitals (EACHs), which are considered to be SCHs under
section 1886(d)(5)(D)(iii)(III) of the Act. Accordingly, under the
statute, EACHs are treated as SCHs. Therefore, we believe that EACHs
are not eligible for TOPs payment under Pub. L. 109-171. In the CY 2007
OPPS proposed rule, we proposed to update Sec. 419.70(d) to reflect
the requirements of Pub. L. 109-171.
2. Adjustment for Rural SCHs Implemented in CY 2006 Related to Pub. L.
108-173 (MMA)
In the CY 2006 OPPS final rule with comment period (70 FR 68556),
we finalized a payment increase for rural SCHs of 7.1 percent for all
services and procedures paid under the OPPS, excluding drugs,
biologicals, brachytherapy seeds, and services paid under pass-through
payment policy in accordance with section 1833(t)(13)(B) of the Act, as
added by section 411 of Pub. L. 108-173. Section 411 gave the Secretary
the authority to make an adjustment to OPPS payments for rural
hospitals, effective January 1, 2006, if justified by a study of the
difference in costs by APC between hospitals in rural and urban areas.
Our analysis showed a difference in costs only for rural SCHs and we
implemented a payment adjustment for those hospitals beginning January
1, 2006.
As indicated in the CY 2007 OPPS proposed rule (71 FR 49547), we
recently became aware that we did not specifically address whether the
adjustment applies to EACHs, which are considered to be SCHs under
section 1886(d)(5)(D)(iii)(III) of the Act. Thus, under the statute,
EACHs are treated as SCHs. Currently, fewer than 10 hospitals are
classified as EACHs. As of CY 1998, under section 4201(c) of Pub. L.
105-33, a hospital can no longer become newly classified as an EACH.
Therefore, for purposes of receiving this rural adjustment, we are
clarifying that EACHs are treated as SCHs for purposes of receiving
this adjustment, assuming these entities otherwise meet the rural
adjustment criteria.
This adjustment is budget neutral and applied before calculating
outliers and coinsurance. We also stated that we would not reestablish
the adjustment amount on an annual basis, but that we might review the
adjustment in the future and, if appropriate, would revise the
adjustment. For CY 2007, we proposed to continue our current policy of
a budget neutral 7.1 percent payment increase for rural SCHs for
specified services.
Comment: Many commenters expressed concern that small rural
hospitals will suffer financially if TOPs payments continue to decrease
each year, as specified in section 5105 of Pub. L. 109-171. The
commenters noted that patient access to small rural hospitals could be
at risk. One commenter supported permanent TOPs for rural SCHs, which
currently do not receive any TOPs payments. Several commenters noted
their support for a Senate bill, S.3606, which is known as the ``Save
our Safety Net Act of 2005.''
Response: We share the concerns of rural hospitals and do not
intend to limit access to health care for Medicare beneficiaries in
rural areas. However, we note that the statute is very specific and
does not provide TOPs payments for entities other than those listed in
the statute. The statute also requires TOPs payments to gradually
decrease through CY 2008.
Comment: Several commenters requested that CMS clarify that the 7.1
percent rural SCH adjustment applies to EACHs retroactive to January 1,
2006.
Response: As stated above, we are clarifying that EACHs are treated
as SCHs for purposes of receiving this adjustment, assuming these
entities otherwise meet the rural adjustment criteria. EACHs are
eligible for this adjustment effective January 1, 2006, as are all
rural SCHs. As stated above, we agree with the commenters and are
revising Sec. 419.43(g) to specifically reflect this clarification. In
addition, we will ensure that a retroactive payment adjustment occurs.
Comment: Several commenters supported the 7.1 percent adjustment
for rural SCHs for CY 2007, but requested that CMS rerun the analyses
to possibly provide for an adjustment for other rural hospitals during
CY 2008 and CY 2009, when TOPs payments will be further reduced.
Response: As stated above, while we will not reestablish the
adjustment amount nor determine whether other rural hospitals are
eligible for the adjustment on an annual basis, we may review the
adjustment in the future and, if appropriate, would revise the
adjustment.
After carefully considering the comments received, we are
finalizing our policy by continuing a payment adjustment for rural
SCHs, including EACHs, of 7.1 percent and finalizing the regulation
text at Sec. 419.70(d) without modification. We are also revising
Sec. 419.43(g) to clarify that EACHs are also eligible for the rural
SCH OPPS adjustment.

G. CY 2007 Hospital Outpatient Outlier Payments

Currently, the OPPS pays outlier payments on a service-by-service
basis. For CY 2006, the outlier threshold is met when the cost of
furnishing a service or procedure by a hospital exceeds 1.75 times the
APC payment amount and exceeds the APC payment rate plus a $1,250
fixed-dollar threshold. We introduced a fixed-dollar threshold in CY
2005 in addition to the traditional multiple threshold in order to
better target outliers to those high cost and complex procedures where
a very costly service could present a hospital with significant
financial loss. If a provider meets both of these conditions, the
multiple threshold and the fixed-dollar threshold, the outlier payment
is calculated as 50 percent of the amount by which the cost of
furnishing the service exceeds 1.75 times the APC payment rate. For a
discussion on CMHC outliers, see section II.B.3. of the preamble to
this final rule with comment period.
As explained in the CY 2006 OPPS final rule with comment period (70
FR 68561), we set our projected target for aggregate outlier payments
at 1.0 percent of aggregate total payments under the OPPS. The outlier
thresholds were set so that estimated CY 2006 aggregate outlier
payments would equal 1.0 percent of aggregate total payments under the
OPPS. In the CY 2006 OPPS final rule with comment period (70 FR 68563),
we also published total outlier payments as a percent of total
expenditures for past years. However, when we published the CY 2007
OPPS proposed rule, we did not have a complete set of CY 2005 claims
data to produce this number for CY 2005 and stated that we would report
on CY 2005 outlier payments in this CY 2007 OPPS final rule with
comment period. In the final set of CY 2005 OPPS claims, aggregated
outlier payments were 2.39 percent of aggregated total OPPS payments.
For CY 2005, the estimated outlier payments were set at 2 percent of
the total aggregated OPPS payments. Therefore, for CY 2005, we paid
0.39 percent in excess of the CY 2005 outlier target of 2 percent of
total aggregated OPPS payments.
1. CY 2007 Proposal
For CY 2007, we proposed to continue our policy of setting aside
1.0 percent of

[[Page 68011]]

aggregate total payments under the OPPS for outlier payments. We
proposed that a portion of that 1.0 percent would be allocated to CMHCs
for partial hospitalization program service outliers. We proposed that
the portion allocated to CMHCs would be determined by the amount of
estimated outlier payments resulting from the CMHC outlier threshold.
In order to ensure that estimated CY 2007 aggregate outlier
payments would equal 1.0 percent of estimated aggregate total payments
under the OPPS, we proposed that the outlier threshold be set so that
outlier payments would be triggered when the cost of furnishing a
service or procedure by a hospital exceeds 1.75 times the APC payment
amount and exceeds the APC payment rate plus a $1,825 fixed-dollar
threshold.
We calculated the fixed-dollar threshold for the CY 2007 proposed
rule using the same methodology as we did in CY 2006, except we used
the revised overall CCR calculation discussed in section II.A.1.c. of
this preamble. As discussed in section II.A.1.c. of this preamble, we
discovered that the calculation of the overall CCR that the fiscal
intermediaries are using to determine outlier payment and payment for
services paid at charges reduced to cost differs from the overall CCR
that we traditionally use to model the outlier thresholds. We
discovered this during our calculations of the outlier threshold for
the CY 2006 OPPS final rule with comment period, and we indicated in
our preamble discussion for that rule, that we might revisit the
threshold estimate methodology in light of identified differences in
the overall CCR calculation. Because, on average, the overall CCR
calculation used by the fiscal intermediaries results in higher CCRs
than those estimated using our ``traditional'' CCR sets, the outlier
threshold calculated for the CY 2006 OPPS final rule with comment
period is too low. The OPPS impact table in section XXVII. of the CY
2007 proposed rule (Table 49; 71 FR 49687) demonstrated an estimated
payment differential of 0.25 percent of total spending for hospital
outlier payments in CY 2006 because of the differences in overall CCR
calculations. The revised overall CCR calculation that we proposed for
CY 2007 aligns the two CCR calculations by removing allied and nursing
health costs for those hospitals with paramedical education programs
from the fiscal intermediary's CCR calculation and weighting our
``traditional'' calculation by total Medicare Part B charges. We
expected this proposed change in the overall CCR calculation to raise
the outlier threshold.
2. CY 2007 Final Rule Outlier Calculation
The claims that we use to model each OPPS update lag by 2 years.
For this final rule with comment period, we used CY 2005 claims to
model the CY 2007 OPPS. In order to estimate CY 2007 outlier payments
for this final rule with comment period, we inflated the charges on the
CY 2005 claims using the same inflation factor of 1.1642 that we used
to estimate the IPPS fixed-dollar outlier threshold for the FY 2007
IPPS final rule. For 1 year, the inflation factor is 1.079. The
methodology for determining this charge inflation factor was discussed
in the FY 2007 IPPS final rule (71 FR 48150). As we stated in the CY
2005 OPPS final rule with comment period, we believe that the use of
this charge inflation factor is appropriate for the OPPS because, with
the exception of the routine service cost centers, hospitals use the
same cost centers to capture costs and charges across inpatient and
outpatient services (69 FR 65845). As also noted in the FY 2006 IPPS
final rule, we believe that a charge inflation factor is more
appropriate than an adjustment to costs because this methodology
closely captures how actual outlier payments are made and calculated
(70 FR 47495). We then applied the revised overall CCR that we
calculated from each hospital's most recent cost report (CMS-2552-96)
and, if the cost report was not settled, we adjusted it by a settled-
to-submitted ratio. We simulated aggregated outlier payments using
these costs for several different fixed-dollar thresholds holding the
1.75 multiple constant until the total outlier payments equaled 1.0
percent of aggregated total OPPS payments. We estimate that a threshold
of $1,825 combined with the multiple threshold of 1.75 times the APC
payment rate would allocate 1.0 percent of aggregated total OPPS
payments to outlier payments.
For CMHCs, in CY 2007 we are projecting that the outlier threshold
is met when the cost of furnishing a service or procedure by a CMHC
exceeds 3.40 times the APC payment rate. If a CMHC provider meets this
condition, the outlier payment is calculated as 50 percent of the
amount by which the cost exceeds 3.40 times the APC payment rate. In
the CY 2007 OPPS proposed rule, we proposed to continue the same
threshold policy for CY 2007 as we have established for CY 2006. An
explanation for this proposed policy is discussed in section II.B.3. of
the preamble to this final rule with comment period.
We received many comments on our proposed outlier policy for CY
2007.
Comment: Some commenters were concerned that the outlier threshold
that CMS proposed is set too high and will result in CMS not spending
all of the money in the projected 1.0 percent outlier target. The
commenters stated that the estimated outlier target amount has
historically been greater than the actual need, and they asked that CMS
either reduce the set aside amount and retain that money in the OPPS
rates or reduce the threshold for qualification so that the outlier
expenditures are at a zero balance at the end of each year. One
commenter asked that CMS limit the increase in the outlier threshold to
the amount of the market basket update each year, which would mean, for
CY 2007, that the CY 2006 threshold would be increased by only 3.4
percent.
Response: We believe that the threshold of $1,825 will result in
paying 1.0 percent of the OPPS expenditures in outliers. As we
indicated in the CY 2006 OPPS final rule, in the final set of CY 2004
OPPS claims, aggregated outlier payments were 2.5 percent of aggregated
total OPPS payments. Similarly, using the final set of CY 2003 OPPS
claims, aggregated outlier payments were 3.1 percent of total OPPS
payments. As stated earlier, in the final set of CY 2005 claims,
aggregated outlier payments were 2.39 percent of the aggregated total
OPPS payments. For all three years, the estimated outlier payments were
set at 2.0 percent of the total aggregated OPPS payments. Hence, our
historic estimation of outlier payments has resulted in outlier
payments that exceeded our target, and we believe that our proposed
methodology will provide an outlier threshold that will result in more
accurate aggregate program outlier payments.
As discussed above, for the proposed rule, we used a charge
inflation factor of 1.1515 to inflate the charges for CY 2005 claims to
CY 2007 dollars. We then applied the provider's overall CCR that we
calculate as part of our APC median estimation process to those
inflated charges to estimate costs. We compared these estimated costs
to 1.75 times the proposed APC payment amount and to the APC payment
amount plus a number of fixed-dollar thresholds until we identified a
threshold that produced an estimate of total outlier payments equal to
1.0 percent of total aggregated OPPS payments.
We used the same estimation process for this final rule with
comment period. We used a complete set of CY 2005 claims, and the
updated charge inflation

[[Page 68012]]

estimate of 1.1642 percent from the FY 2007 IPPS final rule and each
hospital's overall CCR, as calculated for our APC median setting
process.
Using this methodology, the final fixed-dollar threshold for the CY
2007 OPPS is $1,825, and the final multiple threshold is 1.75 times the
APC payment rate.
We did not increase the CY 2007 outlier threshold by the market
basket update of 3.4 percent because our calculations are intended to
best approximate the outlier target of 1.0 percent of CY 2007 OPPS
expenditures. As we stated in the CY 2006 OPPS final rule, we
established the projected target for aggregate outlier payments at 1.0
percent because we believed, consistent with MedPAC's recommendations,
that the fairly narrow definitions of APC groups make outlier payment
less necessary for the OPPS, that multiple service payments are common
for any given claim, and that the susceptibility to ``gaming'' through
charge inflation continues (70 FR 68563). Because OPPS outlier payments
are targeted to services, rather than clinical cases, we believe it is
unlikely that any specific service would be excessively costly, and
reducing the outlier threshold to 1.0 percent of total OPPS payment
effectively raises the payment for all other services. We continue to
believe that an outlier target of 1.0 percent of total OPPS payment is
appropriate for the OPPS.
Comment: One commenter asked that CMS modify the charge methodology
used to set the OPPS outlier threshold to account for the change in
CCRs over time in a manner similar to that used for the FY 2007 IPPS.
The commenter believed that it is appropriate to apply an adjustment
factor to the CCRs, so that the CCRs CMS would use in simulations of
outlier payments would more closely reflect the CCRs that would be used
in CY 2007.
Response: Given the potential difference in cost increases between
inpatient and outpatient hospital departments, we do not believe it
would be appropriate to apply the exact same CCR adjustment used under
the IPPS without an OPPS-specific analysis. However, it is possible
that a similar analysis specific to the OPPS could indicate that it
would be appropriate to apply an OPPS CCR adjustment. We expect to
study this issue further and would address any changes to the outlier
methodology through future rulemaking.
Comment: Some commenters objected to the lack of analysis to
support the statement that the proposed outlier threshold would result
in full payment of the outlier pool and urged CMS to publish the
estimated outlier payments in the proposed rule, based on available
data, to permit the public to better comment on the proposed outlier
policy.
Response: The proposed rule contained considerable discussion of
the methodology we use to create the proposed outlier threshold, as
well as the projected program expenditure amount that we use to
determine the amount of the outlier set aside. Moreover, the claims we
used for the simulation are available to the public. Indeed, the
commenters perform many different types of analyses and often comment
in extreme detail based on their analyses of the claims data and our
description of the methodology we use to calculate the median costs on
which the payment rates are based. Therefore, the public has every
opportunity to perform a full and complete analysis of our outlier
projections in preparation for commenting on the proposed outlier
policy.
Comment: One commenter objected to the payment of 50 percent of the
cost that exceeds the threshold and believed that CMS should pay 80
percent of the cost rather than 50 percent to ameliorate the level of
losses that major teaching hospitals incur to provide complex
outpatient services and to make outlier payment under the OPPS
consistent with IPPS outlier payment.
Response: We disagree with the commenter that we should pay 80
percent of the cost that exceeds the threshold to ameliorate the level
of losses that major teaching hospitals incur and to make outlier
payment under the OPPS consistent with outlier payment under the IPPS.
As we have explained, if we increase the percent of the excess over
cost, in particular by 30 percent more than our proposed level of 50
percent, the threshold would need to be greatly increased to avoid
paying more than the 1.0 percent we have allowed for outlier payments.
Moreover, we do not believe that it is appropriate to have the same
policy governing outlier payment under both the IPPS and the OPPS
because of the inherent differences in the clinical cases and payment
methodologies that characterize the two systems. The circumstances
giving rise to outlier payments under each system are not found in the
other system, and therefore applying the same outlier policies would
likely be contrary to the reasons behind each policy.
After carefully considering the public comments received, we are
finalizing our proposed policy for CY 2007 outlier payments.
Recalculation of the fixed outlier threshold using this methodology
results in a fixed-dollar outlier threshold of $1,825 and a multiple
threshold of 1.75, based on an outlier estimate of 1.0 percent of
payments projected to be made under the CY 2007 OPPS and outlier
payments to be made at 50 percent of the amount by which the cost of
furnishing the service exceeds 1.75 times the APC rate. The following
is an example of an outlier calculation for CY 2007 under our final
policy with this modification. A hospital charges $26,000 for a
procedure. The wage adjusted, and rural adjusted, if applicable, APC
payment for the procedure is $3,000. The provider's overall CCR is
0.30. The estimated cost to the hospital is $7,800 (0.30 x $26,000). To
determine whether this provider is eligible for outlier payments for
this procedure, the provider must determine whether the cost for the
service exceeds both the APC outlier cost threshold (1.75 x APC
payment) and the fixed-dollar threshold ($1,825 + APC payment). In this
example, the provider meets both criteria:
(1) $7,800 exceeds $5,250 (1.75 x $3,000).
(2) $7,800 exceeds $4,825 ($3,000 + $1,825).
To calculate the outlier payment, which is 50 percent of the amount
by which the cost of furnishing the service exceeds 1.75 times the APC
rate, subtract $5,250 (1.75 x $3,000) from $7,800 (resulting in
$2,550). The provider is eligible for 50 percent of the difference, in
this case $1,275 ($2,550/2). The formula is (cost - (1.75 x APC payment
rate))/2.

H. Calculation of the OPPS National Unadjusted Medicare Payment

The basic methodology for determining prospective payment rates for
OPD services under the OPPS is set forth in existing regulations at
Sec. 419.31 and Sec. 419.32. The payment rate for services and
procedures for which payment is made under the OPPS is the product of
the conversion factor calculated in accordance with section II.C. of
this final rule with comment period and the relative weight determined
under section II.A. of this final rule with comment period. Therefore,
the national unadjusted payment rate for each APC contained in Addendum
A to this final rule with comment period and for HCPCS codes to which
payment under the OPPS has been assigned in Addendum B to this final
rule with comment period (Addendum B is provided as a convenience for
readers) was calculated by multiplying the final CY 2007 scaled

[[Page 68013]]

weight for the APC by the final CY 2007 conversion factor.
However, to determine the payment that will be made in a calendar
year under the OPPS to a specific hospital for an APC for a service
that has a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' in a
circumstance in which the multiple procedure discount does not apply,
we take the following steps:
Step 1. Calculate 60 percent (the labor-related portion) of the
national unadjusted payment rate. Since the initial implementation of
the OPPS, we have used 60 percent to represent our estimate of that
portion of costs attributable, on average, to labor. (Refer to the
April 7, 2000 final rule with comment period (65 FR 18496 through
18497) for a detailed discussion of how we derived this percentage.)
Step 2. Determine the wage index area in which the hospital is
located and identify the wage index level that applies to the specific
hospital. The wage index values assigned to each area reflect the new
geographic statistical areas as a result of revised OMB standards
(urban and rural) to which hospitals are assigned for FY 2007 under the
IPPS, reclassifications through the Medicare Classification Geographic
Review Board, section 1866(d)(8)(B) ``Lugar'' hospitals, and section
401 of Pub. L. 108-173, and the reclassifications of hospitals under
the one-time appeals process under section 508 of Pub. L. 108-173. The
wage index values include the occupational mix adjustment described in
section II.D. of this final rule with comment period that was developed
for the final FY 2007 IPPS payment rates and finalized in the IPPS
notice published in the Federal Register on October 11, 2006 (71 FR
59886). These finalized FY 2007 IPPS wage indices, which are effective
October 1, 2007, have been adjusted 100 percent for differences in
occupational mix. As is our practice, we adopt changes made to the FY
2007 IPPS wage index values after they have been finalized.
Step 3. Adjust the wage index of hospitals located in certain
qualifying counties that have a relatively high percentage of hospital
employees who reside in the county, but who work in a different county
with a higher wage index, in accordance with section 505 of Pub. L.
108-173. Addendum L contains the qualifying counties and the finalized
wage index increase developed for the FY 2007 IPPS (71 FR 59886). This
step is to be followed only if the hospital has chosen not to accept
reclassification under Step 2 above.
Step 4. Multiply the applicable wage index determined under Steps 2
and 3 by the amount determined under Step 1 that represents the labor-
related portion of the national unadjusted payment rate.
Step 5. Calculate 40 percent (the nonlabor-related portion) of the
national unadjusted payment rate and add that amount to the resulting
product of Step 4. The result is the wage index adjusted payment rate
for the relevant wage index area.
Step 6. If a provider is a SCH, as defined in Sec. 412.92, and
located in a rural area, as defined in Sec. 412.63(b), or is treated
as being located in a rural area under Sec. 412.103 of the Act,
multiply the wage index adjusted payment rate by 1.071 to calculate the
total payment.
We did not receive any public comments on our proposed methodology
for calculating the national unadjusted Medicare payment amount for CY
2007. Therefore, we are finalizing our proposed methodology for CY 2007
without modification.

I. Beneficiary Copayments for CY 2007

1. Background
Section 1833(t)(3)(B) of the Act requires the Secretary to set
rules for determining copayment amounts to be paid by beneficiaries for
covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies
that the Secretary must reduce the national unadjusted copayment amount
for a covered OPD service (or group of such services) furnished in a
year in a manner so that the effective copayment rate (determined on a
national unadjusted basis) for that service in the year does not exceed
specified percentages. For all services paid under the OPPS in CY 2007,
and in calendar years thereafter, the specified percentage is 40
percent of the APC payment rate (section 1833(t)(8)(C)(ii)(V) of the
Act). Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered
OPD service (or group of such services) furnished in a year, the
national unadjusted coinsurance amount cannot be less than 20 percent
of the OPD fee schedule amount.
Sections 1834(d) (2) and (d)(3) of the Act further require Medicare
to pay the lesser of the ASC or OPPS payment rate for screening
flexible sigmoidoscopies and screening colonoscopies, with coinsurance
equal to 25 percent of the payment amount. We have applied the 25-
percent coinsurance to all of these services since the beginning of the
OPPS. Medicare does not make payment to ASCs for screening
sigmoidoscopies so there is no payment comparison to be made for those
services. However, for CY 2007, the OPPS payment for screening
colonoscopies, HCPCS codes G0105 (Colorectal cancer screening;
colonoscopy on individual at risk) and G0121 (Colorectal cancer
screening; colonoscopy on individual not meeting criteria for high
risk), developed in accordance with our standard OPPS ratesetting
methodology, would exceed the ASC payment of $446 for these procedures.
Therefore, for CY 2007, the OPPS payment rates for HCPCS codes G0105
and G0121 that describe screening colonoscopies will be set to equal
the CY 2007 ASC rate of $446 for these services.
2. Copayment for CY 2007
For CY 2007, we proposed to determine copayment amounts for new and
revised APCs using the same methodology that we implemented for CY
2004. (Refer to the November 7, 2003 OPPS final rule with comment
period, 68 FR 63458.) These unadjusted copayment amounts for services
payable under the OPPS that will be effective January 1, 2007, are
shown in Addendum A and Addendum B of this final rule with comment
period.
3. Calculation of an Adjusted Copayment Amount for an APC Group for CY
2007
To calculate the OPPS adjusted copayment amount for an APC group,
take the following steps:
Step 1. Calculate the beneficiary payment percentage for the APC by
dividing the APC's national unadjusted copayment by its payment rate.
For example, using APC 0001, $7.00 is 23 percent of $30.21.
Step 2. Calculate the wage adjusted payment rate for the APC, for
the provider in question, as indicated in section II.H. of this
preamble. Calculate the rural adjustment for eligible providers as
indicated in section I.H. of this preamble.
Step 3. Multiply the percentage calculated in Step 1 by the payment
rate calculated in Step 2. The result is the wage-adjusted copayment
amount for the APC.
The unadjusted copayments for services payable under the OPPS that
will be effective January 1, 2007, are shown in Addendum A and Addendum
B of this final rule with comment period.
We did not receive any public comments concerning our methodology
for calculating the beneficiary unadjusted copayment amount. Therefore,
we are finalizing our proposed methodology for CY 2007 without
modification.

[[Page 68014]]

III. OPPS Ambulatory Payment Classification (APC) Group Policies

A. Treatment of New HCPCS and CPT Codes

1. Treatment of New HCPCS Codes Included in the Second and Third
Quarterly OPPS Updates for CY 2006
During the second and third quarters of CY 2006, we created a total
of four new Level II HCPCS codes, specifically C9227, C9228, C9229, and
C9230 that were not addressed in the November 10, 2005 final rule with
comment period that updated the CY 2006 OPPS. We designated the payment
status of these codes and added them either through the April update
(Transmittal 896, dated March 24, 2006) or the July update of the CY
2006 OPPS (Transmittal 970, dated May 30, 2006). In the CY 2007 OPPS
proposed rule, we also solicited public comments on the status
indicators and APC assignments of these codes, which were listed in
Table 5 of that proposed rule (71 FR 49548), and now appear in Table 5
of this final rule with comment period. Because of the timing of the
proposed rule, the codes implemented in the July 2006 OPPS update were
not included in Addendum B of that proposed rule, while those codes
based upon the April 2006 OPPS update were included in Addendum B. In
the CY 2007 OPPS proposed rule, we proposed to assign the new HCPCS
codes for CY 2007 to the appropriate APCs and incorporate them into our
final rule with comment period for CY 2007, which is consistent with
our annual APC updating policy.
We did not receive any public comments on the APC assignments and
status indicators designated for C9227, C9228, C9229, or C9230 that
were implemented in either April 2006 or July 2006. However, for CY
2007, the National HCPCS Panel created permanent J-codes for each of
these drugs. Consistent with our general policy of using permanent
HCPCS codes if appropriate rather than C-codes for the reporting of
drugs under the OPPS in order to streamline coding, we are showing the
J-codes in Table 5 that replaced the C-codes, effective January 1,
2007. C9227 is replaced with J2248 (Injection, micafungin sodium, 1
mg); C9228 with J3243 (Injection, tigecycline, 1 mg); C9229 with J1740
(Injection, ibandronate sodium, 1 mg); and C9230 with J0129 (Injection,
abatacept, 10 mg). The J-codes describe the same drugs and the same
dosages as the C-codes that will be deleted December 31, 2006. We note
that C-codes are temporary national HCPCS codes. To avoid duplication,
temporary national HCPCS codes, such as C, G, K, and Q codes, are
generally deleted once permanent national HCPCS codes are created that
describe the same item, service, or procedure. Because the four new J-
codes describe the same drugs and the same dosages that are currently
designated by C9227, C9228, C9229, and C9230 and all four of these
drugs will continue with pass-through status in CY 2007, we are
assigning the J-codes to the same APCs and status indicators as their
predecessor C-codes, as shown in Table 5. That is, J2248 will be
assigned to the same APC and status indicator as C9227; J3243 to APC
9228; J1740 to APC 9229; and J0129 to APC 9230. Because we received no
public comments on the APC and status indicator assignments for the new
HCPCS codes that were implemented in April or July 2006, we are
adopting as final without modification, our proposal to assign their
replacement HCPCS J-codes to the appropriate APCs, as shown in Addendum
B of this final rule with comment period.

Table 5.--New HCPCS Codes Implemented in April or July 2006
----------------------------------------------------------------------------------------------------------------
New HCPCS J-Code effective Assigned status
January 1, 2007 HCPCS C-Code Description indicator Assigned APC
----------------------------------------------------------------------------------------------------------------
J2248........................ C9227................ Injection, G................... 9227
micafungin sodium,
per 1 mg.
J3243........................ C9228................ Injection, G................... 9228
tigecycline, per 1
mg.
J1740........................ C9229................ Injection, G................... 9229
ibandronate sodium,
per 1 mg.
J0129........................ C9230................ Injection, G................... 9230
abatacept, per 10
mg.
----------------------------------------------------------------------------------------------------------------

2. Treatment of New CY 2007 Category I and III CPT Codes and Level II
HCPCS Codes
As has been our practice in the past, we implement new Category I
and III CPT codes and new Level II HCPCS codes, which are released in
the summer through the fall of each year for annual updating, effective
January 1, in the final rule updating the OPPS for the following
calendar year. These codes are flagged with comment indicator ``NI'' in
Addendum B of the OPPS final rule to indicate that we are assigning
them an interim payment status which is subject to public comment
following publication of the final rule that implements the annual OPPS
update. (See the discussion immediately below concerning our modified
policy for implementing new Category I and III mid-year CPT codes.) In
our CY 2007 OPPS proposed rule, we proposed to continue this
recognition and process for CY 2007. Therefore, new Category I and III
CPT codes and new Level II HCPCS codes, effective January 1, 2007, are
listed in Addendum B of this final rule with comment period and
designated using comment indicator ``NI.'' The status indicator, the
APC assignment, or both, for all such codes flagged with Comment
Indicator ``NI'' are open to public comment. As indicated in the CY
2007 OPPS proposed rule, we will respond to all comments received
concerning these codes in a subsequent final rule for the next calendar
year's OPPS update.
We received some comments to the CY 2007 proposed rule regarding
individual new HCPCS codes that commenters expected to be implemented
for the first time in the CY 2007 OPPS. We could not discuss APC and/or
status indictor assignments for new CY 2007 HCPCS codes in the proposed
rule because the codes were not available when we developed and issued
the proposed rule. For those new Category I CPT codes whose descriptors
were not officially available during the comment period and development
of the CY 2007 final rule with comment period, we do not specifically
respond to those comments in this final rule with comment period. For
those new Category III CPT codes that were released on July 1, 2006,
for implementation January 1, 2007, we respond to those comments in
this final rule with comment period because those codes were publicly
available during the comment period to the proposed rule and the
development of this final rule with comment period. Both of these
groups of codes are flagged with comment indicator ``NI'' in this final
rule with comment period, as discussed above, to signal that they are
open to public comment.

[[Page 68015]]

Two new G-codes for CY 2007 that are assigned comment indicator
``NI'' in this final rule with comment period were developed to enable
clinicians and facilities to specifically report transluminal balloon
angioplasty to existing arteriovenous fistulas or prosthetic grafts for
hemodialysis access. Currently, there are no CPT or alphanumeric HCPCS
codes on the ASC list that would provide payment to ASCs for providing
this service to Medicare patients with failing or stenotic hemodialysis
access fistulas or grafts. There are no CPT codes that are specific to
this particular service. Therefore, we are creating two Level II HCPCS
G-codes for implementation in CY 2007: (1) G0392 (Transluminal balloon
angioplasty, percutaneous, hemodialysis access fistula or graft;
arterial) and (2) G0393 (Transluminal balloon angioplasty,
percutaneous, hemodialysis access fistula or graft; venous). We will
provide payment for these G-codes at the same OPPS rates as for CPT
codes 35475 (Transluminal balloon angioplasty, percutaneous;
brachiocephalic trunk or branches, each vessel) and 35476 (Transluminal
balloon angioplasty, percutaneous; venous) through APC 0081 (Non-
Coronary Angioplasty or Atherectomy), with a CY 2007 final median cost
of $2,450.64. We will also assign both G-codes to payment group 9 for
ASC payment in CY 2007. The G-codes will be used by hospital outpatient
departments and ASCs to report transluminal balloon angioplasty of
hemodialysis access fistulas or grafts in these settings.
Beginning in CY 2007, CPT codes 35475 and 35476 should not be
reported for patients undergoing percutaneous transluminal balloon
angioplasty of hemodialysis access fistulas or grafts. Both CPT codes
will remain active to report all other clinical services that would be
described by these codes.
We did not receive any public comments on our proposal to assign a
comment indicator of ``NI'' in Addendum B of the OPPS final rule to the
new codes that are open to public comment. Therefore, we are finalizing
our proposed treatment of new CY 2007 Category I and III CPT codes, as
well as the Level II HCPCS codes, without modification.
3. Treatment of New Mid-Year CPT Codes
Twice each year, the AMA issues Category III CPT codes, which the
AMA defines as temporary codes for emerging technology, services, and
procedures. (In addition, the AMA issues mid-year Category I CPT codes
for vaccines for which FDA approval is imminent, to ensure timely
availability of a code.) The AMA establishes these codes to allow
collection of data specific to the service described by the code, as
these services could otherwise only be reported using a Category I CPT
unlisted code. The AMA releases Category III CPT codes in January, for
implementation beginning the following July, and in July, for
implementation beginning the following January. Prior to CY 2006, we
treated new Category III CPT codes implemented in July of the previous
year or January of the OPPS update year in the same manner that new
Category I CPT codes and new Level II HCPCS codes implemented in
January of the OPPS update year are treated; that is, we provided APC
or status indicator assignments or both in the final rule updating the
OPPS for the following calendar year. New Category I and Category III
CPT codes, as well as new Level II HCPCS codes, were flagged with
comment indicator ``NI'' in Addendum B of the final rule to indicate
that we assigned them an interim payment status which was subject to
public comment following publication of the final rule that implemented
the annual OPPS update.
As discussed in the CY 2006 OPPS final rule with comment period (70
FR 68567), we modified our process for implementing the Category III
codes that the AMA releases each January for implementation in July to
ensure timely collection of data pertinent to the services described by
the codes; to ensure patient access to the services the codes describe;
and to eliminate potential redundancy between Category III CPT codes
and some of the C-codes that are payable under the OPPS and were
created by us in response to applications for new technology services.
Therefore, beginning on July 1, 2006, we implemented in the OPPS seven
Category III CPT codes that the AMA released in January 2006 for
implementation in July 2006. These codes were shown in Table 6 of the
CY 2007 OPPS proposed rule (71 FR 49549). They were not included in
Addendum B of that rule, which was based upon the April 2006 OPPS
update. In the CY 2007 OPPS proposed rule, we solicited public comments
on the status indicators and, if applicable, the APC assignments of
these services. We proposed in the CY 2007 OPPS proposed rule to
finalize the assignments of these Category III CPT codes implemented in
July 2006 in this final rule with comment period.
As indicated in the CY 2007 OPPS proposed rule (71 FR 49549), some
of the new Category III CPT codes describe services that we have
determined to be similar in clinical characteristics and resource use
to HCPCS codes in an existing APC. In these instances, we may assign
the Category III CPT code to the appropriate clinical APC. Other
Category III CPT codes describe services that we have determined are
not compatible with an existing clinical APC, yet are appropriately
provided in the hospital outpatient setting. In these cases, we may
assign the Category III CPT code to what we estimate is an
appropriately priced New Technology APC. In other cases, we may assign
a Category III CPT code to one of several nonseparately payable status
indicators, including ``N,'' ``C,'' ``B,'' or ``E,'' which we believe
is appropriate for the specific code. We expect that we will have
received applications for new technology status for some of the
services described by new Category III CPT codes, which may assist us
in determining appropriate APC assignments. If the AMA establishes a
Category III CPT code for a service for which an application has been
submitted to CMS for new technology status, CMS may not have to issue a
temporary Level II HCPCS code to describe the service, as has often
been the case in the past when Category III CPT codes were only
recognized by the OPPS on an annual basis.
Therefore, for CY 2007, we proposed to include in Addendum B of
this final rule with comment period, the new Category III CPT codes and
the new Category I CPT codes for vaccines released in January 2006 for
implementation on July 1, 2006 (through the OPPS quarterly update
process) and the Category III and vaccine Category I CPT codes released
in July 2006 for implementation on January 1, 2007. However, only those
new Category III CPT codes and the new vaccine codes implemented
effective January 1, 2007, are flagged with comment indicator ``NI'' in
Addendum B of this final rule with comment period to indicate that we
have assigned them an interim payment status which is subject to public
comment. As discussed earlier, Category III CPT codes implemented in
July 2006, which appear in Table 6, were subject to comment through the
CY 2007 OPPS proposed rule and their statuses are finalized in this
final rule with comment period.

[[Page 68016]]

Table 6.--Category III CPT Codes Implemented in July 2006
----------------------------------------------------------------------------------------------------------------
Proposed CY 2007 Proposed CY 2007 Final CY 2007 Final CY 2007
CPT code Long descriptor status indicator APC status indicator APC
----------------------------------------------------------------------------------------------------------------
0155T............. Laparoscopy, T................. 0130.............. T................ 0130
surgical,
implantation or
replacement of
gastric
stimulation
electrodes,
lesser curvature
(ie, morbid
obesity).
0156T............. Laparoscopy, T................. 0130.............. T................ 0130
surgical,
revision or
removal of
gastric
stimulation
electrodes,
lesser curvature
(ie, morbid
obesity).
0157T............. Laparotomy, C.................
implantation or
replacement of
gastric
stimulation
electrodes,
lesser curvature
(ie, morbid
obesity).
0158T............. Laparotomy, C.................
revision or
removal of
gastric
stimulation
electrodes,
lesser curvature
(ie, morbid
obesity).
0159T............. Computer-aided N.................
detection,
including
computer
algorithm
analysis of MRI
image data for
lesion detection/
characterization
,
pharmacokinetic
analysis, with
further
physician review
for
interpretation,
breast MRI.
0160T............. Therapeutic X................. 0340.............. S................ 0216
repetitive
transcranial
magnetic
stimulation
treatment
planning.
0161T............. Therapeutic X................. 0340.............. S................ 0216
repetitive
transcranial
magnetic
stimulation
treatment
delivery and
management, per
session.
----------------------------------------------------------------------------------------------------------------

We received several public comments on the proposed APC assignments
for Category III CPT codes 0159T, 0160T, and 0161T. A summary of the
comments and our responses follows:
Comment: One commenter requested that CMS assign CPT code 0159T to
an APC that is separately payable under the OPPS because there are
additional resources associated with performing a breast MRI with
computer-aided detection (CAD), which is a significant advancement in
early detection and treatment for possible breast cancers. The
commenter indicated that the procedure described by CPT code 0159T is
similar to the CAD procedures that are associated with mammography,
which CMS previously recognized and allowed separate payment. The
commenter urged CMS to pay separately for CPT code 0159T, if not
through the hospital OPPS, then by a separate payment under the MFPS,
similar to other hospital-based mammography services.
Response: The CAD procedures that the commenter makes reference to
are described by CPT codes 77051 (Computer-aided detection (computer
algorithm analysis of digital image data for lesion detection) with
further physician review for interpretation, with or without
digitization of film radiographic images; diagnostic mammography) and
77052 (Computer-aided detection (computer algorithm analysis of digital
image data for lesion detection) with further physician review for
interpretation, with or without digitization of film radiographic
images; screening mammography). These are both paid off the MPFS,
according to specific provisions in the law for screening and
diagnostic mammography that specify that such services, when performed
in the hospital outpatient setting, are paid according to the MPFS.
Other hospital outpatient imaging services, such as CPT code 0159T, are
paid under the OPPS. We have assigned this service packaged payment
status under the OPPS for CY 2007, because we believe that it is a
minor ancillary service that would always be provided in association
with another separately payable service (mostly likely an MRI), into
which its payment would be appropriately packaged. As a prospective
payment system, the OPPS makes payment for groups of services that are
clinically coherent with similar resource utilization and packages
payment for many items, supplies, and minor associated services into
the payment for the primary service. Our final CY 2007 treatment of CPT
code 0159T is the same as our final CY 2007 packaged status for two
chest x-ray CAD services, CPT code 0174T (Computer-aided detection
(CAD) (computer algorithm analysis of digital image data for lesion
detection) with further physician review for interpretation and report,
with or without digitization of film radiographic images, chest
radiograph(s), performed concurrent with primary interpretation) and
CPT code 0175T (Computer aided detection (CAD) (computer algorithm
analysis of digital image data for lesion detection) with further
physician review for interpretation and report, with or without
digitization of film radiographic images, chest radiograph(s),
performed remote from primary interpretation) that is discussed further
in section II.A.4. of this final rule with comment period.
Comment: One commenter requested that CMS not map Category III CPT
codes 0160T and 0161T to APC 0340 (Minor Ancillary Procedures) because
the technology associated with these procedures is currently under
review by the FDA and approval is not expected until January 2007. The
commenter indicated that these codes describe therapeutic transcranial
magnetic stimulation (TMS) therapy, which is used for the treatment of
major depression. The commenter further indicated that TMS therapy
represents a procedure that involves a complex brain mapping and
stimulation treatment process and requires the use of specific
equipment and a specialized operator skill set. As such, the commenter
concluded that TMS therapy represents a procedure whose hospital
resources are significantly greater than reflected by the proposed
payment rate for APC 0340 of about $38. The commenter believed that
mapping Category III CPT codes 0160T and 0161T to APC 0340, or to any
other APCs, is inappropriate at this time because the costs of these
services are currently not known. The commenter cautioned that
assigning these codes to specific APCs would be arbitrary and could
significantly overcompensate or undercompensate providers because there
are no cost data available to appropriately map codes 0160T and 0161T
at this time. The commenter acknowledged that not assigning the two
codes to specific APCs may result in no payment for TMS therapy
performed in hospital outpatient settings for CY 2007 and likely limit
access for some patients. However, the commenter indicated that it
plans to work with the APC Panel in CY 2007 to determine the
appropriate mapping for the two codes to ensure access for appropriate
patients.
Other commenters noted that there was a related Category III code,
CPT code 0018T (Delivery of high power,

[[Page 68017]]

focal magnetic pulses for direct stimulation to cortical neurons) that
was created prior to the full maturation of the therapeutic TMS
procedure and related technology. The commenters noted differences
between CPT code 0018T and the two new Category III CPT codes,
including its lack of incorporation of the treatment planning function,
its failure to specify repetitive in the descriptor, and its lack of
description of therapeutic treatment delivery. They believed that the
historical APC assignment of code 0018T to APC 0215 (Level I Nerve and
Muscle Tests) was inappropriate, although one commenter stated that it
was not involved in determining that mapping. The commenters pointed
out that there are also two Category I CPT codes that incorporate TMS
for diagnostic purposes, including CPT code 95928 (Central motor evoked
potential study (transcranial motor stimulation); upper limbs) and CPT
code 95929 (Central motor evoked potential study (transcranial motor
simulation); lower limbs). The commenters added that both of these
codes were proposed for assignment to APC 0218 (Level II Nerve and
Muscle Tests) for CY 2007 with a payment rate of about $74.
Response: We appreciate the commenters' suggestion and background
information. However, because the CPT code descriptors are general in
nature and not specific to a particular product, our policy has been to
assign an APC to each Category III CPT code if we believe that the
procedure, if covered, would be appropriate for separate payment in the
OPPS.
In addition, as indicated in the CY 2006 OPPS final rule (70 FR
68567), some of the new Category III CPT codes may describe services
that our medical advisors determine to be similar in clinical
characteristics and resource use to HCPCS codes in an existing APC. In
such instances, we may assign the Category III CPT code to the
appropriate clinical APC. Other Category III CPT codes may describe
services that our medical advisors determine are not compatible with an
existing clinical APC, yet are appropriately provided in the hospital
outpatient setting. In these cases, we may assign the Category III CPT
code to what we estimate is an appropriately priced New Technology APC.
In the case of CPT codes 0160T and 0161T, we believe the services
described by these active CPT codes would be appropriately separately
paid under the OPPS if they are covered. We do not believe the
technology used to provide these services is so new that their
assignment to New Technology APCs would be appropriate. Although our
final determination regarding these two codes is to provide assignments
to specific APCs with payment rates for CY 2007 as described below,
this decision does not represent a determination that the services
described by Category III CPT codes 0160T and 0161T are reasonable and
necessary. Medicare contractors determine whether the services
described by all HCPCS codes with status indicators reflecting their
potential for payment under the OPPS, including Category III CPT codes,
meet all the program requirements for coverage in different clinical
circumstances.
The Internet listing of Category III code changes on the AMA Web
site includes a parenthetical note that CPT Code 0018T has been deleted
as of July 1, 2006, the same date new CPT codes 0160T and 0161T were
first implemented. The note also indicates that, to report the
procedure previously described by 0018T, one should see CPT codes 0160T
and 0161T. CPT Changes, an Insider's View for CY 2002 when 0018T was
created, describes the use of CPT code 0018T for treatment of a patient
with a long history of depression, incorporating planning and
therapeutic treatment delivery in the description of the procedure. In
general, that outline of the service described by CPT code 0018T
closely parallels the clinical vignettes for CPT codes 0160T and 0161T
that were provided to us in a public comment. Therefore, we do not
agree with the commenters that our historical claims for 0018T must be
instances of miscoding or the use of TMS for diagnostic purposes. While
we had no claims for CPT code 0018T for CY 2005, we do have claims data
for this service from CYs 2002 through 2004, although there were fewer
than 15 total claims for each of those years. The procedure was
assigned to APC 0215 (Level I Nerve and Muscle Tests) with a payment
rate of about $35 throughout that time period, with no specific
comments from the public on this assignment during the OPPS proposed
updates for those years.
We understand that the hospital resource costs of specific
technologies may change over time as those technologies evolve. In
reviewing the clinical aspects of CPT codes 0160T and 0161T, in the
context of related codes and our historical OPPS claims data for CPT
code 0018T and other services, we agree with the commenter that APC
0340 is not the most appropriate assignment for CPT codes 0160T and
0161T for CY 2007. The commenter provided no specific suggestions
regarding the APC assignments for these codes. As discussed earlier,
CPT codes describe general services that are not specific to one
product, and we believe it is most appropriate to provide APC
assignments for all new HCPCS codes that would be appropriately
separately paid under the OPPS if they were covered. This approach
helps ensure access to services described by these codes for Medicare
beneficiaries in the hospital outpatient department and allows us to
initiate collection of hospital cost information as soon as possible.
The commenter indicated that TMS may be safely performed in the
hospital outpatient setting. We do not see any reason to provide the
Category III CPT codes for TMS nonpayable status indicators in the OPPS
for CY 2007, when the codes were implemented in July 2006 and there are
no alternative HCPCS codes to describe the services. However, we
believe that APC 0216 (Level III Nerve and Muscle Tests) best
represents both the clinical and resource homogeneity of CPT codes
0160T and 0161T for CY 2007, considering all of the information
available to us. We note that this APC has a status indicator of ``S,''
so that under the occasional circumstance of two treatments in one day
for a single patient as described by a commenter, payment would not be
reduced for the second service. We will reevaluate these assignments
for future OPPS updates as additional information becomes available to
us, including updated claims data.
After carefully considering the comments received, we are
finalizing our general proposal for the treatment of new mid-year CPT
codes, with modification only to the CY 2007 APC assignments for
Category III CPT codes 0160T and 0161T as described above and indicated
in Table 6.

B. Variations Within APCs

1. Background
Section 1833(t)(2)(A) of the Act requires the Secretary to develop
a classification system for covered hospital outpatient services.
Section 1833(t)(2)(B) of the Act provides that this classification
system may be composed of groups of services, so that services within
each group are comparable clinically and with respect to the use of
resources. In accordance with these provisions, we developed a grouping
classification system, referred to as the Ambulatory Payment
Classification Groups (or APCs), as set forth in Sec. 419.31 of the
regulations. We use Level I and Level II HCPCS codes and descriptors to
identify and group the services within each APC. The APCs

[[Page 68018]]

are organized such that each group is homogeneous both clinically and
in terms of resource use. Using this classification system, we have
established distinct groups of surgical, diagnostic, and partial
hospitalization services, as well as medical visits. We also have
developed separate APC groups for certain medical devices, drugs,
biologicals, radiopharmaceuticals, and brachytherapy devices.
We have packaged into each procedure or service within an APC group
the costs associated with those items or services that are directly
related and integral to performing a procedure or furnishing a service.
Therefore, we do not make separate payment for packaged items or
services. For example, packaged items and services include: (1) Use of
an operating, treatment, or procedure room; (2) use of a recovery room;
(3) most observation services; (4) anesthesia; (5) medical/surgical
supplies; (6) pharmaceuticals (other than those for which separate
payment may be allowed under the provisions discussed in section V of
this preamble); and (7) incidental services such as venipuncture. Our
proposed packaging methodology is discussed in section II.A. of this
preamble.
Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the APC group to which the
service is assigned. Each APC weight represents the hospital median
cost of the services included in that APC relative to the hospital
median cost of the services included in APC 0606. The APC weights are
scaled to APC 0606 because we are proposing it to be the middle level
clinic visit APC (that is, where the Level III Clinic Visit HCPCS code
of five levels of clinic visits is assigned), and because middle level
clinic visits are among the most frequently furnished services in the
outpatient hospital setting. See section II.A.3. of this preamble for a
complete discussion of the reasons for choosing APC 0606 as the basis
for scaling the APC relative weights.
Section 1833(t)(9)(A) of the Act requires the Secretary to review
the components of the OPPS not less than annually and to revise the
groups and relative payment weights and make other adjustments to take
into account changes in medical practice, changes in technology, and
the addition of new services, new cost data, and other relevant
information and factors. Section 1833(t)(9)(A) of the Act, as amended
by section 201(h) of the BBRA of 1999, also requires the Secretary,
beginning in CY 2001, to consult with an outside panel of experts to
review the APC groups and the relative payment weights (the APC Panel
recommendations for specific services for CY 2007 OPPS and our
responses to them are discussed in the relevant specific sections
throughout this preamble).
Finally, as discussed earlier, section 1833(t)(2) of the Act
provides that, subject to certain exceptions, the items and services
within an APC group cannot be considered comparable with respect to the
use of resources if the highest median (or mean cost, if elected by the
Secretary) for an item or service in the group is more than 2 times
greater than the lowest median cost for an item or service within the
same group (referred to as the ``2 times rule''). We use the median
cost of the item or service in implementing this provision. The statute
authorizes the Secretary to make exceptions to the 2 times rule in
unusual cases, such as low-volume items and services.
2. Application of the 2 Times Rule
In accordance with section 1833(t)(2) of the Act and Sec. 419.31
of the regulations, we annually review the items and services within an
APC group to determine, with respect to comparability of the use of
resources, if the median of the highest cost item or service within an
APC group is more than 2 times greater than the median of the lowest
cost item or service within that same group (``2 times rule''). We make
exceptions to this limit on the variation of costs within each APC
group in unusual cases such as low-volume items and services.
During the APC Panel's March 2006 meeting, we presented median cost
and utilization data for services furnished during the period of
January 1, 2005, through September 30, 2005, about which we had
concerns or about which the public had raised concerns regarding their
APC assignments, status indicator assignments, or payment rates. The
discussions of most service-specific issues, the APC Panel
recommendations, if any, and our proposals for CY 2007 are contained
principally in sections III.C. and III.D. of this preamble.
In addition to the assignment of specific services to APCs which we
discussed with the APC Panel, we also identified APCs with 2 times
violations that were not specifically discussed with the APC Panel but
for which we proposed changes to their HCPCS codes' APC assignments in
Addendum B of the CY 2007 proposed rule. In these cases, to eliminate a
2 times violation, we reassigned the codes to APCs that contained
services that were similar with regard to both resource use and
clinical homogeneity. We also proposed changes to the status indicators
for some codes that were not specifically and separately discussed in
the proposed rule. In these cases, we changed the status indicators for
some codes because we believed that another status indicator more
accurately described their payment status from an OPPS perspective
based on our CY 2007 proposed policies.
Addendum B of the CY 2007 OPPS proposed rule identified with a
comment indicator ``CH'' those HCPCS codes for which we proposed a
change to the APC assignment or status indicator as assigned in the
April 2006 Addendum B update. Addendum B of this final rule with
comment period identifies with the ``CH'' comment indicator the final
CY 2007 changes compared to the codes'' status as reflected in the
October 2006 Addendum B update.
We received many public comments regarding the proposed APC and
status indicator assignments for CY 2007 for specific HCPCS codes.
These are discussed mainly in sections III.C. and III.D. of this final
rule with comment period, and the final action for CY 2007 related to
each HCPCS code is noted in those sections.
3. Exceptions to the 2 Times Rule
As discussed earlier, we may make exceptions to the 2 times limit
on the variation of costs within each APC group in unusual cases such
as low-volume items and services. At the time of the proposed rule,
taking into account the APC changes that we proposed for CY 2007 based
on the APC Panel recommendations discussed mainly in sections III.C.
and III.D. of the preamble, the proposed changes to status indicators
and APC assignments as identified in Addendum B of the CY 2007 OPPS
proposed rule, and the use of CY 2005 claims data to calculate the
median costs of procedures classified in the APCs, we reviewed all the
APCs to determine which APCs would not satisfy the 2 times rule. We
used the following criteria to decide whether to propose exceptions to
the 2 times rule for affected APCs:
Resource homogeneity
Clinical homogeneity
Hospital concentration
Frequency of service (volume)
Opportunity for upcoding and code fragments.
For a detailed discussion of these criteria, refer to the April 7,
2000 OPPS final rule with comment period (65 FR 18457).
Table 7 published in the CY 2007 OPPS proposed rule (71 FR 49551)

[[Page 68019]]

listed the APCs that we proposed to exempt from the 2 times rule based
on the criteria cited above. For cases in which a recommendation by the
APC Panel appeared to result in or allow a violation of the 2 times
rule, we generally accepted the APC Panel's recommendation because
those recommendations were based on explicit consideration of resource
use, clinical homogeneity, hospital specialization, and the quality of
the data used to determine the APC payment rates that we proposed for
CY 2007. The median costs for hospital outpatient services for these
and all other APCs which were used in development of the proposed rule
can be found on the CMS Web site: http://www.cms.hhs.gov.

We did not receive any general public comments related to the list
of proposed exceptions to the 2 times rule. We received a number of
specific comments about some of the procedures assigned to APCs that we
proposed to make exempt from the 2 times rule for CY 2007. Those
discussions are elsewhere in the preamble, in sections related to the
types of procedures that were the subjects of the comments.
For the proposed rule, the listed exceptions to the 2 times rule
were based on data from January 1, 2005, through September 30, 2005.
For this final rule with comment period, we used data from January 1,
2005 through December 1, 2005. Thus, after responding to all of the
comments on the proposed rule and making changes to APC assignments
based on those comments, we analyzed the full CY 2005 data to identify
APCs with 2 times rule violations.
Based on those final data, we found that there were 37 APCs with 2
times rule violations. We applied the criteria as described earlier to
finalize the APCs that are exceptions to the 2 times rule for CY 2007.
The final revised list of APCs that are exceptions to the 2 times rule
for CY 2007 is displayed in Table 7 below. After careful review of all
public comments on the proposed rule and the claims data for the full
year, CY 2005, available to us for this final rule with comment period,
we are finalizing the list of APCs exempted from the two times rule as
displayed in Table 7 below.

Table 7.--APC Exceptions to the 2 Times Rule for CY 2007
------------------------------------------------------------------------
APC APC description
------------------------------------------------------------------------
0007.......................... Level II Incision & Drainage.
0010.......................... Level I Destruction of Lesion.
0019.......................... Level I Excision/ Biopsy.
0024.......................... Level I Skin Repair.
0040.......................... Percutaneous Implantation of
Neurostimulator Electrodes, Excluding
Cranial Nerve.
0043.......................... Closed Treatment Fracture Finger/Toe/
Trunk.
0058.......................... Level I Strapping and Cast Application.
0060.......................... Manipulation Therapy.
0081.......................... Non-Coronary Angioplasty or Atherectomy.
0093.......................... Vascular Reconstruction/Fistula Repair
without Device.
0105.......................... Revision/Removal of Pacemakers, AICD, or
Vascular.
0111.......................... Blood Product Exchange.
0112.......................... Apheresis, Photopheresis, and
Plasmapheresis.
0203.......................... Level IV Nerve Injections.
0204.......................... Level I Nerve Injections.
0215.......................... Level I Nerve and Muscle Tests.
0245.......................... Level I Cataract Procedures without IOL
Insert.
0251.......................... Level I ENT Procedures.
0252.......................... Level II ENT Procedures.
0274.......................... Myelography.
0303.......................... Treatment Device Construction.
0307.......................... Myocardial Positron Emission Tomography
(PET) Imaging.
0312.......................... Radioelement Applications.
0323.......................... Extended Individual Psychotherapy.
0330.......................... Dental Procedures.
0340.......................... Minor Ancillary Procedures.
0367.......................... Level I Pulmonary Test.
0381.......................... Single Allergy Tests.
0397.......................... Vascular Imaging.
0409.......................... Red Blood Cell Tests.
0418.......................... Insertion of Left Ventricular Pacing
Elect.
0432.......................... Health and Behavior Services.
0437.......................... Level II Drug Administration.
0604.......................... Level I Clinic Visits.
0621.......................... Level I Vascular Access Procedures.
0664.......................... Level I Proton Beam Radiation Therapy.
0676.......................... Thrombolysis and Thrombectomy.
------------------------------------------------------------------------

C. New Technology APCs

1. Introduction
In the November 30, 2001 final rule (66 FR 59903), we finalized
changes to the time period a service was eligible for payment under a
New Technology APC. Beginning in CY 2002, we retain services within New
Technology APC groups until we gather sufficient claims data to enable
us to assign the service to a clinically appropriate APC. This policy
allows us to move a service from a New Technology APC in less than 2
years if sufficient data are available. It also allows us to retain a
service in a New Technology APC for more than 3 years if sufficient
data upon which to base a decision for reassignment have not been
collected. More recently, at its August 2006 meeting the APC Panel
recommended that when CMS assigns a new service to a New Technology
APC, the service should remain there for at

[[Page 68020]]

least 2 years until sufficient claims data are collected. In general,
services remain in New Technology APCs for at least 2 years consistent
with the APC Panel's recommendation. However, we do not fully accept
the APC Panel's recommendation. While we agree with the APC Panel that
we need sufficient claims data to move services from New Technology
APCs to clinical APCs, we also continue to believe that it occasionally
may be appropriate to move a service from a New Technology APC to a
clinical APC in less than 2 years if the data are robust and there is
an appropriate clinical APC for its assignment.
We note that the cost bands for New Technology APCs range from $0
to $50 in increments of $10, from $50 to $100 in increments of $50,
from $100 through $2,000 in intervals of $100, and from $2,000 through
$6,000 in intervals of $500. These intervals, which are in two parallel
sets of New Technology APCs, one with status indicator ``S'' and the
other with status indicator ``T,'' allow us to price new technology
services more appropriately and consistently.
Every year we receive many requests for higher payment amounts for
specific procedures under the OPPS because they require the use of
expensive equipment. We are taking this opportunity to reiterate our
response in general to the issue of hospitals' capital expenditures as
they relate to the OPPS and Medicare.
Under the OPPS, one of our goals is to make payments that are
appropriate for the services that are necessary for the treatment of
Medicare beneficiaries. The OPPS, like other Medicare payment systems,
is budget neutral and so, although we do not pay full hospital costs
for procedures, we believe that our payment rates generally reflect the
costs that are associated with providing care to Medicare beneficiaries
in cost-efficient settings. Further, we believe that our rates are
adequate to assure access to services for most beneficiaries.
For many emerging technologies there is a transitional period
during which utilization may be low, often because providers are first
learning about the techniques and their clinical utility. Quite often,
the requests for higher payment amounts are for new procedures in that
transitional phase. These requests, and their accompanying estimates
for expected Medicare beneficiary or total patient utilization, often
reflect very low rates of patient use, resulting in high per use costs
for which requesters believe Medicare should make full payment.
Medicare does not, and we believe should not, assume responsibility for
more than its share of the costs of procedures based on Medicare
beneficiary projected utilization and does not set its payment rates
based on initial projections of low utilization for services that
require expensive capital equipment. For the OPPS, we rely on hospitals
to make informed business decisions regarding the acquisition of high
cost capital equipment, taking into consideration their knowledge about
their entire patient base (Medicare beneficiaries included) and an
understanding of Medicare's and other payers' payment policies.
We note that in a budget neutral environment, payments may not
fully cover hospitals' costs, including those for the purchase and
maintenance of capital equipment. We rely on providers to make their
decisions regarding the acquisition of high cost equipment with the
understanding that the Medicare program must be careful to establish
its initial payment rates for new services that lack hospital claims
data based on realistic utilization projections for all such services
delivered in cost-efficient hospital outpatient settings. As the OPPS
acquires claims data regarding hospital costs associated with new
procedures, we will regularly examine the claims data and any available
new information regarding the clinical aspects of new procedures to
confirm that our OPPS payments remain appropriate for procedures as
they transition into mainstream medical practice.
2. Movement of Procedures From New Technology APCs to Clinical APCs
As we explained in the November 30, 2001 final rule (66 FR 59897),
we generally keep a procedure in the New Technology APC to which it is
initially assigned until we have collected data sufficient to enable us
to move the procedure to a clinically appropriate APC. However, in
cases where we find that our original New Technology APC assignment was
based on inaccurate or inadequate information, or where the New
Technology APCs are restructured, we may, based on more recent resource
utilization information (including claims data) or the availability of
refined New Technology APC bands, reassign the procedure or service to
a different New Technology APC that most appropriately reflects its
cost.
The procedures presented below represent services assigned to New
Technology APCs for CY 2006 for which at the time of developing the
proposed rule we believed we had sufficient data to reassign them to
clinically appropriate APCs for CY 2007.
a. Nonmyocardial Positron Emission Tomography (PET) Scans (APC 0308)
Positron emission tomography (PET) is a noninvasive diagnostic
imaging procedure that assesses the level of metabolic activity and
perfusion in various organ systems of the human body. PET serves an
important role in the clinical care of many Medicare beneficiaries. We
recognize that PET is a useful technology in many instances and want to
ensure that the technology remains available to Medicare beneficiaries
when medically necessary. Since August 2000, nonmyocardial PET
procedures have been assigned to a New Technology APC in the OPPS. As a
result of our collection of 5 full years of hospital claims data, in
the CY 2007 proposed rule (71 FR 49566 through 49567) we indicated that
we believed that we had sufficient data to assign nonmyocardial PET
scans to a clinically appropriate APC for CY 2007. We assign a service
to a New Technology APC only when we do not have adequate claims data
upon which to determine the median cost of performing the procedure,
and we expect that the service's clinical or resource characteristics
will differ from all other procedures already assigned to clinical
APCs. Each New Technology APC represents a particular cost band (for
example, $1,400-1,500), and we assign procedures to these APCs based on
our analysis of the costs of the procedures. Payment for items assigned
to a New Technology APC is the midpoint of the band (for example,
$1,450). We move a service from a New Technology APC to a clinical APC
when we have adequate claims data upon which to base its future payment
rate. As noted in the CY 2007 proposed rule, in the case of
nonmyocardial PET services, we believed that we had sufficient data to
assign them to a clinically appropriate APC.
For CY 2006, we maintained the APC payment methodologies from CY
2005 for nonmyocardial PET services. According to that methodology,
payment was based on a 50/50 blend of their median cost based on CY
2003 claims data and the payment rate of the CY 2004 New Technology APC
to which they were assigned. Therefore, nonmyocardial PET scans were
assigned to New Technology APC 1513 (New Technology--Level XIII ($1100-
$1200)) for a blended payment rate of $1,150.
For CY 2007, we proposed the assignment of nonmyocardial PET
procedures to a clinically appropriate APC as we now have several years
of robust and stable claims data upon which to determine the median
cost of

[[Page 68021]]

performing these procedures. Based on analysis of the Medicare claims
data, the median costs for nonmyocardial PET scans have ranged between
approximately $852 and $924 for claims submitted from CY 2002 through
CY 2005. However, our payment rates have been significantly higher than
the median costs throughout this same time period. We have observed
significant growth in the number of nonmyocardial PET scans performed
on Medicare beneficiaries, from about 48,000 in CY 2002, to 68,000 in
CY 2003, and to 121,000 in CY 2004, the year when we first reduced the
OPPS nonmyocardial PET scan payment rates from $1,450 to $1,150. For
the CY 2007 OPPS proposed rule, we had about 45,000 single PET claims
from CY 2005, yielding a stable median cost for PET procedures of about
$867. Although the CY 2005 claims data were not complete when we
published the CY 2007 OPPS proposed rule, we noted that the apparent
decline in numbers of claims for nonmyocardial PET scans alone in the
CY 2005 claims data was likely related to the large number of claims
for PET/CT scans observed in CY 2005, when codes for that combined
service were first available for billing. In fact, the total number of
PET scans provided to Medicare beneficiaries in CY 2005, defined as PET
scans and PET/CT scans, continued to climb to almost 128,000 based upon
the CY 2005 claims data available for the proposed rule, in comparison
to final claims for CY 2004 of approximately 121,000 for PET scans.
Therefore, we proposed to assign nonmyocardial PET scans, in
particular, CPT codes 78608, 78811, 78812, and 78813, to new APC 0308
(Nonmyocardial Positron Emission Tomography (PET) Imaging) with a
median cost of $865.30 for CY 2007. We noted we were confident that in
the face of our stable median costs for nonmyocardial PET scans over
the past 4 years, their additional 2-year period of receiving New
Technology APC payments at the blended rate of $1,150 for CY 2005 and
CY 2006 as we transitioned the services to a clinical APC would ensure
continued availability of this technology now that its services would
be paid through a clinical APC in CY 2007, like most other OPPS
services.
Comment: A few commenters representing rural providers stated that
they would no longer be able to provide PET scans to their patients who
are Medicare beneficiaries if Medicare lowered its payment for the
services. They stated that, because they relied on more costly, mobile
units, the proposed payment amount would not be adequate for them to be
able to continue to provide the service in their communities. A number
of other commenters opposed proposed payment reductions for PET imaging
services that they believed were essential to ensuring appropriate
treatment of patients with cancer and providing necessary patient
access.
Response: We are sensitive to the obstacles that rural providers
face in trying to provide some services to Medicare beneficiaries.
However, we have years of stable and consistent data that indicate that
Medicare will now be paying more accurately for the scans at the
proposed clinical APC rate. We believe this rate will ensure the
necessary patient access to PET services.
Comment: Several commenters requested that, instead of assigning
CPT code 78608 (Brain imaging, positron emission tomography (PET);
metabolic evaluation), to APC 0308 with the CPT codes for tumor PET
scans, CMS should assign this single code to a separate clinical APC.
The commenters had no objections to assignment of PET services to
clinical APCs, with payment rates based on the APCs' median costs. The
commenters believed that assignment of the CPT code for brain PET scans
to its own APC would be more appropriate because the brain PET scans
are not clinically homogenous with the other tumor PET scans assigned
to APC 0308.
Response: The brain PET scan services have been assigned to the
same New Technology APC with the same payment rate as the other
nonmyocardial PET services for a number of years. The CY 2005 median
cost for the brain PET CPT code of $886 is very similar to the median
costs for the two tumor PET CPT codes of $873 and $762, indicating that
all three of these related PET services require comparable hospital
resources. We are not convinced that separating nonmyocardial PET scans
according to the body site being examined is necessary for clinical
homogeneity, and the result of such a distinction would be a single CPT
code in one APC and two CPT codes in another APC. The OPPS is a
prospective payment system that provides payment for groups of services
that share clinical and resource use characteristics. We believe that
PET scans for tumor imaging and brain imaging are similar in both
respects and are appropriately assigned to the same clinical APC.
Therefore, we are finalizing our proposal to assign CPT code 78608 to
APC 0308, along with CPT codes 78811, 78812, and 78813.
After carefully considering the comments, we are adopting our
proposal for CY 2007 without modification to provide payment for
nonmyocardial PET scans through APC 0308.
b. PET/Computed Tomography (CT) Scans (APC 0308)
Since August 2000, we have paid separately for PET and CT scans. In
CY 2004, the payment rate for nonmyocardial PET scans was $1,450, while
it was $193 for typical diagnostic CT scans. Prior to CY 2005,
nonmyocardial PET and the PET portion of PET/CT scans were described by
G-codes for billing to Medicare. Several commenters on the November 15,
2004 final rule with comment period (69 FR 65682) urged us to replace
the G-codes for nonmyocardial PET and PET/CT scan procedures with the
established CPT codes. These commenters stated that movement to the
established CPT codes would greatly reduce the burden on hospitals of
tracking and billing the G-codes that were not recognized by other
payers and would allow for more uniform hospital billing of these
scans. We agreed with the commenters that movement from the G-codes to
the established CPT codes for nonmyocardial PET and PET/CT scans would
allow for more uniform billing of these scans. As a result of a
Medicare national coverage determination (Publication 100-3, Medicare
Claims Processing Manual section 220.6) that was made effective January
28, 2005, we discontinued numerous G-codes that described myocardial
PET and nonmyocardial PET procedures and replaced them with the
established CPT codes. The CY 2005 payment rate for concurrent PET/CT
scans using CPT codes 78814, 78815, and 78816 was $1,250, which was
$100 higher than the payment rate for PET scans alone. These PET/CT CPT
codes were placed in New Technology APC 1514 (New Technology--Level XIV
($1,200-$1,300)) for CY 2005. We continued with these coding and
payment methodologies in CY 2006.
For CY 2007, we proposed the assignment of concurrent PET/CT scans,
specifically CPT codes 78814, 78815, and 78816, to a clinically
appropriate APC because we believed that we had adequate claims data
from CY 2005 upon which to determine the median cost of performing
these procedures. At the time of the proposed rule, based on our
analysis of CY 2005 single claims, the median cost of PET/CT scans was
$865 from almost 70,000 single claims. Comparison of the median cost of
nonmyocardial PET procedures of $867 with the median cost of concurrent
PET/CT scans demonstrated that the median costs of PET scans with or
without

[[Page 68022]]

concurrent CT scans for attenuation correction and anatomical
localization were about the same. This result was not unexpected
because many newer PET scanners also had the capability of rapidly
acquiring CT images for attenuation correction and anatomical
localization, sometimes with simultaneous image acquisition.
To explore the possibility that the similarity in median costs for
PET and PET/CT procedures could be related to different groups of
hospitals billing the two types of PET services based on their
available equipment, rather than the true comparability of hospital
resources required for the two types of services, we analyzed claims
from a subset of hospitals billing both PET and PET/CT scans in CY
2005. This analysis looked at 362 providers that billed a PET HCPCS
code and a PET/CT CPT code at least one time each during CY 2005. The
median cost from this subset of claims for nonmyocardial PET scans was
$890, in comparison with $863 for the PET/CT scans. Thus, we observed
the same close relationship between median costs of PET and PET/CT
procedures from hospitals billing both sets of services as we did for
all OPPS CY 2005 claims available for the proposed rule for these
scans. We believed that our claims data accurately reflected the
comparable hospital resources required to provide PET and PET/CT
procedures, and the scans had obvious clinical similarity as well.
Therefore, for CY 2007 we proposed to assign the CPT codes for PET/CT
scans, along with the CPT codes for PET scans, to the same new APC 0308
(Nonmyocardial Positron Emission Tomography (PET) Imaging) with a
proposed median cost of $865.30.
At its August 2006 meeting, the APC Panel recommended that CMS
retain PET/CT scans in New Technology APC 1514 with a payment rate of
$1,250 for CY 2007.
We note that we have been paying separately for fluorodeoxyglucose
(FDG), the radiopharmaceutical described by HCPCS code A9552
(Fluorodeoxyglucose F-18 FDG, diagnostic, per study dose, up to 45
millicuries) that is commonly administered during nonmyocardial PET and
PET/CT procedures. For CY 2007, we proposed to continue paying
separately for FDG, according to the methodology described in section
V. of the preamble of the CY 2007 proposed rule.
Comment: A number of commenters disagreed with the proposal to
assign PET/CT services to APC 0308. Among the reasons provided by
commenters that PET/CT services should not be assigned to APC 0308 were
that: payment at the proposed level would not cover the costs of
providing the services; the APC Panel recommended during its August
2006 meeting that CMS retain PET/CT services in New Technology APC 1514
for another year so that more CPT-coded claims upon which to base a
decision about the appropriate APC assignment for the services would be
available; PET/CT services are a clinically distinct technology from
conventional PET procedures and should not be assigned to the same APC;
PET/CT services are more costly to provide than are other nonmyocardial
PET services and there must be a payment differential to recognize
that; and a 30-percent payment decrease would result in decreased
Medicare beneficiary access to the services. The commenters reported
that the higher costs associated with PET/CT were due to requirements
for specially-trained, licensed technicians, more costly capital
equipment, and higher equipment maintenance costs.
Most commenters recommended that PET/CT should remain in its
current New Technology APC 1514 with a payment rate of $1,250 for CY
2007. Some of the commenters believed that CMS' proposal to assign PET/
CT scans to a clinical APC was premature because CMS did not have a
full year of reliable cost data for PET/CT. They made that assertion
because the CPT codes used to report the services were newly recognized
by the OPPS in April 2005 and, therefore, only 9 months of claims data
were available for the CY 2007 OPPS update. The commenters observed
that if PET/CT scans were moved to a clinical APC for CY 2007, they
would have been assigned to a New Technology APC for only 21 months,
while the APC Panel recommended at its August 2006 meeting that
services assigned to New Technology APCs should remain there for at
least 2 years. Further, because hospitals often do not update their
chargemasters more than once per year, the commenters believed that
true hospital costs were not reflected in the CY 2005 data that CMS
considered when developing its proposal for CY 2007.
One of the commenters provided limited hospital-level average cost
data for PET and PET/CT scans, as well as a cost analysis model for
PET/CT services. Those data covered the 6-month period of July through
December and display average cost and charge data for two sets of
hospitals, separated according to two different methods of reducing
their charges to costs.
Response: We have carefully considered the APC Panel recommendation
and all of the information provided in the comments received regarding
the proposed APC assignment and payment amount for PET/CT scans for CY
2007. We remain confident that our CY 2005 data for conventional
nonmyocardial PET services are accurate reflections of hospital costs
for those services, in spite of the CY 2005 coding changes. Similarly,
our review of the hospital data provided in one of the public comments
shows that the average cost per hospital for PET/CT for one set of
hospitals was $829 and for the other group was $912. We are encouraged
that these mean costs are so similar to our median cost for the
services, and these data serve to increase our confidence in the CY
2005 claims data.
However, we recognize that there are other factors to consider
related to hospital charging practices for PET/CT services. For
instance, prior to institution of the specific CPT codes for PET/CT
scans, hospitals were reporting a diagnostic CT scan charge in addition
to the appropriate G-code charge for the PET scan. Therefore, the
transition to the new CPT codes was not a simple coding crosswalk for
the PET/CT services because it required the hospital to change from
reporting two charges for the service to only one charge that was to
include the costs of the entire service. We are aware that making that
adjustment may have been difficult for some hospitals.
After considering the information and opinions provided to us in
the comments, particularly with respect to our data that are limited to
9 months of claims (although there are over 76,000 single claims from
that time period), we are persuaded that there are valid reasons to
assign PET/CT services to a different APC than the conventional PET
services for CY 2007. We are convinced that, in this instance, we
should wait for a full year of CPT-coded claims data prior to assigning
the PET/CT services to a clinical APC and that maintaining a modest
payment differential between PET and PET/CT procedures is warranted for
CY 2007.
For these reasons, we are assigning PET/CT to a different APC than
conventional PET services for CY 2007, based on our continued
expectation of the appropriate relative cost difference between the two
types of services. When we first recognized PET/CT CPT codes for
payment in CY 2005, we established their payment rate at $100 more than
the payment rate for PET scans. Although the commenters to the CY 2007
proposed rule did not provide specific information regarding an
appropriate differential between

[[Page 68023]]

payments for PET and PET/CT scans, the commenters generally did not
oppose our proposed payment for PET scans through a clinical APC with a
payment rate of about $850. Historically, when both PET and PET/CT
scans were assigned to New Technology APCs with a $100 payment
difference for CYs 2005 and 2006, we received few public comments
indicating that payment difference was inappropriate. Therefore, we are
assigning PET/CT scans to New Technology APC 1511 (New Technology--
Level XI ($900-$1,000)) with a payment of $950 for CY 2007 to maintain
the approximately $100 difference between payments these services and
nonmyocardial PET scans, which will be assigned to APC 0308 with a
median cost of about $850 for CY 2007. In this way, the differential
payment between conventional PET and PET/CT scans will be preserved at
an appropriate level, the payment decrease for PET/CT procedures will
be moderated as the services transition to payment based on their costs
in a clinical APC, and CMS will be able to consider a full 12 months of
CPT-coded claims prior to making the assignment of PET/CT scans to a
clinical APC.
c. Stereotactic Radiosurgery (SRS) Treatment Delivery Services (APCs
0065, 0066, and 0067)
For the past several years, we have collected hospital costs
associated with the planning and delivery of stereotactic radiosurgery
services (hereafter referred to as SRS). As new technology emerged in
the field of SRS, public commenters urged us to recognize cost
differences associated with the various methods of SRS planning and
delivery. Beginning in CY 2001, we established G-codes to capture any
such cost variations associated with the various methods of planning
and delivery of SRS. For CY 2004, based on comments received regarding
the G-codes used for SRS, we made some modifications to the coding (68
FR 63431 and 63432). First, we received comments regarding the
descriptors for HCPCS codes G0173 and G0251, indicating that these
codes did not distinguish image-guided robotic SRS systems from other
forms of linear accelerator-based SRS systems to account for the cost
variation in delivering these services. In response, for CY 2004 we
created two new G-codes (G0339 and G0340) to describe complete and
fractionated image-guided robotic linear accelerator-based SRS
treatment. We placed HCPCS code G0339 in APC 1528 at a payment rate of
$5,250, and HCPCS code G0340 in APC 1525 at a payment rate of $3,750.
Second, we received comments on HCPCS code G0242 which requested that
we modify the code descriptor to avoid confusion and misuse of the
code, and also to appropriately describe treatment planning for both
linear accelerator-based and Cobalt 60-based SRS treatments. In
response, for CY 2004, we created HCPCS code G0338 to distinguish
linear accelerator-based SRS treatment planning from Cobalt 60-based
SRS treatment planning. We placed HCPCS code G0338 in APC 1516 at a
payment rate of $1,450.
In CY 2005, there were no changes to the coding or New Technology
APC payment rates for the SRS planning or treatment delivery codes from
CY 2004. We stated in the CY 2005 OPPS final rule with comment period
(69 FR 65711) that any SRS code changes would be premature without cost
data to support a code restructuring. Therefore, we maintained HCPCS
codes G0173, G0242, G0243, G0251, G0338, G0339, and G0340 in their
respective New Technology APCs for CY 2005. We further stated that
until we had completed an analysis of claims for these procedure codes,
we would continue to maintain HCPCS codes G0173, G0242, G0243, G0251,
G0338, G0339, and G0340 in their respective New Technology APCs for CY
2005 as we considered the adoption of CPT codes to describe all SRS
procedures for CY 2006.
At its February 2005 meeting, the APC Panel discussed the clinical
and resource cost similarities between planning for Cobalt 60-based and
linear accelerator-based SRS. The APC Panel also discussed the use of
CPT codes instead of specific G-codes to describe the services involved
in SRS planning, noting the clinical similarities in radiation
treatment planning regardless of the mode of treatment delivery. Given
the APC Panel's deliberations about the possible need for CMS to
separately track planning for SRS, the APC Panel eventually recommended
that CMS create a single HCPCS code to encompass both Cobalt 60-based
and linear accelerator-based SRS planning. Because we had no
programmatic need to separately track SRS planning services, in the CY
2006 OPPS final rule with comment period (70 FR 68585), we discontinued
HCPCS codes G0242 and G0338 for the reporting of charges for SRS
planning and instructed hospitals to bill charges for SRS planning,
regardless of the mode of treatment delivery, using all of the
available CPT codes that most accurately reflect the services provided.
Furthermore, the APC Panel recommended that CMS make no changes to
the coding or APC placement of SRS treatment delivery HCPCS codes
G0173, G0243, G0251, G0339, and G0340 for CY 2006. In addition,
presenters to the APC Panel described ongoing deliberations among
interested professional societies around the descriptions and coding
for SRS. The APC Panel and presenters suggested that CMS wait for the
outcome of these deliberations before making any significant changes to
SRS delivery coding or payment rates. As indicated in the CY 2007 OPPS
proposed rule, we did not receive a report from participating
professional societies as to the outcome of such deliberations prior to
publishing that rule (71 FR 49554).
In response to comments for CY 2006 regarding the mature technology
and stable median costs associated with Cobalt 60-based SRS treatment
delivery described by HCPCS code G0243, we reassigned G0243 from a New
Technology APC to new clinical APC 0127 (Stereotactic Radiosurgery),
with a payment rate of $7,305 established based on the CY 2004 median
cost of G0243. We made no changes for CY 2006 to the New Technology APC
assignments of the other four SRS treatment codes, specifically, G0173,
G0251, G0339, and G0340.
Since we first established the full group of SRS treatment delivery
codes in CY 2004, we now have 2 years of hospital claims data
reflecting the costs of each of these services. Based on our proposed
rule analysis of our claims data from CY 2004 and CY 2005, the median
costs for linear accelerator-based SRS treatment delivery procedures as
described by HCPCS codes G0173, G0251, G0339, and G0340 have been
stable and generally lower than our New Technology APC payment rates in
effect from CY 2004 through CY 2006. Specifically, the payment rate for
HCPCS code G0173, a complete course of non-image guided, non-robotic
linear accelerator-based SRS treatment, has been set at $5,250, yet our
claims data indicate a median cost of $2,802 from CY 2004 claims and
$3,665 from our proposed rule CY 2005 claims, based upon hundreds of
single claims from each year. For HCPCS code G0251, fractionated non-
image guided, non-robotic linear accelerator-based SRS treatment, the
corresponding median costs have been $1,028 and $1,386 based upon over
1,000 single claims from each year, and relatively consistent with the
procedure's New Technology APC payment of $1,150. With respect to the
complete course of therapy in one session or first fraction of image-
guided, robotic linear accelerator-based SRS, described by HCPCS code
G0339, its

[[Page 68024]]

median costs have been $4,917 and $4,809 for CY 2004 and CY 2005
respectively, based upon over 500 single bills in each year, in
comparison with the procedure's payment rate of $5,250 for those years.
Lastly, the median costs of HCPCS code G0340, the second through fifth
sessions of image-guided, robotic linear accelerator-based SRS
treatment, have been $2,502 for CY 2004 and $2,917 for CY 2005 as
determined by over 1,000 single bills during each year, significantly
lower than its payment rate of $3,750. Unquestionably, the claims data
from CY 2004 and CY 2005 for linear accelerator-based SRS treatment
delivery services revealed highly stable median costs from year to year
based on significant claims volume.
Based on the above findings, in the CY 2007 proposed rule we
indicated that we believed that we had adequate claims data to assign
the SRS treatment delivery procedures to clinically appropriate APCs,
and we believed that such movement was appropriate. For CY 2007, we
proposed to create several new SRS clinical APCs of different levels to
assign the HCPCS codes describing linear accelerator-based SRS
treatment, G0173, G0251, G0339, and G0340, based on their clinical and
hospital resource similarities and differences. In particular, we
proposed to assign HCPCS codes G0339 and G0173 to the same Level III
SRS APC, because we believed that these codes that describe the
complete or first fraction of all types of linear accelerator-based SRS
treatments had substantial hospital resource and clinical similarity,
as observed in their median costs and recognized previously in their
equivalent New Technology APC payments. The codes describing subsequent
fractions of image-guided, robotic and non-image guided, non-robotic
linear accelerator-based SRS treatments were each assigned to their own
clinical APCs in our proposal, as they demonstrated significant
differences in resource utilization as reflected in their median costs.
Their previous assignments to different New Technology APCs anticipated
these resource distinctions. We proposed to continue our assignment of
HCPCS code G0243 for Cobalt 60-based SRS treatment delivery to clinical
APC 0127, renamed Level IV Stereotactic Radiosurgery. Our proposed
reassignments of SRS services from New Technology APCs to clinical APCs
were listed in Table 8 of the CY 2007 OPPS proposed rule (71 FR 49554),
which has been reproduced as Table 8 below, amended with the final
status indicators, APC assignments, and median costs for these
services.
We received many comments on our proposal from hospitals, health
professionals, and various healthcare associations. A summary of the
comments and our responses follow:
Comment: Several commenters objected to our use of the CY 2005
claims data in setting the CY 2007 payment rates, specifically with
regards to the image-guided robotic SRS services, as described by HCPCS
codes G0339 and G0340. They indicated that the claims data used to set
the proposed payment rates for HCPCS codes G0339 and G0340 were based
on a flawed methodology because several centers providing these
services submitted claims to CMS for less than a full year during CY
2004 and CY 2005. Because centers that provided image-guided SRS grew
in number significantly over the past 2 years, the commenters believed
that CMS did not have meaningful data over 2 years from a large number
of institutions providing the services upon which to base the proposed
changes. They believed that new technology services should have a
minimum of 2 years of claims data before moving them to clinical APCs.
These commenters urged CMS to maintain HCPCS code G0339 in its current
New Technology APC 1528 with a payment rate of $5,250, and to also
maintain HCPCS G0340 in its current New Technology APC 1525 with a
payment rate of $3,750.
Response: In the November 30, 2001 final rule (66 FR 59903), we
finalized changes to the time period a service was eligible for payment
under a New Technology APC. Beginning in CY 2002, we noted that we
would retain services within New Technology APC groups until we
gathered sufficient claims data to enable us to assign the service to a
clinically appropriate APC. There is no requirement for a minimum
number of claims or years of claims data before services may be moved
from New Technology APCs to clinical APCs.
In the case of the image-guided robotic SRS services, specifically
G0339 and G0340, we continue to believe that we have adequate claims
data from CY 2005 upon which to base our payments for CY 2007. Both
HCPCS codes G0339 and G0340 were effective for reporting beginning
January 1, 2004, under the OPPS, and consequently, we have 2 full years
worth of hospital claims data for these services. As we noted earlier,
the median costs for both procedures have been reasonably stable over
the past 2 years based upon substantial numbers of single claims, and
there was similar growth in both services from CY 2004 to CY 2005. The
fact that image-guided robotic SRS centers have grown in number and
service volume over the most recent 2 years of claims submissions is
expected for new technology and other OPPS services. Many OPPS services
are only provided in a small subset of hospitals paid under the OPPS,
and we routinely establish APC median costs based on Medicare OPPS
claims from the hospitals that were providing the services 2 years
prior to the OPPS update year. We recognize that our claims data evolve
over time, in part because the pool of hospitals providing certain
procedures may change significantly.
The information provided in the comments did not convince us that
the proposed payment rates for HCPCS code G0339 and G0340 were based on
inadequate claims data that did not represent the costs of the
procedures for the hospitals providing the services in CY 2005. Based
on our final CY 2005 claims data, we found 1,535 single (of 1,655
total) claims for HCPCS code G0339 and 2,716 single (of 2,798 total)
claims for HCPCS code G0340. We believe that the single claims data for
both procedures are sufficiently robust for ratesetting purposes.
Comment: Several commenters agreed with CMS that the hospital
claims data from the past 2 years for the SRS services have been
relatively stable and based on at least several hundreds of claims both
years. However, these commenters expressed concern about our proposal
to assign HCPCS codes G0173 and G0339 to the same APC, specifically APC
0067 (Level III Stereotactic Radiosurgery). The commenters opposed
assignment of the two procedures to the same APC because they believed
that our claims data clearly showed that the median cost of G0339 has
been significantly higher than the median cost of G0173 for both CY
2004 and CY 2005.
Response: Both services have been assigned to the same New
Technology APC 1528 for the past 3 years because of our initial
expectation that the costs of the first or complete session of linear
accelerator-based SRS would be similar, regardless of whether or not
the SRS procedure was an image-guided robotic service. While we have
observed that their costs are somewhat different, we believe that they
are sufficiently comparable to warrant placement of the SRS services in
the same clinical APC, given the comparable clinical characteristics of
the services. The OPPS provides payments based on APC groups of
services that share clinical and resource characteristics, and the
median of the highest cost service

[[Page 68025]]

within an APC group should not be more than 2 times greater than the
median cost of the lowest cost service within that same group. The
final CY 2005 median cost of G0173 is $3,407.53, and the final CY 2005
median cost of G0339 is $4,126.46. These median costs are quite
comparable, and APC 0067, configured as proposed, does not violate the
2 times limit on the variation of costs within the APC.
Therefore, for CY 2007, both HCPCS codes G0339 and G0173 are
reassigned to clinical APC 0067 with a median cost of $3,872.87, and
HCPCS code G0340 is reassigned to clinical APC 0066, with a median cost
of $2,629.53.
Comment: Several organizations supported our proposed clinical APC
assignments but were concerned by the extent of the payment reductions
for certain services. The commenters expressed concern regarding the
23-percent reduction in payment for HCPCS codes G0173 and G0339. They
urged CMS to review the cost calculations for all SRS services and use
the most current claims data available for the CY 2007 OPPS final rule.
Response: We thank the commenters for their suggestion. The payment
rates reflected in Table 8 are based on the latest and most complete CY
2005 claims data, with CY 2007 payment rates based upon APC median
costs calculated according to the standard OPPS methodology. Almost all
of the claims are single claims; therefore, we are confident that the
observed costs in the claims data are representative of the costs of
the SRS services provided in CY 2005.
Comment: Several commenters requested that CMS modify the
descriptors for HCPCS codes G0339 and G0340 to be more precise and
reflect the technology accurately. The commenters provided their
proposed language, and indicated that not refining the descriptors
would make it virtually impossible to determine appropriate APC payment
rates for image-guided robotic SRS services in the future. They also
urged CMS to work with the centers providing these specialized services
to establish accurate and appropriate payments for image-guided robotic
SRS.
Response: The recommended language provided by the commenters is
very specific and may cause more confusion for hospitals and coders.
Long descriptors of HCPCS codes that describe services and procedures
are usually more general and not specific to a particular specialty or
product. We do not establish HCPCS codes that are specific to certain
technologies. Instead, we rely on hospitals to select the most specific
HCPCS codes that accurately describe the services they provide. We
believe that the current HCPCS code descriptors adequately distinguish
image-guided robotic linear accelerator-based SRS from other types of
SRS. We observe significant difference in the costs of G0251 and G0340
that describe the later fractions of non-image-guided and image-guided
SRS respectively, so that they require assignment to two separate
clinical APCs. We have no evidence that hospitals are not accurately
reporting these services based on the technology utilized to provide
SRS in their institutions.
For CY 2007, the CPT Editorial Panel created four new SRS Category
I CPT codes in the Radiation Therapy section of the 2007 CPT manual.
Specifically, the CPT Editorial Panel created CPT codes 77371
(Radiation treatment delivery, stereotactic radiosurgery (SRS)
(complete course of treatment of cerebral lesion[s] consisting of 1
session); multi-source Cobalt 60 based)), 77372 (Radiation treatment
delivery, stereotactic radiosurgery (SRS) (complete course of treatment
of cerebral lesion[s] consisting of 1 session); linear accelerator
based)), 77373 (Stereotactic body radiation therapy, treatment
delivery, per fraction to 1 or more lesions, including image guidance,
entire course not to exceed 5 fractions), and 77435 (Stereotactic body
radiation therapy, treatment management, per treatment course, to one
or more lesions, including image guidance, entire course not to exceed
5 fractions). For CY 2007, we will continue our recent practice of not
recognizing established CPT code 61793 (Stereotactic radiosurgery
(particle beam, gamma ray or linear accelerator), one or more sessions)
under the OPPS because the OPPS will utilize more specific SRS codes to
provide appropriate payment for the facility resources associated with
specific types of SRS treatment delivery. Below is our discussion of
the new SRS CPT codes, and our assignments for the codes under the
OPPS.
CPT code 77371 describes a cobalt-based SRS procedure for
a single, complete treatment session of one or more cerebral lesions.
Under the OPPS, this procedure has been separately payable under HCPCS
code G0243 (Multi-source photon stereotactic radiosurgery, delivery
including collimator changes and custom plugging, complete course of
treatment, all lesions) since January 1, 2002. We believe this single
CPT code may be appropriately reported in all clinical situations of
cobalt-based SRS treatment. For CY 2007, HCPCS G0243 will no longer be
reportable under the hospital OPPS because the code will be deleted and
replaced with CPT code 77371, effective January 1, 2007. CPT code 77371
is assigned to the same APC and status indicator as its predecessor
code (G0243). That is, for CY 2007, CPT code 77371 is assigned to APC
0127 (Level IV Stereotactic Radiosurgery) with a status indicator of
``S''.
CPT code 77372 describes a single session, complete course
of treatment, linear accelerator-based procedure. During CY 2006, this
procedure was reported under one of two HCPCS codes, depending on the
technology used, specifically, G0173 (Linear accelerator based
stereotactic radiosurgery, complete course of therapy in one session)
and G0339 (Image-guided robotic linear accelerator-based stereotactic
radiosurgery, complete course of therapy in one session or first
session of fractionated treatment). Because HCPCS codes G0173 and G0339
are more specific in their descriptors than CPT code 77372, we have
decided to continue using G0173 and G0339 under the OPPS for CY 2007.
Therefore, for CY 2007, we have assigned CPT code 77372 to status
indicator ``B'' under the OPPS.
CPT code 77373 describes a fractionated session linear
accelerator-based procedure. During CY 2006, CPT code 77373 was
reported under one of three HCPCS codes depending on the circumstances
and technology used, specifically, G0251 (Linear accelerator-based
stereotactic radiosurgery, delivery including collimator changes and
custom plugging, fractionated treatment, all lesions, per session,
maximum five sessions per course of treatment), G0339 (Image-guided
robotic linear accelerator-based stereotactic radiosurgery, complete
course of therapy in one session or first session of fractionated
treatment), and G0340 (Image-guided robotic linear accelerator-based
stereotactic radiosurgery, delivery including collimator changes and
custom plugging, fractionated treatment, all lesions, per session,
second through fifth sessions, maximum five sessions per course of
treatment). Because HCPCS codes G0251, G0339, and G0340 are more
specific in their descriptors than CPT code 77373 and these HCPCS codes
are assigned to different clinical APCs for CY 2007, we have decided to
continue using G0251, G0339, and G0340 under the OPPS for CY 2007.
Therefore, for CY 2007, we have assigned CPT code 77373 to status
indicator ``B'' the hospital OPPS.
CPT code 77435 also describes treatment management for a
full treatment course of linear accelerator-based SRS. During CY 2006,
CPT code

[[Page 68026]]

77435 was described under CPT code 0083T (Stereotactic body radiation
therapy, treatment management, per day), which was assigned to status
indicator ``N'' in the OPPS. The CPT Editorial Panel has decided to
delete CPT code 0083T on December 31, 2006, and replaced it with CPT
code 77435. Because the costs of SRS treatment management are already
packaged into the OPPS payment rates for SRS treatment delivery, for
CY2007 we have assigned CPT code 77435 to status indicator ``N'', which
is the same status indicator that was assigned to its predecessor
Category III CPT code.
After carefully considering all the comments and concerns raised by
the commenters, we are finalizing our proposal as shown in Table 8
without modification. Given the ample cost information reflected in the
CY 2005 claims data for the SRS services and given the fact that these
services have been in New Technology APCs for 3 full years, since they
were first assigned to New Technology APCs beginning January 1, 2004,
we believe our claims data are sufficient for us to move these services
to clinical APCs. Therefore, for CY 2007, HCPCS codes G0173 and G0339
are assigned to clinical APC 0067, with a median cost of $3,872.87,
HCPCS code G0251 to clinical APC 0065, with a median cost of $1,241.89,
and HCPCS code G0340 to clinical APC 0066 with a median cost of
$2,629.53. As described above, despite new CPT codes for SRS treatment
delivery in CY 2007, coding for linear accelerator-based SRS treatment
delivery services will not change in the CY 2007 OPPS.

Table 8.--Final APC Assignments for SRS Treatment Delivery Services for CY 2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
Final CY 2007
HCPCS code Short descriptor CY 2006 SI CY 2006 APC CY 2006 Final CY 2007 SI Final CY 2007 APC median
payment rate APC cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
G0173............. Linear acc stereo S..................... 1528 $5,250.00 S.................... 0067 $3,872.87
radsur com.
G0251............. Linear acc based S..................... 1513 1,150.00 S.................... 0065 1,241.89
stero radio.
G0339............. Robot lin-radsurg S..................... 1528 5,250.00 S.................... 0067 3,872.87
com, first.
G0340............. Robt lin-radsurg S..................... 1525 3,750.00 S.................... 0066 2,629.53
fractx 2-5.
--------------------------------------------------------------------------------------------------------------------------------------------------------

d. Magnetoencephalography (MEG) Services (APCs 0038 and 0209)
Magnetoencephalography (MEG) is a noninvasive diagnostic tool that
assists surgeons in the presurgical period by measuring and mapping
brain activity. It may be used for epilepsy and brain tumor patients.
Since CY 2002, the MEG procedures described by CPT codes 95965
(Magnetoencephalography (MEG), recording and analysis; for spontaneous
brain magnetic activity (eg, epileptic cerebral cortex localization)),
95966 (Magnetoencephalography (MEG), recording and analysis; for evoked
magnetic fields, single modality (e.g., sensory, motor, language, or
visual cortex localization)), and 95967 (Magnetoencephalography (MEG),
recording and analysis; for evoked magnetic fields, each additional
modality (e.g., sensory, motor, language, or visual cortex
localization)) have been assigned to New Technology APCs. In the CY
2006 proposed rule (70 FR 42709), we proposed to reassign MEG
procedures to clinical APC 0430 using CY 2004 claims data to establish
median costs on which the CY 2006 payment rates would be based. This
proposal involved the reassignment of the three MEG procedures,
specifically CPT codes 95965, 95966, and 95967, from three separate New
Technology APCs into one new clinical APC with a status indicator of
``T.'' The commenters on the CY 2006 proposal believed that their
assignment to clinical APC 0430 would be inappropriate because the
proposed payment level of $674 was inadequate to cover the costs of the
procedures, and because the procedures should not be assigned to only
one level as their required hospital resources differ significantly.
They further stated that our data did not represent the true costs of
the procedures because MEG procedures are performed on very few
Medicare patients.
Analysis of our hospital data for claims submitted from CY 2002
through CY 2005 indicated that these procedures are rarely performed on
Medicare beneficiaries. For claims submitted from CY 2002 through CY
2005, our single claims data showed that there were annually only
between 2 and 23 claims submitted for CPT code 95965, between 3 and 7
claims for CPT code 95966, and only 1 claim for CPT code 95967. In
addition, the hospital claims median costs for these codes have varied
widely, perhaps due to our small volume of claims. The median cost for
CPT code 95965 has ranged from $332 using CY 2002 claims to $3,166
based upon CY 2005 claims. The median cost for CPT code 95966 has
varied widely from CY 2002 to CY 2005. For single claims submitted
during CY 2002, the median cost was $1,949, while it was $507 for CY
2003, $1,435 for CY 2004, and $701 from 3 single claims for CY 2005.
The median cost for CPT code 95967 based upon 1 single claim from CY
2005 claims was $217. As noted in our CY 2007 OPPS proposed rule (71 FR
49555), we had no hospital median cost data for CPT code 95967 prior to
CY 2005.
In the November 10, 2005 final rule with comment period (70 FR
68579), we stated that we carefully considered our claims data,
information provided by the commenters, and the APC Panel
recommendation for CY 2006 that we retain the MEG procedures in New
Technology APCs. As a result of this analysis, we determined that using
a 50/50 blend of the code-specific median costs from our most recent CY
2004 hospital claims data and the CY 2005 New Technology APC code-
specific payment amounts as the basis for assignment of the procedures
for CY 2006 would be an appropriate way to recognize both the current
payment rates for the procedures, which were originally based on the
theoretical costs to hospitals of providing MEG services, and the
median costs based upon our hospital claims data regarding actual MEG
services provided to Medicare beneficiaries by hospitals. Therefore,
CPT codes 95965, 95966, and 95967 were assigned to different New
Technology APCs for CY 2006 based on this blended methodology, with
payment rates of $2,750, $1,250, and $850 respectively.
At the March 2006 APC Panel meeting, the Panel recommended that CMS
move CPT codes 95965 (MEG, spontaneous), 95966 (MEG, evoked, single),
and 95967 (MEG, evoked, each additional) from their CY 2006 New
Technology APCs which were assigned based on the blended methodology
described above to clinical APC(s) for CY 2007. Following that meeting,
interested parties provided us with CY 2005 charge and cost information
from six hospitals that provided MEG services. These external data
showed wide variation in hospitals' costs and charges for MEG
procedures, with

[[Page 68027]]

generally higher values for CPT code 95965 and lower values for CPT
codes 95966 and 95967 but no consistent proportionate relationship
among those costs and charges. In some cases, the charges and costs for
CPT codes 95966 and 95967 were quite similar for the two related
services, one of which describes MEG for a single modality of evoked
magnetic fields and the other that describes MEG for each additional
modality of evoked magnetic fields. The individual hospital cost and
charge data for specific services demonstrated significant variations
of up to six fold across the hospitals, with an apparent inverse
relationship between the numbers of services provided and the costs of
the procedures. This finding was not unexpected, given the dependence
of MEG procedures on the use of expensive capital equipment. As we have
previously stated, our OPPS payment rates generally reflect the costs
that are associated with providing care to Medicare beneficiaries in
cost-efficient settings. For emerging technologies, we establish
payment rates for new services that lack hospital claims data based on
realistic utilization projections for all such services delivered in
cost-efficient hospital outpatient settings. In the CY 2007 OPPS
proposed rule, we indicated that since we now had 4 years of hospital
claims data for MEG procedures and because MEG was no longer a new
technology, we did not believe these external data from six hospitals
that performed MEG services in CY 2005 provided a better estimate of
the hospital resources used in MEG procedures during the care of
Medicare beneficiaries than our standard OPPS historical claims
methodology.
We agreed with the APC Panel and proposed to accept their
recommendation to move the MEG CPT codes into clinical APCs for CY
2007. While the volumes for the MEG procedures are low, almost all
procedures, including those with very low Medicare volume, are assigned
to clinical APCs under the OPPS, with their payment rates based on the
median costs of their assigned APCs. Therefore, we proposed to assign
CPT code 95965 to new clinical APC 0038 (Spontaneous MEG), with a
proposed median cost of $3,166.30, and to assign both CPT codes 95966
and 95967 to APC 0209 (Level II MEG, Extended EEG Studies, and Sleep
Studies), with a proposed median cost of $709.36. We believed that the
assignment of CPT codes 95966 and 95967 to APC 0209 was appropriate
because MEG studies were similar to EEGs and sleep studies in measuring
activity of the brain over a significant time period, and our hospital
claims data showed that their hospital resources were also relatively
comparable. MEG procedures and their CY 2007 proposed APC assignments
were displayed in Table 9 published in the CY 2007 OPPS proposed rule
(71 FR 49556), which has been reproduced in Table 9 of this final rule
with comment period and updated to include the final status indicators,
APC assignments, and APC median costs for CY 2007.
Comment: Most of the commenters agreed with the APC assignments for
both CPT codes 95965 and 95967 but requested that CMS reconsider the
APC assignment for CPT code 95966. The commenters supported the
establishment of a separate APC for CPT code 95965 and its proposed
payment rate. They also agreed that CPT code 95967 is an add-on code
that is always used in conjunction with CPT codes 95965 or 95966 and is
less costly to perform. They generally agreed with the proposed APC
assignment and payment rate for CPT code 95967, despite the very low
volume of OPPS claims for the procedure. The commenters disagreed with
the proposed APC and payment rate for CPT code 95966. They indicated
that MEG is a highly specialized service performed in a limited number
of hospitals in the U.S. Because the service is not commonly performed,
the commenters acknowledged that Medicare beneficiaries represent only
a small number of patients who receive MEG services because epilepsy
surgery is rarely performed on elderly patients, which further explains
the very low volume of these services in the Medicare claims data.
While the commenters agreed with the proposed APC assignments for CPT
codes 95965 and 95967, they believed that the resources required to
perform 95966 were significantly higher than the payment rate reflected
in APC 0209, its proposed assignment for CY 2007. The commenters
indicated that the costs of MEG services were substantially higher than
the EEG or sleep study services that are also assigned to APC 0209. As
such, the commenters believed that CPT code 95966 should be assigned to
its own APC at a rate equal to 50 percent of the payment rate for CPT
code 95965, or approximately $1,550. They believed that this payment
rate was supported by the hospital cost data for the six hospitals
providing a high volume of MEG services, which were provided to CMS and
discussed in the CY 2007 OPPS proposed rule.
Response: We appreciate the commenters' input and suggestions.
However, given that we have 4 years of hospital claims data for MEG
procedures and because MEG is no longer a new technology, we believe
that the proposed APC assignment for CPT code 95966 is appropriate. If
we were to assign CPT code 95966 to its own clinical APC, the median
cost of that APC would be the median cost of CPT code 95966 of $709
from CY 2005 claims data, quite consistent with the median cost of APC
0209. We do not assign payment rates for clinical APCs based upon
speculative relationships of the costs of its services to payments for
other services. Instead, the standard OPPS methodology to develop the
median cost of a clinical APC upon which a specific procedure's payment
is based is to establish the APC median from claims data for all of the
services assigned to the APC. As we have indicated above, while the
volumes of MEG procedures are low, almost all procedures, including
those with very low Medicare volume, are assigned to clinical APCs
under the OPPS, with their payment rates based on the median costs of
their assigned APCs. Taking into consideration our hospital claims data
for CPT code 95966 from the last several years, we continue to believe
that its assignment to APC 0209 is appropriate, and that the service is
sufficiently similar to other diagnostic procedures also residing in
the APC. Therefore, for CY 2007, we are assigning CPT code 95965 to APC
0038, with a final CY 2007 median cost of $3,270, and CPT codes 95966
and 95967 to APC 0209, with a final CY 2007 median cost of $687.
Comment: One commenter indicated that the claims data cited in the
CY 2007 OPPS proposed rule for CPT codes 95965, 95966, and 95967 were
based both on incomplete and inaccurate claims data. The commenter
submitted copies of paid Medicare claims from CY 2005 for CPT code
95965, which included nine claims that reflected 5 months of data, each
representing total charges greater than the CY 2007 proposed payment
rate for CPT code 95965. The commenter requested that CMS consider
these claims in determining the appropriate APC assignments for the MEG
services.
Response: We confirmed that the claims data submitted to us are
accurately reflected in the CY 2005 claims data used for the CY 2007
OPPS update. Consequently, we believe that our claims data adequately
reflect the costs associated with providing the MEG service identified
by CPT code 95965. In determining a hospital's cost for a service, we
take the individual hospital's departmental CCR and multiply this by
the total charge on a

[[Page 68028]]

single claim for that service. In the event there is no applicable
departmental CCR, we use the overall hospital-specific CCR. For this CY
2007 OPPS update, the average overall hospital CCR is 0.30142.
Multiplying this average CCR by the typical MEG procedure charge of
about $10,500 on the claims provided to us yields a cost for CPT code
95965 of about $3,165, consistent with the final CY 2007 median cost of
APC 0038 of about $3,270. This median cost provides the basis for
establishing the procedure's payment rate. Overall, we believe the
claims provided by the commenter help to validate our final CY 2007 APC
0038 assignment of CPT code 95965, with its payment rate calculated
according to our standard OPPS methodology.
After carefully reviewing the data and considering the public
comments received, we are finalizing our proposal for APC assignment
for MEG as shown in Table 9 without modification.

Table 9.--CY 2007 APC Assignment for MEG
--------------------------------------------------------------------------------------------------------------------------------------------------------
Final CY 2007
HCPCS code Short descriptor CY 2006 SI CY 2006 APC CY 2006 CY 2007 SI Final CY 2007 APC median
payment rate APC cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
95965............. Meg, spontaneous..... S..................... 1523 $2,750.00 S.................... 0038 $3,270.35
95966............. Meg, evoked, single.. S..................... 1514 1,250.00 S.................... 0209 687.26
95967............. Meg, evoked, each S..................... 1510 850.00 S.................... 0209 687.26
additional.
--------------------------------------------------------------------------------------------------------------------------------------------------------

e. Other Services in New Technology APCs
Other than the PET, PET/CT, SRS, and MEG new technology services
discussed in section III.C.2.a. through d. of this preamble, there are
23 procedures currently assigned to New Technology APCs for CY 2007 for
which we believed we also had data that were adequate to support their
assignment to clinical APCs. For CY 2007, we proposed to reassign these
procedures to clinically appropriate APCs, applying their CY 2005
claims data to develop their clinical APC median costs upon which
payments would be based. These procedures and their proposed APC
assignments were displayed in Table 10 of the CY 2007 OPPS proposed
rule. This table has been reproduced as Table 10 at the end of this
section and updated with the final status indicators, APC assignments,
and median costs.
We received many comments concerning the proposed reassignment of
other new technology procedures listed in Table 10 to clinical APCs for
CY 2007. A summary of the comments and our responses follow:
(1) Breast Brachytherapy (APCs 0029 and 0030)
For CY 2007, we proposed to reassign CPT code 19296 (Placement of
radiotherapy afterloading balloon catheter into the breast for
interstitial radioelement application following partial mastectomy,
includes imaging guidance; on date separate from partial mastectomy)
from New Technology APC 1524 (New Technology Level XIV--($3000-$3500))
to clinical APC 0030 (Level III Breast Surgery) with a proposed median
cost of $2,516.94. We also proposed to reassign CPT code 19297
(Placement of radiotherapy afterloading balloon catheter into the
breast for interstitial radioelement application following partial
mastectomy, includes imaging guidance; concurrent with partial
mastectomy) from New Technology APC 1523 (New Technology Level XXIII--
($2500-$3000)) to clinical APC 0029 (Level II Breast Surgery), with a
proposed median cost of $1,738.75.
Comment: Numerous commenters requested that CMS maintain CPT code
19296 and CPT code 19297 in New Technology APCs 1524 and 1523,
respectively, for another year so that more claims data could be
collected for both services. They were concerned about the proposed
significant payment decreases for CPT codes 19296 and 19297 that ranged
from -23 percent to -37 percent. The commenters also indicated that the
number of hospital outpatient claims for both codes were low and thus
inadequate to support their assignment to appropriate clinical APCs.
The commenters indicated that in developing the proposed rule, CPT code
19296 had a total of 491 single claims for CY 2005, and only 36 single
claims were available for CPT code 19297. One commenter was surprised
that CMS would consider moving CPT code 19297 to a clinical APC with
only 36 single claims, while CPT code 19298 (Place breast rad tube/
caths), with 49 single claims for CY 2005, would continue to be
assigned to New Technology APC 1524.
The commenters generally urged CMS to reevaluate the proposed
clinical APCs for these procedures, and, if necessary, place them in
more appropriate APCs that accurately reflected the costs and clinical
characteristics of these services. Many commenters requested that CMS
either continue to assign CPT codes 19296 and 19297 to their current CY
2006 New Technology APCs for CY 2007, or place them in APC 0648,
retitled ``Level IV Breast Surgery,'' which had a proposed median cost
of $3,012.92 and a CY 2006 title of ``Breast Reconstruction with
Prosthesis.'' As to our proposed CY 2007 APC assignments, for these
codes, the commenters indicated that the other procedures in APCs 0030
and 0029 did not use high cost devices, and the median costs of the
various procedures assigned to these APCs violated the 2 times rule
when the device-dependent median costs of CPT codes 19296 and 19297
were considered. The commenters further added that the procedures
within these APCs were not clinically homogeneous and recommended that
we reassign CPT codes 19296 and 19297 to APC 0648 (Breast
Reconstruction with Prosthesis), which contained procedures that were
more similar to the brachytherapy catheter insertion procedures in
terms of their clinical characteristics and use of costly devices.
Response: As we have stated previously, we retain services within
New Technology APC groups until we gather sufficient claims data to
enable us to assign the services to clinically appropriate APCs. This
policy allows us to move services from New Technology APCs in less than
2 years if sufficient data are available. It also permits us to retain
services in New Technology APCs for more than 3 years if sufficient
data upon which to base a decision for reassignment have not been
collected. In the case of CPT codes 19296 and 19297, the predecessor
codes for these services were created in April 2004. CPT code 19296 was
previously described by HCPCS code C9715 (Placement of balloon catheter
into the breast for interstitial radiation therapy following a partial
mastectomy; delayed), and CPT code 19297 was described by HCPCS code
C9714 (Placement of balloon catheter into the breast for interstitial

[[Page 68029]]

radiation therapy following a partial mastectomy; concurrent/
immediate). Both predecessor codes were assigned to New Technology APCs
when the codes were announced in the April update of the CY 2004 OPPS
(Transmittal 132, dated March 30, 2004). Specifically, HCPCS code C9715
was assigned to New Technology APC 1524 and HCPCS code C9714 was
assigned to New Technology APC 1523. Consequently, we believe we have
sufficient data from almost 3 years of hospital claims to assign both
CPT codes 19296 and 19297 to clinically appropriate APCs. We recognize
that, in the case of CPT code 19297 which is an add-on code to a
partial mastectomy service, single bills would likely always be
miscoded and available in only small numbers, because the correctly
coded claims would be multiple procedure claims that we could not use
for ratesetting.
However, in light of the comments received and our review of all
the information provided by the commenters, we reconsidered the
proposed APC assignments for CPT codes 19296 and 19297. We agree with
the commenters that the clinical APC assignments for CPT codes 19296
and 19297 should accurately reflect the costs of the procedures, as
well as their clinical features. We note that the final CY 2005 median
cost for CPT code 19296 is $3,041.58 based on 537 (of 860 total) single
claims, and the final CY 2005 median cost for CPT code 19297 is
$1,322.03 based on 36 single claims (of 443 total claims). As noted
previously, we do not believe the median cost of CPT code 19297 is
calculated based upon correctly coded claims. Therefore, after full
consideration of the public comments received, we believe it is
appropriate for CY 2007 to assign both services to clinical APC 0648
with an APC title of ``Level IV Breast Surgery'' and a final median
cost of $3,130.45. We believe this is the most appropriate assignment
for both procedures, when we consider their clinical and resource
characteristics in the context of other procedures also assigned to APC
0648.
APC 0648 is assigned status indicator ``T,'' which means that when
a service assigned to it is reported with a lower priced service (for
example, a mastectomy procedure) that is also assigned status indicator
``T,'' payment for the lower priced service would be reduced by 50
percent. This reduction in payment reflects the efficiencies that occur
when a lower paid service is performed during the same operative
session as a higher paid surgical procedure. We believe this reduction
is appropriate due to efficiencies that may be gained when both
services are performed in a single session. As for CPT code 19298,
because there was no predecessor code to describe this procedure, which
was new in CY 2005, we only have 1 year of claims data. Therefore, we
are continuing to assign this code to New Technology APC 1524 for CY
2007 to enable us to collect additional data for appropriate
ratesetting in the future.
Comment: Several commenters indicated that the procedure associated
with CPT codes 19296 and 19297 requires the use of a specialized
catheter that has a list price of $2,750, which is more costly than the
proposed payment rate for APC 0030 or APC 0029. One commenter added
that hospitals do not receive discounts or rebates on the unique
catheters, and that regardless of whether the procedure is performed at
the time of lumpectomy or during future surgery, the cost of the
catheter is still the same in both cases.
Response: As noted above, after carefully considering all the
public comments received, we have reassigned CPT codes 19296 and 19297
to APC 0648, a device-dependent APC, for CY 2007. The final median cost
for this device-dependent APC was calculated using only claims that
contained appropriate device HCPCS codes for all the procedures
assigned to it with nontoken charges for the devices as discussed in
section IV.A.2 of this preamble. The median cost from the subset of
claims reporting a device HCPCS code for the brachytherapy catheter was
$3,469.85 for CPT code 19296 and $3,379.97 for CPT code 19297. We
believe that payment for APC 0648 accurately reflects the resources and
costs associated with performing these device-dependent brachytherapy
catheter insertion procedures. To ensure that their future claims
include charges for the necessary devices to assist in ratesetting, we
will implement procedure-to-device edits for both of these services in
CY 2007. In order to receive payment for the two procedures to insert
brachytherapy balloon catheters, hospitals will be required to report
the appropriate device HCPCS code or their claims will be returned to
them for correction.
Comment: Several commenters were concerned about the proposed
assignment of status indicator ``T'' to both CPT codes 19296 and 19297.
They observed that the indicator would always reduce the payment for
CPT code 19297 by 50 percent.
Response: Based on the final CY 2007 assignment of CPT code 19297
to APC 0648, we believe this reduction is appropriate due to
efficiencies that may be gained when both the partial mastectomy and
placement of brachytherapy catheter procedures are performed in a
single operative session. According to the CPT manual, CPT code 19297
would be reported with CPT code 19160 (Mastectomy, partial (e.g.,
lumpectomy, tylectomy, quadrantectomy, segmentectomy)) or 19162
(Mastectomy, partial (e.g., lumpectomy, tylectomy, quadrantectomy,
segmentectomy); with axillary lymphadenectomy). These codes are
assigned to APCs 0028 (Level I Breast Surgery), with a final CY 2007
median cost of $1,178.12, and 0693 (Breast Reconstruction), with a
final CY 2007 median cost of $2,260.98, respectively. In cases where
the partial mastectomy is performed with concurrent placement of a
brachytherapy balloon catheter into the breast, payment for the
nondevice-dependent partial mastectomy procedure would be appropriately
reduced by 50 percent, while full payment would be provided for the
device-dependent procedure described by CPT code 19297, consistent with
the expected resource efficiencies when these procedures are performed
in a single session.
After carefully considering all public comments received, we are
finalizing our CY 2007 proposal with modification to reassign CPT codes
19296 and 19297 from New Technology APCs to clinical APC 0648, retitled
``Level IV Breast Procedures,'' with a final CY 2007 median cost of
$3,130.45. We also are implementing appropriate procedure-to-device
edits for both of these procedures.
(2) Radiofrequency Ablation (APCs 0050 and 0423)
For CY 2007, we proposed to reassign CPT code 20982 (Ablation, bone
tumor(s) (e.g., osteoid osteoma, metastasis), radiofrequency,
percutaneous, included computed tomographic guidance) from New
Technology APC 1557 (New Technology--Level XX ($1800-$1900)) to APC
0050 (Level II Musculoskeletal Procedures Except Hand and Foot), with a
proposed median cost of $1,535.66.
We also proposed that CPT code 50592 (Ablation, one or more renal
tumor(s), percutaneous, unilateral radiofrequency), which was a new CPT
code for CY 2006, and CPT code 47382 (Ablation, one or more liver
tumor(s), percutaneous, radiofrequency) continue to be assigned to APC
0423 (Level II Percutaneous Abdominal and Biliary Procedures), with a
proposed median cost of $2,410.33.
Comment: One commenter objected to the proposed payment for APC
0423 and

[[Page 68030]]

the placement of CPT codes 47382 and 50592 in APC 0423 because the
commenter believed that the proposed payment was too low to adequately
compensate hospitals for the required radiofrequency electrode and the
necessary services. One commenter also asked that CPT code 20982 be
reassigned to APC 0051 (Level III Musculoskeletal Procedures Except
Hand and Foot) to pay a more appropriate amount. The commenter provided
a comparison to the MPFS practice expense inputs that showed that the
supply, clinical time, and capital expense for performing CPT code
20982 was about $2,100. Moreover, the commenter asked that CMS ensure
that a forthcoming CPT code for ablation of a lung tumor be assigned to
an APC that would make appropriate payment for both the electrode and
the services. The commenter stated that the electrodes used in these
services typically cost from $900 to $2,500, with an approximate
average of $1,500. The commenter asked that CMS grant its pass-through
device category application, establish a new device category code for
radiofrequency electrodes for pass-through payment, and designate APCs
0423, 0132 (Level III Laparoscopy), and 0050 as device-dependent APCs
and implement appropriate procedure-to-device edits.
Response: The MPFS is a different payment system that establishes
payment rates based on a methodology that is wholly unrelated to the
OPPS setting of relative weights, so its practice expense costs are not
applicable to the OPPS. However, in this final rule with comment
period, we are reassigning CPT code 20982 to APC 0051 for CY 2007
because we agree, based on review of our historical claims data and
final CY 2005 claims, that CPT code 20982 is more appropriately
assigned to APC 0051 than to APC 0050 from hospital resource and
clinical perspectives. However, we are retaining CPT codes 47382 and
50592 in APC 0423, with a median cost established based upon our
standard OPPS methodology, because we believe that we have sufficient
claims data for CPT code 47382, which was created in CY 2002. We have 4
years of claims data for this procedure, with hundreds of single claims
from CY 2005 that reflect a stable code-specific median cost in
comparison with CY 2004 claims. For CY 2007, CPT code 47382 is the only
code assigned to APC 0423 that contributes claims data to the median
cost calculation for the APC. We also believe that CPT code 50592,
which has no CY 2005 claims data because it was new for CY 2006, is
similar to CPT code 47382 based on clinical and resource
considerations. Therefore, it is most appropriately assigned to the
same clinical APC. Moreover, because CPT code 47382 uses devices that
never had pass-through status, we have not placed any of the CPT codes
for radiofrequency ablation procedures in specialized APCs, nor do we
consider their APCs to be device-dependent. Because the device is well-
established in its use for radiofrequency ablation of liver tumors, we
believe that hospital charges for the procedure contain the charges the
hospital considers are appropriate for the electrode and other required
supplies. This is similar to our treatment of CPT code 66984
(Extracapsular cataract removal with insertion of intraocular lens
prosthesis (one stage procedure), manual or mechanical technique (e.g.,
irrigation and aspiration or phacoemulsification)). This is a well-
established service that predates the OPPS and that uses a device that
was never a pass-through device. We also do not consider its APC to be
device-dependent.
We also are assigning new CPT code 32998 (Ablation therapy for
reduction or eradication of one or more pulmonary tumor(s) including
pleura or chest wall when involved by tumor extension, percutaneous,
radiofrequency, unilateral) to APC 0423 because we have no reason to
believe that the resources required for the newly coded service differ
in any substantive way from the resources required for longstanding CPT
code 49382. This new CPT code's assignment is open to comment in this
final rule with comment period. We do not make pass-through device
category determinations through rulemaking, nor do we create new device
category codes outside of the pass-through process. Because there is no
specific device code to describe the radiofrequency ablation electrode,
we are unable to implement procedure-to-device edits for any of these
procedures.
After carefully considering the public comments received, we are
finalizing our proposal with modification. CPT code 20982 is reassigned
to APC 0051 for CY 2007, with a median cost of $2,510.95. CPT codes
47382 and 50592 continue to be assigned to APC 0423 for CY 2007, with a
median cost of $2,283.08. New CPT code 32998 is also assigned to APC
0423 for CY 2007, and this assignment is open to comment in this final
rule with comment period.
(3) Extracorporeal Shock Wave Treatment (APC 0050)
For CY 2007, we proposed to reassign CPT code 28890 (Extracorporeal
shock wave, high energy, performed by a physician, requiring anesthesia
other than local, including ultrasound guidance, involving the plantar
fascia) and CPT code 0102T (Extracorporeal shock wave, high energy,
performed by a physician, requiring anesthesia other than local,
involving lateral humeral epicondyle) from New Technology APC 1547 (New
Technology--Level X ($800-$900)) to clinical APC 0050 (Level II
Musculoskeletal Procedures Except Hand and Foot), which had a proposed
payment rate of $1,542.47.
Comment: One commenter on our CY 2006 final rule with comment
period was concerned that our assignment of new CPT code 28890 to APC
1547 may be insufficient to appropriately pay for the costs associated
with its performance and facility costs in the outpatient setting. The
commenter admitted that it did not have actual cost data for supplies
and equipment used in the hospital outpatient setting. Nevertheless the
commenter was concerned that the $850 payment rate for services
assigned to APC 1547 may be insufficient for this service the OPD. The
commenters on our CY 2007 OPPS proposed rule believed that our proposed
reassignment of CPT codes 28890 and 0102T to APC 0050 was appropriate
for CY 2007 until the Medicare hospital claims data become more robust.
Several commenters supported our proposal to reassign CPT code 28890
and CPT code 0102T from New Technology APC 1547 to clinical APC 0050.
The commenters believed that APC 0050 appropriately reflects the true
costs and clinical resources associated with CPT code 0102T. One
commenter indicated that the costs of the procedures currently
classified under clinical APC 0050 are not dissimilar to the median
cost of its predecessor code, specifically, HCPCS code C9720 (High-
energy (greater than 0.22mj/mm2) extracorporeal shock wave (ESW)
treatment for chronic lateral epicondylitis (tennis elbow)), and
therefore, agreed with our proposed assignment. However, one commenter
believed that the true resource costs of CPT codes 28890 and 0102T are
not fully reflected in the CY 2005 claims data upon which CY 2007
payment rates are based. Therefore, the commenter recommended that CMS
adopt the proposed assignments of these CPT codes to APC 0050, but that
CMS continue to track and evaluate its claims data as additional claims
data become available.
However, the commenter questioned our assignment of CPT code 0101T
(Extracorporeal shock wave involving musculoskeletal system, not
otherwise

[[Page 68031]]

specified, high energy) to APC 0050, stating that this code describes a
variety of unspecified procedures for which we have no CY 2005 claims
data. The commenter recommended that we not assign CPT code 0101T to
APC 0050 or to any inappropriately low-priced New Technology APC.
Response: Concerning the comment to our CY 2006 assignment of CPT
code 28890, we note that the OPPS payment is for the technical or
facility portion of the payment only. The physician performing the
procedure would also bill CMS for the professional services in
providing the procedure. Therefore, the CY 2006 OPPS payment for APC
1547 was not for both the performance and facility fee as suggested by
the commenter. Nevertheless, in our proposed rule for CY 2007, we
proposed reassigning CPT code 28890 to APC 0050, Level II
Musculoskeletal Procedures Except Hand and Foot, with a proposed
payment rate of $1,542.47. Prior to the introduction of this CPT code
in CY 2006, hospitals reported HPCPS code C9721 (High-energy (greater
than 0.22mj/mm²) extracorporeal shock wave (ESW) treatment
for chronic plantar fasciitis), to describe the service. This C-code
had a median cost of about $1,794 based on CY 2005 claims, consistent
with the proposed payment rate for APC 0050.
We appreciate the support for our proposed reassignment of ESWT CPT
codes 28890 and 0102T to APC 0050 for CY 2007. Concerning the objection
to assigning CPT code 0101T to APC 0050 due to the lack of claims data,
we believe that the clinical characteristics and expected resource use
for CPT code 0101T will be similar to other ESWT treatments such as
those described by CPT codes 28890 and CPT 0102T. As indicated in our
CY 2007 OPPS proposed rule (71 FR 49549), some of the new Category III
CPT codes describe services that we have determined to be similar in
clinical characteristics and resource use to HCPCS codes in an existing
APC. In these instances, we may assign the Category III CPT code to the
appropriate clinical APC. In the case of CPT code 0101T, we believe
this procedure is similar in clinical characteristics and resource use
to CPT code 28890 and CPT code 0102T.
After carefully considering the public comments received, we are
finalizing our proposal without modification to assign CPT codes 28890,
0102T, and 0101T to APC 0050 for CY 2007.
(4) Insertion of Venous Access Device With Two Ports (APC 0623)
For CY 2007, we proposed to reassign CPT code 36566 (Insertion of
tunneled centrally inserted central venous access device, requiring two
catheters via two separately venous access sites: with subcutaneous
port(s)) from New Technology APC 1564 (New Technology--Level XXVII
($4500-$5000)), to APC 0623 (Level III Vascular Access Procedures),
with a proposed median cost of $1,703.94. At its August 2006 meeting,
the APC Panel recommended that this procedure be moved to an APC with a
payment rate no less than that of New Technology APC 1524 (New
Technology--Level XXIV ($3000-$3500)) and more than that of New
Technology APC 1564 (New Technology--Level XXVII ($4500-$5000)). The
APC Panel also recommended that CMS establish a procedure-to-device
edit for the service.
Comment: Some commenters objected to the proposed payment rate for
CPT code 36566. The commenters asked that CMS establish the median cost
for this code based only on claims that contain HCPCS code C1881
(Dialysis access system, implantable) and that we add a device edit
that requires that hospitals must bill for HCPCS code C1881 as a
condition of being paid for CPT code 36566. They indicated that two
devices, totaling $3,500, are required for the procedures.
Response: We agree that CPT code 36566, created in CY 2004, should
be assigned to a device-dependent APC, and we calculated median costs
for device-dependent APCs in CY 2007 based upon claims that passed the
device edits and contained nontoken device charges as described in
section IV.A.2 of this preamble. When we calculated the median cost of
CPT 36566 based only on that subset of claims with HCPCS code C1881,
its median cost was $5,100.26. We are generally accepting the APC
Panel's recommendation to assign CPT code 36566 to an APC with an
appropriate payment rate and to establish a procedure-to-device edit
for CY 2007. For CY 2007, we have placed CPT code 36566 in new APC 0625
(Level IV Vascular Access Procedures) because there is no currently
existing clinical APC where CPT code 36566 could appropriately be
reassigned based on clinical and resource considerations. We have
established APC 0625 as a device-dependent APC because the APCs for the
vascular access device services that require devices of significant
cost generally have been considered device-dependent since the
inception of the OPPS. We have established a device edit, effective for
services on or after January 1, 2007, that will not provide payment for
CPT code 36566 unless an appropriate device HCPCS code is also reported
on the claim. We have calculated the median cost of APC 0625 for CY
2007 using only claims that contain nontoken charges for HCPCS code
C1881.
After carefully considering the public comments received, we are
finalizing our CY 2007 proposal with modification. We are assigning CPT
code 36566 to APC 0625, with a median cost of $5,100.26, and
establishing an appropriate procedure-to-device edit for CY 2007.
(5) Stereotactic X-ray Guidance (APC 0257)
For CY 2007, we proposed to reassign CPT code 77421 (Stereoscopic
x-ray guidance) from New Technology APC 1502 (New Technology--Level II
($50-$100)) to clinical APC 0257 (Level I Therapeutic Radiologic
Procedures), with a proposed median cost of $60.
Comment: Some commenters expressed concern about our proposal to
reassign CPT code 77421 from New Technology APC 1502 to clinical APC
0257. The commenters indicated that the proposed payment rate of $60.14
for APC 0257 was insufficient and did not adequately cover the actual
costs associated with providing the guidance service described by CPT
code 77421. In addition, the commenters believed that the other
services currently assigned to APC 0257 were significantly different
from CPT code 77421. The commenters stated that the stereotactic x-ray
guidance procedure is considerately more sophisticated and
technologically more complex, and thus, more resource intensive, than
the procedures in APC 0257. Furthermore, the commenters cited the
global payment rate of $151.59 for CPT code 77421 under the MPFS, and
requested that we take into consideration the MPFS practice expense
information for ratesetting rather than relying on very limited
hospital claims data. Some commenters requested that CMS reassign CPT
code 77421 to APC 0296 (Level II Therapeutic Radiologic Procedures),
which had a proposed median cost of $167, to more accurately reflect
the true costs associated with providing this service. The commenters
further indicated that the other services assigned to APC 0296 were
similar clinically and resource-wise to the stereotactic x-ray guidance
procedure. Other commenters requested that CMS maintain CPT code 77421
in New Technology APC 1502 with a payment rate of $75 for CY 2007,
until CMS has more experience with the CPT code. Some commenters noted
that CMS may have mistakenly cross-walked CY 2005 claims data for C9722
(Stereoscopic kilovolt x-ray imaging

[[Page 68032]]

with infrared tracking for localization of target volume) to CPT code
77421, based on the belief that both codes described the same services.
Response: While CPT code 77421 was made effective on January 1,
2006, under the OPPS stereoscopic kV x-ray guidance was previously
reported with HCPCS code C9722, which was made effective January 1,
2005, and deleted on December 31, 2005, according to our usual practice
when services previously described by a C-code can be reported with a
CPT code. Based on our claims data, we found 14,794 single claims (out
of 15,367 total claims) for HCPCS code C9722 in the CY 2005 data upon
which we are basing the CY 2007 relative weights. We believe that
services previously reported with HCPCS code C9722 may now be reported
with CPT code 77421, although CPT code 77421 may allow reporting of a
broader set of technologies. We also believe this CY 2005 volume of
services is sufficient to justify setting a relative weight based on
claims-based cost information rather than keeping the service in a New
Technology APC for another year. In addition, our claims information is
not consistent with a payment for the service through clinical APC
0296, which has a final median cost of about $164. We note that, of the
claims available for ratesetting for APC 0257, almost 90 percent of
them were for HCPCS code C9722; therefore, we are confident that the
median cost of APC 0257 appropriately reflects the costs of
stereoscopic x-ray imaging. We also believe the other imaging services
assigned to APC 0257 share sufficient clinical and resource similarity
with CPT code 77421 to support their assignment to the same clinical
APC. Moreover, we again note that the MPFS practice expense information
for this service is not relevant to the setting of relative weights
under OPPS.
After considering all the public comments received, for CY 2007, we
are adopting as final without modification our proposal to reassign CPT
code 77421 from New Technology APC 1502 to clinical APC 0257, which has
a final CY 2007 median cost of $67.06.
(6) Whole Body Tumor Imaging (APC 0408)
For CY 2007, we proposed to reassign CPT code 78804
(Radiopharmaceutical localization of tumor or distribution of
radiopharmaceutical agent(s); whole body, requiring two or more days
imaging) from New Technology APC 1508 (New Technology--Level VIII
($600-$700)) to clinical APC 0408 (Level II Tumor/Infection Imaging)
with a proposed median cost of $309.
Comment: Several commenters disagreed with the proposed
reassignment of CPT code 78804, which describes a whole body study that
requires multiple days of imaging, from New Technology APC 1508 to the
same new clinical APC 0408 as the assignment of CPT code 78806
(Radiopharmaceutical localization of inflammatory process; whole body),
which describes a single day whole body imaging study. While the
commenters acknowledged that the two procedures use similar resources
for a day of imaging, they stated that the clinical time and work
involved in performing a multiple day imaging study is significantly
more intensive than a single day study; therefore, hospitals incur
additional costs. As such, the commenters disagreed with our proposal
to assign the single and multiple day study CPT codes to the same
clinical APC because the hospital resources are not homogeneous for
these clinically similar studies. The commenters urged CMS to maintain
the single day study as described by CPT code 78806 in its current APC
assignment, specifically APC 0406 (Level I Tumor/Infection Imaging),
and to create a new APC for CPT code 78804 for assignment of the
multiple day study. Furthermore, the commenters recommended that the
payment rate for CPT code 78804 be based on the current claims data for
the procedure.
Response: After further review of our CY 2005 claims data and
consideration of the clinical characteristics of CPT code 78804, we
agree with the commenters' recommendation to maintain the single day
study, which is described by CPT code 78806, in its current CY 2006 APC
0406. We further agree with the commenters' assignment of CPT code
78804 to a separate APC established as Level II Tumor/Infection
Imaging, and therefore, have decided to keep this code as the only code
assigned to APC 0408 for CY 2007. Based on our final revised policy,
the CY 2007 median cost of APC 0408 is $362.05. The separate APC
assignments for the single and multiple day tumor/infection imaging
studies adequately achieve both clinical and resource coherence for the
services in both APCs. Therefore, we are finalizing our proposed CY
2007 APC assignment of CPT code 78804 to new clinical APC 0408 for CY
2007, with modification to the proposal through reconfiguration of APC
0408 as described above.
(7) Gastroesophageal Reflux Test With pH Electrode (APC 0361)
For CY 2007, we proposed to reassign CPT code 91035 (Esophagus,
gastroesophageal reflux test; with mucosal attached telemetry ph
electrode placement, recording, analysis and interpretation) from New
Technology APC 1506 (New Technology--Level VI ($400-$500)) to clinical
APC 0361 (Level II Alimentary Tests) with a proposed payment of $242.
Comment: One commenter disagreed with our proposal to reassign CPT
code 91035 from New Technology APC 1506 to clinical APC 0361. The
commenter believed that the proposed payment level of $242 for APC 0361
did not adequately reflect the cost of providing the service and that
it did not appropriately differentiate between the two types of pH
monitoring for detection of gastroesophageal reflux disease (GERD):
capsule-based and catheter-based. (CPT code 91035 describes the
capsule-based pH monitoring service while CPT code 91034 describes the
catheter-based pH monitoring procedure.) The commenter believed that
the resource costs for the two procedures are significantly different,
and as such, each procedure should be placed in a separate APC to
accurately reflect the costs of providing the services. The commenter
indicated that the average cost of the capsule is about $184, which is
significantly higher than the cost of the catheter used for pH
monitoring that is priced at about $45. In addition, the commenter
requested that CPT code 91035 be designated as a device-dependent
procedure, and also requested that CMS establish a C-code for the
capsule to appropriately track its cost. The commenter also requested
that CMS compare the costs of single claims with claims that include an
endoscopy procedure, with which the pH capsule procedure is very
commonly performed, to ensure that all costs were captured and based on
the most likely clinical scenario when determining the appropriate
payment rate for CPT code 91035.
Response: Since April 2004, the procedure described by CPT code
91035 has been designated as a new technology service under the OPPS.
While CPT code 91035 was not effective for reporting until January 1,
2005, its predecessor code, specifically HCPCS code C9712 (Insertion of
a pH capsule for measurement and monitoring of gastroesophageal reflux
disease, includes data collection and interpretation) was designated as
a new technology service and assigned to New Technology APC 1506 from
April 2004 until December 31, 2004, when the code was deleted and
replaced with CPT code 91035. CPT code 91035 was then assigned to the
same New Technology

[[Page 68033]]

APC for CY 2005, with a payment rate of $450. As usual, in determining
the initial payment level for this service, we took into consideration
the costs associated with the procedure, including the necessary
capsule device.
We do not believe that our claims data from CYs 2004 and 2005
demonstrate that the resources associated with a capsule-based pH
monitoring procedure are significantly greater than those required for
a catheter-based pH monitoring procedure, leading to their
inappropriate assignments to the same clinical APC. Based on our CY
2005 claims data, the median costs for each procedure are relatively
comparable: $260 for CPT code 91034 (based on 2,982 single claims) and
$300 for CPT code 91035 (based on 1,160 single claims). We believe that
both procedures are fairly similar in terms of device cost, clinical
staff time, and other facility resources required for performing the
procedures. We note that the median cost for CPT code 91035 was based
upon 1,160 single claims out of 4,777 total claims for the procedure.
While we understand that capsule-based pH monitoring is often initiated
in association with an endoscopy procedure, we have no reason to
believe that our median cost from single claims calculated according to
our standard OPPS methodology understates the cost of the procedure.
Indeed, we would expect that the resources could be less if the service
were performed in association with another surgical procedure because
of efficiencies, although there would be no payment reduction because
APC 0361 has a status indicator of ``X.''
With respect to designation of the procedure as device-dependent,
we typically have only designated APCs as device-dependent in the
context of historical payment adjustments provided for these APCs. Many
device-intensive procedures appropriately reside in clinical APCs along
with procedures that do not require expensive devices. Currently device
HCPCS codes are only established when new pass-through device
categories are approved. Therefore, we will not create a new device
code to track charges for this particular device that has not had pass-
through status. We expect that hospitals will include their charges for
the cost of the capsule either in the line-item charge for the pH
monitoring procedure or under a separate revenue code line on their
claims.
Because we believe that the median cost of APC 0361 appropriately
represents the costs and resources involved in performing both capsule-
based and catheter-based pH monitoring procedures, and these services
are clinically similar, we are finalizing our assignment of CPT code
91035 to APC 0361 for CY 2007 without modification.
(8) Home International Normalized Ratio (INR) Monitoring (APC 0604)
Since CY 2002, home INR monitoring services have been described by
two G-codes, specifically G0248 and G0249, and have been assigned to
New Technology APCs. These codes were created effective July 2002 in
the context of a National Coverage Determination (NCD) that covers home
INR monitoring for patients with mechanical heart valves on warfarin
that have been anticoagulated for at least 3 months, who undergo an
educational program on anticoagulation management and use of the device
prior to its use in the home, and who perform self-testing no more than
once a week. The G-codes have been assigned to New Technology APCs for
5 years. Generally, codes remain in New Technology APCs until we can
determine an appropriate clinical APC, based on the median cost and
clinical characteristics of the services described by the code. This
usually ranges from approximately 2 to 3 years.
In CY 2002, G0248 and G0249 were assigned to a New Technology APC
with a payment rate of $75. In CY 2003, these codes were reassigned to
a New Technology APC with a payment rate of $150, and they have
remained there since that time.
Our analysis of hospital data for Medicare single and multiple
claims submitted from CY 2002 through CY 2005 indicates that these
procedures are rarely performed by hospital outpatient facilities. For
claims submitted from CY 2002 through CY 2005, our single claims data
show that there were zero claims submitted during CYs 2002, 2003, and
2004, and in CY 2005, only nine single claims for G0248 and only seven
for G0249 are available for ratesetting. Looking at total claims, from
2002 through 2004, we had fewer than 20 claims for each of the specific
services.
In addition, the median costs for these codes are $95 for G0248 and
$128 for G0249 based on CY 2005 claims. Because we received no single
claims between CY 2002 and CY 2004 for these codes, we have no prior
median cost data.
In the CY 2007 OPPS proposed rule (71 FR 49556), we proposed to
assign both G0248 and G0249 to clinical APC 0604 (Level I Clinic
Visits), with a proposed median cost of $49.93. We believe these
assignments were appropriate based on both clinical and resource
considerations, in the context of other services also proposed for
assignment to APC 0604.
During the August 2006 APC Panel meeting, one presenter recommended
that we either continue to assign G0248 and G0249 to a New Technology
APC or move them to an appropriate clinical APC consistent with the
clinical and resource cost characteristics of providing these services.
This technology is used in monitoring the adequacy of anticoagulation
in patients taking warfarin to prevent major thromboembolic events. The
presenter indicated that providers have been slow to adopt the
technology because they must purchase the monitors and materials. The
presenter requested that the codes remain in New Technology APCs or be
reassigned to clinical APCs that appropriately make payments for the
costs of providing the services, so that use of this technology
increases and more data can be collected. The Panel agreed that
providing payment at an appropriate rate would encourage more use of
home INR monitoring, which would actively engage patients in their own
care. The Panel recommended that we assign G0248 and G0249 to APC 0421
(Prolonged Physiologic Monitoring) for CY 2007.
Comment: One commenter expressed concern regarding our proposal to
move home INR monitoring from New Technology APC 1503 (New Technology--
Level III ($100-$200)) to clinical APC 0604. The commenter was
particularly concerned that the proposed clinical APC 0604, which has a
payment rate of $49.75, would not compensate for the costs incurred in
delivering this service. While the commenter understood the reason for
assigning these codes to a clinical APC because these codes have been
assigned to a New Technology APC since July 2002 (these codes were made
effective in July 2002 and announced through the OPPS July 2002 update,
specifically Transmittal A-02-050, dated June 17, 2002), the commenter
stated that the technology is fairly new with only a small number of
hospital claims, which could therefore warrant its continued assignment
to the current New Technology APC 1503. The commenter also indicated
that the assignments of HCPCS codes G0248 and G0249 to clinical APC
0604 were neither economically nor clinically coherent because none of
the other procedures also proposed for assignment to APC 0604 involved
the furnishing of equipment and supplies to patients for use in their
homes or involved care extended over a 4-week period. Therefore, the
commenter urged CMS to maintain home INR monitoring services

[[Page 68034]]

in New Technology APC 1503 with a payment rate of $150 for at least one
more year. Alternatively, the commenter requested that CMS assign these
codes to clinical APC 0421, which had a proposed payment rate of
$101.47, because the reimbursement rate more closely corresponded with
the costs of providing the services, and also with the clinical
characteristics of the other procedure already assigned to this same
APC.
Response: As we indicated above, the APC Panel also recommended
that these two HCPS codes be assigned to APC 0421 for CY 2007. We agree
with both the commenter and the APC Panel's recommendation to assign
these codes to APC 0421.
Therefore, we are finalizing our proposed movement of HCPCS codes
G0248 and G0249 from New Technology APC 1503 to a clinical APC for CY
2007 with modification. Effective January 1, 2007, HCPCS codes G0248
and G0249 will be assigned to APC 0421, with a final median cost of
$99.43.
(9) Tositumomab Administration and Supply (APC 0442)
For CY 2007, we proposed to assign HCPCS code G3001 (Administration
and supply of tositumomab, 450 mg) from New Technology APC 1522 (New
Technology--Level XXII ($2000-$2500)) to clinical APC 0442 (Dosimetric
Drug Administration), which had a proposed median cost of $1,515.80.
Comment: Several commenters, including a pharmaceutical company,
expressed concern with the CMS proposal to assign HCPCS code G3001 from
New Technology APC 1522 with a payment rate of $2,250 to clinical APC
0442. The commenters were concerned that the payment rate of $1,510.52
that was proposed for APC 0442 would not adequately cover both the cost
of the product and the administration of the product itself since the
WAC for the tositumomab product was approximately $2,189. They
requested that CMS maintain the current payment rate for G3001 of
$2,250 for CY 2007. Furthermore, one commenter recommended that HCPCS
code G3001, currently applicable to both doses of the non-radioactive
component of therapy and its administration, be amended to apply only
to the unlabeled tositumomab product. The commenter urged CMS to assign
a specific code that describes the unlabeled tositumomab to enable
appropriate payment for the product. The commenter added that unlabeled
tositumomab alone is only FDA approved as part of the overall BEXXAR
therapeutic regimen, and therefore cannot be used other than as part of
BEXXAR therapy. The commenter also recommended CMS permit hospitals to
use a CPT code for the 1-hour administration of the nonradioactive
component of BEXXAR.
Response: We first established G3001 in CY 2003. As we stated in
the CY 2004 OPPS final rule with comment period (68 FR 63443),
unlabeled tositumomab is not approved as either a drug or a
radiopharmaceutical, but it is a supply that is required as part of the
BEXXAR treatment regimen. We do not make separate payment for supplies
used in services provided under the OPPS. Payments for necessary
supplies are packaged into payments for the separately payable services
provided by the hospital. Administration of unlabeled tositumomab is a
complete service that qualifies for separate payment under its own APC.
This complete service is currently described by HCPCS code G3001.
Therefore, we do not agree with the commenter's recommendation that we
assign a separate code to the supply of unlabeled tositumomab, which
would not then receive separate payment. Rather, we will continue to
make separate payment for the administration of tositumomab through
G3001, and payment for the supply of unlabeled tositumomab is packaged
into the administration payment.
Based on our CY 2005 claims data that show a final median cost of
$1,367 for APC 0442, which contains only the service described by
G3001, we had 148 single claims for the service. The median cost of
G3001 from CY 2004 claims is $1,210 based on 69 single claims. We
expect the annual volume of this service to Medicare beneficiaries to
remain modest. By CY 2007, G3001 service will have been assigned to a
New Technology APC for 3 years, providing two full years of claims data
for our analysis. We believe that the final CY 2007 median cost of APC
0442 accurately reflects the hospital resources required to perform the
administration and supply of tositumomab service, and that our data are
sufficient at this point to support movement of G3001 out of a New
Technology APC and into an appropriate clinical APC for CY 2007.
Consequently, we are finalizing the proposed CY 2007 reassignment of
HCPCS code G3001 from New Technology APC 1522 to clinical APC 0442,
without modification.
(10) Summary of Other New Technology Procedures Assigned to Clinical
APCs for CY 2007
After carefully considering all of the public comments received, we
are adopting our proposal to reassign the new technology procedures to
clinically appropriate APCs with modification to the final APC
assignments for CPT codes 19296, 19297, 20982, 36566, and 78804 as
shown in Table 10 below.
BILLING CODE 4120-01-P

[[Page 68035]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.015

BILLING CODE 4120-01-C

D. APC-Specific Policies

1. Radiology Procedures
a. Radiology Procedures (APCs 0333, 0662, and Other Imaging APCs)
At its March 2006 meeting, the APC Panel made three recommendations
regarding radiology services. These included the following:
Reaffirmed the CY 2005 recommendation that CMS postpone
implementation of the multiple procedure reduction policy for imaging
services as included in the CY 2006 OPPS proposed rule for CY 2007, to
allow CMS to gather more data on the efficiencies associated with
multiple imaging procedures that may already be reflected in the OPPS
payment rates for imaging services.
Recommended that CMS review payment rates for computed
tomography (CT) and computed tomographic angiography (CTA) procedures
to ensure that their payment rates are comparatively consistent and
that they accurately reflect resource use.
Recommended that CMS invite comments on ways that
hospitals can uniformly and consistently report charges and costs
related to radiology services.
In the CY 2006 OPPS final rule with comment period (70 FR 68707),
we indicated that, based on the APC Panel's recommendations and public
comments received, we decided not to finalize our CY 2006 proposal to
reduce OPPS payments for some second and subsequent diagnostic imaging
procedures performed in the same session. Our analyses did not disprove
the commenters' contentions that there are efficiencies already
reflected in their hospital costs, and, therefore, in their CCRs and
the median costs for the procedures. As noted in the CY 2007 OPPS
proposed rule (71 FR 49567), over the past 7 months, we have conducted
additional studies of our hospital claims data for single and multiple
diagnostic imaging procedures, and our analyses support continued
deferral for CY 2007 of implementation of a multiple imaging procedure
payment reduction policy in the OPPS. Therefore, we accepted the APC
Panel's recommendation to not adopt such a policy for CY 2007 pending
the results of further analyses. Depending upon the findings from such
studies, in a future rulemaking we may propose revisions to the
structure of our rates to further refine these rates in the context of
additional study findings.
We received numerous public comments concerning our proposal. A
summary of the comments and responses follow:
Comment: Numerous commenters supported the CMS proposal to defer
implementing a multiple imaging

[[Page 68036]]

procedure payment reduction policy in the OPPS for CY 2007. A number of
commenters reiterated that CMS should never implement such a policy in
the OPPS, based on the inherent characteristics of the standard
methodology that is used to establish OPPS payment rates that already
captures the efficiencies of these multiple services in the CCRs used
to convert charges to costs on hospital claims. They argued that such
discounting is not needed and unwarranted, because discounting has
already been considered in setting the APC weights.
Response: We continue to be concerned about making appropriate
payments for imaging services in the common circumstances where
multiple procedures using the same imaging modality are provided in the
same encounter. We will continue to study our single and multiple
outpatient hospital claims for diagnostic imaging procedures and
consider refinements to our payment rates for these services if results
from the analyses suggest that changes to our payment policies would
provide more accurate payments for these services.
After carefully considering the public comments received, we are
adopting our proposal to defer implementation of a multiple imaging
procedure payment reduction for CY 2007, without modification.
As indicated in the CY 2007 OPPS proposed rule (71 FR 49568), we
also accepted the APC Panel's recommendation to review the CY 2007
proposed payment rates for CT and CTA procedures to ensure that their
rates were comparatively consistent and accurately reflective of
hospitals' resource costs. Presenters at the March 2006 APC Panel
meeting indicated to the Panel that hospital resources for CTA
procedures were similar to those for CT procedures that included scans
without contrast followed by scans with contrast, but additional
resources were required for the 3-dimensional reconstruction that was
part of the CTA procedures. As a result of this image postprocessing,
CTA scans displayed the vasculature in a 3-dimensional format rather
than in the 2-dimensional cross-sectional images of conventional CT
scans. As indicated in our CY 2007 proposed rule (71 FR 49568), based
upon CY 2005 claims data, the CY 2007 proposed median cost for APC 0333
for CT procedures that included scans without contrast material,
followed by contrast scans to complete the studies was $309, and the CY
2007 proposed median cost for APC 0662 for CTA procedures was $304. As
has been the case for the past several years, the proposed median costs
associated with these two APCs were virtually identical to one another
and were also quite consistent with their historical costs from prior
years of claims data. The CY 2007 proposed median costs for APCs 0333
and 0662 were based on about 500,000 and 150,000 single claims,
respectively. The stability of these APC median costs, based on large
numbers of single claims, was consistent with our belief that the
median costs of these APCs accurately reflected hospitals' resource
use. From CY 2004 to CY 2005, the number of CTA procedures performed in
the outpatient department increased by 50 percent, whereas the number
of CT procedures that included a scan without contrast followed by a
scan with contrast to complete each full study increased by only about
1 percent. The large annual increases in the OPPS frequencies of CTA
procedures through CY 2005 provided no evidence that Medicare
beneficiaries were experiencing difficulty accessing these services in
the hospital outpatient setting. CTA procedures were being more
commonly performed for various clinical indications, likely resulting
in more consistent and efficient use of the associated image
postprocessing technology. Accordingly, it is not surprising that the
hospital costs of typical CTA procedures in contemporary medical
practice were very similar to the hospital costs of the more involved
and resource-intensive complex CT services that, like CTA procedures,
included scans without contrast material, followed by scans with
contrast. Thus, we indicated in the CY 2007 proposed rule that we
believed that our CY 2007 proposed payment rates for CT and CTA
procedures were generally consistent with one another and accurately
reflective of hospitals' resource costs.
We received several comments concerning our proposal. A summary of
the comments and our responses follows:
Comment: Several comments on our proposed payment rate of $302.85
for the CTA procedures placed in APC 0662 (CT Angiography) indicated
that the CTA procedures were reimbursed at a lower rate than
conventional CT procedures, although the utilization costs of CTA
exceeded conventional CT. The commenters urged CMS to set the payment
for APC 0662 at a rate equal to the sum of APC 0333 (Computerized Axial
Tomography and Computerized Angiography without Contrast followed by
Contrast), which had a proposed payment rate of $307.88, and the
postprocessing APC, specifically, APC 0282 (Miscellaneous Computerized
Axial Tomography), which had a proposed payment rate of $95.72.
Alternatively, the commenters suggested that CMS reassign the CTA
procedures from APC 0662 to an existing APC that more closely reflected
the resource costs of performing the procedures.
Response: While we acknowledge the commenters' concerns, we believe
that our claims data accurately reflect the resource costs associated
with providing the CTA services. As we stated in the November 15, 2004
final rule with comment period (69 FR 65722) and further reiterated in
the November 10, 2005 final rule with comment period (70 FR 68597),
accurate cost information about the costs of image reconstruction for
CTA specifically, and for CT alone as utilized with CTA, would be
required in order to implement one commenter's suggestion that we make
the payment rate for CTA (APC 0662) equal to the sum of the rates for
CT alone (APC 0333) plus image reconstruction (APC 0282). However, such
cost information is still not available.
We have had several years of robust claims data for CTA procedures,
whose code descriptors by definition include the required CT scans and
image postprocessing, and have no reason to doubt these data. Based on
the full year of CY 2005 data, we note that the median cost of $295.80
for APC 0333 (CT) is almost equal to the median cost of $296.70 for APC
0662 (CTA). Moreover, for specific reasons cited in the CY 2006 OPPS
final rule (70 FR 68599), we are not reassigning the CTA procedures to
any other clinical APC(s) for CY 2007. We believe that APC 0662 is
quite homogeneous and see no other clinical APC where these services
could be appropriately assigned based on clinical and resource
considerations. We will apply the same standard OPPS ratesetting
methodology for CY 2007 that we used for CY 2006 in establishing the
payment rate for CTA procedures residing in APC 0662.
After carefully considering the public comments received, we are
finalizing our proposal for payment of APCs 0333 and 0662 based on
their median costs established according to the standard OPPS
methodology, without modification.
With respect to the APC Panel's recommendation regarding the
reporting of costs and charges for radiology services, as we noted in
the proposed rule, CMS requires hospitals to report their costs and
charges through the cost report with sufficient specificity to support
CMS' use of cost report data for monitoring and payment. Within
generally accepted principles of cost

[[Page 68037]]

accounting, we allow providers flexibility to accommodate the unique
attributes of each institution's accounting systems. For example,
providers must match the generally intended meaning of the line-item
cost centers, both standard and nonstandard, to the unique
configuration of department and service categories used by each
hospital's accounting system. Also, while the cost report provides
recommended bases of allocation for the general services cost centers,
a provider is permitted, within specified guidelines, to use an
alternative basis for a general service cost if it can justify to its
fiscal intermediary that the alternative is more accurate than the
recommended basis. This approach creates internal consistency between a
hospital's accounting system and the cost report, but cannot guarantee
the precise comparability of costs and charges for individual cost
centers across institutions.
However, in the CY 2007 proposed rule, we indicated that we
believed that achieving greater uniformity by, for example, specifying
the exact components of individual cost centers, would be very
burdensome for hospitals and auditors. Hospitals would need to tailor
their internal accounting systems to reflect a national definition of a
cost center. It was not clear that the marginal improvement in
precision created by such a requirement would justify the additional
administrative burden. We believed that the current hospital practice
of matching costs to the general intended meaning of a cost center
ensures that most services in the cost center would be comparable
across providers, even if the precise composition of a cost center
among hospitals differed. Further, every hospital provides a different
mix of services. Even if CMS specified the components of each cost
center, costs and charges on the cost report would continue to reflect
each individual hospital's mix of services. At the same time, internal
consistency is very important to the OPPS. Costs are estimated on
claims by matching CCRs for a given hospital to their own claims data
through a cost center-to-revenue code crosswalk. OPPS relative weights
are based on the median cost for all services in an APC. The components
resulting in CCRs for a given revenue code would have to be
dramatically different for the providers contributing the majority of
claims used to calculate an APC's median cost in order to impact
relative weights.
We accepted the APC Panel's recommendation and specifically invited
comments on ways that hospitals can uniformly and consistently report
charges and costs related to all cost centers, not just radiology, that
also acknowledge the ubiquitous tradeoff between greater precision in
developing CCRs and administrative burden associated with reduced
flexibility in hospital accounting practices.
We received a number of public comments concerning this APC Panel
recommendation. A summary of the comments and our responses follows:
Comment: Several commenters agreed that any steps taken to ensure
greater uniformity in the reporting of costs and charges would have to
carefully balance the additional administrative burden and loss of
flexibility in hospitals' accounting practices. They noted that the
difficulty in applying CCRs to arrive at hospital costs is that this
requires assumptions of consistency in the relationship of HCPCS codes
and revenue codes to revenue center service categories on the cost
report. However, the cost report recognizes service categories that
reflect the general descriptions of a hospital's service categories,
but services that were at one time performed in a specific department
of the hospital may now be performed in many departments of hospitals.
The commenters noted that inconsistencies occur when determining the
cost of a service if the CCR utilized in the calculation is from a
different cost report service category than where the service was
actually performed. The commenters also urged CMS to recognize the
limitations and inconsistencies in the preparation of hospital cost
reports, attributable to both hospital and fiscal intermediary
behavior. They urged CMS to proceed with care in instructing hospitals
because hospitals need the flexibility to set charges and allocate
costs in a manner that makes the most sense for the particular hospital
based on the mix of services it provides. The commenters noted that
even small changes in practice and procedures require significant
systems changes, and that CMS should allow time for dissemination of
any such changes, coupled with significant provider education.
Response: We appreciate the commenters' observations. We will
continue to reflect on the delicate balance between greater accuracy in
developing CCRs to convert charges to costs under the OPPS and the
needs of hospitals for flexibility in their accounting practices.
After carefully considering the public comments received, we will
continue to seek input on this balance as we work on refining the OPPS
payment system to pay more accurately for outpatient hospital services.
For CY 2007, we did not propose to make any changes from CY 2006 in
our proposed APC assignments of CT, magnetic resonance imaging (MRI),
and magnetic resonance angiography (MRA) services, preserving the
longstanding APC groupings of these services. In particular, CT
services were assigned to APCs 0332 (Computed Tomography without
Contrast), 0283 (Computed Tomography with Contrast Material), and 0333
(Computed Tomography without contrast followed by Contrast) based upon
their nature as studies without contrast, with contrast, and without
contrast followed by contrast, respectively. MRI and MRA procedures
were assigned to APCs 0336 (Magnetic Resonance Imaging and Magnetic
Resonance Angiography without Contrast), 0284 (Magnetic Resonance
Imaging and Magnetic Resonance Angiography with Contrast), and 0337
(Magnetic Resonance Imaging and Magnetic Resonance Angiography without
Contrast followed by Contrast) based upon their characteristics as
studies without contrast, with contrast, and without contrast followed
by contrast, respectively.
Comment: One commenter requested that CMS revise the established
CT, MRI, and MRA APC groupings to create greater internal clinical and
resource consistency. The commenter believed that diagnostic services
performed in the same anatomical region have similar resource
utilization and should, therefore, be assigned to the same APC
grouping. The commenter recommended that CMS differentiate among these
services based on two body regions, the core (including the head, neck,
thorax, spine, chest, abdomen, and pelvis) and the extremities
(including the orbit/ear/fossa, maxillofacial region, upper extremity,
and lower extremity). The commenter argued that because the OPPS was
being used as the benchmark established by the DRA to limit payment for
imaging services under the MPFS, this refinement would assist in
ensuring even greater resource similarity of procedures within imaging
APCs to establish more accurate payment rates under both the OPPS and
the MPFS.
Response: We examined the current APC structure for CT, MRI, and
MRA services and observed that there were no violations of the 2 times
rule in any of the APCs. The median costs of the services assigned to
each APC were relatively close, and we did not identify any code-
specific patterns of significantly increased or decreased

[[Page 68038]]

costs based on the specific anatomical region of the body imaged. We
believe these APCs as currently structured contain services that are
quite homogeneous with respect to their clinical and resource
characteristics. The OPPS provides payments for APC groups of closely
related procedures, and the current imaging groups provide appropriate
payments for these services in a manner that is consistent with the
payment policies of the OPPS. Accordingly, we see no reason to further
distinguish CT, MRI, and MRA procedures into even smaller, more refined
groupings. We also do not believe it would be appropriate to adjust
these APC groups in order to affect the payments for CT, MRI, and MRA
procedures under the MPFS.
After carefully considering the public comment received, we are
finalizing our CY 2007 proposal for payment of CT, MRI, and MRA
procedures, without modification. b. Computerized Reconstruction (APC
0417)
We proposed to assign HCPCS code G0288 (Reconstruction, computed
tomographic angiography of aorta for surgical planning for vascular
surgery) to APC 0417 (Computerized Reconstruction) for CY 2007, with a
proposed median cost of $192.34. This was the same APC assignment as CY
2006, and this service is the only service assigned to the APC.
Comment: One commenter strongly opposed the proposed payment amount
for CY 2007 for HCPCS code G0288. The commenter stated that the OPPS
proposed payment amount was not nearly enough to cover the hospital's
costs for providing this important service. The commenter believed that
implementation of the proposed payment would jeopardize the quality of
the HCPCS code G0288 procedures that are performed, limit beneficiary
access to the services, and result in postoperative complications due
to implantation of poorly fitting stents.
Response: The payment amount proposed for the APC 0417, to which
HCPCS code G0288 is the only service assigned, is based on the median
cost from 6,028 single claims for this one service. We are confident
that these data provide an accurate representation of hospital costs
for providing the service. We note that despite reductions in payment
rates over the last several years, the number of total procedures
billed under the OPPS for HCPCS code G0288 has risen steadily from
2,065 in CY 2002, to 4,733 in CY 2003, to 8,421 in CY 2004, and most
recently to 9,395 in CY 2005. We have no evidence that Medicare
beneficiaries are having trouble accessing this service based on our
hospital claims information. We believe that it is appropriate for us
to use our historical hospital cost data as the basis for the CY 2007
payment amount. Therefore, we are finalizing our CY 2007 payment rate
for APC 0417 based on a median cost of $197.95.
c. Cardiac Computed Tomography and Computed Tomographic Angiography
(APCs 0282, 0376, 0377, and 0398)
In Addendum B of the CY 2007 proposed rule (71 FR 49832), we
proposed to assign the eight cardiac computed tomography (CCT) and
computed tomographic angiography (CCTA) Category III CPT codes to the
APCs as shown in Table 11 below. These services were new for CY 2006,
and we did not propose any changes to their APC assignments for CY
2007.

Table 11.--Proposed CY 2007 APC Assignments for CCT and CCTA Category III CPT Codes
----------------------------------------------------------------------------------------------------------------
Proposed CY
Proposed CY 2007 APC
CPT code Descriptor 2007 APC assignment
assignment payment rate
----------------------------------------------------------------------------------------------------------------
0144T......................................... CT heart wo dye; qual calc...... 0398 $261.66
0145T......................................... CT heart w/wo dye funct......... 0376 306.34
0146T......................................... CCTA w/wo dye................... 0376 306.64
0147T......................................... CCTA w/wo, quan calcium......... 0376 306.34
0148T......................................... CCTA w/wo, strxr................ 0377 415.12
0149T......................................... CCTA w/wo, strxr quan calcium... 0377 415.12
0150T......................................... CCTA w/wo, disease strxr........ 0398 261.66
0151T......................................... CT heart funct add-on........... 0282 95.72
----------------------------------------------------------------------------------------------------------------

Comment: Several commenters requested that CMS remove the APC
assignments for the eight CCT and CCTA procedures because these codes
fall within the Category III CPT code section, and because they are
carrier-priced and not assigned any relative value units under the
MPFS. The commenters believed that the Deficit Reduction Act MPFS
provisions should not apply to these procedures.
Response: As we stated in a section III.A.2. of this CY 2007 OPPS
final rule with comment period, we implement Category III codes that
are released by the AMA in July of a given year for implementation in
January of the next year by providing them with new interim assignments
in the OPPS final rule for the next update year. These CCT and CCTA
codes were released in July 2005 for implementation in January 2006. We
received no public comments on their interim final APC assignments
published in Addendum B of the CY 2006 OPPS final rule with comment
period. As we indicated in our CY 2007 OPPS proposed rule (71 FR
49549), some Category III CPT codes describe services that we have
determined to be similar in clinical characteristics and resource use
to HCPCS codes in an existing APC. In these instances, we may assign
the Category III CPT code to the appropriate clinical APC. Other
Category III CPT codes describe services that we have determined are
not compatible with an existing clinical APC, yet are appropriately
provided in the hospital outpatient setting. In these cases, we may
assign the Category III CPT code to what we estimate is an
appropriately priced New Technology APC. In other cases, we may assign
a Category III CPT code to one of several nonseparately payable status
indicators, including ``N,'' ``C,'' ``B,'' or ``E,'' which we believe
is appropriate for the specific code. We believe that CCT and CCTA
procedures are appropriate for separate payment under the OPPS should
local contractors provide coverage for these procedures, and,
therefore, they warrant status indicator and APC assignments that would
provide separate payment under the OPPS. MPFS concerns regarding
payment limitations for these procedures are outside the scope of this
final rule with comment period.
Comment: Many commenters expressed their appreciation of our
recognition of the CPT codes as separately payable services under the
OPPS; however, they believed that the CCTA Category III CPT codes
(0144T

[[Page 68039]]

through 0151T) should be moved from APCs 0282, 0376, 0377, and 0398, to
appropriate New Technology APCs so that adequate hospital claims data
could be gathered. They provided specific recommendations for the New
Technology APC assignments of these services. These same commenters
added that once CMS has acquired adequate claims data, pricing
information could be used to separate and incorporate the various
Category III CCTA CPT codes into clinical APCs. Some commenters were
also concerned that CCT and CCTA procedures were not clinically
homogeneous with other procedures currently assigned to APCs 0282,
0376, 0377, and 0398, noting that the last three APCs previously
contained only nuclear medicine cardiac imaging procedures.
Response: We appreciate the suggestions submitted by the
commenters. However, as we indicated above, some of the new Category
III CPT codes describe services that we have determined to be similar
in clinical characteristics and resource use to HCPCS codes in an
existing APC. In these instances, we may assign the Category III CPT
code to the appropriate clinical APC. In the case of these eight CCT
and CCTA procedures, we believe that their clinical characteristics and
resource use are similar to the other procedures assigned to APCs 0282,
0376, 0377, and 0398. We have not limited APCs 0376, 0377, and 0398
solely to nuclear medicine cardiac imaging services. We believe that
cardiac imaging services using different modalities may be appropriate
for assignment to the same clinical APCs, based on their clinical and
resource characteristics. The OPPS is a prospective payment system that
provides payment for services based on their assignment to APC groups,
and, as such, we think the proposed APC assignments for these CCT and
CCTA services, which are the same as their CY 2006 interim final
assignments, are appropriate. While we understand that use of CCT and
CCTA to image the heart are relatively new applications of specifically
refined technology, cardiac imaging using other modalities is already
well-established, as is the noncardiac use of CT and CTA. Therefore,
for CY 2007, we are continuing with our proposal to assign Category III
CPT codes 0144T through 0151T to clinical APCs 0282, 0376, 0377, and
0398. We expect to have claims data for these procedures available for
the CY 2008 OPPS update.
After carefully considering the public comments received, we are
finalizing our proposal without modification to assign CPT codes 0144T
through 0151T to APCs 0282, 0376, 0377, and 0398, all with status
indicator ``S.''
d. Radiologic Evaluation of Central Venous Access Device (APC 0340)
For CY 2006, new CPT code 36598 (Contrast injection(s) for
radiologic evaluation of existing central venous access device,
including fluoroscopic guidance) was assigned to APC 0340 (Minor
Ancillary Procedures) on an interim final basis. The proposed
assignment of the code for CY 2007 was unchanged.
Comment: One commenter requested that CMS assign new CPT code 36598
to APC 0263 (Level I Miscellaneous Radiology Procedures) for CY 2007.
The commenter stated that the procedure reported by CPT code 36598 is
very similar to that which is coded using CPT code 76080 (Radiologic
examination, abscess, fistula or sinus tract study, radiological
supervision and interpretation), which is assigned to APC 0263 for CY
2006. Further, the commenter stated that the use of contrast and
fluoroscopy makes CPT code 36598 more resource intensive than the other
procedures assigned to APC 0340, where CMS assigned it with an interim
final status for CY 2006.
Response: We will not have data upon which to base our decisions
about the APC assignment for this procedure until next year. However,
based on our data for many procedures that we believe are similar to
that coded by CPT code 36598, we believe that assignment to APC 0340 is
appropriate and do not believe that it is appropriate to reassign it to
another APC at this time.
We are maintaining the assignment of CPT code 36598 to APC 0340 for
CY 2007 and will reevaluate that assignment when data become available.
2. Nuclear Medicine and Radiation Oncology Procedures
a. Myocardial Positron Emission Tomography (PET) Scans (APC 0307)
From August 2000 to December 31, 2005, under the OPPS we assigned
to one clinical APC all myocardial positron emission tomography (PET)
scan procedures, which were reported with multiple G-codes through
March 31, 2005. Effective April 1, 2005, myocardial PET scans were
reported with three CPT codes, specifically CPT codes 78492 (Myocardial
imaging, positron emission tomography (PET), perfusion; multiple
studies at rest and/or stress), 78459 (Myocardial imaging, positron
emission tomography (PET), metabolic evaluation), and 78491 (Myocardial
imaging, positron emission tomography (PET), perfusion; single study at
rest or stress) under the OPPS. Public comments on the CY 2006 OPPS
proposed rule suggested that the HCPCS codes describing multiple
myocardial PET scans should be assigned to a separate APC from single
study codes because their hospital resource costs are significantly
higher than single scans. Review of the CY 2004 claims data for
myocardial PET scans revealed a median cost of $2,482 for the 9 G-codes
that describe multiple myocardial PET scans, based upon 978 single
claims of 2,001 total claims for multiple scan procedures. The CY 2004
claims data showed a median cost of $800 for the 6 G-codes describing
single PET studies, based on 391 single claims of 575 total claims. A
review of CY 2003 claims data showed a similar pattern of significantly
higher hospital costs for multiple myocardial PET studies in comparison
with single studies, although there were fewer claims for the
procedures in CY 2003 in comparison with CY 2004. In response to the
comments received and based on this claims information, myocardial PET
services were assigned to two clinical APCs for the CY 2006 OPPS. HCPCS
codes for single scans were assigned to APC 0306 with a payment rate of
$800.55, and HCPCS codes for the multiple scan procedures were assigned
to APC 0307 (Myocardial Positron Emission Tomography (PET) Imaging)
with a payment rate of $2,484.88.
Analysis of the CY 2005 claims data for myocardial PET scans for
the CY 2007 proposed rule revealed that the APC median costs for the
single and multiple myocardial PET codes were $836 and $680
respectively, based on 296 single claims for single studies and 1,150
single claims for multiple scan procedures. Despite more CY 2005 single
claims for multiple scan procedures, the median cost of these
procedures declined significantly from CY 2004 to CY 2005, dropping
below the median cost of single studies. As indicated earlier, there
was a significant coding change for myocardial PET services in CY 2005,
with the reporting of a single CPT code for multiple studies (CPT code
78492), in comparison with nine G-codes in CY 2004. We examined the
single bills for multiple scan procedures from CY 2004 and noted 17
hospitals were represented, with the majority of those claims from a
single hospital. In contrast, in the CY 2005 claims, 25 hospitals were
represented in the single bills for multiple scan procedures, and no
single hospital contributed a majority of claims to the median cost
calculation. We also

[[Page 68040]]

examined differences in charges associated with G-codes versus the CPT
code to determine if hospitals had adjusted the charge for the CPT code
to reflect the termination of the multiple study G-codes. However, the
individual charging practices of hospitals did not appear to vary with
the use of a G-code versus the CPT code in either the CY 2004 or the CY
2005 claims. Greater volume of claims and consistent charging for both
the G-codes and CPT code by hospitals suggested that the median
appropriately captured the greater variability in relative hospital
costs for multiple myocardial PET studies in the CY 2005 claims data.
Based on these claims data, we believe that it is apparent that the
use of myocardial PET scan technology had become more widely prevalent
in hospitals, and as a result, we had more data to support our proposed
payment rates. We believed that the median costs from our CY 2005
claims data for myocardial PET scan services, calculated based upon our
standard OPPS methodology and based on almost 1,600 single claims, for
both the single and multiple scans, were reflective of the hospital
resources required to provide the services to Medicare beneficiaries in
the outpatient hospital setting. Based on those data, we concluded in
the CY 2007 proposed rule that the differential median costs of the
single and multiple study procedures did not support the two-level APC
payment structure. Although we acknowledged that some individuals may
believe that multiple scan procedures should require increased
resources at some hospitals in comparison with single scans,
particularly because of the longer scan times required for multiple
studies, we noted that our data did not support a resource differential
that would necessitate the placement of these single and multiple scan
procedures into two separate APCs. As myocardial PET scans are being
provided more frequently at a greater number of hospitals than in the
past, we believed that it was possible that most hospitals performing
multiple PET scans were particularly efficient in their delivery of
higher volumes of these services and, therefore, incurred hospital
costs that were similar to those of single scans, which were provided
less commonly. In fact, the CPT code for multiple scans had a lower
median cost than either of the CPT codes for single procedures.
When all myocardial PET scan procedure codes were combined into a
single clinical APC, as they were prior to CY 2006, the CY 2007
proposed rule APC median cost for myocardial PET services was about
$727, very similar to the $703 median cost of their single CY 2005
clinical APC. Therefore, for CY 2007, we proposed to assign CPT codes
78459, 78491, and 78492 to a single APC, specifically, APC 0307. We
believed that the assignment of these three CPT codes to APC 0307 was
appropriate, as the CY 2005 claims data revealed that more hospitals
were providing multiple myocardial PET scan services, most myocardial
PET scans were multiple studies, and the hospital resource costs of
single and multiple studies were similar. We believed that the proposed
median cost appropriately reflected the hospital resources associated
with providing myocardial PET scans to Medicare beneficiaries in cost-
efficient settings. Further, we believed that the proposed rates were
adequate to ensure appropriate access to these services for Medicare
beneficiaries. We specifically invited comments on our proposal to
provide a single payment rate for all myocardial PET scans in CY 2007.
The myocardial PET scan CPT codes and their CY 2007 proposed APC
assignments were displayed in Table 17 of the CY 2007 OPPS proposed
rule (71 FR 49567).
Comment: A number of commenters requested that CMS not finalize our
proposed APC assignments for CPT codes 78492, 78459, and 78491. The
commenters stated that it is inappropriate to assign multiple scan
procedures to the same APC with single scan procedures as we proposed,
because CPT code 78492 requires more hospital resources than do CPT
codes 78459 and 78491. The commenters stated that multiple scans
require significantly greater hospital resources due to much longer
scan times, and believed that our median cost data were seriously
flawed.
The commenters objected to the proposal to assign the multiple scan
procedures to the same APC as the single scans because they believed
the APC assignment creates a 2 times violation for APC 0306; the
proposed payment for the multiple scan procedures decreases by 71
percent between CYs 2006 and 2007; if payment is allowed to decrease to
the level proposed by CMS, beneficiary access to these important
diagnostic procedures (CPT code 78492) will be seriously restricted;
the Medicare program will have to spend more for diagnostic procedures
such as cardiac catheterizations if hospitals cannot afford to offer
the multiple scan myocardial PET procedures; and CMS does assign other
cardiac nuclear medicine studies to separate APCs based on whether they
are single or multiple.
The commenters recommended that CMS retain the multiple scan
procedures in a separate APC as in CY 2006, and that the payment rate
decrease be dampened to mitigate the potential for underpayment, as we
have in the past for device-dependent and blood product APCs. One
commenter suggested that CMS dampen payment for the multiple scans APC
by 15 percent each year for the next 2 to 3 years to moderate the large
payment decrease for the multiple myocardial PET scans.
Response: We understand the commenters' objections to the median
cost for the multiple myocardial PET scans, but see no reason to modify
our proposal to assign them to the same APC with the single scans. We
do not believe that our data are erroneous. Myocardial PET scans are
not new procedures and the data across years, except for the CY 2004
claims data, have been relatively consistent with regard to median
costs, while the frequency of multiple scans has been growing
consistently. As described above, we explored many aspects of the CY
2005 claims data in an attempt to explain the decreased costs reported
for the multiple scans and to assure ourselves and the public that the
data were reliable. Our additional investigations included analyses of
claims to determine whether they were submitted by only a few hospitals
and whether any of the hospitals accounted for an unusually high number
of the multiple scan claims or for unusually low costs. We also
examined the claims in an attempt to detect whether there were
differences in billing practices for the CPT code compared to the
predecessor G-codes for multiple myocardial PET scans. There was no
indication that the data are erroneous in any regard. Claims were
submitted by at least 25 hospitals (compared to 17 in the CY 2004
claims data), and no hospital was responsible for a disproportionate
number of claims (in contrast to what was found in the CY 2004 claims)
or for unusually low costs. No systematic hospital coding
irregularities were discovered. Further, the number of single claims
for the multiple scan procedures increased from 872 in the proposed
rule data to 983 in the final rule data and the median cost remained
stable, increasing by only $5.00, still lower than the median cost for
single scans.
Our data do not support a resource differential that warrants
assignment of the multiple myocardial scan procedures to an APC
separate from the single scans. Single and multiple scan

[[Page 68041]]

procedures are closely related from a clinical perspective, and their
hospital resources required, as reflected in our claims data, appear
comparable in terms of cost. The 2 times violation for CY 2007 in APC
0307 results from the inclusion of limited data from one G-code for
multiple scan procedures that was reported for the first 3 months of CY
2005. The median cost for that G-code is $1,840, based on 129 single
claims. However, the code was deleted in CY 2005, and the median cost
for the CPT code that replaced it is only $665, based on 983 single
claims. We utilized the data from the predecessor G-code in developing
the median cost for APC 0307 (where it would be likely to affect the
APC median cost by raising it). The fact that data from a deleted code
are responsible for the violation leads us to conclude that the
violation is not significant. Therefore, based on clinical and resource
homogeneity, we are excepting APC 0307 from the 2 times rule for CY
2007.
By assigning the multiple and single scans to the same clinical APC
for myocardial PET scans, we are maintaining the clinical and resource
use homogeneity in APC 0307, where the APC payment will be slightly
higher for the multiple scans than it would have been if we retained
the multiple scans in a separate APC.
Similarly, we do not believe that there is a basis for dampening
the payment decrease for a separate multiple myocardial PET scan APC.
Although we have adjusted payment amounts for device-dependent and
blood product APCs in the past, as noted by the commenters, we
generally have done so to moderate the effects on payment resulting
from inaccurate claims data that failed to fully capture the costs
associated with the procedures in ways that we could partially
identify. In some of these situations, we had very few single claims,
contributing to the problem of unstable payment rates, but myocardial
PET scans have significant numbers of single claims. We have examined
the claims data thoroughly and found nothing to indicate inaccuracy for
myocardial PET scans. To the contrary, with the exception of the CY
2004 claims data, we found that costs from the CY 2005 claims are
relatively consistent with costs calculated from claims for myocardial
PET scans provided in years before CY 2004. We believe that our CY 2006
APC assignments for multiple and single myocardial PET scans to
separate APCs were based on data that were unduly affected by one
hospital's unusually high charges for multiple scans.
Without evidence that the claims data for CPT codes 78459, 78491,
and 78492 are too flawed to use as a basis for setting weights, we
believe it is prudent to establish the CY 2007 payment rate for APC
0307 using the standard OPPS methodology for developing payment rates.
After carefully considering the public comments received, we are
finalizing the APC assignments for the myocardial PET procedures as
shown in Table 12 below without modification.

Table 12.--CY 2007 APC Assignment for Myocardial PET
----------------------------------------------------------------------------------------------------------------
CY 2007 Final
HCPCS code Short descriptor CY 2007 CY 2007 CY 2007 APC 307
SI APC median cost median cost
----------------------------------------------------------------------------------------------------------------
78459............................. Heart muscle imaging S 0307 $784.42 $726.98
(PET).
78491............................. Heart image (pet), S 0307 1,014.61 726.98
single.
78492............................. Heart image (pet), S 0307 665.42 726.98
multiple.
----------------------------------------------------------------------------------------------------------------

b. Complex Interstitial Radiation Source Application (APC 0651)
APC 0651 (Complex Interstitial Radiation Source Application)
contains only one code, CPT code 77778 (Complex interstitial
application of brachytherapy sources). The coding, APC assignment,
median cost, and resulting payment rate for CPT code 77778 have not
been stable since the inception of the OPPS, and that instability has
been a source of concern to hospitals that furnish the service and to
specialty societies. The vast majority of claims for interstitial
brachytherapy are for the treatment of patients with a diagnosis of
prostate cancer. The historical coding, APC assignments, and payment
rates for CPT code 77778 and the related service CPT code 55859
(Transperitoneal placement of needles or catheters into the prostate
for application of brachytherapy sources) were displayed in Table 14 of
the CY 2007 OPPS proposed rule (71 FR 49564), and are reproduced below
in Table 13.
BILLING CODE 4120-01-P

[[Page 68042]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.016

BILLING CODE 4120-01-C

We have frequently been informed by the public that the instability
in our payment rates for APC 0651 creates difficulty in planning and
budgeting for hospitals. Moreover, we have been informed that, in this
case, reliance on single procedure claims results in use of only
incorrectly coded claims for prostate brachytherapy because, for
application to the prostate, which is estimated to be 85 percent of all
occurrences of CPT code 77778, a correctly coded claim is a multiple
procedure claim. Specifically, we have been advised that a correctly
coded claim for prostate brachytherapy should include, for the same
date of service, both CPT codes 55859 and 77778, brachytherapy sources
reported with C-codes, and typically separately coded imaging and
radiation therapy planning services. We have been further advised that,
in the cases of complex interstitial brachytherapy where sources are
placed in sites other than the prostate, the charges for both placing
the needles or catheters and for applying the sources may be reported
by CPT code 77778 alone because there are no other specific CPT codes
for placement of needles or catheters in those sites. In other cases,
the placement of needles or catheters may be reported with not
otherwise classified codes specific to the treated body area.
At the March 2006 APC Panel meeting, presenters urged the Panel to
recommend that CMS use only single procedure claims that contained
charges for brachytherapy sources on the same claim with CPT code 77778
to set the median cost for APC 0651. Presenters also urged that CMS
adopt a process for using multiple procedure claims to set the median
for APC 0651 that would sum the costs on multiple procedure claims
containing CPT codes 77778 and 55859 (and no other separately payable
services not on the bypass list) and, excluding the costs of sources,
split the resulting aggregate median cost on the multiple procedure
claim according to a preestablished attribution ratio between CPT codes
77778 and 55859. The presenters also urged CMS to provide hospitals
with education on correct coding of brachytherapy services and devices
of brachytherapy required to perform brachytherapy procedures. They
indicated that any claim for a brachytherapy service that did not also
report a brachytherapy source should be considered to be incorrectly
coded and thus not reflective of the hospital's resources required for
the interstitial source application procedure. The presenters believed
that these claims should be excluded from use in establishing the
median cost for APC 0651. They believed that hospitals that reported
the brachytherapy sources on their claims were more likely to report
complete charges for the associated brachytherapy procedure than
hospitals that did not report the separately payable brachytherapy
sources.
The APC Panel recommended that CMS reevaluate the proposed payment
for brachytherapy services in APC 0651 for CY 2007. The APC Panel also
recommended that CMS formally work with the Coalition for the
Advancement of Brachytherapy, the American Brachytherapy Society, and
the American Society for Therapeutic Radiology and Oncology to evaluate
the methodology for setting brachytherapy service payment rates in APC
0651.
In response to the APC Panel recommendations, we explicitly
analyzed the standard OPPS methodology that we used in determining our
CY 2007 proposed payment rate for APC 0651 in the context of
alternative multiple bill methodologies.
The organizations that the APC Panel asked us to work with have
frequently brought their concerns to our attention through the
rulemaking process and otherwise. As stated in the CY 2007 OPPS
proposed rule, we will consider the input of any individual or
organization to the extent allowed by Federal law, including the
Administrative Procedure Act (APA)

[[Page 68043]]

and the Federal Advisory Committee Act (FACA) (71 FR 49564).
We establish the OPPS rates through regulations. We are required to
consider the timely comments of interested organizations, establish the
payment policies for the forthcoming year, and respond to the timely
comments of all public commenters in the final rule in which we
establish the payments for the forthcoming year.
For the CY 2007 OPPS proposed rule, we developed a median cost for
APC 0651 using single procedure claims and the general OPPS
methodology, but we also looked at multiple procedure claims that
contained the most common combinations of codes used with APC 0651. In
the proposed rule, our single procedure claims process using CY 2005
data resulted in using 1,123 claims to calculate a proposed median cost
of $1,028.93 for APC 0651. We added CPT code 76965, a CPT code for
ultrasound guidance that commonly appeared on claims for complex
interstitial brachytherapy, to the bypass list for CY 2007 after close
clinical review because we believed that it would typically have little
associated packaging. We believed that this change, along with
maintenance of CPT code 77290 for complex therapeutic radiology
simulation-aided field setting on the bypass list, was responsible for
the growth in single procedure claims from the 381 single bills upon
which the final APC 0651 median cost was calculated for CY 2006.
However, only 6 of these 1,123 single and ``pseudo'' single claims data
used in calculating the proposed median cost also included
brachytherapy sources used in complex interstitial brachytherapy source
application, and the median cost for these 6 claims at $600.68 was
significantly less than the median cost for all single claims. It was
unclear why so many of these claims did not contain brachytherapy
sources, which were separately paid at cost in CY 2005. Because we
proposed to pay separately for brachytherapy sources again for CY 2007,
we saw no reason to believe that these few claims for brachytherapy
services that included sources, which also did not report CPT code
55859 for placement of needles or catheters into the prostate, were
more correctly coded than those claims that did not separately report
brachytherapy sources. We believed it was possible that hospitals
billing CPT code 77778 and not the associated brachytherapy sources may
have bundled their charges for the brachytherapy sources into their
charge for CPT code 77778.
We also identified multiple procedure claims that contained both
CPT codes 55859 and 77778 and also included any one or more of the
following procedure codes, which have repeatedly appeared as common
procedures that are reported on the same claim with CPT codes 55859 and
77778: 76000, 76965, or 77290. We then calculated median costs for
interstitial prostate brachytherapy in two different ways: (1)
Bypassing the line item charges for these three ancillary codes; and
(2) packaging the costs of these three ancillary codes. We applied this
methodology both (1) to all claims that met these criteria with and
without sources; and (2) to claims that met the criteria and also
separately reported brachytherapy sources that would be expected to be
reported with CPT code 77778. See Tables 15 and 16 published in the CY
2007 OPPS proposed rule (71 FR 49565) and shown below as Table 14-A and
Table 14-B for the results of this investigation.
In the proposed rule, we found 10,571 multiple procedure claims
with CPT codes 55859 and 77778 reported on the claim, including those
both with and without separately reported sources. We found that 7,181
of the 10,571 claims in the proposed rule's data contained any
combination of the three ancillary codes (76000, 76965, or 77290).
Table 14-A shows the results of bypassing and packaging the line-item
costs of the three ancillary procedures based on the data used to
construct the proposed rule.

Table 14-A.--Multiple Procedure Claims Including CPT Codes 55859 and 77778 Proposed Rule Data
----------------------------------------------------------------------------------------------------------------
Minimum Maximum
Frequency cost cost Mean cost Median cost
----------------------------------------------------------------------------------------------------------------
Ancillary Codes Packaged............ 7180 (1 lost to $828.46 $11,202.81 $3,326.50 $3,062.99
trimming).
Ancillary Codes Bypassed............ 7181.................. 811.95 11,203.81 3,300.16 3,030.01
----------------------------------------------------------------------------------------------------------------

We found 9,791 multiple procedure claims in the proposed rule's
data with CPT codes 55859 and 77778 reported on the claim that also
included brachytherapy sources that would be used with CPT code 77778.
We found that 6,748 of the 9,791 claims contained any combination of
the three ancillary codes. Table 14-B shows the results of bypassing
and packaging the line-item costs of the three ancillary procedures,
using the proposed rule's data.

Table 14-B.--Multiple Procedure Claims Including CPT codes 55859 and 77778 and One or More Brachytherapy
Sources--Proposed Rule Data
----------------------------------------------------------------------------------------------------------------
Minimum Maximum Median
Frequency cost cost Mean cost cost
----------------------------------------------------------------------------------------------------------------
Ancillary Codes Packaged....................... 6,748 $890.56 $10,224.17 $3,240.13 $3,026.62
Ancillary Codes Bypassed....................... 6,748 $912.81 $10,307.37 $3,215.75 $2,992.60
----------------------------------------------------------------------------------------------------------------

We found that the claims containing CPT codes 55859 and 77778 and
any combination of the three identified ancillary codes had mean and
median costs that were very close to one another, regardless of whether
the hospital billed separately for the brachytherapy sources on the
claim with the procedure codes. Moreover, most of the multiple
procedure claims we identified contained sources. This led us to
conclude that the presence of sources on the claim did not make a
significant difference in the median cost of the combined service.
Moreover, when we calculated the total median cost from single
bills for the APCs for the two major procedures codes from the proposed
rule's data without regard to the separate payments that would be made
for CPT codes 76000, 76965, and 77290, the sum of the CY 2007 proposed
medians for APC

[[Page 68044]]

0651 and APC 0163 was $3,197.07, which was greater than the combination
medians, even when the three ancillary services were packaged into the
combination median. Under our proposed policies for CY 2007, hospitals
would also be paid separately for brachytherapy sources, guidance
services, and radiation therapy planning services that may be provided
in support of services reported with CPT codes 55859 and 77778.
Therefore, as indicated in the CY 2007 OPPS proposed rule (71 FR
49565), we believed that the summed median cost for APC 0651 and APC
0163 results in an appropriate level of full payment for the dominant
type of service provided under APC 0651, interstitial prostate
brachytherapy. We proposed to use the median cost of $1,028.93, as
derived from all single bills for APC 0651 according to our standard
OPPS methodology, to establish the median for that APC.
We recognized that prostate brachytherapy was not the sole use of
CPT code 77778, although it was the predominant use. Costs attributable
to the placement of needles and catheters and to the interstitial
application of brachytherapy sources to sites other than the prostate
may also be reported on claims whose data map to APC 0651. As we noted
in the proposed rule, this clinically driven variability in the claims
data was difficult to assess without adding additional levels of
complexity to the issue by considering diagnoses in establishing
payments rates. However, recognizing that a prospective payment system
is a system based on averages and, to the extent that claims for all
types of complex interstitial brachytherapy source application were
included in the body of claims used to set the median cost for APC
0651, we believed that the payment for these services as proposed for
CY 2007 was appropriate.
We received several public comments concerning our proposal. A
summary of the comments and our responses follow:
Comment: The commenters generally supported the proposed median
cost for APC 0651. One commenter encouraged CMS to consider calculating
a packaged combination median cost for both CPT codes 55859 and 77778
and splitting the cost between the two codes, should the median cost
for APC 0651 drop by a significant percent in future years as it has
sometimes done in the past.
Response: The median cost for APC 0651 calculated using CY 2005
claims data as updated for this final rule with comment period is
$1,029.47, virtually the same as the proposed rule median cost of
$1,028.93. Together with the median cost for APC 0163 of $2,134.32, and
separate payment for each source applied (section VII. of this
preamble), we believe that the OPPS will make appropriate payment for
brachytherapy services in CY 2007.
After carefully considering the public comments received, we are
finalizing our proposal to develop a median cost for APC 0651 using
single procedure claims and the general OPPS methodology as discussed
above without modification.
c. Proton Beam Therapy (APCs 0664 and 0667)
For CY 2007, we proposed to pay for the following four CPT codes
that describe proton beam therapy: 77520 (Proton treatment delivery;
simple, without compensation), 77522 (Proton treatment delivery;
simple, with compensation), 77523 (Proton treatment delivery;
intermediate), and 77525 (Proton treatment delivery; complex). We
proposed to assign the simple proton beam therapy procedures to APC
0664 (Level I Proton Beam Radiation Therapy), with a proposed median
cost of $1,141, and the intermediate and complex proton beam therapy
procedures to APC 0667 (Level II Proton Beam Radiation Therapy), with a
proposed median cost of $1,365. These proposed assignments were
unchanged from CY 2006. The proposed payment rates for proton beam
therapy were based on CY 2005 claims data and showed an increase of
about 20 percent over the CY 2006 payment rates.
Comment: Several commenters supported our CY 2007 proposed APC
assignments and payment rates for proton beam therapy. The commenters
also supported our proposing APC 0664 as an exception to the 2 times
rule for CY 2007. They were generally concerned about the payment for
the same services furnished in freestanding proton therapy centers
located in several States because the OPPS payment rates were very
different from the carrier-priced payments for these services. The
commenters requested that CMS establish consistent payments for these
services under the OPPS and the MPFS because the significant capital
costs required to provide proton beam therapy treatments do not vary
across delivery settings.
Response: We appreciate the commenters' support for our CY 2007
OPPS proposed payment rates for proton therapy. We note that the OPPS
payment rates for these services have increased significantly over the
past several years, although we understand that there are only a small
number of active hospital-based centers providing proton therapy. In
addition, this is the second year in which we have exempted APC 0664
from its violation of the 2 times rule. We also observe that the
payment rates for the two proton therapy APCs are quite close for CY
2007, with only a small differential between Levels I and II of
therapy. As such, we will continue to monitor our claims data for
proton beam therapy in the future to assess the appropriateness of the
current APC structure. We are generally concerned about APCs that
chronically violate the 2 times rule, especially when those APCs
contain few services and we have no specific data concerns regarding
the services assigned to them.
With respect to the commenters' request regarding consistent
payment for proton therapy under the MPFS and the OPPS, we note the
MPFS and the OPPS are completely separate payment systems, whose rates
are established based on different methodologies.
After careful consideration of the public comments received, we are
finalizing without modification our CY 2007 proposal to provide payment
for proton beam therapy through APCs 0664 and 0667, with their payment
rates based on the final APC median costs of $1,154 and $1,381,
respectively.
d. Urinary Bladder Residual Study (APC 0340)
At its February 2005 meeting, the APC Panel recommended that we
move CPT code 78730 (Urinary bladder residual study) from APC 0340
(Minor Ancillary Procedures) to APC 0404 (Level I Renal and
Genitourinary Studies) for CY 2006, because the Panel believed that the
CY 2003 data for CPT code 78730 may have been derived from incorrectly
coded hospital claims. Based on reasons discussed in detail in the CY
2006 OPPS final rule with comment period (70 FR 68602), we maintained
the assignment of CPT code 78730 in APC 0340 for CY 2006. For CY 2007,
we proposed assignment of CPT code 78370 to APC 0340 once again.
Comment: Several commenters requested that CMS move CPT code 78730
from APC 0340 to APC 0399 (Nuclear Medicine Add-on Imaging). Some
commenters indicated that in CY 2005 they disagreed with our APC
assignment of APC 0340 for CPT code 78730. One commenter added that the
data for CPT code 78730 may have been derived from incorrectly coded
hospital claims. The commenters indicated that the CPT Editorial Panel
would be revising the service's code descriptor for CY 2007 to more
specifically indicate the performance of a nuclear medicine procedure.

[[Page 68045]]

Response: In the November 15, 2004 final rule with comment period
(69 FR 65705), we stated that CPT code 78730 was originally created and
valued for the MPFS as a procedure requiring the services of a nuclear
medicine technician, but that the use of the code subsequently had
changed to be used primarily by urologists rather than by nuclear
medicine physicians. While we reassigned CPT code 78730 to APC 0340 for
CY 2005 based on robust CY 2003 claims data, we solicited other
physician specialties to submit resource data for us to review in the
context of our hospital claims data so that we could reexamine the
appropriate APC placement of CPT code 78730 for CY 2006. While we
acknowledge the commenters' repeated concern that the median cost for
CPT code 78730 may reflect miscoded claims, commenters again provided
no supporting evidence for either CY 2006 or CY 2007 of what they
believe to be the true resource costs associated with CPT code 78730.
In fact, a relatively stable number of single procedure claims has
generated a consistent median cost for CPT code 78730 over the past 5
years (that is, ranging from $39 based on the CY 2001 claims data to
$42 based on the CY 2005 claims data) and supports our assignment of
CPT code 78730 to APC 0340 with an APC median cost of $37, as opposed
to APC 0399 with an APC median cost of $92. We are aware that the code
descriptor and parenthetical language in the CPT manual for CPT code
78730 indicating other CPT codes to be reported for certain bladder
studies will be modified for CY 2007. However, we do not know if these
additional instructions will lead to differences in hospital reporting
that result in a significant change in the procedure's cost. Therefore,
we are maintaining CPT code 78730 in APC 0340 for CY 2007.
After carefully considering the public comments received, we are
finalizing our proposal to assign CPT code 78730 to APC 0340 for CY
2007, with a median cost of $37.29.
e. Hyperthermia Treatment (APC 0314)
We did not propose any APC assignment changes for CY 2007 for the
CPT codes used to report hyperthermia treatments. The following five
hyperthermia treatment CPT codes are the only codes that we proposed to
assign to APC 0314 (Hyperthermic Therapies) for CY 2007: 77600
(Hyperthermia, externally generated; superficial); 77605 (Hyperthermia,
externally generated; deep); 77610 (Hyperthermia, generated by
interstitial probe(s); 5 or fewer interstitial applicators); 77615
(Hyperthermia, generated by interstitial probe(s) more than 5
interstitial applicators); and 77620 (Hyperthermia generated by
intracavitary probe(s)). The CY 2007 proposed median cost for APC 0314
was $225.96.
Comment: Several commenters reported that the proposed APC 0314 CY
2007 payment rate was 32 percent less than the CY 2006 payment rate of
$332.31 and suggested that the decrease was due to the use of
inaccurate CMS claims data.
The commenters believed that the flaws in the CMS claims data were
due to a few factors: The variation in hospitals' cost allocation
methodologies; CMS' use of hospital CCRs derived from those varying
hospital allocation practices and which they reported varied
dramatically (from 15 to 50 percent) across hospitals that provided
hyperthermia therapies; and low utilization among the few hospitals
that reported the services. Further, the commenters expressed an
additional concern for one of the procedures, CPT code 77605, for which
there were no claims in the CY 2005 data that CMS used for the CY 2007
median calculation proposal. The commenters added that in past years,
the procedure had been one of the more frequently reported therapies,
and they believed that having no cases in the claims data used to
calculate the medians for APC 0314 was indicative of inaccurate data
and also contributed to the inappropriately low proposed median cost.
The commenters submitted some estimated hospital costs of
hyperthermia treatment for five hospitals, and recommended three
options that CMS could use to moderate the proposed CY 2007 payment
decrease for APC 0314. The three options are as follows: That CMS could
use external hospital survey data to establish a payment rate of $1,005
for APC 0314; that CMS could apply an average cost for CPT code 77605
using the medians calculated for CY 2004 through CY 2006 to establish a
more appropriate payment amount for CY 2007; or that CMS could maintain
the CY 2006 payment rate for CY 2007.
Response: In our analysis, we found that there were 55 claims
reported for CPT code 77605 in the CY 2005 data, but that all were
excluded from the data because they did not meet the criteria for use
in calculating the median costs due to any number of factors. Included
among the reasons for removing the claims for CPT 77605 from the CY
20