[Federal Register: December 1, 2006 (Volume 71, Number 231)]
[Rules and Regulations]               
[Page 69623-70251]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de06-20]                         
 

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Part II

Book 2 of 2 Books

Pages 69623-70274





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 405, 410, et al.



Medicare Program; Revisions to Payment Policies, etc.; Final Rule


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, 411, 414, 415, and 424

[CMS-1321-FC and CMS-1317-F]
RINs 0938-AO24 and 0938-AO11

 
Medicare Program; Revisions to Payment Policies, Five-Year Review 
of Work Relative Value Units, Changes to the Practice Expense 
Methodology Under the Physician Fee Schedule, and Other Changes to 
Payment Under Part B; Revisions to the Payment Policies of Ambulance 
Services Under the Fee Schedule for Ambulance Services; and Ambulance 
Inflation Factor Update for CY 2007

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period addresses certain 
provisions of the Deficit Reduction Act of 2005, as well as making 
other changes to Medicare Part B payment policy. These changes are 
intended to ensure that our payment systems are updated to reflect 
changes in medical practice and the relative value of services. This 
final rule with comment period also discusses geographic practice cost 
indices (GPCI) changes; requests for additions to the list of 
telehealth services; payment for covered outpatient drugs and 
biologicals; payment for renal dialysis services; policies related to 
private contracts and opt-out; policies related to bone mass 
measurement (BMM) services, independent diagnostic testing facilities 
(IDTFs), the physician self-referral prohibition; laboratory billing 
for the technical component (TC) of physician pathology services; the 
clinical laboratory fee schedule; certification of advanced practice 
nurses; health information technology, the health care information 
transparency initiative; updates the list of certain services subject 
to the physician self-referral prohibitions, finalizes ASP reporting 
requirements, and codifies Medicare's longstanding policy that payment 
of bad debts associated with services paid under a fee schedule/charge-
based system are not allowable.
    We are also finalizing the calendar year (CY) 2006 interim RVUs and 
are issuing interim RVUs for new and revised procedure codes for CY 
2007.
    In addition, this rule includes revisions to payment policies under 
the fee schedule for ambulance services and the ambulance inflation 
factor update for CY 2007.
    As required by the statute, we are announcing that the physician 
fee schedule update for CY 2007 is -5.0 percent, the initial estimate 
for the sustainable growth rate for CY 2007 is 2.0 percent and the CF 
for CY 2007 is $35.9848.

DATES: Effective Date: These regulations are effective on January 1, 
2007.
    Comment Date: Comments will be considered if we receive them at one 
of the addresses provided below, no later than 5 p.m. on January 2, 
2007.

ADDRESSES: In commenting, please refer to file code CMS-1321-FC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three 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 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-1321-
FC, P.O. Box 8014, Baltimore, MD 21244-8014.
    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-1321-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. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7197 in advance to schedule your arrival 
with one of our staff members.
    Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 
21244-1850.
    (Because access to the interior of the HHH 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 a 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.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Pam West, (410) 786-2302 (for issues 
related to practice expense).
    Stephanie Monroe, (410) 786-6864 (for issues related to the 
geographic practice cost index).
    Craig Dobyski, (410) 786-4584 (for issues related to list of 
telehealth services).
    Roberta Epps, (410) 786-4503 (for issues related to diagnostic 
imaging services).
    Bill Larson, (410) 786-4639 (for issues related to coverage of bone 
mass measurement and addition of ultrasound screening for abdominal 
aortic aneurysm to the ``Welcome to Medicare'' benefit).
    Dorothy Shannon, (410) 786-3396 (for issues related to the 
outpatient therapy cap).
    Catherine Jansto, (410) 786-7762 (for issues related to payment for 
covered outpatient drugs and biologicals).
    Henry Richter, (410) 786-4562 (for issues related to payments for 
end-stage renal disease facilities).
    Fred Grabau, (410) 786-0206 (for issues related to private 
contracts and opt-out provision).
    David Walczak, (410) 786-4475 (for issues related to reassignment 
provisions).
    August Nemec, (410) 786-0612 (for issues related to independent 
diagnostic testing facilities).
    Anita Greenberg, (410) 786-4601 (for issues related to the clinical 
laboratory fee schedule).
    James Menas, (410) 786-4507 (for issues related to payment for 
physician pathology services).
    Anne Tayloe, (410) 786-4546; or

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    Glenn McGuirk, (410) 786-5723 (for issues related to the ambulance 
fee schedule.
    Diane Milstead, (410) 786-3355 or Gaysha Brooks, (410) 786-9649 
(for all other issues).

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments 
from the public on the following issues: interim Relative Value Units 
(RVUs) for selected procedure codes identified in Addendum C and the 
physician self-referral designated health services (DHS) listed in 
Tables 18 and 19. You can assist us by referencing the file code CMS-
1321-FC and the specific ``issue identifier'' that precedes the section 
on which you choose to comment.
    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, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.
    This Federal Register document is also available from the Federal 
Register online database through Government Printing Office Access, a 
service of the U.S. Government Printing Office. The Web site address 
is: http://www.access.gpo.gov/nara/index.html.

    Information on the physician fee schedule can also be found on the 
CMS homepage. You can access this data by using the following 
directions:
    1. Go to the following Web site: http://www.cms.hhs.gov/PhysicianFeeSched/
.

    2. Select ``PFS Federal Regulation Notices.''
    To assist readers in referencing sections contained in this 
preamble, we are providing the following table of contents. Some of the 
issues discussed in this preamble affect the payment policies, but do 
not require changes to the regulations in the Code of Federal 
Regulations. Information on the regulation's impact appears throughout 
the preamble and is not exclusively in section VI.

Table of Contents

I. Background
    A. Development of the Relative Value System
    B. Components of the Fee Schedule Payment Amounts
    C. Most Recent Changes to the Fee Schedule
II. Provisions of the Final Rule
    A. Resource-Based Practice Expense Relative Value Units
    1. Current Methodology
    2. Proposals for Revising the PE Methodology
    3. Specific Changes to the Indirect PE Methodology for Calendar 
Year 2007
    4. Additional PE Issues for CY 2007
    a. RUC Recommendations for Direct PE Inputs and Other PE Input 
Issues
    b. Payment for Splint and Cast Supplies
    c. Medical Nutrition Therapy Services
    d. Surgical Pathology Codes
    e. PE Issues from Rulemaking for CY 2006
    f. Other PE Issues for CY 2007
    g. Specific PE Concerns Raised by Commenters
    h. Concerns About Decreases in PE RVUs
    i. Equipment Utilization and Interest Rate Assumptions
    j. Further Review of PE Direct Inputs
    k. Supply and Equipment Items Needing Specialty Input
    B. Geographic Practice Cost Indices (GPCIs)
    C. Medicare Telehealth Services
    D. Miscellaneous Coding Issues
    1. Global Period for Remote Afterloading High Intensity 
Brachytherapy Procedures
    2. Assignment of RVUS for Proton Beam Treatment Delivery 
Services
    E. Deficit Reduction Act (DRA)
    1. Section 5102--Adjustments for Payments to Imaging Services
    a. Payment for Multiple Imaging Procedures for 2007
    b. Reduction in TC for Imaging Services Under the PFS to OPD 
Payment Amount
    c. Interaction of the Multiple Imaging Payment Reduction and the 
OPPS Cap
    2. Section 5107--Revisions to Payments for Therapy Services
    3. Section 5112--Addition of Ultrasound Screening for Abdominal 
Aortic Aneurysm (AAA)
    a. Coverage
    b. Payment
    4. Section 5113--Non-Application of the Part B Deductible for 
Colorectal Cancer Screening Tests
    5. Section 5114--Addition of Diabetes Outpatient Self-Management 
Training Services (DSMT) and Medical Nutrition Therapy (MNT) for the 
FQHC Program
    F. Payment for Covered Outpatient Drugs and Biologicals (ASP 
Issues)
    1. ASP Issues
    2. Intravenous Immune Globulin (IVIG)
    3. Clotting Factor Furnishing Fee
    4. Widely Available Market Prices (WAMP) and Average 
Manufacturer Price (AMP) Threshold
    5. Payment for Drugs Furnished During CY 2006 and Subsequent 
Years in Connection With the Furnishing of Renal Dialysis Services 
if Separately Billed by Renal Dialysis Facilities
    6. Other Issues
    G. Revisions Related to Payment for Renal Dialysis Services 
Furnished by End Stage Renal Disease (ESRD) Facilities
    1. Growth Update to the Drug Add-on Adjustment to the Composite 
Rate
    2. Update to the Geographic Adjustments to the Composite Rates
    H. Private Contracts and Opt-Out Provision--Practitioner 
Definition
    I. Changes to Reassignment and Physician Self-Referral Rules 
Relating to Diagnostic Tests
    J. Supplier Access to Claims Billed on Reassignment
    K. Coverage of Bone Mass Measurement
    1. Provisions of the June 24, 1998 IFC
    2. Additional Scientific Evidence
    3. Changes to the June 24, 1998 IFC
    4. Analysis of and Response to Comments on the June 24, 1998 IFC 
and the CY 2007 PFS Proposed Rule
    L. Independent Diagnostic Testing Facility (IDTF) Issues
    1. IDTF Changes
    2. Performance Standards for IDTFs
    3. Supervision
    4. Place of Service
    5. Analysis of and Response to Public Comments
    6. Provisions of the Final Rule
    M. Independent Laboratory Billing for the TC of Physician 
Pathology Services to Hospital Patients
    N. Public Consultation for Medicare Payment for New Outpatient 
Clinical Diagnostic Laboratory Tests
    1. Medicare, Medicaid, and SCHIP Benefits Improvement Protection 
Act of 2000 (BIPA)
    2. Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003 (MMA)
    3. Other Laboratory Issues
    a. Quality
    b. Blood Glucose Monitoring in SNFs
    c. Other Lab Issues--Clinical Diagnostic Laboratory Date of 
Service (DOS) for Stored Specimens
    O. Criteria for National Certifying Bodies that Certify Advanced 
Practice Nurses
    P. Chiropractic Services Demonstration
    Q. Promoting Effective Use of Health Information Technology 
(HIT)
    R. Health Care Information Transparency Initiative
    S. Bad Debt Payment for Services Associated with Reasonable 
Charge/Fee Schedules
III. Revisions to the Payment Policies of Ambulance Services Under 
the Fee Schedule for Ambulance Services and the Ambulance Inflation 
Factor Update for CY 2007
    A. History of Medicare Ambulance Services
    B. Provisions of the Final Regulation
    C. Analysis of and Responses to Public Comments
    D. Ambulance Inflation Factor (AIF) for 2007

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IV. Five-Year Refinement of Relative Value Units Under the Physician 
Fee Schedule: Responses to Public Comments on the Five-Year Review 
of Work Relative Value Units
    A. Scope of Five-Year Review
    B. Review of Comments (Includes Table entitled ``Work RVU 
Revisions in Response to the June 29, 2006 proposed notice'')
    C. Discussion of Comments by Clinical Area
    1. Dermatology and Plastic Surgery
    2. Orthopedic Surgery
    3. Gynecology, Urology, Pain Medicine, and Neurosurgery
    4. Radiology, Pathology, and Other Miscellaneous Services
    5. Evaluation and Management Services
    6. Cardiothoracic Surgery
    7. General, Colorectal and Vascular Surgery
    8. Otolaryngology and Ophthalmology
    9. HCPAC codes
    D. Other Issues Under the 5-Year Review
    1. Anesthesia Services
    2. Discussion of Post-Operative Visits included in the Global 
Surgical Packages
    3. Budget Neutrality
    4. Review Process
V. Refinement of Relative Value Units for Calendar Year 2007 and 
Response to Public Comments on Interim Relative Value Units for 2006
    A. Summary of Issues Discussed Related to the Adjustment of 
Relative Value Units
    B. Process for Establishing Work Relative Value Units for the 
2006 Physician Fee Schedule
    C. Work Relative Value Unit Refinements of Interim Relative 
Value Units
    1. Methodology (Includes table entitled ``2006 Interim Work 
Relative Value Units for Codes Reviewed Under the Refinement Panel 
Process'')
    2. Interim 2006 Codes
    D. Establishment of Interim Work Relative Value Units for New 
and Revised Physician's Current Procedural Terminology (CPT) Codes 
and New Healthcare Common Procedure Coding System Codes (HCPCS) for 
2007 (Includes Table titled ``American Medical Association Specialty 
Relative Value Update Committee and Health Care Professionals 
Advisory Committee Recommendations and CMS' Decisions for New and 
Revised 2007 CPT Codes'')
    E. Discussion of Codes for Which There Were No RUC 
Recommendations or for Which the RUC Recommendations Were Not 
Accepted
    F. Additional Pricing Issue
    G. Establishment of Interim PE RVUs for New and Revised 
Physician's Current Procedural Terminology (CPT) Codes and New 
Healthcare Common Procedure Coding System (HCPCS) Codes for 2007
VI. Physician Self-Referral Prohibition: Annual Update to the List 
of CPT/HCPCS Codes
    A. General
    B. Nuclear Medicine
    C. Annual Update to the Code List
VII. Physician Fee Schedule Update for CY 2007
    A. Physician Fee Schedule Update
    B. The Percentage Change in the Medicare Economic Index (MEI)
    C. The Update Adjustment Factor (UAF)
VIII. Allowed Expenditures for Physicians' Services and the 
Sustainable Growth Rate
    A. Medicare Sustainable Growth Rate
    B. Physicians' Services
    C. Preliminary Estimate of the SGR for 2007
    D. Revised Sustainable Growth Rate for 2006
    E. Final Sustainable Growth Rate for 2005
    F. Calculation of 2007, 2006, and 2005 Sustainable Growth Rates
IX. Anesthesia and Physician Fee Schedule Conversion Factors for CY 
2007
    A. Physician Fee Schedule Conversion Factor
    B. Anesthesia Fee Schedule Conversion Factor
X. Telehealth Originating Site Facility Fee Payment Amount Update
    XI. Provisions of the Final Rule
    XII. Waiver of Proposed Rulemaking and Delay in Effective Date
    XIII. Collection of Information Requirements
    XIV. Response to Comments
    XV. Regulatory Impact Analysis
    A. RVU Impacts
    1. Resource-Based Work and PE RVUs
    2. Section 5102 of the DRA Adjustments for Payments for Imaging 
Services
    3. Combined Impacts
    B. Geographic Practice Cost Indices (GPCI) Payment Localities
    C. Global Period for Remote Afterloading High Intensity 
Brachytherapy Procedures
    D. DRA 5112: Addition of Ultrasound Screening for Abdominal 
Aortic Aneurysm to ``Welcome to Medicare'' Benefit
    E. DRA 5113: Colorectal Screening Exemption from Part B 
Deductible
    F. Section 5114: Addition of Diabetes Outpatient Self-management 
Training Services (DSMT) and Medical Nutrition Therapy (MNT) for the 
FQHC Program
    G. Payment for Covered Outpatient Drugs and Biologicals (ASP 
Issues)
    H. Provisions Related to Payment for Renal Dialysis Services 
Furnished by End State Renal Disease (ESRD) Facilities
I. Private Contracts and Opt-out Provision
    J. Supplier Access to Claims Billed on Reassignment
    K. Coverage of Bone Mass Measurement
    L. IDTF Changes
    M. Independent Lab Billing for TC Component of Physician 
Pathology Services for Hospital Patients
    N. Public Consultation for Medicare Payment for New Outpatient 
Clinical Diagnostic Laboratory Tests
    O. Bad Debt Payment for Services Associated with Reasonable 
Charge/Fee Schedules
    P. Revisions to Payment Policies under the Ambulance Fee 
Schedule and the Ambulance Inflation Factor Update for CY 2007
    Q. Alternatives Considered
    R. Impact on Beneficiaries
    S. Accounting Statement
Addendum A--Explanation and Use of Addendum B.
Addendum B--2007 Relative Value Units and Related Information Used 
in Determining Medicare Payments for 2006.
Addendum C--Codes with Interim RVUs
Addendum D--2007 Geographic Practice Cost Indices by Medicare 
Carrier and Locality
Addendum E--GAF Addenda
Addendum F--Addendum F: CPT/HCPCS Imaging Codes Defined by DRA 
5102(b)
Addendum G--CY 2007 Wage Index For Urban Areas Based On CBSA Labor 
Market Areas
Addendum H--CY 2007 ESRD Wage Index for Rural Areas Based on CBSA 
Labor Market Areas
Addendum I--RUCA Rurality Level by State and Zip Code
Addendum J--Updated List of CPT/HCPCS Codes Used to Describe Certain 
Designated Health Services Under the Physician Self-Referral 
Provision
    In addition, because of the many organizations and terms to 
which we refer by acronym in this final rule with comment period, we 
are listing these acronyms and their corresponding terms in 
alphabetical order below:

AAA Abdominal aortic aneurysm
AAD American Academy of Dermatology
AAFP American Academy of Family Physicians
AANS American Association of Neurological Surgeons
AAO American Academy of Ophthalmology
AAOS American Academy of Orthopaedic Surgeons
AATS American Association for Thoracic Surgery
ACC American College of Cardiology
ACG American College of Gastroenterology
ACHPN Advanced Certified Hospice and Palliative Nurse
ACOG American College of Obstetrics and Gynecology
ACR American College of Radiology
ACS American College of Surgeons
ADA American Dietetic Association
AFROC Association of Freestanding Radiation Oncology Centers
AGA American Gastroenterological Association
AMA American Medical Association
AMP Average manufacturer price
APC Ambulatory payment classification
ASA American Society of Anesthesiologists
ASC Ambulatory surgical center
ASCRS American Society of Colon and Rectal Surgeons
ASGE American Society of Gastrointestinal Endoscopy
ASP Average sales price
ASSH American Society for Surgery of the Hand
ASTRO American Society for Therapeutic Radiology and Oncology
AUA American Urological Association
BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA [Medicare, Medicaid and State Child Health Insurance Program] 
Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)

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BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection 
Act of 2000
BLS Bureau of Labor Statistics
BMD Bone mineral density
BMM Bone mass measurement
BN Budget neutrality
BNF Budget neutrality factor
BP Best price
CAD Computer-aided detection
CAH Critical access hospital
CAP Competitive acquisition program
CBSA Core-Based Statistical Area
CCI Correct Coding Initiative
CEO Chief executive officer
CF Conversion factor
CFO Chief financial officer
CFR Code of Federal Regulations
CMP Competitive medical plan
CMS Centers for Medicare & Medicaid Services
CNS Clinical nurse specialist
CPI Consumer Price Index
CPT (Physicians') Current Procedural Terminology (4th Edition, 2002, 
copyrighted by the American Medical Association)
CT Computed tomography
CTA Computed tomographic angiography
CY Calendar year
DHS Designated health services
DME Durable medical equipment
DMEPOS Durable medical equipment, prosthetics, orthotics, and 
supplies
DRA Deficit Reduction Act
DSMT Diabetes outpatient self-management training services
DXA Dual energy x-ray absorptiometry
E/M Evaluation and management
EPO Erythopoeitin
ESRD End stage renal disease
FAX Facsimile
FDA Food and Drug Administration (HHS)
FQHC Federally qualified health center
FR Federal Register
GAF Geographic adjustment factor
GAO Government Accountability Office
GDP Gross domestic product
GPO Group purchasing organization
GPCI Geographic practice cost index
HCPAC Health Care Professional Advisory Committee
HCPCS Healthcare Common Procedure Coding System
HCRIS Healthcare Cost Report Information System
HSA Health Savings Account
HHA Home health agency
HHS [Department of] Health and Human Services
HIT Health information technology
HMO Health maintenance organization
HOCM High osmolar contrast media
HPSA Health Professional Shortage Area
HRSA Health Resources Services Administration (HHS)
HUD [Department of] Housing and Urban Development
ICF Intermediate care facilities
IDTF Independent diagnostic testing facility
IFC Interim final rule with comment period
IPPE Initial preventive physical examination
IPPS Inpatient prospective payment system
IVIG Intravenous immune globulin
IWPUT Intra-service work per unit of time
JCAAI Joint Council of Allergy, Asthma, and Immunology
LCD Local coverage determination
LOCM Low osmolar contrast media
LOINC Logical Observation Identifiers Names and Codes
MA Medicare Advantage
MCP Monthly capitation payment
MedPAC Medicare Payment Advisory Commission
MEI Medicare Economic Index
MLN Medicare Learning Network
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MNT Medical nutrition therapy
MRA Magnetic resonance angiography
MRI Magnetic resonance imaging
MSA Metropolitan statistical area
MSVP Multi-specialty visit package
NCD National coverage determination
NCQDIS National Coalition of Quality Diagnostic Imaging Services
NDC National drug code
NEMA National Electrical Manufacturers Association
NHE National health expenditures
NOP National Osteoporosis Foundation
NP Nurse practitioner
NPP Nonphysician practitioners
NPWP Nonphysician Work Pool
NSQIP National Surgical Quality Improvement Program
OBRA Omnibus Budget Reconciliation Act
OIG Office of Inspector General
OMB Office of Management and Budget
OPD Outpatient Department
OPPS Outpatient prospective payment system
OSCAR Online Survey and Certification and Reporting
PA Physician assistant
PBM Pharmacy benefit managers
PC Professional component
PE Practice Expense
PE/HR Practice expense per hour
PEAC Practice Expense Advisory Committee
PERC Practice Expense Review Committee
PET Positron emission tomography
PFS Physician Fee Schedule
PLI Professional liability insurance
PPI Producer price index
PPO Preferred provider organization
PPS Prospective payment system
PRA Paperwork Reduction Act
PRM Provider Reimbursement Manual
PT Physical therapy
QCT Quantitative computerized tomography
RFA Regulatory Flexibility Act
RHC Rural health clinic
RIA Regulatory impact analysis
RN Registered nurse
RUC [AMA's Specialty Society] Relative (Value) Update Committee
RVU Relative value unit
SGR Sustainable growth rate
SMS [AMA's] Socioeconomic Monitoring System
SNF Skilled nursing facility
SNM Society for Nuclear Medicine
SPA Single photon absorptiometry
STS Society of Thoracic Surgeons
SVS Society for Vascular Surgery
SXA Single energy x-ray absorptiometry
TA Technology Assessment
TC Technical Component
UAF Update adjustment factor
UPIN Unique Physician Identification Number
USPSTF United States Preventive Services Task Force
VA [Department of] Veteran Affairs
WAC Wholesale acquisition cost
WAMP Widely available market price
WHO World Health Organization

I. Background

    Since January 1, 1992, Medicare has paid for physicians' services 
under section 1848 of the Social Security Act (the Act), ``Payment for 
Physicians' Services.'' The Act requires that payments under the 
physician fee schedule (PFS) be based on national uniform relative 
value units (RVUs) based on the resources used in furnishing a service. 
Section 1848(c) of the Act requires that national RVUs be established 
for physician work, practice expense (PE), and malpractice expense. 
Before the establishment of the resource-based relative value system, 
Medicare payment for physicians' services was based on reasonable 
charges.

A. Development of the Relative Value System

1. Work RVUs
    The concepts and methodology underlying the PFS were enacted as 
part of the Omnibus Budget Reconciliation Act (OBRA) of 1989 (Pub. L. 
101-239), and OBRA 1990 (Pub. L. 101-508). The final rule, published 
November 25, 1991 (56 FR 59502), set forth the fee schedule for payment 
for physicians' services beginning January 1, 1992. Initially, only the 
physician work RVUs were resource-based, and the PE and malpractice 
RVUs were based on average allowable charges.
    The physician work RVUs established for the implementation of the 
fee schedule in January 1992 were developed with extensive input from 
the physician community. A research team at the Harvard School of 
Public Health developed the original physician work RVUs for most codes 
in a cooperative agreement with the Department of Health and Human 
Services (HHS). In constructing the code-specific vignettes for the 
original physician work RVUs, Harvard worked with panels of experts, 
both inside and outside the Federal government, and obtained input from 
numerous physician specialty groups.
    Section 1848(b)(2)(A) of the Act specifies that the RVUs for 
radiology services are based on relative value scale we adopted under 
section

[[Page 69628]]

1834(b)(1)(A) of the Act, (the American College of Radiology (ACR) 
relative value scale), which we integrated into the overall PFS. 
Section 1848(b)(2)(B) of the Act specifies that the RVUs for anesthesia 
services are based on RVUs from a uniform relative value guide. We 
established a separate conversion factor (CF) for anesthesia services, 
and we continue to utilize time units as a factor in determining 
payment for these services. As a result, there is a separate payment 
methodology for anesthesia services.
    We establish physician work RVUs for new and revised codes based on 
recommendations received from the American Medical Association's (AMA) 
Specialty Society Relative Value Update Committee (RUC).
2. Practice Expense Relative Value Units (PE RVUs)
    Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 
103-432), enacted on October 31, 1994, amended section 
1848(c)(2)(C)(ii) of the Act and required us to develop resource-based 
PE RVUs for each physician's service beginning in 1998. We were to 
consider general categories of expenses (such as office rent and wages 
of personnel, but excluding malpractice expenses) comprising PEs.
    Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 
105-33), amended section 1848(c)(2)(C)(ii) of the Act to delay 
implementation of the resource-based PE RVU system until January 1, 
1999. In addition, section 4505(b) of the BBA provided for a 4-year 
transition period from charge-based PE RVUs to resource-based RVUs.
    We established the resource-based PE RVUs for each physician's 
service in a final rule, published November 2, 1998 (63 FR 58814), 
effective for services furnished in 1999. Based on the requirement to 
transition to a resource-based system for PE over a 4-year period, 
resource-based PE RVUs did not become fully effective until 2002.
    This resource-based system was based on two significant sources of 
actual PE data: The Clinical Practice Expert Panel (CPEP) data and the 
AMA's Socioeconomic Monitoring System (SMS) data. The CPEP data were 
collected from panels of physicians, practice administrators, and 
nonphysicians (for example, registered nurses) nominated by physician 
specialty societies and other groups. The CPEP panels identified the 
direct inputs required for each physician's service in both the office 
setting and out-of-office setting. The AMA's SMS data provided 
aggregate specialty-specific information on hours worked and PEs.
    Separate PE RVUs are established for procedures that can be 
performed in both a nonfacility setting, such as a physician's office, 
and a facility setting, such as a hospital outpatient department (OPD). 
The difference between the facility and nonfacility RVUs reflects the 
fact that a facility receives separate payment from Medicare for its 
costs of providing the service, apart from payment under the PFS. The 
nonfacility RVUs reflect all of the direct and indirect PEs of 
providing a particular service.
    Section 212 of the Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113) directed the Secretary of Health and Human Services 
(the Secretary) to establish a process under which we accept and use, 
to the maximum extent practicable and consistent with sound data 
practices, data collected or developed by entities and organizations to 
supplement the data we normally collect in determining the PE 
component. On May 3, 2000, we published the interim final rule (65 FR 
25664) that set forth the criteria for the submission of these 
supplemental PE survey data. The criteria were modified in response to 
comments received, and published in the Federal Register (65 FR 65376) 
as part of a November 1, 2000 final rule. The PFS final rules published 
in 2001 and 2003, respectively, (66 FR 55246 and 68 FR 63196) extended 
the period during which we would accept these supplemental data.
3. Resource-Based Malpractice RVUs
    Section 4505(f) of the BBA amended section 1848(c) of the Act to 
require us to implement resource-based malpractice RVUs for services 
furnished on or after 2000. The resource-based malpractice RVUs were 
implemented in the PFS final rule published November 2, 1999 (64 FR 
59380) (hereinafter referred to as the CY 2000 PFS final rule). The 
malpractice RVUs were based on malpractice insurance premium data 
collected from commercial and physician-owned insurers from all the 
States, the District of Columbia, and Puerto Rico.
4. Refinements to the RVUs
    Section 1848(c)(2)(B)(i) of the Act requires that we review all 
RVUs no less often than every 5 years. The first 5-year review of the 
physician work RVUs went into effect in 1997, published on November 22, 
1996 (61 FR 59489). The second 5-year review of work RVUs went into 
effect in 2002, published on November 1, 2001 (66 FR 55246). The third 
5-year review is being finalized in this rule for CY 2007.
    In 1999, the AMA's RUC established the Practice Expense Advisory 
Committee (PEAC) for the purpose of refining the direct PE inputs. 
Through March 2004, the PEAC provided recommendations to CMS for over 
7,600 codes (all but a few hundred of the codes currently listed in the 
AMA's Current Procedural Terminology (CPT) codes).
    In the November 15, 2004, PFS final rule (69 FR 66236) (hereinafter 
referred to as the CY 2005 PFS final rule), we implemented the first 5-
year review of the malpractice RVUs (69 FR 66263).
5. Adjustments to RVUS Are Budget Neutral
    Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments 
in RVUs for a year may not cause total PFS payments to differ by more 
than $20 million from what they would have been if the adjustments were 
not made. In accordance with section 1848(c)(2)(B)(ii)(II) of the Act, 
if adjustments to RVUs cause expenditures to change by more than $20 
million, we make adjustments to ensure that expenditures do not 
increase or decrease by more than $20 million.

B. Components of the Fee Schedule Payment Amounts

    To calculate the payment for every physician service, the 
components of the fee schedule (physician work, PE, and malpractice 
RVUs) are adjusted by a geographic practice cost index (GPCI). The 
GPCIs reflect the relative costs of physician work, PEs, and 
malpractice insurance in an area compared to the national average costs 
for each component.
    Payments are converted to dollar amounts through the application of 
a CF, which is calculated by the Office of the Actuary and is updated 
annually for inflation.
    The general formula for calculating the Medicare fee schedule 
amount for a given service and fee schedule area can be expressed as:

Payment = [(RVU work x GPCI work) + (RVU PE x GPCI PE) + (RVU 
malpractice x GPCI malpractice)] x CF.

    However, as discussed in section IV.D of this final rule with 
comment period, due to the need to meet the budget neutrality (BN) 
provisions of 1848(c)(2)(B)(ii), we are applying a BN adjustor to the 
work RVUs in order to calculate payment for a service. Therefore, 
payment for services will now be calculated as follows:


[[Page 69629]]


Payment = [(RVU work x BN adjustor x GPCI work) + (RVU PE x GPCI PE) + 
(RVU malpractice x GPCI malpractice)] x CF.)

C. Most Recent Changes to the Fee Schedule

    The final rule with comment period that appeared in the Federal 
Register on November 21, 2005 (70 FR 70116) (hereinafter referred to as 
the CY 2006 PFS final rule with comment period) addressed Medicare Part 
B payment policy including the PFS that is applicable for CY 2006; and 
finalized certain provisions of the interim final rule to implement the 
Competitive Acquisition Program (CAP) for Part B Drugs.
    It also revised Medicare Part B payment and related policies 
regarding: physician work, PE and malpractice RVUs; Medicare telehealth 
services; multiple diagnostic imaging procedures; covered outpatient 
drugs and biologicals; supplemental payments to Federally Qualified 
Health Centers (FQHCs); renal dialysis services; coverage for glaucoma 
screening services; National Coverage Determination (NCD) timeframes; 
and physician referrals for nuclear medicine services and supplies to 
health care entities with which physicians have financial 
relationships.
    In addition, the rule finalized the interim RVUs for CY 2005 and 
issued interim RVUs for new and revised procedure codes for CY 2006. 
The rule also updated the codes subject to the physician self-referral 
prohibition and discussed payment policies relating to teaching 
anesthesia services, therapy caps, private contracts and opt-out, and 
chiropractic and oncology demonstrations.
    In accordance with section 1848(d)(1)(E)(i) of the Act, we also 
announced that the PFS update for CY 2006 would be -4.4 percent; the 
initial estimate for the sustainable growth rate for CY 2006 would be 
1.7 percent; and the CF for CY 2006 would be $36.1770. However, 
subsequent to publication of the CY 2006 PFS final rule with comment 
period, section 5104 of the Deficit Reduction Act (DRA) of 2005 (Pub. 
L. 109-171, February 8, 2006), was enacted which amended section 
1848(d) of the statute. As a result of this statutory change we 
maintained the CY 2005 CF of $37.8975 for CY 2006.
    We also note that the Five-Year Review of Work Relative Value Units 
Under the Physician Fee Schedule and Proposed Changes to the Practice 
Expense Methodology proposed notice appeared in the Federal Register on 
June 29, 2006 (71 FR 37170). In that notice, we proposed revisions to 
work RVUs affecting payment for physicians' services. The revisions 
reflect changes in medical practice, coding changes, and new data on 
relative value components that affect the relative amount of physician 
work required to perform each service, as required by the statute. We 
also proposed revisions to our methodology for calculating PE RVUs, 
including changes based on supplemental survey data for PE. This 
revised methodology would be used to establish payment for services 
beginning January 1, 2007.
    In this final rule with comment period, we are responding to the 
comments received on that notice. To the extent that comments received 
were outside the scope of the proposed notice, they are not addressed 
in this rule.
    Work RVU revisions will be fully implemented for services furnished 
to Medicare beneficiaries on or after January 1, 2007. The changes in 
PE methodology will be phased-in over a 4-year period; although, as we 
gain experience with the new methodology, we will reexamine this policy 
beginning next year and propose necessary revisions through future 
rulemaking.

II. Provisions of the Proposed Rule

A. Resource-Based Practice Expense (PE) Relative Value Units (RVUs)

    Practice expense (PE) is the portion of the resources used in 
furnishing the service that reflects the general categories of 
physician and practitioner expenses, such as office rent and personnel 
wages but excluding malpractice expenses, as specified in section 
1848(c)(1)(B) of the Act.
    Section 121 of the Social Security Amendments of 1994 (Pub. L. 103-
432), enacted on October 31, 1994, required CMS to develop a 
methodology for a resource-based system for determining PE RVUs for 
each physician's service. Until that time, PEs were based on historical 
allowed charges. This legislation stated that the revised PE 
methodology must consider the staff, equipment, and supplies used in 
the provision of various medical and surgical services in various 
settings beginning in 1998. The Secretary has interpreted this to mean 
that Medicare payments for each service would be based on the relative 
PE resources typically involved with furnishing the service.
    The initial implementation of resource-based PE RVUs was delayed 
from January 1, 1998, until January 1, 1999, by section 4505(a) of the 
BBA. In addition, section 4505(b) of the BBA required that the new 
payment methodology be phased-in over 4 years, effective for services 
furnished in CY 1999, and fully effective in CY 2002. The first step 
toward implementation of the statute was to adjust the PE values for 
certain services for CY 1998. Section 4505(d) of the BBA required that, 
in developing the resource-based PE RVUs, the Secretary must:
     Use, to the maximum extent possible, generally accepted 
cost accounting principles that recognize all staff, equipment, 
supplies, and expenses, not solely those that can be linked to specific 
procedures.
     Develop a refinement method to be used during the 
transition.
     Consider, in the course of notice and comment rulemaking, 
impact projections that compare new proposed payment amounts to data on 
actual physician PE.
    Beginning in CY 1999, we began the 4-year transition to resource-
based PE RVUs. In CY 2002, the resource-based PE RVUs were fully 
transitioned.
1. Current Methodology
    The following sections discuss the current PE methodology.
a. Data Sources
    There are two primary data sources used to calculate PE. The AMA's 
Socioeconomic Monitoring System (SMS) survey data are used to develop 
the PE per hour (PE/HR) for each specialty. The second source of data 
used to calculate PE was originally developed by the Clinical Practice 
Expert Panels (CPEP). The CPEP data include the supplies, equipment and 
staff times specific to each procedure.
    The AMA developed the SMS survey in 1981 and discontinued it in 
1999. Beginning in 2002, we incorporated the 1999 SMS survey data into 
our calculation of the PE RVUs, using a 5-year average of SMS survey 
data. (See Revisions to Payment Policies and Five-Year Review of and 
Adjustments to the Relative Value Units Under the Physician Fee 
Schedule for CY 2002 final rule, published November 1, 2001 (66 FR 
55246) (hereinafter referred to as CY 2002 PFS final rule).) The SMS PE 
survey data are adjusted to a common year, 1995. The SMS data provide 
the following six categories of PE costs:
     Clinical payroll expenses, which are payroll expenses 
(including fringe benefits) for nonphysician personnel.
     Administrative payroll expenses, which are payroll 
expenses (including fringe benefits) for nonphysician personnel 
involved in administrative, secretarial or clerical activities.

[[Page 69630]]

     Office expenses, which include expenses for rent, mortgage 
interest, depreciation on medical buildings, utilities and telephones.
     Medical material and supply expenses, which include 
expenses for drugs, x-ray films, and disposable medical products.
     Medical equipment expenses, which include expenses 
depreciation, leases, and rent of medical equipment used in the 
diagnosis or treatment of patients.
     All other expenses, which include expenses for legal 
services, accounting, office management, professional association 
memberships, and any professional expenses not previously mentioned in 
this section.
    In accordance with section 212 of the BBRA, we established a 
process to supplement the SMS data for a specialty with data collected 
by entities and organizations other than the AMA (that is, the 
specialty itself). (See the Criteria for Submitting Supplemental 
Practice Expense Survey Data interim final rule with comment period, 
(May 3, 2000, 65 FR 25664).) Originally, the deadline to submit 
supplementary survey data was through August 1, 2001. In the CY 2002 
PFS final rule (66 FR 55246), the deadline was extended through August 
1, 2003. To ensure maximum opportunity for specialties to submit 
supplementary survey data, we extended the deadline to submit surveys 
until March 1, 2005 in the Revisions to Payment Policies Under the 
Physician Fee Schedule for CY 2004 final rule, (November 7, 2003; 68 FR 
63196) (hereinafter referred to as CY 2004 PFS final rule).
    The CPEPs consisted of panels of physicians, practice 
administrators, and nonphysicians (registered nurses (RNs), for 
example) who were nominated by physician specialty societies and other 
groups. There were 15 CPEPs consisting of 180 members from more than 61 
specialties and subspecialties. Approximately 50 percent of the 
panelists were physicians.
    The CPEPs identified specific inputs involved in each physician's 
service provided in an office or facility setting. The inputs 
identified were the quantity and type of nonphysician labor, medical 
supplies, and medical equipment.
    In 1999, the AMA's RUC established the Practice Expense Advisory 
Committee (PEAC). From 1999 to March 2004, the PEAC, a multi-specialty 
committee, reviewed the original CPEP inputs and provided us with 
recommendations for refining these direct PE inputs for existing CPT 
codes. Through its last meeting in March 2004, the PEAC provided 
recommendations for over 7,600 codes which we have reviewed and 
accepted. As a result, the current PE inputs differ markedly from those 
originally recommended by the CPEPs. The PEAC has now been replaced by 
the Practice Expense Review Committee (PERC), which acts to assist the 
RUC in recommending PE inputs.
b. Allocation of PE to Services
    To establish PE RVUs for specific services, it is necessary to 
establish the direct and indirect PE associated with each service. Our 
current approach allocates aggregate specialty practice costs to 
specific procedures and, thus, is often referred to as a ``top-down'' 
approach. The specialty PEs are derived from the AMA's SMS survey and 
supplementary survey data. The PEs for a given specialty are allocated 
to the services furnished by that specialty on the basis of the direct 
input data and work RVUs assigned to each CPT code. The specific 
process is outlined in the June 29, 2006 proposed notice (71 FR 37242).
c. Other Methodological Issues: Nonphysician Work Pool (NPWP)
    As an interim measure, until we could further analyze the effect of 
the top-down methodology on the Medicare payment for services with no 
physician work (including the technical components (TCs) of radiation 
oncology, radiology and other diagnostic tests), we created a separate 
PE pool for these services. However, any specialty society could 
request that its services be removed from the nonphysician work pool 
(NPWP). The specific steps for the NPWP calculation are detailed in the 
June 29, 2006 proposed notice (71 FR 37243).
d. Facility/Non-facility Costs
    Procedures that can be furnished in a physician's office, as well 
as in a hospital, have two PE RVUs: facility and non-facility. The non-
facility setting includes physicians' offices, patients' homes, 
freestanding imaging centers, and independent pathology labs. Facility 
settings include hospitals, ambulatory surgical centers (ASCs), and 
skilled nursing facilities (SNFs). The methodology for calculating the 
PE RVU is the same for both facility and non-facility RVUs, but is 
applied independently to yield two separate PE RVUs. Because the PEs 
for services provided in a facility setting are generally included in 
the payment to the facility (rather than the payment to the physician 
under the fee schedule), the PE RVUs are generally lower for services 
provided in the facility setting.
2. Proposals for Revising the PE Methodology
    We have three major goals for our resource-based PE methodology:
     To ensure that the PE portion of PFS payments reflect, to 
the greatest extent possible, the relative resources required for each 
of the services on the PFS. This could only be accomplished by using 
the best available data to calculate the PE RVUs.
     To develop a payment system for PE that is understandable 
and at least somewhat intuitive, so that specialties could better 
predict the impacts of changes in the PE data.
     To stabilize the PE portion of PFS payments so that 
changes in PE RVUs do not produce large fluctuations in the payment for 
given procedures from year-to-year.
    In the CY 2006 PFS proposed rule (70 FR 45764), we proposed the 
following changes to the PE methodology that we believed would help in 
achieving these three major goals:
     Using the PE/HR data from seven specialty-specific 
supplementary surveys.
     Calculating the direct PE using a bottom-up methodology.
     Eliminating the NPWP.
    We also proposed an indirect PE methodology that was to assign to 
each service the higher of the current indirect PE RVUs or the indirect 
PE RVUs calculated using the supplementary survey data.
    In the CY 2006 PFS final rule with comment period (70 FR 70116), we 
withdrew these proposals primarily because a programming error for the 
indirect PE RVU calculation had led to the publication of inaccurate 
proposed PE RVUs. On February 15, 2006, we sponsored a PE Town Hall 
Meeting and invited the public, including all specialty representatives 
to attend. At this meeting, we supplied a detailed description of the 
bottom-up approach to the calculation of resource-based PE RVUs. Three 
examples were examined in detail that illustrated the impact of the 
various assumptions that could be used under a bottom-up approach. We 
specifically requested input from all interested parties on possible 
changes to our PE methodology, including the move to a bottom-up 
approach and the various methods of calculating indirect PE.
    We reviewed the approximately 35 comments that we received in 
response to our solicitation. Many of the comments were combined 
efforts from related specialty organizations. Additionally, the AMA RUC 
also supplied a letter that captured the

[[Page 69631]]

comments of nearly 30 specialty organizations. The following is a 
summary of the comments received as a result of the February 15, 2006 
PE Town Hall meeting.
     Delaying Implementation of Changes to the Current PE 
Methodology: There were mixed opinions from commenters on whether we 
should proceed with a proposal to use a bottom-up approach. Some 
commenters emphasized that the CPEP data has been refined and is now 
the best available source of data, and asserted that it should be used 
for the calculation of resource-based PE RVUs. Other comments suggested 
a delay in changing to a bottom-up approach because of the other issues 
that are affecting PFS payments this year (such as, the effect of 
imaging payment provisions in the DRA, the impact of the negative 
update, and the uncertainty regarding the impact of the 5-Year Review 
of work RVUs).
     Transition to a Bottom-Up Approach: The majority of 
commenters requested a minimum 1-year transition to a maximum 3-year 
transition period to fully implement any change to a bottom-up 
approach. All of the commenters supported a transition period whether 
or not they supported the implementation of a bottom-up approach.
     Use of Supplemental Survey Data: Many commenters stated 
that, irrespective of what we proposed for CY 2007, the supplemental 
survey data that has already been accepted should be used. Other 
commenters believed that the supplemental survey data grossly 
overstated PEs and should not be utilized in the development of 
resource-based PE RVUs.
     Multi-Specialty PE Survey: The majority of commenters 
supported the construction and use of a multi-specialty survey to 
collect PE data. Commenters believed that the supplemental survey data 
is inflated and that the SMS survey data are outdated.
     Review Equipment Utilization Assumptions and Interest 
Rates: Many commenters supported the review and revision of both the 
current utilization assumptions and the interest rates associated with 
high cost equipment. Commenters had mixed reactions as to whether the 
utilization rates should be higher or lower, and some suggested that we 
review the possibility of equipment-specific utilization assumptions 
for the future. Most commenters believed that the current 11 percent 
interest rate is significantly higher then the actual interest rates 
and many commenters suggested a rate of approximately prime plus 2 
percent.
     Proxy Work RVUs for No Physician Work Services: Commenters 
were divided on the assignment of a proxy work RVU to services that 
contain no physician work. Some commenters believed that no physician 
work services are unfairly penalized under any bottom-up approach, 
while other comments stated that the inclusion of a proxy work RVU 
would double count the clinical labor associated with the no physician 
work services.
    After considering these comments, we made the following proposals 
for direct PEs in the June 29, 2006 proposed notice (71 FR 37245).
a. Use a Bottom-up Method to Calculate the Direct PEs
    We believe that we have consistently made a good faith effort to 
ensure fairness in our PE RVU-setting system by using the best data 
available at any one time. The reason we did not adopt the bottom-up 
methodology originally proposed in 1997 and instead adopted the top-
down methodology finalized in 1998 was because we recognized the 
concerns among the physician community that the resource input data 
developed in 1995 by the CPEP were less reliable than the aggregate 
specialty cost data derived from the SMS process.
    However, the situation has now changed. The PEAC/PERC/RUC has 
completed the refinement of the original CPEP data and we believe that 
the refined PE inputs now, in general, accurately capture the relative 
direct costs of PFS services. Conversely, although we have now accepted 
supplementary survey data from 13 specialties, we have not received 
updated aggregate cost data from most specialties. Thus, we believe 
that, in the aggregate, the refined direct input data represent more 
reliably the relative direct cost PE inputs for physicians' services.
    Therefore, instead of using the top-down approach to calculate the 
direct PE RVUs, where the aggregate CPEP/RUC costs for each specialty 
are scaled to match the aggregate SMS costs, we proposed to adopt a 
bottom-up method of determining the relative direct costs for each 
service. Under this method, the direct costs would be determined by 
adding the costs of the resources (that is, the clinical staff, 
equipment and supplies) typically required to provide the service. The 
costs of the resources, in turn, would be calculated from the refined 
direct PE inputs in our PE database.
    We believe that this proposed change, which was welcomed by most 
commenters in the CY 2006 PFS proposed rule, will lead to greater 
stability and accuracy in the PE portion of our payment system. 
Currently, under the top-down methodology, the need to scale the CPEP 
costs to equal the SMS costs has meant that any changes in the direct 
PE inputs for one service often leads to unexpected results for other 
services where the inputs have not been altered. In addition, the 
current PE RVUs for a procedure do not necessarily change 
proportionately with changes in the direct inputs, creating possible 
anomalous values. We believe that our proposed bottom-up methodology 
would resolve these issues, so that changes in the PE RVUs would be 
more intuitive and would result in fewer surprises.
b. Use the PE/HR Data from the 7 Surveys We Have Previously Accepted 
and, in addition, Use the PE/HR Data from the Survey Submitted by the 
National Coalition of Quality Diagnostic Imaging Services (NCQDIS)
    As explained in the CY 2005 PFS final rule with comment period (69 
FR 66242), we received surveys from the American College of Cardiology 
(ACC), the American College of Radiology (ACR), and the American 
Society for Therapeutic Radiology and Oncology (ASTRO) by March 1, 
2004. The data submitted by the ACC and the ACR met our criteria. 
However, as requested by the ACC and the ACR, we deferred using their 
data until issues related to the NPWP could be addressed. (The survey 
data from ASTRO did not meet the precision criteria established for 
supplemental surveys; therefore, we did not accept or use it in the 
calculation of PE RVUs for 2005.)
    In March 2005, we also received surveys from the Association of 
Freestanding Radiation Oncology Centers (AFROC), the American 
Urological Association (AUA), the American Academy of Dermatology 
(AAD), the Joint Council of Allergy, Asthma, and Immunology (JCAAI), 
the NCQDIS, and a joint survey from the American Gastroenterological 
Association (AGA), the American Society of Gastrointestinal Endoscopy 
(ASGE) and the American College of Gastroenterology (ACG).
    All the surveys, with the exception of the survey from NCQDIS, met 
our criteria. Therefore, we proposed in the CY 2006 PFS proposed rule 
(70 FR 45775) to use the survey data from all the surveys meeting our 
criteria in the calculation of PE RVUs for 2006; but, as discussed in 
the CY 2006 PFS final rule with comment period (70 FR 70116) and

[[Page 69632]]

above in this section, this proposal was not finalized.
    We contracted with the Lewin Group (Lewin) to evaluate whether the 
supplemental survey data that were submitted met our criteria and to 
make recommendations to us regarding their suitability for use in 
calculating PE RVUs. As described in the CY 2006 PFS proposed rule (70 
FR 45775), Lewin recommended blending the radiation oncology data from 
the AFROC survey data with the ASTRO survey data submitted in 2004 to 
calculate the PE/HR. According to Lewin, the goal of the AFROC survey 
was to represent the population of freestanding radiation oncology 
centers only. To develop an overall average for the radiation oncology 
PE pool, Lewin recommended we use the AFROC survey for freestanding 
radiation oncology centers, and the hospital-based subset of last 
year's ASTRO survey. We agreed that this blending of the AFROC and 
ASTRO data was a reasonable way to calculate an average PE/HR that 
fully reflects the practice of radiation oncology in all settings. 
Blending the survey data overcame the initial problem that the ASTRO 
data do not meet the precision criteria as discussed in the CY 2005 PFS 
final rule (69 FR 66242). In addition, as discussed in the CY 2006 PFS 
proposed rule (70 FR 45776), blending of the data allowed for a broader 
base of radiation oncology providers to be represented.
    Also, as discussed in the CY 2006 PFS proposed rule (70 FR 45764), 
Lewin indicated that the survey data submitted by the NCQDIS on 
independent diagnostic testing facilities (IDTFs) did not meet our 
precision criterion. However, upon further analysis, Lewin agreed with 
NCQDIS' determination that the inclusion of one inaccurate record 
skewed the findings outside the acceptable precision range. Lewin 
recalculated the precision level at 8.1 percent of the mean PE/HR 
(weighted by the number of physicians in the practice). Lewin indicated 
that the level of precision for the total PE/HR satisfies the level of 
precision requirement, and recommended acceptance of the survey.
    We proposed to use the PE/HR data from all of these surveys, 
including the NCQDIS survey, in the calculation of the PE RVUs for 
2007. For radiation oncology, we proposed to use the new PE/HR derived 
from combining the AFROC and ASTRO survey data, as recommended by 
Lewin. The proposed figures for PE per physician hour were listed in 
Table 52 in the June 29, 2006 proposed notice (71 FR 37246).
    Section 303(a)(1)(B) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) 
added section 1848(c)(2)(I) of the Act to require CMS to use survey 
data submitted by a specialty group where at least 40 percent of the 
specialty's payments for Part B services are attributable to the 
administration of drugs in 2002 to adjust PE RVUs for drug 
administration services. The statute applies to surveys that include 
expenses for the administration of drugs and biologicals, and were 
received by March 1, 2005 for determining the CY 2006 PE RVUs. Section 
303(a)(1)(A)(ii) of the MMA also added section 1848(c)(2)(B)(iv)(II) of 
the Act to provide an exemption from budget neutrality (BN) in 2005 and 
2006 for any additional expenditures resulting from the use of these 
surveys. In the Changes to Medicare Payment for Drugs and Physician Fee 
Schedule Payments for CY 2004 interim final rule published January 7, 
2004 (69 FR 1084), we stated that the specialties of urology, 
gynecology, and rheumatology meet this criteria. As described in the CY 
2006 PFS final rule with comment period (70 FR 70116), we accepted for 
the purposes of calculating the 2006 PE RVUs for drug administration 
services the new survey data from the AUA and exempted from the BN 
adjustment any impacts of accepting these data for purposes of 
calculating PE RVUs for drug administration services.

    (Note: Rheumatology and gynecology did not submit supplemental 
survey data.)
c. Eliminate the NPWP and Calculate the PE RVUs for all Services Using 
the Same Methodology
    Primarily because of the lack of representative SMS data or 
accurate direct cost inputs for specialties such as radiology and 
radiation oncology, the adoption of the top-down approach necessitated 
the creation of the NPWP. This separate work pool was created to 
allocate PE RVUs for TC codes and codes that are not furnished by 
physicians and, thus, have no work RVUs. In the CY 2000 Physician Fee 
Schedule; Payment Policies and Relative Value Unit Adjustment final 
rule, we indicated that ``the purpose of this pool was only to protect 
the (TC) services from the substantial decreases'' caused by inaccurate 
CPEP data and the lack of physician work RVU in the allocation of the 
indirect costs (64 FR 59406). Unfortunately, the services priced by the 
NPWP methodology have proven to be especially vulnerable to any change 
in the work pool's composition. This has led to significant 
fluctuations from year-to-year in the PE RVUs calculated for these 
services.
    The major specialties comprising the NPWP (radiology, radiation 
oncology and cardiology) have now submitted supplemental survey data 
that we have accepted and proposed to use in their PE calculations. 
(See the discussion on supplementary surveys above in this section.) 
Now that we have representative aggregate PE data for these 
specialties, and with the completion of the refinement of the direct 
cost inputs, the continued necessity and equity of treating these 
technical services outside the PE methodology applied to other services 
is questionable.
    Therefore, we proposed to eliminate the NPWP and to calculate the 
PE RVUs for the services currently in the work pool by the same 
methodology used for all other services. This would also allow the use 
of the refined CPEP/RUC data to price the direct costs of individual 
services, rather than utilizing the pre-1998 charge-based PE RVUs. In 
addition, the revised methodology would lead to greater stability for 
the PE RVUs for these services and would lead to more intuitive results 
than have occurred with the NPWP methodology.
d. Modify the Current Indirect PE RVUs Methodology
    As described previously, the SMS and supplementary survey data are 
the source for the specialty-specific aggregate indirect costs used in 
our PE calculations. We then allocate the indirect costs to particular 
codes on the basis of the direct costs allocated to a code and the work 
RVUs. In the CY 2006 PFS proposed rule (70 FR 45764), we stated that we 
had no information that would indicate that the current indirect PE 
methodology is inaccurate. At that time, we also were not aware of any 
alternative approaches or data sources that we could use to calculate 
more appropriately the indirect PE, other than the new supplementary 
survey data, which we proposed to incorporate into our PE calculations. 
Therefore, in the CY 2006 PFS proposed rule, we proposed to use the 
current indirect PEs in our calculation, incorporating the new survey 
data into the codes furnished by the specialties submitting the surveys 
(71 FR 45764). We also indicated in that same proposed rule that we 
would welcome any suggestions that would assist us in further 
refinement of this indirect PE methodology. For example, we were 
considering whether we should continue to accept supplementary survey 
data or whether it would be preferable and feasible to have an SMS-type 
survey of only indirect costs for all specialties, or whether a more 
formula-

[[Page 69633]]

based methodology independent of the SMS should be adopted, perhaps 
using the specialty-specific indirect-to-total cost percentage as a 
basis of the calculation. For a prior discussion of many of the issues 
associated with allocating indirect costs, please refer to the CY 2000 
Physician Fee Schedule; Payment Policies and Relative Value Unit 
Adjustment proposed rule (63 FR 30823).
3. Specific Changes to the Indirect PE Methodology for CY 2007
a. Summary of the PE Proposals From the June 29, 2006 Proposed Notice
    As a result of collaboration with the PFS community and public 
comments on this issue, in the June 29, 2006 proposed notice, we 
proposed the following modifications to the indirect PE methodology.
(1) Indirect Percentage Factor: Use of the Specialty-Specific 
Percentage that Indirect PEs Represent of Total PEs Based on the Survey 
Data
    We currently allocate indirect expenses on the sum of the direct 
expenses and the work RVUs (converted to dollars by multiplying by the 
CF). We proposed to allocate indirect expenses by applying a specialty-
specific indirect percentage factor to the direct expenses to recognize 
the varying proportion that indirect costs represent of total costs by 
specialty. This will have the effect of relatively increasing the 
indirect expense allocation for services that are on average furnished 
by specialties with higher indirect PE percentages, and relatively 
decreasing the indirect expense allocation for services that are 
furnished by specialties with lower indirect PE percentages. For a 
given service, the specific indirect percentage factor to apply to the 
direct costs for the purpose of the indirect allocation will be 
calculated as the weighted average of the ratio of the indirect to 
direct costs (based on the survey data) for the specialties that 
furnish the service. For example, if a service is furnished by a single 
specialty with indirect PEs that were 75 percent of total PEs, the 
indirect percentage factor to apply to the direct costs for the 
purposes of the indirect allocation would be (0.75/0.25) = 3.0.
(2) Continued Use of the Specialty-Specific Indirect Scaling Factors
    As described earlier in this section, we incorporate the indirect 
PE/HR surveys into the methodology through the use of specialty-
specific indirect scaling factors. We would continue to use the 
specialty-specific indirect scaling factors; however, to apply them in 
a simpler manner we proposed to create an index. This index would 
reflect the relationship between each specialty's indirect scaling 
factor and the overall indirect scaling factor for the entire PFS. For 
example, if a specialty had an indirect practice cost index of 2.00, 
this specialty would have an indirect scaling factor that was twice the 
overall average indirect scaling factor. If a specialty had an indirect 
practice cost index of 0.50, this specialty would have an indirect 
scaling factor that was half the overall average indirect scaling 
factor. The calculation and application of the indirect practice cost 
index is described in more detail below in this section.
(3) Use of the Clinical Labor Costs in the Indirect Allocation for a 
Service When the Clinical Labor Costs are Greater than the Physician 
Work RVU
    We have received numerous comments that services with little or no 
physician work RVUs are disadvantaged under our current indirect 
allocation methodology based on the direct costs and the work RVUs. In 
response to these comments, when the clinical labor portion of the 
direct PE RVU is greater than the physician work RVU for a particular 
service, we proposed to allocate on the direct costs and the clinical 
labor costs. For example, if a service has no physician work, if the 
direct PE RVU is 1.10 and if the clinical labor portion of the direct 
PE RVU is 0.65 RVUs, we would use the 1.10 direct PE RVUs and the 0.65 
clinical labor portion of the direct PE RVUs for the indirect PE 
allocation for that service. As another example, if the physician work 
RVUs for a service are 0.25, if the direct PE RVU is 1.10 and if the 
clinical labor portion of the direct PE RVU is 0.65 RVUs, we would use 
the 1.10 direct PE RVUs and the 0.65 clinical labor RVUs for the 
indirect allocation for that service. We would not use the 0.25 
physician work RVUs for the indirect PE allocation since the 0.65 
clinical labor RVUs are greater than the 0.25 physician work RVUs.
(4) Use of 2005 Utilization Data in the Indirect PE RVU Calculation
    Under the current PE methodology, we predominately use the 1997-
2000 utilization data in the calculation of the indirect PE RVUs when 
the service existed during 1997-2000 or the first year of utilization 
data if the service did not exist during that time period. We used 
those years of utilization data primarily to increase the year-to-year 
stability of the PE RVUs. With the changes we proposed to PE RVUs, in 
particular the elimination of the NPWP, we will increase the year-to-
year stability of the PE RVUs. We believe it is now appropriate to use 
updated utilization data in the calculation of the indirect PEs. We 
believe the other proposed changes in the PE methodology would help 
obtain the year-to-year stability we were attempting to achieve by 
continuing to use the older utilization data. Additionally, the use of 
more current utilization data would reflect the more current practice 
patterns. We proposed to use the 2005 utilization data in the 
calculation of the 2007 indirect PE RVUs. We also sought comments on 
whether the utilization data should be updated yearly, which would 
increase the accuracy of the PE calculations, or less often, which 
would increase the stability of the PE RVUs.
(5) Elimination of the Special Methodologies for Services with 
Technical Components (TCs) and Professional Components (PCs)
    Under the PFS, when services have TC, PC, and global components 
that can be billed separately, the payment for the global component 
equals the sum of the payment for the TC and PCs. Under the current PE 
methodology, the different mix of specialties that furnish the global, 
TC and PCs can cause the PE RVUs, otherwise created by the methodology, 
to fail to add together properly; that is, the global component does 
not equal the sum of the PC and TCs. The global component might exceed 
the sum of the TC and PCs or it might be less than the sum of the TC 
and PCs. We ensure that the TC and PCs add to the global component in 
one of two ways. For services in the NPWP, we set the PE RVUs for the 
global component equal to the sum of the PC PE RVU and the TC PE RVU. 
For services outside the NPWP, we set the PE RVUs for the TC equal to 
the difference between the global PE RVUs and the PC RVUs.
    With our proposed change to a bottom-up methodology for the direct 
PEs, there will be no weighted averaging of the direct cost inputs 
necessary to create the direct PE RVUs and, therefore, the direct PE 
RVUs for the PC and TCs would sum to the global component. Under the 
current methodology, as a result of the process used to ensure the PC 
and TCs sum to the global, RVUs for a service with a global component 
can be either more or less than the RVUs that would have been 
calculated for the service if the PC and TCs did not have to sum to the 
global.
    Given the proposed change to bottom-up methodology and the 
elimination of the NPWP, we believe it is

[[Page 69634]]

inappropriate to have codes for which the global, and the TC and PCs 
are assigned RVUs that are either less than or greater than the 
methodology would otherwise produce, and thus, are paid at a rate that 
is either less than or greater than the methodology would otherwise 
specify. (See section II.A.1. of this final rule with comment period 
for the discussion of the current methodology.) Therefore, we proposed 
that in the calculation of the indirect percentage factor described 
earlier in section II.A.3.a.(1), we would use a weighted average of the 
ratio of indirect to direct costs across all the specialties that 
furnish the global components, TCs, and PCs; that is, we would apply 
the same weighted average indirect percentage factor to allocate 
indirect expenses to the global components, PC, and TCs for a service. 
We also proposed to utilize a similar weighted averaging approach 
across all the specialties that furnish the components when calculating 
the indirect PE scaling factor. Because the direct PE RVUs for the TC 
and PCs sum to the global under the bottom-up methodology, and we 
proposed to calculate the indirect percentage factor and the indirect 
scaling factor so that they do not vary between the TCs, PCs, and 
global components, our proposed methodology would create TCs and PCs 
that sum to the global, and no other special methodology would need to 
be employed.
(a) PE RVU Methodology
    The following is a description of the proposed PE RVU methodology.
(i) Setup File
    First, we create a setup file for the PE methodology. The setup 
file contains the direct cost inputs, the utilization for each 
procedure code at the specialty and facility/nonfacility place of 
service level, and the specialty-specific survey PE per physician hour 
data.
(ii) Calculate the Direct Cost PE RVUs
    Sum the costs of each direct input.
    Step 1: Sum the direct costs of the inputs for each service. The 
direct costs consist of the costs of the direct inputs for clinical 
labor, medical supplies, and medical equipment. The clinical labor cost 
is the sum of the cost of all the staff types associated with the 
service; it is the product of the time for each staff type and the wage 
rate for that staff type. The medical supplies cost is the sum of the 
supplies associated with the service; it is the product of the quantity 
of each supply and the cost of the supply. The medical equipment cost 
is the sum of the cost of the equipment associated with the service; it 
is the product of the number of minutes each piece of equipment is used 
in the service and the equipment cost per minute. The equipment cost 
per minute is calculated as described at the end of this section.
    Apply a BN adjustment to the direct inputs.
    Step 2: Calculate the current aggregate pool of direct PE costs. To 
do this, multiply the current aggregate pool of total direct and 
indirect PE costs (that is, the current aggregate PE RVUs multiplied by 
the CF) by the average direct PE percentage from the SMS and 
supplementary specialty survey data.
    Step 3: Calculate the aggregate pool of direct costs. To do this, 
for all PFS services, sum the product of the direct costs for each 
service from Step 1 and the utilization data for that service.
    Step 4: Using the results of Step 2 and Step 3 calculate a direct 
PE BN adjustment so that the proposed aggregate direct cost pool does 
not exceed the current aggregate direct cost pool and apply it to the 
direct costs from Step 1 for each service.
    Step 5: Convert the results of Step 4 to an RVU scale for each 
service. To do this, divide the results of Step 4 by the Medicare PFS 
CF.
(iii) Create the Indirect PE RVUs
    Create indirect allocators.
    Step 6: Based on the SMS and supplementary specialty survey data, 
calculate direct and indirect PE percentages for each physician 
specialty.
    Step 7: Calculate direct and indirect PE percentages at the service 
level by taking a weighted average of the results of Step 6 for the 
specialties that furnish the service. Note that for services with TC 
and PCs we are calculating the direct and indirect percentages across 
the global components, PCs and TCs. That is, the direct and indirect 
percentages for a given service (for example, echocardiogram) do not 
vary by the PC, TC and global components.
    Step 8: Calculate the service level allocators for the indirect PEs 
based on the percentages calculated in Step 7. The indirect PEs are 
allocated based on the three components: The direct PE RVU, the 
clinical PE RVU and the work RVU. (Note that the work RVU used in the 
calculation included the separate work BN adjustment from the 5-Year 
Review of the work RVUs discussed in the June 29, 2006 proposed notice. 
In this final rule, unadjusted work RVUs are used.)
    For most services the indirect allocator is:

indirect percentage * (direct PE RVU/direct percentage) + work RVU.

    There are two situations where this formula is modified:
     If the service is a global service (that is, a service 
with global, professional and technical components), then the indirect 
allocator is:

indirect percentage * (direct PERVU/direct percentage) + clinical PE 
RVU + work RVU.

     If the clinical labor PE RVU exceeds the work RVU (and the 
service is not a global service), then the indirect allocator is:

indirect percentage * (direct PERVU/direct percentage) + clinical PE 
RVU.

    (Note that for global services the indirect allocator is based 
on both the work RVU and the clinical labor PE RVU. We do this to 
recognize that, for the professional service, indirect PEs will be 
allocated using the work RVUs, and for the TC service, indirect PEs 
will be allocated using the direct PE RVU and the clinical labor PE 
RVU. This also allows the global component RVUs to equal the sum of 
the PC and TC RVUs.)

    For presentation purposes in the examples in the Table 1, the 
formulas were divided into two parts for each service. The first part 
does not vary by service and is

the indirect percentage * (direct PE RVU/direct percentage).

    The second part is either the work RVU, clinical PE RVU, or both 
depending on whether the service is a global service and whether the 
clinical PE RVU exceeds the work RVU (as described earlier in this 
step.)
    Apply a BN adjustment to the indirect allocators.
    Step 9: Calculate the current aggregate pool of indirect PE RVUs by 
multiplying the current aggregate pool of PE RVUs by the average 
indirect PE percentage from the physician specialty survey data. This 
is similar to the Step 2 calculation for the direct PE RVUs.
    Step 10: Calculate an aggregate pool of proposed indirect PE RVUs 
for all PFS services by adding the product of the indirect PE 
allocators for a service from Step 8 and the utilization data for that 
service. This is similar to the Step 3 calculation for the direct PE 
RVUs.
    Step 11: Using the results of Step 9 and Step 10, calculate an 
indirect PE adjustment so that the aggregate indirect allocation does 
not exceed the available aggregate indirect PE RVUs and apply it to 
indirect allocators calculated in Step 8. This is similar to the Step 4 
calculation for the direct PE RVUs.
    Calculate the Indirect Practice Cost Index.
    Step 12: Using the results of Step 11, calculate aggregate pools of 
specialty-specific adjusted indirect PE allocators

[[Page 69635]]

for all PFS services for a specialty by adding the product of the 
adjusted indirect PE allocator for each service and the utilization 
data for that service.
    Step 13: Using the specialty-specific indirect PE/HR data, 
calculate specialty-specific aggregate pools of indirect PE for all PFS 
services for that specialty by adding the product of the indirect PE/HR 
for the specialty, the physician time for the service, and the 
specialty's utilization for the service.
    Step 14: Using the results of Step 12 and Step 13, calculate the 
specialty-specific indirect PE scaling factors as under the current 
methodology.
    Step 15: Using the results of Step 14, calculate an indirect 
practice cost index at the specialty level by dividing each specialty-
specific indirect scaling factor by the average indirect scaling factor 
for the entire PFS.
    Step 16: Calculate the indirect practice cost index at the service 
level to ensure the capture of all indirect costs. Calculate a weighted 
average of the practice cost index values for the specialties that 
furnish the service. Note that for services with TC and PCs, we 
calculate the indirect practice cost index across the global 
components, PCs and TCs. Under this method, the indirect practice cost 
index for a given service (for example, echocardiogram) does not vary 
by the PC, TC and global components.
    Step 17: Apply the service level indirect practice cost index 
calculated in Step 16 to the service level adjusted indirect allocators 
calculated in Step 11 to get the indirect PE RVU.
(iv) Calculate the Final PE RVUs.
    Step 18: Add the direct PE RVUs from Step 6 to the indirect PE RVUs 
from Step 17.
    Step 19: Calculate and apply the final PE BN adjustment by 
comparing the results of Step 18 to the current pool of PE RVUs. This 
final BN adjustment is primarily required because certain specialties 
are excluded from the PE RVU calculation for rate-setting purposes, but 
all specialties are included for purposes of calculating the final BN 
adjustment. (See ``Specialties excluded from rate-setting calculation'' 
below in this section.)
(v) Setup File Information
     Specialties excluded from rate-setting calculation: For 
the purposes of calculating the PE RVUs, we exclude certain specialties 
such as midlevel practitioners paid at a percentage of the PFS, 
audiology, and low volume specialties from the calculation. This is the 
same approach used under the current methodology. These specialties are 
included for the purposes of calculating the BN adjustment.
     Crosswalk certain low volume physician specialties: 
Crosswalk the utilization of certain specialties with relatively low 
PFS utilization to the associated specialties. This is the same 
approach used under the current methodology.
     Physical therapy utilization: Crosswalk physical therapy 
utilization to the specialty of physical therapy. This is the same 
approach used under the current methodology.
     Identify professional and technical services not 
identified under the usual TC and 26 modifier: Flag the services that 
are PC and TC services, but do not use TC and 26 modifiers (for 
example, electrocardiograms). This flag associates the PC and TC with 
the associated global code for use in creating the indirect PE RVU. For 
example, the professional service code 93010 is associated with the 
global code 93000.
     Payment modifiers: Payment modifiers are accounted for in 
the creation of the file. For example, services billed with the 
assistant at surgery modifier are paid 16 percent of the PFS amount for 
that service; therefore, the utilization file is modified to only 
account for 16 percent of any service that contains the assistant at 
surgery modifier.
     Work RVUs from the 5-Year Review: The setup file contains 
the proposed work RVUs from the 5-Year Review published in the June 29, 
2006 proposed notice (71 FR 37174).
(vi) Equipment Cost Per Minute =
    The equipment cost per minute is calculated as:

(1/(minutes per year * usage)) * price * ((interest rate/(1-(1/((1 + 
interest rate) * life of equipment)))) + maintenance)

Where:

minutes per year = maximum minutes per year if usage were continuous 
(that is, usage = 1); 150,000 minutes.
usage = equipment utilization assumption; 0.5.
price = price of the particular piece of equipment.
interest rate = 0.11.
life of equipment = useful life of the particular piece of 
equipment.
maintenance = factor for maintenance; 0.05.

BILLING CODE 4120-01-P

[[Page 69636]]

[GRAPHIC] [TIFF OMITTED] TR01DE06.002


[[Page 69637]]


[GRAPHIC] [TIFF OMITTED] TR01DE06.003

BILLING CODE 4120-01-C

[[Page 69638]]

(b) Transition the Resulting Revised PE RVUs Over a 4-Year Period
    As explained in the June 29, 2006 proposed notice, we had concerns 
that, when combined with a negative update factor for CY 2007 and the 
changes to the work RVUs under the 5-Year Review, the shifts in some of 
the PE RVUs resulting from the immediate implementation of our 
proposals could potentially cause some disruption for medical practices 
(71 FR 37252). Therefore, we proposed to transition the PE changes over 
a 4-year period. This would also give ample opportunity for us, as well 
as the medical specialties and the RUC, to identify any anomalies in 
the PE data, to make any further appropriate revisions, and to collect 
additional data as needed prior to the full implementation of the PE 
changes.
    During the transition period, the PE RVUs would be calculated on 
the basis of a blend of RVUs calculated using our methodology described 
above in this section (weighted by 25 percent during CY 2007, 50 
percent during CY 2008, 75 percent during CY 2009, and 100 percent 
thereinafter), and the current CY 2006 PE RVUs for each existing code. 
PE RVUs for codes that are new during this period would be calculated 
using only the methodology, and paid at the fully transitioned rate.
    We also believe the methodology is less confusing and more 
intuitive than the current approach. First, the NPWP would be 
eliminated and all services would be priced using one methodology, 
eliminating the complicated calculations needed to price NPWP services. 
Second, any revisions made to the direct inputs for one or more 
services would now have predictable results. Changes in the direct 
practice inputs for a service would proportionately change the PE RVUs 
for that service without significantly affecting the PE RVUs for 
unrelated services (except, of course, to the extent that a BN 
adjustment is required to be applied by the statute).
    The methodology will also create a system that would be 
significantly more stable from year-to-year than the current approach. 
Specialties should no longer experience the wide fluctuations in 
payment for a given service due to an aberrant direct cost scaling 
factor. Direct PEs should only change for a service if the service is 
further refined or when prices are updated, while indirect PEs should 
change only when there are changes in the mix of specialties furnishing 
the service or if any future new survey data for indirect costs are 
utilized.
b. Comments and Responses From the June 29, 2006 Proposed Notice
    The following is a summary of the comments we received on the June 
29, 2006 proposed notice (71 FR 37170).
(1) Bottom-Up Methodology
    Comment: The majority of commenters expressed support for the 
proposed bottom-up approach to calculating resource-based PE RVUs. Many 
of these commenters stated that the bottom-up approach, which bases the 
direct portion of the PE RVUs on the actual direct cost inputs, 
produces more accurate, intuitive, and stable PE RVUs.
    A few commenters expressed concern about the proposed bottom-up 
approach. These commenters were not critical of the merits of the 
proposed bottom-up methodology itself, but were instead critical of the 
data sources used in the calculation of resource-based PE RVUs. The 
commenters suggested that the proposal should be delayed until the 
direct cost data, aggregate specialty cost data, and indirect specialty 
cost data derived from the aggregate specialty cost data could be 
verified.
    Response: We are appreciative of the support for the proposed 
bottom-up approach to calculating resource-based PE. We also appreciate 
the comments that expressed concern about our data sources, since we 
also believe that it is important that we use the best available data 
to develop the PE RVUs. As discussed in greater detail in subsequent 
responses, we do believe that the data sources used to calculate the 
proposed PE RVUs are the best available at this time. This is 
particularly true of the direct cost input data that forms the basis of 
the bottom-up methodology, and that has been thoroughly analyzed and 
discussed by the RUC, PEAC, HCPAC and the PERC and then has been 
reviewed by us. Therefore, we will implement the bottom-up methodology 
as proposed.
(2) Supplemental Survey Data
    Comment: Several commenters expressed concern about the significant 
increase in PE values for specialty groups that submitted supplemental 
survey data. They stated their belief that the data has created serious 
inequities in the relativity of PE RVUs across the PFS. The commenters 
recommended that the supplemental survey data not be used; but, rather, 
that we wait until a new multi-specialty survey can be completed before 
using this revised data. One commenter questioned the validity of 
supplemental survey data, noting that the response rates were fairly 
low. The commenter also indicated that it was inequitable to accept 
more recent data from only a few specialties. Another commenter did not 
agree that individual specialty groups should be allowed to provide 
survey data. Conversely, several commenters strongly supported our 
acceptance and use of the supplementary survey data.
    Response: The BBRA requires us to establish a process for specialty 
groups to submit supplemental survey data. The statute mandated that we 
establish criteria for surveys, but required that we accept such data 
for only two years. However, to give all specialty groups an 
opportunity to submit data, we twice extended the period for submitting 
data. Therefore, we accepted data over a 6-year period, instead of the 
2-year period mandated by the Congress. In addition, our contractor, 
Lewin, was available to provide assistance to any group interested in 
submitting a survey by helping to ensure that the proper protocols were 
met in order to maximize the survey's chance of meeting our survey 
criteria.
    We recognize the limitations of the supplemental survey process. 
However, we were obligated by statute to establish and use such a 
process, all specialty groups had an equal opportunity to submit data, 
and groups that conducted surveys did so at great expense. If the 
submitted survey data met the criteria we established by notice and 
comment rulemaking, we were obligated to accept and use the 
supplemental survey data to the maximum extent practicable and 
consistent with sound data practices. Additionally, we previously 
accepted most of the surveys we proposed to use in the CY 2007 PFS 
proposed rule in either the CY 2005 or the CY 2006 PFS final rules with 
comment. Although we delayed the use of these surveys for various 
reasons, as explained fully in the CY 2005 and CY 2006 rules, there is 
no reason to continue to delay implementation of these surveys.
    We note that we support the AMA's efforts to field a multi-
specialty survey. However, the earliest this data would be available to 
incorporate into the PFS would be for CY 2009. We will consider any 
such data as soon as it becomes available.
    Comment: The majority of commenters expressed support for the 
design and use of a multi-specialty practice cost survey. Several 
commenters further recommended that any multi-specialty practice cost 
survey adhere to the same standards as the supplemental surveys 
accepted by CMS. Two commenters were concerned that a multi-specialty 
practice costs survey would not capture the practice costs

[[Page 69639]]

associated with specialties whose practices focus on technical 
services.
    Response: We support the design of an AMA-sponsored multi-specialty 
survey and we understand that over 40 physician and nonphysician 
specialties have agreed to participate. The AMA has designed this 
survey tool and the process has been open for comment to all interested 
parties. We have also offered comments on the survey design to ensure 
that both the appropriate practice cost data is collected and the 
highest standards are met in the collection of this data.
    Comment: A few commenters recommended that we commit to including 
the costs associated with uncompensated care in the PE RVUs. One 
commenter suggested that the costs of uncompensated care should be 
included in the AMA-sponsored multi-specialty practice cost survey.
    Response: Many specialties must deal with the issue of 
uncompensated care, though we believe that the number of patient care 
hours spent on uncompensated care is significantly higher for emergency 
medicine. We currently make an adjustment to the patient care hours for 
emergency medicine to account for the hours of uncompensated care 
included in the SMS survey because the calculated PE/hour should only 
reflect reimbursable hours. We agree that it would be beneficial if the 
AMA-sponsored multi-specialty survey includes a question on this issue.
    Comment: ACR expressed concern that we did not fully utilize its 
supplementary survey data by excluding data on part-time physicians.
    Response: The precedent for applying average full-time practice 
hours to all doctors in the practice when analyzing practice hours was 
set by the AMA's Socioeconomic Monitoring System (SMS) and was also 
discussed in the September 23, 2003 Lewin report, ``Recommendations 
Regarding Supplemental Practice Expense Data Submitted for 2004.'' As 
described in this report, independent laboratory organizations were 
surveyed at the practice level because most independent labs are owned 
by an organization, not physicians; this is also the case with many 
free-standing radiology practices.
    Lewin applied a comparable methodology to the radiology practice 
level supplemental survey data for its May 26, 2004 recommendation to 
CMS. The radiology supplemental survey reported that less than 10 
percent of radiologists in the practice were part-time doctors. The 
average of the practice hours for the 2,250 full-time doctors was 38.9 
hours and for the 237 part-time doctors 22.2 hours. Using the 
supplemental survey data results in less than a 5 percent increase in 
the total practice hours over the number of hours derived from using 
the SMS methodology.
    We have determined that the original Lewin calculation is 
consistent with historical practice hour calculations used in the SMS, 
and with subsequent recommendations submitted by Lewin to CMS.
    Comment: Lewin recommended accepting supplemental survey data from 
ASTRO and AFROC by blending the data in the proportion of 75 percent 
hospital-based radiation oncology and 25 percent freestanding radiation 
oncology, resulting in a PE/HR of $161.08. AFROC engaged the services 
of an independent claims analyst who found that a 62/38 proportion is 
more appropriate, resulting in a PE/HR of $213. AFROC supplied this 
information as part of its comments on the proposed notice.
    Response: Lewin calculated a PE/HR for radiation oncology of 
$161.08, which is the weighted average based on the percentage of 
Medicare claims for hospital-based (75 percent) versus freestanding (25 
percent) radiation oncologists. In our standard outpatient claims data 
file for 2003, a radiation oncologist was deemed to be hospital-based 
if 50 percent or more of his claims, based on the Unique Physician 
Identification Number (UPIN), were for services furnished at a 
hospital-based radiation oncology center. The rationale for weighting 
the PE/HR by Medicare claims was discussed by Lewin in its ``2005 
Recommendations to CMS'' regarding the American Society for Therapeutic 
Radiation and Oncology (ASTRO) supplemental survey data.
    In its comments, AFROC offered two alternative calculations. The 
first proposed to recount the Medicare claims after removing TC only 
claims. This method results in a reweighting of hospital-based versus 
freestanding radiation oncologists of 64 percent hospital based and 36 
percent freestanding. The second method used time-weighting to 
determine the mix of hospital based versus freestanding practitioners. 
AFROC used physician time data for FY 2004 by radiation oncology CPT 
code and removed the TCs, resulting in a reweighting of hospital-based 
versus freestanding proportion of physician time of 62 percent to 38 
percent, yielding a combined average PE/HR of $213.07.
    Lewin reviewed AFROC's analysis and believes that AFROC presented 
two reasonable alternatives to weighting hospital-based and 
freestanding radiation oncologists, with both methods resulting in 
essentially the same answer. However, Lewin has determined that the 
time-weighting method is more consistent with the SMS and Lewin 
analysis of practice hours per physician. Lewin conducted the physician 
time-weighting analysis using our time and utilization data for FY 
2005, resulting in a hospital-based to freestanding weight of 63 
percent to 37 percent, respectively. The combined average using this 
weighting results in a PE/HR for radiation oncologist of $209.19, as 
shown in Table 2.

                                                                         Table 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          ASTRO survey                     AFROC survey          Combined average
                                                      --------------------------------------------------------------------------------------------------
                                                                                                                              ASTRO's         ASTRO's
                                                                                                                          hospital-based  hospital-based
                                                                                                                            and AFROC's     and AFROC's
                                                       Hospital-based   Freestanding   Weighted  average   Freestanding    freestanding    freestanding
                                                         physicians       practices                          practices     (by share of    (by share of
                                                                                                                             Medicare        physician
                                                                                                                              claims)          time)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number in Sample                                                   67              23  .................  ..............  ..............  ..............
Percent of Medicare Claims...........................           75.2%           24.8%  .................           24.8%  ..............  ..............
Percent of Physician Time (Facility vs. Non-Facility)           63.0%           37.0%  .................           37.0%  ..............  ..............

[[Page 69640]]


Direct PE per hour:
    Clinical Payroll.................................           $9.93         $104.80             $33.46         $153.24          $45.47          $62.98
    Medical Equipment................................            3.64           80.92              22.81           91.04           25.32           35.99
    Medical Supplies.................................            1.56           31.56               9.00           13.11            4.42            5.84
Indirect PE per hour:
    Office Expense...................................           19.31           69.40              31.73           87.88           36.32           44.69
    Clerical Payroll.................................           12.04           39.42              18.83           59.56           23.82           29.63
    Other Expense....................................           16.92           20.17              17.73           52.43           25.73           30.06
                                                      --------------------------------------------------------------------------------------------------
        Total PE per hour............................           63.40          346.27             133.55          457.26          161.08          209.19
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Lewin agrees with AFROC that weighting by hours of patient care is 
most consistent with our underlying methodology for calculating 
physician practice hours. Lewin has recommended that the time-weighting 
methodology for determining the percentage of hospital-based to 
freestanding radiation oncologist PE be adopted, which would result in 
a PE/HR of $213/HR based on 2004 data or $209/HR based on 2005 data. We 
accept Lewin's recommendation and will implement a PE/HR of $209 for 
radiation oncology.
(3) Nonphysician Workpool
    Comment: With the exception of those comments that requested that 
we delay the entire revision to the PE methodology, the majority of 
commenters expressed support for the elimination of the NPWP.
    Response: The development of the NPWP was necessitated by our lack 
of accurate aggregate cost data for specialties such as radiology and 
radiation oncology necessitated the development of the NPWP. The major 
specialties comprising the NPWP have now submitted supplemental survey 
data that we have accepted. Now that we have reliable aggregate PE data 
for these specialties, as well as and refined direct input data at the 
code level, we will finalize our proposal to eliminate the NPWP.
(4) Indirect PE RVUs Methodology
    Comment: Many commenters recommended that we not use the budget-
neutralized work RVUs in the indirect PE allocation, but rather use the 
unadjusted work RVUs.
    Response: As discussed in section III.D.3. of this final rule with 
comment period , the BN adjustment necessitated by the 5-Year Review of 
work RVUs will be accomplished through the use of a separate, BN 
adjustor applied to the work RVUs. However, as recommended by the 
commenters, we will not use the budget-neutralized work RVUs to 
calculate indirect PE.
    Comment: Many commenters disagreed with the use of the physician 
work RVUs in allocating indirect PE. Some commenters further contended 
that the intensity portion of physician work has no correlation to 
indirect PEs. A few commenters contended that physician time would be a 
more appropriate allocation tool than physician work RVUs.
    Response: There is no perfect method of allocating indirect 
expenses down to individual services. We believe the work RVUs are the 
most constant of the available allocation tools, and this 
characteristic coincides best with our goal of stability for the PE 
RVUs. In this final rule with comment, we will continue to use the work 
RVUs as one of the indirect PE allocators.
    Comment: Many commenters supported the proposal to use clinical 
labor costs as an indirect allocator when either the clinical labor RVU 
exceeds the work RVU or when the service does not contain physician 
work. Two commenters disagreed with the use of clinical labor costs in 
allocating indirect PE and stated that this is a ``fudge factor'' that 
inappropriately allocates costs to services with very low or no 
physician work.
    Response: Because work RVUs reflect the time required to perform 
the service in addition to the intensity of the physician work 
involved, services with low or no work RVUs could be valued 
inappropriately unless we use a proxy for the work RVUs in allocating 
indirect PE to them. To bring these services onto the same scale as 
services that do contain physician work, we believe it is appropriate 
to utilize clinical labor costs as a proxy for physician work in the 
indirect allocation. We agree with the majority of commenters and will 
finalize our proposal to use clinical labor costs in allocating 
indirect PE where the physician work RVU is zero or less than the 
clinical labor RVU.
    Comment: Several commenters recommended that the methodology be 
modified to include clinical labor time in the calculation of 
specialty-specific aggregate indirect PE pools.
    Response: We do not agree with the commenters because the PE/HR for 
each specialty is calculated using physician time as the denominator; 
clinical staff time is not included in that calculation. It would be 
inconsistent to then use clinical labor time in the creation of the 
specialty-specific indirect PE pools.
    Comment: Many commenters recommend the use of unscaled direct 
inputs in the allocation of the indirect PE.
    Response: It would be inconsistent to base the direct PE RVUs on 
budget neutral scaled direct inputs, and then use unscaled direct 
inputs that are not budget neutral in creation of the indirect PE RVUs. 
We also disagree with the commenters' suggestion that we should use 
unscaled inputs for the direct PE RVUs. Direct costs represent, on 
average, approximately one-third of PEs based on the SMS survey data.

[[Page 69641]]

Therefore, we believe it is appropriate to scale the direct inputs so 
that approximately one-third of the aggregate PE RVUs are for direct 
PEs.
    Comment: Several commenters contended that the approach of basing 
PE calculations on the weighted average of all specialties performing a 
service is flawed and should be replaced with an approach that bases 
the specialty-weighted factors upon specialties that represent 95 
percent of the utilization for a CPT code and modifier. A commenter 
stated that utilizing the service counts associated with lower cost 
specialties, such as optometry, that would perform only the 
postoperative portion of a service, as opposed to the full service, 
inappropriately deflates the total PEs of a service when the practice 
costs of these specialties are weight averaged.
    Response: With regards to the general question of including all 
specialties performing a service in the weight-averaging of the 
practice costs of the service, this is an issue that has been raised 
since we first proposed a resource-based PE methodology. We still 
believe, as we have previously stated, that the inclusion of 
specialties that perform a very small proportion of a service has no 
discernible impact on the PE calculation.
    We agree that it would be inappropriate to assign full service 
counts to a specialty that only performs the postoperative work of a 
given surgical procedure. For this reason, we have always adjusted the 
per specialty utilization for a service using the appropriate payment 
modifier (modifier -55) before the service is used to weight the 
practice costs of the various specialties performing a given service. 
For example, if a specialty performs 100,000 postoperative-only 
services for a specific procedure (that is, uses modifier -55), those 
services would be counted based upon the code-specific postoperative 
percentage multiplied by the 100,000 services. If the postoperative 
percentage was 10 percent, the specialty performing 100,000 
postoperative-only services will be weighted with only 10,000 services. 
Therefore, we do not believe that any further adjustments are needed.
    Comment: One commenter recommended that the indirect PE allocation 
be distributed from the global services to the professional and 
technical services based upon the share of billings for each service.
    Response: Although we are unsure of what, exactly, the commenter is 
suggesting, it is not clear to us how this recommendation could result 
in an appropriate resource-based PE RVU (for example, if the majority 
of services furnished were for the PC of a procedure, we believe the 
commenter is suggesting that it would then be necessary for the PC to 
have a higher PE RVU then the TC). Therefore, we will retain our 
current methodology for the allocation of indirect PE for services with 
TC and PCs, but we welcome further clarification regarding this 
suggestion.
(5) Transition Period
    Comment: The majority of commenters expressed support for the 
proposal to transition the PE methodology changes over a 4-year period. 
One commenter recommended that if the work RVU changes associated with 
the 5-Year Review are not transitioned, then the PE RVUs should also 
not be transitioned.
    Response: We are concerned that, when combined with the negative 
update adjustment factor (UAF) for CY 2007 and the impact of changes to 
the work RVUs under the 5-Year Review, the shifts associated with the 
PE methodology changes could potentially cause some disruption for 
medical practices. For this reason, we will finalize the proposed 4-
year transition to the PE methodology.
    Comment: One comment supported the use of supplemental survey data, 
but requested that this supplemental survey data be implemented with no 
transition, since this data was originally accepted 1-2 years ago.
    Response: The supplemental survey data is not independently 
transitioned in the proposed PE methodology. Rather, the RVUs resulting 
from all the changes to the methodology, which are to some degree 
interdependent, would be transitioned over 4 years. It would be very 
difficult to isolate one aspect of our proposed methodology and exempt 
it from the transition. In addition, we are concerned that such an 
approach could lead to inequities whereby, for a given specialty, a PE 
methodology change that has a positive impact would be transitioned 
over 4 years, while a change with a negative impact would not. For 
these reasons, we will finalize the 4-year transition as proposed.
(6) Other Comments on the PE Methodology
    Comment: Several commenters requested that one budget neutrality 
factor (BNF) be applied for PE as opposed to applying a direct 
adjuster, an indirect adjuster, and a final BN adjustment.
    Response: The separate adjusters for the direct and indirect pools 
of RVUs are not pure BN adjustments but are more appropriately viewed 
as scaling factors. The purpose of the separate direct and indirect 
adjustments is to scale the pool of direct input RVUs and the pool of 
indirect RVUs to the direct and indirect RVUs that are available, as 
determined by the total direct and indirect dollars from the SMS and 
supplemental surveys. For this reason, the adjustments should be viewed 
as direct and indirect scaling factors, as opposed to BN adjustments. 
If we only applied one BN/scaling factor to the final PE RVUs, there 
would not be the appropriate balance between the direct and indirect PE 
RVUs and services with more direct RVUs would be paying for those 
services with less direct RVUs, since the indirect scaler is greater 
then the direct scaler.
    Since the direct and indirect RVU pools are scaled and made 
``budget neutral'' in these initial steps, the final BN adjustment is 
very small. The only reason the final adjustment is needed is because 
the RVUs associated with specialties that are not used in the rate 
setting process need to be incorporated back into the system. This 
introduction of additional RVUs causes a very small adjustment in the 
final step. For these reasons, we will finalize the proposal to utilize 
three separate adjustments in the calculation of resource-based PE 
RVUs.
    Comment: Several commenters applauded our proposals relating to the 
PE methodology for being more intuitive and transparent, but requested 
that we go one step further toward pure transparency by publishing the 
PE/HR figures and the specialty indirect practice cost indices.
    Response: We appreciate the support for the intuitive and 
transparent nature of the revised methodology. Following our original 
intention of making this methodology resource-based, intuitive, and 
transparent, we will publish both the PE/HR figures and the indirect 
practice cost indices on the homepage of the CMS Web site.
    Comment: A few commenters requested that either their services be 
``frozen'' at the current 2006 PE RVUs or that a floor be placed on the 
percent reduction associated with any given service due to the revised 
methodology.
    Response: We do not believe it would be equitable to maintain 
current values for certain codes or to place a floor on the percentage 
reduction associated with a given service in a resource-based system. 
However, in order to minimize any potential disruptive effects that 
could be caused by sudden shifts in RVUs, we will be finalizing our 
proposal to transition to the bottom-up methodology over a 4-year 
period. This transition period will allow interested

[[Page 69642]]

parties an opportunity to review the data elements associated with 
their services. For these reasons, we will not institute a floor on the 
reduction in PE RVUs for a service, nor will we freeze any services at 
their CY 2006 PE RVUs.
    Comment: Several commenters have requested that, for purposes of 
calculating resource-based PE RVUs, certain services should be assigned 
to specialties with higher PEs then those that are reported in the 
Medicare claims data.
    Response: Unless there is evidence that the Medicare claims data is 
incorrect, or that there is something unique about the services in 
question, we do not believe it would be appropriate to override our 
existing utilization data. The Medicare claims data identifies what 
specialties are furnishing what services and this is an essential 
component in the development of our resource-based system. If 
interested specialties contend that persons within their specialty are 
reporting their specialty designation incorrectly, we urge those 
specialties to work with their respective organizations to educate 
their membership about the importance of correct reporting of their 
specialty designation when billing Medicare.
    Comment: Several commenters contended that the independent 
diagnostic testing facility (IDTF) survey data does not reflect the 
costs of cardiac event monitoring services, because issues such as 
hours of operation, intense staffing needs and equipment usage are not 
taken into account.
    Response: We agree with the commenters that cardiac event 
monitoring services are unique and are not appropriately represented by 
the IDTF survey data. For this reason, we will use the PE data 
associated with cardiology to value these services. Additionally, as 
discussed in more detail in the section on direct cost inputs (section 
II.A.4.f. of this final rule with comment period), we are revising the 
direct inputs for these services to reflect that the PEs are not 
limited to direct patient encounters.
    Comment: Some commenters recommended that we review the crosswalk 
used for both interventional pain management and pain medicine in the 
CY 2007 PFS proposed rule. The commenters suggested that the 
appropriate crosswalk for these specialties is the ``all physician'' 
PE/HR.
    Response: We agree with this comment and will crosswalk both 
interventional pain management and pain medicine to the ``all 
physician'' PE/HR.
    Comment: Several commenters supported the use of revised 2005 
utilization data. A few commenters expressed concerns that the use of 
this revised single year data might cause problems with the stability 
of the PE RVUs and requested that we delay using this data until the 
impact on the stability of PE RVUs can be determined.
    Response: We will finalize our proposal to incorporate the most 
current Medicare utilization data into the calculation of resource-
based PE RVUs. We have always attempted to use the most current data 
available in rate-setting. Although we understand the concerns conveyed 
by the few comments that requested a delay in the use of the 2005 
utilization data, we do not believe that the use of this data will 
destabilize the PE RVUs to the extent that a delay would be warranted.
    Comment: Some commenters contended that we are in violation of the 
MMA when reducing the PE RVUs of drug administration services by 
adopting a new methodology. The commenters stated that, because the 
oncology supplemental survey is not being used for the same purpose as 
it was when MMA directed us to use the survey, all drug administration 
services must be exempt from any impact associated with the revised PE 
methodology.
    Response: We disagree with this comment. Although the MMA was 
enacted prior to these changes in our PE methodology, the MMA did not 
prescribe the use of any particular resource-based PE RVU methodology 
or constrain our rulemaking authority. The MMA directed us to use the 
oncology survey data in determining PE RVUs. We have, in fact, used the 
survey data (in exactly the way the Congress envisioned when it passed 
MMA) to establish PE RVUs for services furnished during CYs 2004, 2005 
and 2006. In addition, under the revised PE methodology, we are 
utilizing the survey data in the calculation of the indirect PE RVUs. 
Thus, we do not believe that the use of the survey data within our 
revised methodology violates the provisions of MMA.
    Comment: Several commenters contended that the proposed indirect 
practice costs may not be appropriate for cardiology practices that 
operate free-standing cardiac catheterization labs. The commenters 
further stated that the nonfacility technical billings for cardiac 
catheterization are dominated by IDTFs, but the IDTF supplemental 
survey data was primarily based on imaging centers. The commenters 
recommended that the cardiac catheterization services be based solely 
upon the PE data for cardiology.
    Response: We agree with these comments. We currently do not have 
direct cost input data for the nonfacility setting for these services. 
Until we are able to obtain such data, we will carrier-price the 
cardiac catheterization codes. We urge interested parties to continue 
to work with the RUC to develop direct cost inputs for these services 
in the future.
    Comment: One commenter recommended that we reinstate the clinical 
labor costs associated with physicians bringing their own staff to the 
hospital and contended that not counting these costs is in violation of 
the statute.
    Response: We have indicated that we will not pay for clinical staff 
brought by physicians to the hospital for the following reasons: (1) 
These costs are already paid to the hospital and would thus be a double 
payment; (2) we already pay for physician extender staff through the 
physician work RVUs; and (3) we pay physician assistants (PAs) directly 
when they serve as assistants at surgery. In response to this decision, 
the thoracic surgeons contended that hospitals are no longer providing 
the staff to furnish adequate care. We asked the Office of Inspector 
General (OIG) to conduct an independent assessment of the staffing 
arrangements between hospitals and thoracic surgeons. In response to 
our request, in an April 2002 report, the OIG clearly supported our 
position to exclude the costs of clinical staff brought to the hospital 
from the PE calculations. For these reasons we will continue to exclude 
the clinical labor costs associated with physicians bringing their own 
staff to the hospital from the calculation of resource-based PE RVUs.
    Comment: One commenter recommended that the practice costs 
associated with the handling of pharmaceuticals should be incorporated 
into the cost categories associated with the calculation of resource-
based PE RVUs.
    Response: The commenter did not offer any recommended inputs or 
strategies on how to incorporate these costs into the methodology. For 
this reason we will not incorporate any additional costs related to the 
handling of pharmaceuticals into the methodology at this time.
    Comment: One commenter recommended that administrative staff time 
should be counted as a direct cost.
    Response: Administrative staff time was included in the original 
CPEP data as direct PE. However, because of the difficulty in 
accurately assigning the

[[Page 69643]]

administrative time to individual procedures, we then converted this 
expense to an indirect cost. We agree that, in principle, it could be 
helpful to treat as many of the practice costs as possible as direct, 
rather than indirect PE, and we would be willing to consider such 
recommendations if the PERC or RUC would agree to undertake the task of 
assigning administrative staff times to each code.
    Comment: One commenter recommended that special resource 
considerations for screening services should be factored into the 
calculation of the PE RVUs.
    Response: We have attempted to account for all resource cost in the 
calculation of the PE RVUS for all services. Unfortunately, the 
commenter did not supply any documentation regarding additional 
resources that the commenter believes should be included for screening 
services. Therefore, we will not add additional resources as requested 
at this time.
    Comment: Many specialty societies expressed concern that the 
Medicare database currently does not permit the collection of nurse 
practitioner (NP) specialty-specific data. The commenters contended 
that this limitation unfairly excludes NPs from participating in 
certain demonstration projects and other programs. The commenters also 
state that they are ready to work with us on this and any related 
issues.
    Response: It is not clear from the comment exactly what specialty-
specific data is at issue. However, we would certainly be willing to 
work with the commenters to address their concerns.
4. Additional PE Issues for CY 2007
a. RUC Recommendations for Direct PE Inputs and Other PE Input Issues
    In the CY 2007 PFS proposed rule (71 FR 48982), we proposed the 
following concerning direct PE inputs.
(i) RUC PE Recommendations
    The AMA's Relative Value Update Committee (RUC) established a new 
subcommittee, the Practice Expense Review Committee (PERC), to assist 
the RUC in recommending direct PE inputs (clinical staff, supplies, and 
equipment) for new and existing CPT codes. The RUC reviews and gives 
final approval for all PERC recommendations.
    The PERC reviewed the PE inputs for over 2000 existing codes, some 
of which were unresolved PE issues from the CY 2006 PFS final rule with 
comment period, at their meetings held in September 2005, February 2006 
and April 2006.
    We reviewed the PERC recommendations that were forwarded by the RUC 
and proposed to adopt all of them. We have worked with the AMA staff to 
correct any typographical errors and to ensure that previously PEAC-
accepted standards are incorporated in the recommendations.
    The complete PERC recommendations and the revised PE database can 
be found on our Web site. (See the SUPPLEMENTARY INFORMATION section of 
this final rule with comment period for directions on accessing our Web 
site.)
    Comment: We received comments from many of the specialty societies 
thanking us for our acceptance of the PERC recommendations.
    Response: We thank the specialty societies for their positive 
remarks and we look forward to our continuing relationship with the 
PERC and the societies.
(ii) Standard Supplies and Equipment for 90-Day Global Codes
    In our proposed rule of August 22, 2006, we proposed to revise the 
CPEP supply and equipment inputs for those 90-day global procedures for 
which the RUC had only refined the clinical labor direct PE inputs. We 
proposed to apply the standard supply and equipment inputs for the 
facility setting for 90-day global services to these remaining 
unrefined 90-day global procedure codes. As recommended by the PERC at 
its April 2006 meeting, for supplies, we proposed to include one 
minimum supply visit package for each postoperative visit assigned to 
each code and a postsurgical incision care kit (suture, staple, or 
both) where appropriate, along with additional items reviewed and 
recommended by the PERC for certain procedures. For equipment, we 
proposed to include an exam table and light as the standard equipment, 
as well as other equipment items recommended by the PERC that were 
identified by the specialty societies as necessary during the 
postoperative visit period. However, there are several issues on which 
we requested input from the PERC or the specialty before we finalized 
the recommended standards. For example, for many of the 90-day codes in 
question, the current supply input data contain supplies in far larger 
quantities than are contained in either the visit package or incision 
care kit. For other codes, the current data include items that are not 
contained in the package or kit. In other cases, the PERC 
recommendations contain additional items in quantities that appear 
excessive. We plan to work with all the concerned specialties to ensure 
that the finalized inputs do represent the typical supplies needed to 
perform each procedure.
    Because the application of the 90-day global standard supplies and 
equipment would result in the deletion of some original CPEP inputs, we 
requested that all the medical specialties examine the direct PE inputs 
on our Web site and inform us if there are additional items from the 
original CPEP data that are a necessary part of the postoperative care 
and if the PERC-recommended PE inputs were listed correctly.
    Comment: Several commenters expressed concern regarding the 
accuracy of our PE database for the specialty-specific PERC 
recommendations and the application of the standard supplies and 
equipment that we proposed to include in the 90-day global codes. One 
commenter representing urologists noted that several supply items 
approved by the PERC were missing in the PE database and provided us 
with specific supply inputs for CPT codes 57310, 57311, 57320, and 
57330. Another commenter representing prosthetic urologists recommended 
that the standard supplies used for infection control or patient 
comfort be included for each postoperative visit, such as gloves for 
the physician and clinical staff, table paper, patient drapes and 
gowns, and also questioned the accuracy of the number of ``multi-
specialty visit package'' (MSVP) associated with their services. They 
believe that their services entail more postoperative visits than the 
current number of MSVPs reflected in the PE database. A society 
representing gynecologic oncologists also recommended that the standard 
supplies for their procedures should be modified to include additional 
supplies that are associated with their procedures, such as a pelvic 
exam kit and a patient drape. Lastly, a medical society representing 
ophthalmologists urged us to incorporate the PERC-recommended supply 
and equipment direct inputs for the 90-day global ophthalmologic codes.
    Response: We thank the urology specialty for reviewing the PE 
database and providing us with the specific supply items missing from 
their four CPT codes. These PERC-approved supplies have been added as 
requested. We have addressed the prosthetic urologists' concerns 
regarding the inclusion of supplies for infection control and patient 
comfort by ensuring that one MSVP was included in the PE database for 
each postoperative visit for these services. The MSVP contains, among 
other things, 2 pairs of gloves, table paper, and a patient gown. We 
also note that the inclusion of a patient

[[Page 69644]]

drape is a standard for the codes identified by the specialty for 
gynecology and obstetrics. To the extent that prosthetic urologists 
believe a patient drape is needed in their 90-day global codes, we 
encourage them to work through the RUC process to correct possible 
discrepancies. In regard to the request for additional MSVPs for each 
procedure performed by the urologic prosthetists, we believe the 
commenter is mistaken, as there is one MSVP for each of the RUC-
recommended postoperative visits entered in the PE database. With 
respect to the comments about the absence of specific supplies in 
gynecologic oncology procedures, we would note that the 90-day CPT 
codes identified by the specialty for gynecology and obstetrics all 
contain these specific items as part of the standard packages, as 
approved by the RUC and accepted by CMS. We would again suggest that 
the commenter work through the RUC process to assure that the necessary 
inputs are included in these services. In response to the request from 
the society representing ophthalmologists to implement the PERC-
recommended supply and equipment changes for ophthalmology services, we 
have already incorporated these changes into the PE database and they 
are reflected in the PE RVUs. However, we would note that further 
equipment adjustments were not made for the ophthalmology CPT codes, as 
the PERC recommendations did not include any changes to the current 
equipment or ophthalmology lane assignments.
b. Payment for Splint and Cast Supplies
    In the CY 2000 and CY 2001 PFS final rules (64 FR 59380 and 65 FR 
65376, respectively), we removed splint and cast supplies from the PE 
database for the CPT codes for fracture management and cast/strapping 
application procedures. Because splint and cast supplies could be 
separately billed using Healthcare Common Procedure Coding System 
(HCPCS) codes (Q4001 through Q4051) that were established for payment 
of these supplies under section 1861(s)(5) of the Act, we did not want 
to make duplicate payment under the PFS for these items.
    In the CY 2006 PFS proposed rule (70 FR 45764), we proposed to 
reinstate payment for all splints and cast supplies through the PE 
component of the PFS because we believed we may have unintentionally 
prohibited remuneration for these supplies when they are not used for 
reduction of a fracture or dislocation (covered under section 
1861(s)(5) of the Act), but rather are provided (and covered) as 
``incident to'' a physician's service under section 1861(s)(2)(A) of 
the Act. This proposal was not finalized; however, in our CY 2006 final 
rule with comment period (70 FR 70116) we asked the medical specialties 
and the PERC to determine the typical supplies for splints and casts 
necessary for each of the fracture management codes and the cast/
strapping application codes because we wanted to make certain that the 
supply inputs were correct before we proceeded with rulemaking for the 
CY 2007 PFS. At its February 2006 meeting, the PERC reviewed and 
approved the supply inputs submitted by the American Academy of 
Orthopaedic Surgeons (AAOS) for each CPT code for fracture management 
and cast/strapping application and these were forwarded to us as PERC 
recommendations. During this interim period we also reassessed the 
options for payment of materials for splints and casts.
    We believe that the majority of the splint and cast supplies that 
are currently paid through the Q-codes are furnished in relationship to 
cast/strapping procedures for the management of fractures and 
dislocations. However, we did not intend for the medically necessary 
splint and cast supplies used for other reasons (for example, serial 
casting, wound care, or protection) not to be paid. Because it may be 
difficult for the contractors to identify the purpose for the cast/
strapping application procedure on a claim form, we believe that 
contractors may have been paying for the splint and cast supply Q-codes 
when the service is performed for other purposes than treatment of 
fractures and dislocations.
    Since these splint and cast supplies can be covered under both 
sections 1861(s)(5) and 1861(s)(2)(A) of the Act, we proposed to 
include payment for both statutory benefits using the separate HCPCS Q-
codes. This would allow for payment for these medically necessary 
supplies whether based on sections 1861(s)(5) or 1861(s)(2)(A) of the 
Act, while ensuring that no duplicate payments are made. Physicians 
will continue to bill the HCPCS Q-codes, in addition to the cast/
strapping application procedure codes, to be paid for these materials.
    The following supplies will continue to be paid separately using 
the HCPCS Q-codes and would not be included in the PE database:
     Fiberglass roll.
     Cast padding.
     Cast shoe.
     Stockingnet/stockinette.
     Plaster bandage.
     Denver splint.
     Dome paste bandage.
     Cast sole.
     Elastoplast roll.
     Fiberglass splint.
     Ace wrap.
     Kerlix.
     Webril.
     Malleable arch bars and elastics.
    The splint and cast supplies will not be included in the PEs for 
the following CPT codes:
     24500 through 24685.
     25500 through 25695.
     26600 through 26785.
     27500 through 27566.
     27750 through 27848.
     28400 through 28675.
     29000 through 29750.
    We specifically requested input, from medical specialties and 
contractors on our proposal.
    Comment: Commenters offered their appreciation and support of our 
proposal to pay for medically necessary splint and cast supplies using 
HCPCS Q-codes for both statutory benefits, that is, sections 1861(s)(5) 
and 1861(s)(2)(A) of the Act. However, one commenter requested that we 
clarify ``whether this separation applied to the rehabilitation non-
physician service codes.'' In addition, a few commenters noted that the 
supplies for the Unna-boot have been excluded from payment under the Q-
codes, because they are assigned HCPCS A-codes, and asked that we 
clarify if the Unna-boot supplies will now be included in the Q-codes. 
One commenter suggested that we omit the cast shoe from the list of 
supplies that are covered under either benefit. Another commenter asked 
us to temporarily include the A-HCPCS codes, A-6441 though A-6457, as 
billable HCPCS codes in conjunction with the strapping and casting CPT 
procedures codes.
    Response: We will proceed with our proposal to pay for the splint 
and cast supplies using the existing HCPCS Q-codes for all medically 
necessary splints and casts, as appropriate. While we appreciate the 
comments received, we have questions about and do not understand the 
request concerning whether this applied to the ``rehabilitation 
nonphysician service codes.'' We apologize that our listing of the 
applicable CPT code ranges in the proposal caused confusion about 
whether the Unna-boot supplies that currently are identified with HCPCS 
A-codes would change and be paid using the Q-codes. For clarification 
purposes, we would like to note that our proposal does not change the 
existing Q-code descriptors or their pairing with certain CPT codes for 
payment purposes. For CPT code 29580, (Strapping; Unna boot) physicians 
and other qualified providers

[[Page 69645]]

will continue to use the A-codes designed for the Unna-boot supplies. 
We appreciate the comments from the commenter asking us to remove the 
cast shoe from the PE database since shoes are statutorily noncovered 
items, except for certain diabetic shoes and those that are attached to 
braces. The cast shoe was erroneously identified as a supply item 
separately paid using the Q-codes in the listing in our proposed rule. 
We now realize that the listing in the proposed rule, in reality, 
merely identifies the supply inputs to be removed from the PE database 
rather than those that are separately billable. We agree with the 
commenter, and will remove the cast shoe item from our PE database (27 
codes). While we appreciate a commenter's request to include certain A-
codes as separately billable under our proposal, these items were never 
included in the PE database and it would not be appropriate to include 
them in the existing Q-codes.
c. Medical Nutrition Therapy Services
    In 2000, the Health Care Professional Advisory Committee (HCPAC) 
recommended that we assign work RVUs to three new medical nutrition 
therapy (MNT) CPT codes: 97802, Medical nutrition therapy; initial 
assessment and intervention, individual, face-to-face with the patient, 
each 15 minutes at 0.45 RVUs; 97803, Medical nutrition therapy; re-
assessment and intervention, individual, face-to-face with the patient, 
each 15 minutes at 0.37 RVUs; and 97804, Medical nutrition therapy; 
group (two or more individuals), each 30 minutes at 0.25 RVUs. However, 
during rulemaking for the CY 2001 PFS final rule, we indicated that MNT 
was not covered because there was no statutory benefit category that 
would allow medical nutritionists to bill these services. We also did 
not accept the HCPAC recommendations for work RVUs for these MNT 
services because the codes were designed for use only by nonphysicians. 
The following year, section 105(c) of the Medicare, Medicaid, and State 
Child Health Insurance Program Benefits Improvement Protection Act of 
2000 (BIPA) (Pub. L. 106-554) provided for the coverage of MNT services 
when furnished by registered dietitians or nutritional professionals at 
85 percent of the amount that a physician would be paid for the same 
services. As a result, we established values for these MNT services for 
the CY 2002 PFS. In keeping with our earlier decision, we did not 
assign the HCPAC-recommended work values. However, the associated work 
value for each code was utilized in the conversion of work to clinical 
labor time for MNTs as part of the PE component. At that time we 
received several comments, including one from the American Dietetic 
Association (ADA), urging us to adopt the work values recommended by 
the HCPAC.
    More recently, the ADA has requested us to reconsider our decision 
not to accept the HCPAC recommended work RVUs. The ADA contends that 
the payment rate established by section 105(c) of BIPA, 85 percent of 
the PFS amount that would be paid for the same service if furnished by 
a physician, is based on the premise that work values are inherent to 
these MNT services. The ADA believes that without work RVUs, the 
payment for these services does not reflect 85 percent of what a 
physician would be paid for performing the same service. Because these 
MNT codes were created specifically for MNT professionals, the ADA 
compared the work associated with their services to physician E/M 
services of CPT codes 99203 and 99213, which have respective work RVUs 
of 1.34 and 0.67.
    After reviewing the issues and relevant arguments raised by the 
ADA, we are persuaded that it would be appropriate to include work RVUs 
for the MNT services. Consequently, we proposed to establish work RVUs 
for each code at the level previously recommended by the HCPAC, as 
follows:
     CPT code 97802 = 0.45 RVUs.
     CPT code 97803 = 0.37 RVUs.
     CPT code 97804 = 0.25 RVUs.
    Because we proposed to add the work RVUs to these services, the MNT 
clinical labor time in the direct input database will be removed. 
Additionally, two HCPCS codes, G0270, MNT subs tx for change dx and 
G0271, Group MNT 2 or more 30 mins were created to track MNT services 
following the second referral in the same year and these HCPCS codes 
correspond to CPT codes 97803 and 97804, respectively. Therefore, we 
also proposed to add the same work RVUs to these HCPCS codes and to 
delete the MNT clinical labor inputs from the PE database upon adoption 
of this policy. We encouraged specialty societies and other 
professional groups to comment on this proposal.
    Comment: We received comments from the ADA, several MNT providers, 
one drug company, the National Kidney Foundation and one Congressional 
member all supporting our decision to establish work RVUs for the MNT 
services. Further, several commenters joined the ADA in requesting an 
increase in the proposed work RVUs. In justification of their request, 
the ADA and other commenters compared these services to CPT codes 99213 
(mid-level E/M service) and 90804 (individual psychotherapy service). 
These commenters also requested that the total work RVUs for 97802, 
97803, and G0270 be equal and the total work RVUs for CPT code 97804 
and HCPCS code G0271 also be equal. In addition, the ADA provided 
specific supplies and equipment to be added to the PE database in order 
to facilitate correct PE calculations for these codes.
    Response: We appreciate that the commenters acknowledge and support 
our decision to establish work RVUs for the 5 MNT services. However, we 
do not believe it would be appropriate to accommodate the request to 
increase these work RVUs. We believe that the HCPAC work 
recommendations best represent the MNT services and encourage the ADA 
to utilize the established RUC or HCPAC processes to further assess 
valuation of their services. For this reason, we will maintain the 
proposed work values for all MNT CPT/HCPCS codes. However, we have 
added the supplies and equipment to the PE database as requested.
d. Surgical Pathology Codes
    The College of American Pathologists commented on the equipment 
times assigned to CPT codes 88304 and 88305 in the basic surgical 
pathology family of codes. While all six codes in this family have been 
refined by the PEAC, this refinement occurred at four separate PEAC 
meetings. CPT codes 88304 and 88305 were refined at the first PEAC 
meeting in April 1999 before time standards were established for the 
equipment at subsequent PEAC meetings when the other four CPT codes 
88300, 88302, 88307, and 88309 were reviewed. Using our proposed 
bottom-up PE methodology to value these codes, the lack of the 
equipment time standards for CPT codes 88304 and 88305 create a rank-
order anomaly in this family. Consequently, the College of American 
Pathologists, after reviewing and applying current standards for the 
equipment times, submitted suggested revised equipment times to us. We 
proposed to accept these times and the times will be reflected in the 
PE database on our Web site (See the SUPPLEMENTARY INFORMATION section 
of this final rule with comment period for directions on accessing our 
Web site.)
    Comment: The College of American Pathologists expressed 
appreciation for these revisions to the equipment time to the surgical 
pathology CPT codes.
    Response: We appreciate the College of American Pathologists's 
review of the PE direct inputs, which led to our

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proposal. We are finalizing our proposal for these changes in the 
equipment times in the PE database.
e. PE Issues from Rulemaking for CY 2006
    In the CY 2006 PFS final rule with comment period (70 FR 70116), we 
explained that we were not implementing the PERC or other proposed PE 
changes for CY 2006 due to issues with the PE methodology. In the CY 
2007 PFS proposed rule, we proposed that the PERC and other PE changes 
originally proposed for CY 2006 would be implemented and effective with 
the CY 2007 PFS (71 FR 48987). The following subsections, (i) through 
(x), summarize the PE proposals from the CY 2006 PFS final rule with 
comment period.
    (i) PE Recommendations on CPEP Inputs for CY 2006
    We proposed to use a clinical labor time of 167 minutes for the 
service period for CPT code 36522, Extracorporeal Photopheresis; 
maintain the nonfacility setting PE RVUs for CPT code 78350, single 
photon bone densitometry; and remove the PE inputs for the nonfacility 
setting for CPT codes 76975, GI endoscopic ultrasound, and 15852, 
Dressing change not for burn. (70 FR 70136 through 70137)
(ii) Supply Items for CPT Code 95015 (Which is Used for Intradermal 
Allergy Tests with Drugs, Biologicals, or Venoms)
    We proposed to implement the allergy and immunology specialty's 
recommendation to change the test substance in CPT code 95015 to venom, 
at $10.70 (from single antigen, at $5.18) and the quantity to 0.3 ml 
(from 0.1 ml) (70 FR 70138).
(iii) Flow Cytometry Services
    Based on information from the society representing independent 
laboratories, we proposed to implement the following direct PE inputs:
     Clinical Labor: We proposed to change the staff type in 
the service (intra) period in both CPT codes 88184 and 88185 to 
cytotechnologist, at $0.45 per minute (currently lab technician, at 
$0.33 per minute).
     Supplies: We proposed to change the antibody cost for both 
CPT codes 88184 and 88185 to $8.50 (from $3.544).
     Equipment: We proposed to add the following equipment to 
CPT code 88184:
     Computer.
     Printer.
     Slide strainer.
     Biohazard hood.
     Wash assistant.
     FAC loader.
    We proposed to add a computer and printer to the equipment for CPT 
code 88185 (70 FR 70138).
(iv) Low Osmolar Contrast Media (LOCM) and High Osmolar Contrast Media 
(HOCM)
    Because separate payment is available for both types of contrast 
media, we proposed to delete LOCM and HOCM from the PE database in this 
final rule with comment period (70 FR 70138).
    Comment: Several specialty organizations expressed their 
appreciation for implementing the recommendations for the PE changes in 
section (i) of this section to CPT codes 36522, 78350, 76975 and 15852; 
in section (ii) of this section for changing the amount and test 
substance inputs in CPT 95015; in section (iii) of this section for 
implementing the PE changes to the flow cytometry CPT codes 88184 and 
88185; and in section (iv) of this section for removing the LOCM and 
HOCM from the PE database because they are separately reimbursed.
    Response: We will implement these changes for CY 2007.
(v) Imaging Rooms
    We proposed to implement the updates for the contents and prices of 
5 ``rooms'' used in imaging procedures including--
     Basic radiology room;
     Radiographic-fluoroscopic room;
     Mammography room;
     Computed tomography (CT) room; and
     Magnetic resonance imaging (MRI) room (70 FR 70139).
    Comment: Two commenters questioned why the contents and prices for 
ultrasound ``rooms'' were not being updated in CY 2007 proposed rule.
    Response: The imaging rooms proposals that appeared in this year's 
proposed rule were deferred from the previous year. These imaging rooms 
all contained equipment without updated pricing information. The two 
ultrasound rooms, general and vascular, were valued during the 
repricing of the equipment for the PE database that occurred during 
rulemaking for CY 2005.
(vi) Equipment Pricing for Select Services and Procedures
    We proposed to accept the following equipment pricing information 
provided by various specialty societies for select services and 
procedures as discussed in the CY 2006 PFS final rule with comment 
period (70 FR 70139).
     Equipment pricing for certain radiology services received 
from the ACR as presented in Table 15 of the CY 2006 PFS proposed rule.
     Equipment pricing on the ultrasound color doppler 
transducers and vaginal probe received from the American College of 
Obstetrics and Gynecology (ACOG).
     Equipment pricing for CPT code 36522, extracorporeal 
photopheresis.
     Pricing of the EMG botox machine used in CPT code 92265 as 
presented by the American Academy of Ophthalmology (AAO).
(vii) Supply Item for In Situ Hybridization Codes (CPT Codes 88365, 
88367, and 88368)
    We proposed to implement the Society for Clinical Pathologists' 
request to change the probe quantity to 1.5 for CPT code 88367, In situ 
hybridization, auto, which is equal to the quantity in the other two 
codes in the family.
(viii) Supply Item for Percutaneous Vertebroplasty Procedures (CPT 
codes 22520 and 22525)
    Based on documentation provided by the Society for Interventional 
Radiology, we proposed to implement a new price of $696.00 for the 
vertebroplasty kit, to replace a temporary price of $660.50 that was a 
placeholder price from the CY 2006 PFS final rule with comment period 
(70 FR 70139).
(ix) Clinical Labor for G-Codes Related to Home Health and Hospice 
Physician Supervision, Certification and Recertification
    We proposed to apply the refinements made to the PE inputs to CPT 
codes 99375 and 99378 for home health and hospice supervision to four 
G-codes that are related to home health and hospice physician 
supervision, certification and recertification, G0179, GO180, GO181, 
and GO182. These G-codes are incorrectly valued for clinical labor. 
These G-codes are crosswalked from CPT codes 99375 and 99378, which 
underwent PEAC refinement in January 2003 for the CY 2004 PFS. However, 
at that time we inadvertently did not apply the new refinements to 
these specific G-codes (70 FR 70139 through 70140).
(x) Programmers for Implantable Neurostimulators and Intrathecal Drug 
Infusion Pumps
    Although we had initially proposed in the CY 2006 PFS proposed rule 
to remove two programmers from the PE database (EQ208 for medication 
pump from two codes (CPT codes 62367 and 62368) and EQ209 for the 
neurostimulator from 8 codes (CPT codes 95970 through 97979)), based on 
comments received as discussed in the

[[Page 69647]]

CY 2006 PFS final rule with comment period (70 FR 70140), we determined 
that we will retain these programmers in the database. In addition, we 
added ``with printer'' to the description of EQ208, based on comments 
received. We proposed to implement these decisions for CY 2007.
    Comment: Commenters expressed appreciation for the implementation 
of these changes that had been deferred from the previous year.
    Response: We will implement the PE changes noted in sections (vi) 
through (x) of this section for CY 2007.
f. Other PE Issues for CY 2007
(i) Clarification With Respect to Non-Facility PE RVUs
    In the CY 2006 PFS final rule with comment period (70 FR 70335), we 
provided a clarification in Addendum A concerning use of ``NA'' in the 
PE RVU columns for Addendum B. Commenters requested that further 
clarification be made concerning the payment amount for procedures 
performed in the non-facility setting if there is an ``NA'' in the non-
facility PE RVU column. In the CY 2007 PFS proposed rule, we clarified 
that our policy is that the service will be paid at the facility PE RVU 
rate if the Medicare carrier pays for the service in the non-facility 
setting. In the CY 2007 PFS proposed rule (71 FR 48982), we proposed 
revisions to Addendum A to include this clarification.
    Comment: Commenters expressed appreciation for this clarification.
    Response: We have modified Addendum A to include this 
clarification.
(ii) Supply for CPT Code 50384, Removal (Via Snare/Capture) of 
Internally Dwelling Ureteral Stent Via Percutaneous Approach, Including 
Radiological Supervision and Interpretation
    Upon review of the RUC-recommended direct PE inputs for CPT code 
50384, a new procedure for the 2006 CPT codes, we identified the 
inappropriate inclusion of a ureteral stent that we proposed to delete 
for CY 2007. We believe that the addition of the ureteral stent, valued 
by the specialty at $162, to CPT code 50384, which is the procedure for 
the removal of a stent, was an inadvertent error by the specialty 
during the April 2005 RUC meeting.
    Comment: The commenters agreed with the deletion of the ureteral 
stent from this service.
    Response: This stent will be removed from CPT code 50384 in the PE 
database.
(iii) Cardiac Monitoring Services
    We requested more specific PE information on remote cardiac event 
monitoring services in the CY 2007 PFS proposed rule as a result of a 
comment and response discussion in last year's final rule related to 
these services and an inappropriate fit with the direct PE model used 
for typical physicians' services. These services are overwhelmingly 
performed by specialized IDTFs that are paid under the PFS, but 
frequently maintain more extensive operating hours than the typical 
physician office due to the characteristics of cardiac monitoring 
services. Specifically, we requested data to indicate the typical 
number and type of transmissions or other encounters per day between 
the beneficiary and the IDTF for each of the remote monitoring 
services. We also requested the number and type of clinical staff, as 
well as the corresponding times, that are necessary to ensure that 
appropriate services are available for each patient. Additionally, we 
requested assistance in identifying any other direct PE inputs for 
typical supplies and equipment relating to these services, and any data 
that would reflect indirect PE, such as overhead and non-clinical 
payroll expenses. Because we believe that the following codes, 
predominately performed by specialized IDTFs, represent atypical PE 
scenarios, we requested PE information for these services:
     Cardiac event monitoring (CPT codes 93271, 93012 and 
93270).
     Pacemaker monitoring (CPT codes 93733 and 93736).
     Holter monitoring (CPT codes 93232, 93226, 93231 and 
93225).
     INR monitoring (HCPCS codes G0248 and G0249).
    Comment: Several commenters voiced concern about the dramatic 
decrease in the PE RVUs for these services and most agreed that the 
remote cardiac monitoring services do not fit the PE model for 
physicians' services and believed that the information that we 
requested could be useful to value these technical services. One 
commenter submitted the requested information after conducting a survey 
of 7 large IDTFs specializing in these remote cardiac monitoring 
services. For each of the 11 CPT/HCPCS codes referenced above in this 
section, the commenter provided recommendations for the direct PE 
inputs, including the type of clinical labor and the related minutes 
for their service, the needed disposable supplies and the equipment 
costs, the number of minutes in use, and the respective life of each 
piece of equipment. In addition, two commenters suggested that CPT code 
92326 (remote, real-time, wireless cardiac monitoring) be added to the 
above list of services:
    Response: We appreciate that the provider group conducted such a 
detailed survey to capture the costs of these services. We have 
reviewed the direct inputs that were forwarded by the commenter and 
have accepted many of their recommendations, some with modifications, 
for all these codes. For example, we used the ``discounted'' purchase 
prices for the equipment which is our standard policy rather than the 
additional list prices that were also included. The specific direct 
inputs for the following CPT/HCPCS codes: 93012, 93271, 93270, 93733, 
93736, 93232, 93226, 93231, 93225, G0248 and G0249 are included in the 
PE database that is posted with this rule on the CMS Web site. We will 
consider these inputs interim, for CY 2007, and will continue to work 
with the provider group to appropriately value these services. For the 
request to include CPT code 93236 in this list of codes, we would note 
that this procedure is not valued in the nonfacility setting and has no 
direct inputs. CPT code 93236 is discussed in the following comment and 
response.
g. Specific PE Concerns Raised by Commenters
(i) Wireless Cardiac Monitoring
    Comment: One commenter expressed concern about the impact of the PE 
methodology proposal and stated that there is not a CPT code that 
accurately represents ``remote, real-time cardiac monitoring through 
wireless communications and computerized arrhythmia detection 
technology'' service. The commenter requested that a HCPCS code be 
created specifically for this service and provided direct input 
recommendations that could be used to price this new code. In the event 
that we could not create a HCPCS code, the commenter requested that the 
direct inputs be applied to the CPT code 93236 which is currently being 
used to bill for this service.
    Response: We are reluctant to create a HCPCS code at this time 
because the commenter has not demonstrated a compelling need for a 
distinct code for this service. Because this code is currently not 
valued in the nonfacility setting, we proposed to carrier price this 
service for CY 2007. We suggest that if the commenter believes a 
distinct code is necessary to describe this service, the provider 
should work with the specialty and contact the CPT Editorial Panel to 
pursue this matter. We will maintain

[[Page 69648]]

our proposal to carrier price this service for CY 2007.
(ii) Endovenous Ablation Services, CPT Codes 36475, 36476, 36478, and 
36479
    Comment: We received numerous comments with concerns about the 
decrease in PE RVUs proposed for CY 2007. In addition, a few commenters 
noted a disparity between the cost of supplies for the RF and the laser 
ablation procedures, CPT codes 36475 and 36478, respectively. One 
commenter supplied documentation to support that the price of the 
endovascular laser kit, at $677, in the PE database is not typical. 
This commenter presented a range of prices from $275 to $315 as 
typical. The commenter also demonstrated that 3 other supplies listed 
for CPT code 36478 were duplicated as they are part of the kit. Another 
commenter noted a price of $360 for the laser kit.
    Response: We reviewed the supplies in the laser kit and the other 
supplies for this endovenous service and believe that the hydrophilic 
guide wire, the vascular sheath and the vessel dilator are duplicated. 
These items were removed from the database for CPT code 36478. In 
addition, based on the information and documentation supplied, we used 
the $360 laser kit to average with the existing price of $677 to obtain 
the new price of $519. We have also made this change to the PE 
database. While we realize that the PE RVUs were negatively impacted by 
the change in the PE methodology, it is also important to ensure that 
the direct inputs accurately reflect the typical resources used to 
provide each service.
(iii) Development of Nonfacility PE for Arthroscopic Procedures
    Comment: We received comments requesting that we establish direct 
PE inputs for five arthroscopy codes for the nonfacility setting, 
including CPT codes 29870, 29805, 29830, 29840 and 29900.
    Response: The RUC discussed this request at its October 2006 
meeting and determined that the procedures are not safe to perform in 
the physician's office. We support the RUC's decision not to value 
these arthroscopy procedures in the nonfacility setting and will 
continue to use the ``NA'' indicator in the PE RVU column for the 
nonfacility setting in Addendum B.
(iv) Audiologist Wage Rate
    Comment: One commenter requested that we add 25 percent to the 
professional audiologists wage rate per minute which is now $0.52. The 
commenter contended that the fringe benefits factor was not applied at 
the time we established the clinical labor rates for CY 2002.
    Response: We used data from the Bureau of Labor Statistics (BLS) to 
establish the base wage rate for audiologists when we repriced the 
clinical staff wage rates for CY 2002. We also applied a 33.6 percent 
fringe benefit factor to all wage rates, including the wage rate for 
audiology. Therefore, we will maintain the wage rate for audiologists 
until the time that all clinical labor wages are updated in future 
rulemaking.
(v) Medical Physicists Wage Rate
    Comment: Several commenters recommended that we accept the 2005 
survey data on hourly wages, inflated to 2006, that was presented by 
the association representing medical physicists. They contend that we 
inappropriately used the wage rate for health physicists, instead of 
medical physicists, when we updated the clinical labor wage rates for 
CY 2002.
    Response: In the PFS final rule for CY 2002, we finalized our 
proposal to price the physicist staff type on the average salary data 
for all certified health physicists from the 1999 survey conducted by 
the American Academy of Health Physics and the American Board of Health 
Physics. At the time we were revising the wage rates, this was the best 
information available. Further, the source of the majority of wage 
rates in the CY 2002 PFS final rule was the BLS. In the case of medical 
physicists, we were unable to obtain salary data from BLS. We agree 
with the commenters that this revised 2005 salary data is more 
appropriate than our current salary data. We will utilize this revised 
data, deflated to 2002, to keep all salary data on the same scale. As a 
result of this information, we will change the wage rate per minute for 
the two following clinical staff types: (a) Medical physicists from 
$1.21 to $1.523; and (b) medical dosimetrists/medical physicists from 
$0.92 to $1.075.
(vi) Home Visit E/M Services
    Comment: We received a comment that stated that the home care 
clinical labor times are incorrectly reported in our PE database with 
each lacking 6 minutes in the pre-service period. In addition, the 
commenter stated that a supply item, specula tips, is missing in one 
service. Another commenter voiced support for the efforts of the home 
care physician group.
    Response: We have verified that our PE database is correct. For the 
CPT codes 99341, 99342, and 99343, there is a total 12 minutes labor 
for each code, with 6 minutes assigned to the pre-service period and 6 
minutes assigned to the postservice period. Also, the supply item the 
commenters reported as missing is included in the PE database.
(vii) Supply Inputs for CPT 31730
    Comment: Prior to the publication of the CY 2007 PFS proposed rule, 
we received documentation from the association representing pulmonary 
physicians that specified the contents of the fast track supply tray 
for CPT code 31730. The specialty was complying with our request for 
information on supply items needing specialty input in last year's 
final rule.
    Response: We thank the specialty group for its submission of the 
fast track supply tray contents and note that we accepted this 
documentation and the $750 price in our proposed rule. However, we 
regret that we did not remove the duplicated supply items from the PE 
database at that time. The following supplies will be removed from the 
inputs for CPT 31730 because they are already contained in the fast 
track tray: alcohol pads, 6 cc syringe with needle, 27G needle and 4x4 
gauze pads. The PE RVUs that appear in this rule reflect the removal of 
these supply items.
(viii) Supply Costs for CPT Code 58565
    Comment: One commenter noted that the cost of the kit used for 
hysteroscopic tubal implant for sterilization (supply code SA076) has 
increased in price from $980 to $1245. The specialty society 
representing gynecology and obstetrics services did not supply 
supporting documentation.
    Response: We appreciate that this commenter has reviewed the direct 
inputs for accuracy. However, lacking any documentation to substantiate 
this request for a higher price, we will maintain the $980 price for 
the kit in the PE database for CY 2007. We will add this supply to the 
table requiring specialty input and will review any documentation 
provided by the specialty as part of a future rulemaking.
(ix) Bone Density Testing Services
    Comment: Many commenters requested that we review the costs related 
to bone density testing (DXA) services, particularly related to CPT 
codes 76075 and 76076 used for detection and quantification of 
osteoporosis. These commenters state that the current direct inputs in 
the PE database identify the low cost pencil beam technology ($41,000) 
as the equipment utilized in performing these DXA services in place of 
the higher cost fan beam technology ($85,000). Commenters contended 
that the

[[Page 69649]]

majority of densitometers sold are of the higher cost fan beam variety. 
Another commenter noted that the DXA services using the fan beam 
technology should also contain ``phantom'' equipment to be used to 
perform the daily quality check on this equipment.
    Response: We have changed the PE database to reflect the fan beam 
DXA technology for CPT codes 76075 and 76076. In addition, we have 
added, on an interim basis, the ``solid water calibration check 
phantom'' to the equipment file in the PE database for the family of 
codes using the fan beam technology for 15 minutes each, based on the 
survey information presented by one commenter noting that these DXA 
services are performed, on average, twice daily. We ask the medical 
specialty to provide us with the correct information on the specific 
``phantom'' used for the fan beam DXA technology, including pricing 
verification. While reviewing the PE database for these services, we 
discovered a rank order anomaly between CPT code 76075 and 76076 that 
apparently is due to a change in the clinical labor from the April 2006 
PERC meeting where CPT code 76075 was used as a reference code. We have 
added back the 5 minutes of labor time in the PE database to CPT code 
76075 to correct this rank order anomaly.
(x) PE Missing for CPT Code 28890
    Comment: One commenter stated that the non-facility inputs for CPT 
code 28890, Extracorporeal shock wave, high energy, performed by a 
physician, requiring anesthesia other than local, including ultrasound 
guidance, involving the plantar fascia, lacked enough clinical staff to 
assist the physician with applying the regional (anesthetic) block and 
that the ultrasound equipment was not included in the PE database for 
this ``shock-wave'' service.
    Response: In the CY 2006 PFS final rule with comment, we assigned 
nonfacility PE inputs for CPT code 28890, because we believed these 
services were being performed in the office. (This assignment of PE for 
CPT 28890 is discussed in a subsequent section of this rule.) Since the 
``shock-wave'' machine was the only equipment listed in the PE 
database, we added the ultrasound equipment for 36 minutes, to the PE 
database, but we question whether additional staff is needed to assist 
the physician during the procedure since one nurse ``blend'' (RN/LPN/
MTA) staff type is currently assigned for this procedure. We would 
entertain future discussions on this issue with interested parties, 
including the specialty organization involved in performing this 
procedure in the office. For CY 2007, we have maintained the current 
clinical labor assignment in the PE database.
h. Concerns About Decreases in PE RVUs for Women's Health and Other 
Services
    Many commenters raised concerns regarding payment for services that 
affect women's health:
    Comment: We received many comments regarding the proposed decrease 
in PE RVUs for either specific services or for given specialties. Many 
commenters raised concerns regarding payment for services that affect 
women's health.
    Commenters opposed the proposed decrease in payment for the axial 
bone density testing (DXA) service, CPT code 76075, which is used for 
detection and quantification of osteoporosis, and CPT code 76077, which 
is used for vertebral fracture assessment. The commenters raised the 
concern that the proposed decrease in payment for these services would 
severely restrict patient access to bone density testing, thereby 
undermining our effort to effectively screen Medicare beneficiaries for 
osteoporosis and vertebral fractures. These commenters identified what 
they believed to be flaws in the direct input data and with the 
utilization rate applied to the DXA machine. The commenters also 
requested that we keep the payment for these services at the current 
level.
    We received several comments that expressed concern about the 
decrease in payment for computer-aided detection (CAD) services, CPT 
codes 76082 and 76083, both add-on procedures that are billed in 
combination with an appropriate mammography service. The commenters 
stressed that CAD systems for mammography are diagnostic tools that can 
increase breast cancer detection rates, especially in the early stages. 
One commenter contended that the decrease in payment for this service 
could cripple the ability of physicians to offer this highest quality 
screening service to the broadest patient population.
    Several commenters expressed concern about the proposed RVUs for 
the various radiation therapy codes involved in breast brachytherapy, 
as well as brachytherapy for ovarian and cervical cancer. A society 
representing brachytherapy stated that the proposed reductions may 
force providers to resort to other less beneficial cancer treatments. 
One commenter contended that the proposals could deny a greater number 
of African American women access to an important, patient friendly and 
proven breast cancer treatment. The above concerns were echoed in 
comments from a society representing NPs and a society concerned with 
research on women's health.
    We also received several comments regarding a related service, CPT 
code 19296, Placement of a radiotherapy afterloading balloon catheter 
into the breast for interstitial radioelement application. Commenters 
expressed concern regarding the proposed decrease in payment for this 
service and predicted that this decrease from 129.74 RVUs in 2006 to 
89.31 RVUs in 2010 would cause the service not to be offered in a 
physician's office to Medicare patients.
    We received comments that expressed concern regarding the proposed 
decrease in payments for a number of other services. These include: The 
surgical hysteroscopy service, CPT code 58565; the chemodenervation 
procedures, CPT codes 64612, 64613 and 64614; the EMG-guided Botox 
therapy, CPT 92265; and endovenous ablation procedures, CPT codes 
36475, 36476, 36478 and 36479.
    We also received comments regarding the effect on certain 
specialties of our proposed payments. One commenter stated that the 
proposed cuts could diminish Medicare patients' access to cardiac care. 
Many commenters requested that we reconsider the cuts for 
interventional radiology, and others requested that we reverse any 
decrease for anesthesiology. Another commenter expressed concern 
regarding the decreases for this specialty. Commenters opposed the 
changes to the RVUs that would cause a total 14 percent decrease in 
payment for clinical social workers. In addition, other commenters 
expressed concern regarding our proposed payments for gastroenterology, 
neonatology, pain management, radiosurgery and phlebology.
    Response: We understand the concern expressed by all of these 
commenters. However, payments made for services on the PFS can only 
reflect, in a budget neutral manner, the relative resources required to 
perform each service. With the exception of the requested changes to 
the equipment direct inputs for the DXA service, the commenters have 
not provided specific information regarding the relative resources 
required for the services in question that would support the requested 
changes in payment. We also do not believe it would be equitable to 
keep the payment for any specific service at the current rate when 
there are many other services that will see decreases in payment. We 
would note that one of the main reasons for the proposed 4-year 
transition of our new PE methodology was to give specialties

[[Page 69650]]

and practitioners the opportunity to work with us to determine whether 
any changes in our payment calculation for such services is warranted 
and we are open to further discussion on this issue.
    We also applaud the commenters who have stressed the importance of 
women's health issues. We certainly share their commitment to ensuring 
that those services that meet the health care needs of women remain 
accessible to our beneficiaries. In addition, we appreciate the 
important role that all of the preventive screening services play in 
helping to maintain the health of these beneficiaries. In response to 
comments, we have revised our equipment database to reflect the correct 
DXA equipment. It should also be noted that, although payment for the 
CAD service itself is decreasing, payment for most mammography services 
is increasing, which could potentially offset any reductions to the 
providers of CAD. However, we will request that the RUC review again 
the PE inputs for the DXA and CAD services to ensure that the direct 
inputs associated with these services are accurately reflected in our 
PE database.
i. Equipment Utilization and Interest Rate Assumptions
    Comment: Many specialty societies, MedPAC, and the RUC all offered 
comments about the 11 percent interest rate and the 50 percent 
utilization rate used to calculate the price per minute for each piece 
of equipment. MedPAC stressed the importance of obtaining a reliable 
source for updating the yearly interest rate that physicians would pay 
when borrowing money to buy equipment. They believe that we should 
select the Federal Reserve Board because of the frequent updating, 
issued quarterly. MedPAC notes that interest rates, of more than one 
year, ranged from 5.3 percent to 6.0 percent over the past 5 years. 
Other commenters suggested that we adopt the prime interest rate plus 2 
percent, while the RUC and several specialty societies noted that we 
should select a competitive market rate. One commenter suggested using 
caution in our selection process and requested that the interest rate 
be examined before future changes are made.
    For updating the current 50 percent utilization rate, many 
commenters, including the MedPAC and the RUC, suggested that this rate 
should be higher. These comments stressed that by using the assumption 
that equipment is in use 50 percent of the time when the utilization is 
actually higher, our price per minute would be too high. The RUC 
recommended we use a rate higher than 50 percent and permit individual 
specialty societies to present support for lower rates for specific 
equipment items. While the overall comments contained a broad array of 
suggested revisions to the utilization rate, a few specialty 
organizations believed that the utilization rate should be lower than 
50 percent. Several comments, specific to equipment for bone density 
testing (DXA), believe the utilization rate to be closer to 20 percent 
for these services performed in primary care physicians' offices and 
requested that we review this utilization to more appropriately measure 
the actual utilization of this equipment. MedPAC suggested that we 
begin our updating process by looking at the higher-priced equipment, 
and noted a study it conducted of imaging providers in six markets that 
indicated 70 percent and 90 percent utilization rates for CT and MRI, 
respectively. A few commenters noted that they would like for us to 
assign code-specific equipment utilization rates, although they did not 
forward possible avenues for us to follow in making the determinations 
of these assignments.
    Response: We agree with commenters that the proposed interest rate 
of 11 percent and the proposed 50 percent utilization rate should be 
examined for accuracy. We are committed to working with all interested 
parties to define the most accurate utilization and interest rate 
information for equipment used in the performance of physicians' 
services. We do not believe that we have sufficient empirical evidence 
to justify a change in this final rule, but we will continue to work 
with the physician community to examine, and potentially revise, these 
estimates in future rulemaking. We have used the 11 percent interest 
rate and the 50 percent utilization rate to determine the valuation for 
equipment reflected in the PE RVUs in Addendum B.
j. Further Review of PE Direct Inputs
    Comment: Several commenters, including the RUC and MedPAC, 
recommended that we establish an update process to ensure that the 
direct PE inputs--wage rates of clinical staff, purchase price of 
supplies, and purchase price of equipment--are updated for completeness 
and accuracy. MedPAC requested that we establish a timeline, recurring 
at least every 5 years, for the comprehensive review of the PE database 
direct inputs. Both MedPAC and the RUC made suggestions that the new, 
higher-priced supplies and equipment may need to be updated more 
frequently because their prices may decrease over time as other 
companies manufacture them.
    Response: We appreciate the commenters' remarks regarding the 
establishment of a regular update process for the direct inputs 
utilized in the calculation of resource-based PE RVUs. We plan to 
examine this issue with both the RUC and interested specialty 
organizations, as well as with the medical community to determine the 
most useful approach to updating our direct PE inputs. Additionally, we 
encourage interested parties to continue working with the RUC to 
develop direct inputs for those services absent inputs and to correct 
any errors contained in our direct input database.
k. Supply and Equipment Items Needing Specialty Input
    We have identified certain supply and equipment items for which we 
were unable to verify the pricing information in Table 3: Supply Items 
Needing Specialty Input for Pricing and Table 4: Equipment Items 
Needing Specialty Input for Pricing. In our CY 2007 PFS proposed rule, 
we listed both supply and equipment items for which pricing 
documentation was needed from the medical specialty societies and, for 
many of these items, we received sufficient documentation in the form 
of catalog listings, vendor Web sites, invoices, and manufacturer 
quotes. We have accepted the documented prices for many of these items 
and these prices are reflected in the PE RVUs in Addendum B of this 
final rule with comment period. For the items listed in Tables 3 and 4, 
we are requesting that commenters provide pricing information on items 
in these tables along with acceptable documentation, as noted in the 
footnote to each table, to support recommended prices.
    In Tables 5 and 6, we have listed new supplies and equipment from 
the new CPT codes for CY 2007 that are discussed elsewhere in this 
final rule with comment period. These items have been added to the PE 
database and, where priced, are reflected in the PE RVUs in Addendum B.

BILLING CODE 4120-01-P

[[Page 69651]]

[GRAPHIC] [TIFF OMITTED] TR01DE06.004


[[Page 69652]]


[GRAPHIC] [TIFF OMITTED] TR01DE06.005


[[Page 69653]]


[GRAPHIC] [TIFF OMITTED] TR01DE06.006

BILLING CODE 4120-01-C

[[Page 69654]]



                          Table 5.--Practice Expense Supply Item Additions for CY 2007
----------------------------------------------------------------------------------------------------------------
                                                                                   *CPT
                                                                                 code(s)
    Equip code         Supply description            Unit         Unit price    associated     Supply category
                                                                                with item
----------------------------------------------------------------------------------------------------------------
NA...............  Agent, embolic \1\.......  Vial.............  ............        37210  Accessory,
                                                                                             Procedure.
NA...............   Bolster covers,           Item.............          0.06        96904  Gown, drape.
                    disposable.
NA...............   Filter, mouthpiece......  Unit.............          4.6         95012  Infection control.
NA...............   Gas, argon..............  Cu ft............          0.25        19105  Accessory,
                                                                                             Procedure.
NA...............   Kit, capsule, ESO,        Kit..............        450           91111  Kit, Pack, Tray.
                    endoscopy w-application.
NA...............   Kit, gold markers,        Kit..............        119           55876  Kit, Pack, Tray.
                    fiducial, 3 per kit.
NA...............   Probe, cryoablation,      Item.............       1589           19105  Accessory,
                    (Viscia ICE 30 or 40).                                                   Procedure.
----------------------------------------------------------------------------------------------------------------
*CPT codes and descriptions only are copyright 2007 American Medical Association. All Rights Reserved.
  Applicable FARS/DFARS77373y.
1. Price verification needed. Item(s) added to table of equipment requiring specialty input.


                         Table 6.--Practice Expense Equipment Item Additions for CY 2007
----------------------------------------------------------------------------------------------------------------
                                                                                 *CPT
                                                                               code(s)
     Equip code          Equipment description         Life      Unit price   associated    Equipment category
                                                                              with item
----------------------------------------------------------------------------------------------------------------

NA..................  AV projection system                   5         3800        70554  IMAGING EQUIP.
                       (integrated headphone,
                       video goggles, transducer,
                       control unit w-remote-
                       Cinema Vision).
NA..................  camera mount-floor \2\.....           15     \1\ 2300        96904  OTHER EQUIPMENT.
NA..................  cross slide attachment \2\.           10      \1\ 500        96904  OTHER EQUIPMENT .
NA..................  cryoablation system,                   3        24950        19105  OTHER EQUIPMENT.
                       fibroadenoma.
NA..................  dermal imaging software \2\            5     \1\ 4500        96904  OTHER EQUIPMENT.
NA..................  dermoscopy attachments \2\.            5      \1\ 650        96904  OTHER EQUIPMENT.
NA..................  Gammaknife.................            7      3870000        77371  IMAGING EQUIP.
NA..................  generator, spine, IDET, w-             5        28299        22526  OTHER EQUIPMENT.
                       extension.                                                  22527
NA..................  genetic counseling,                    5  ...........        96040  DOCUMENTATION.
                       pedigree, software \2\.
NA..................  image-acquisition software             3       108807        70554  IMAGING EQUIP.
                       and hardware (Brainwave
                       RealTime, PA, Hardware).
NA..................  lens, macro, 35-70 mm \2\..            5  ...........        96904  OTHER EQUIPMENT.
NA..................  monitoring system, nitric              5        39200        95012  OTHER EQUIPMENT.
                       oxide w-computer (Acerine,
                       NIOX).
NA..................  radioactive source \3\.....  ...........  ...........        77371  IMAGING EQUIP.
NA..................  speakers, sound field                  5         1775        92640  OTHER EQUIPMENT.
                       (brainstem implant).
NA..................  SRS system, Lincac.........            7      4350000        77372  IMAGING EQUIP.
NA..................  SRS system, SBRT, six-                 7      4000000        77373  IMAGING EQUIP.
                       systems, average.
NA..................  strobe, 400 watts                     10     \1\ 1500        96904  OTHER EQUIPMENT.
                       (Studio)(2) \2\.
----------------------------------------------------------------------------------------------------------------
*CPT codes and descriptions only are copyright 2007 American Medical Association. All Rights Reserved.
  Applicable FARS/DFARS77373y.
1. Prices interim for CY 2007--Acceptable documentation required for price verification.
2. Price verification needed. Item(s) added to table of equipment requiring specialty input.
3. Discussion with CMS necessary to establish appropriate value.

B. Geographic Practice Cost Indices (GPCIs)

    Section 1848(e)(1)(A) of the Act requires us to develop separate 
GPCIs to measure resource cost differences among localities compared to 
the national average for each of the three fee schedule components. 
While requiring that the PE and malpractice GPCIs reflect the full 
relative cost differences, section 1848(e)(1)(A)(iii) of the Act 
requires that the physician work GPCIs reflect only one-quarter of the 
relative cost differences compared to the national average.
    Section 1848(e)(1)(C) of the Act requires us, in consultation with 
appropriate physician representatives, to review the GPCIs at least 
every 3 years and allows us to make adjustments based on our review. 
This section of the Act also requires us to phase-in the adjustment 
over 2 years, implementing only one-half of any adjustment in the first 
year if more than 1 year has elapsed since the last GPCI revision. CMS 
is currently working with Acumen, LLC to review and revise the GPCIs in 
accordance with the requirement that GPCIs be revised at least every 3 
years. We expect to implement any revisions based on our review in 
January 2008.
    In addition, section 412 of the MMA amended section 1848(e)(1) of 
the Act to establish a floor of 1.0 for the work GPCI for any locality 
where the GPCI would otherwise fall below 1.0 for purposes of payment 
for services furnished on or after January 1, 2004 and before January 
1, 2007. Beginning on January 1, 2007, the 1.00 floor will be removed 
and the work GPCI will revert to the fully implemented value. The 
values for the work GPCI and subsequent changes to the geographic 
adjustment factor (GAF) published in the CY 2007 PFS proposed rule 
reflect the removal of the 1.0 floor. For many payment localities, this 
change had no impact on the GAF; however, the GAFs for a number of 
payment localities were reduced due to this change. The impact of this 
change on the GAFs for those payment localities was shown in Table 3 of 
the CY 2007 PFS proposed rule (71 FR 48993).
    In the CY 2007 PFS proposed rule, we also published the proposed 
GPCIs for

[[Page 69655]]

2007 in Addendum D and the proposed GAFs for 2007 in Addendum E (71 FR 
49246 through 49249). The GPCIs shown in Addendum D represent the fully 
implemented value and reflect 2007 BN scaling coefficients provided by 
our Office of the Actuary.
    In the CY 2005 PFS proposed rule, we discussed issues relating to 
changes to the GPCI payment localities (69 FR 47504). In that proposed 
rule, we noted that we look for the support of a State medical society 
as the impetus for changes to existing payment localities. Because the 
GPCIs for each locality are calculated using the average of the county-
specific data from all of the counties in the locality, removing high 
cost counties from a locality will result in lower GPCIs for the 
remaining counties. Therefore, because of this redistributive impact, 
we have refrained, in the past, from making changes to payment 
localities unless the State medical association provides evidence that 
any proposed change has statewide support.
    We requested suggestions on alternative ways that we could 
administratively reconfigure payment localities that could be developed 
and proposed in future rulemaking. In addition, MEDPAC and the General 
Accounting Office (GAO) have both expressed interest in studying the 
physician payment localities. We intend to work with both groups to 
study our current methodology and develop alternative options.
    We received the following comments in response to our GPCI 
proposals.
    Comment: During the comment period, commenters advised us of two 
errors in Table 3 (there were two entries for Kansas and there was a 
mistake in the equation for calculating the GAF). We were also advised 
of typographical errors in Addendum D.
    Response: We appreciate that these were brought to our attention. 
Table 7 contains the corrected information and we have corrected 
Addendum D in this final rule.

  TABLE 7.--Payment Localities With Negative Percent Change in GAF \1\
      Between 2006 and 2007 Due to Removal of the 1.000 Work Floor
------------------------------------------------------------------------
                                                               Percent
          Locality name             2006  GAF    2007  GAF      change
------------------------------------------------------------------------
Fort Worth, TX...................        0.998        0.996        -0.17
Rest of Michigan.................        0.986        0.984        -0.20
Rest of New York.................        0.952        0.950        -0.21
Rest of Maryland.................        0.982        0.978        -0.36
Metropolitan St. Louis, MO.......        0.978        0.974        -0.41
Rest of Pennsylvania.............        0.950        0.946        -0.44
Ohio.............................        0.970        0.966        -0.44
Austin, TX.......................        1.020        1.015        -0.47
New Hampshire....................        1.010        1.005        -0.50
Minnesota........................        0.980        0.975        -0.53
Galveston, TX....................        0.991        0.986        -0.54
Metropolitan Kansas City, MO.....        0.987        0.981        -0.56
Fort Lauderdale, FL..............        1.022        1.016        -0.59
Arizona..........................        0.999        0.993        -0.65
Wisconsin........................        0.956        0.950        -0.65
Colorado.........................        0.998        0.991        -0.67
East St. Louis, IL...............        1.003        0.996        -0.68
New Orleans, LA..................        0.984        0.977        -0.73
Rest of Washington...............        0.984        0.976        -0.77
Indiana..........................        0.937        0.930        -0.79
Beaumont, TX.....................        0.951        0.942        -0.96
Alabama..........................        0.923        0.914        -0.99
Virginia.........................        0.958        0.948        -1.06
Southern Maine...................        0.992        0.981        -1.09
Rest of Georgia..................        0.943        0.932        -1.14
Tennessee........................        0.933        0.921        -1.27
Utah.............................        0.960        0.948        -1.30
South Carolina...................        0.930        0.917        -1.41
Rest of Illinois.................        0.952        0.938        -1.43
Rest of Florida..................        0.982        0.968        -1.45
West Virginia....................        0.942        0.928        -1.47
North Carolina...................        0.951        0.936        -1.55
New Mexico.......................        0.947        0.932        -1.57
Rest of Louisiana................        0.936        0.919        -1.78
Kentucky.........................        0.932        0.915        -1.80
Kansas*..........................        0.936        0.919        -1.81
Rest of Oregon...................        0.946        0.929        -1.81
Vermont..........................        0.968        0.950        -1.82
Virgin Islands...................        1.007        0.989        -1.83
Rest of Texas....................        0.947        0.929        -1.87
Idaho............................        0.922        0.904        -1.91
Iowa.............................        0.927        0.909        -1.97
Rest of Maine....................        0.936        0.916        -2.14
Oklahoma.........................        0.913        0.893        -2.14
Mississippi......................        0.919        0.898        -2.31
Arkansas.........................        0.905        0.884        -2.34
Puerto Rico......................        0.905        0.883        -2.44
Nebraska.........................        0.925        0.902        -2.44
Wyoming..........................        0.934        0.910        -2.55

[[Page 69656]]


Montana..........................        0.928        0.902        -2.83
Rest of Missouri*................        0.910        0.883        -2.97
North Dakota.....................        0.924        0.895        -3.16
South Dakota.....................        0.922        0.891        -3.35
------------------------------------------------------------------------
\1\ Calculation for the GAF: (0.52466*work gpci) + (0.03865*mp gpci) +
  (0.43669*pe gpci)

    Comment: We received several comments indicating that the GPCIs for 
Puerto Rico are inadequate because they do not take into consideration 
the higher costs of living in Puerto Rico. Commenters are concerned 
that physicians in Puerto Rico will relocate to areas with higher 
GPCIs. Their comments focused on suggested revisions to the data used 
in calculating the GPCIs for Puerto Rico with the intent of raising the 
GPCI for Puerto Rico.
    Response: We want to ensure that beneficiaries have access to high 
quality care in all parts of the United States; however, we do not use 
relative costs of living in the calculation of the GPCIs as the 
commenters are requesting. Relative costs of living among payment 
localities are already accounted for within other measures of relative 
resource cost that we use in calculating GPCIs, and we do not believe 
it would be appropriate to use different measures of resource cost for 
some localities than are used for others.
    Comment: We received numerous comments reflecting concerns about 
the negative impact on physician payments resulting from removal of the 
MMA-mandated floor of 1.0 on the physician work GPCI. Comments also 
stated that GPCIs should not be applied to physician work as a general 
policy.
    Response: The 1.000 floor is being removed for services furnished 
after December 31, 2006, because the MMA provision established the 
floor only for services furnished on or after January 1, 2004, and 
before January 1, 2007. We do not have the legal authority to extend 
application of the floor beyond the statutory timeframe. In addition, 
application of GPCIs to the work RVUs is required by the statute.
    Comment: We received numerous comments requesting that we 
administratively change the relative values for codes that have a TC 
and a PC. The focus of the comments was that for many codes the TC has 
a higher malpractice relative value than the PC. A suggestion was made 
that we administratively change the TC RVU to equal the PC RVU.
    Response: The commenters are suggesting a change in methodology for 
calculating the malpractice RVUs. We did not make any proposals 
relating to this methodology; therefore, comments relating to 
malpractice RVU policy are outside the scope of this rule. We 
appreciate the commenters' suggestions, and if we were to propose 
changes to malpractice RVU policy, we would consider the commenters' 
suggestions in future rulemaking.
    Comment: Commenters indicated that they were troubled about the 
data used in developing the GPCIs. Specifically, the proxy categories 
used in the wage determination and the real estate data used in the 
rent portion of the PE GPCI are of the greatest concern. They stated 
that our data do not reflect true costs and, therefore, put many 
practitioners in rural areas at a disadvantage and create inequities 
between payment localities.
    Response: We have previously addressed the issue of rental data in 
the CY 2005 PFS final rule (69 FR 66261). We stated that the Department 
of Housing and Urban Development (HUD) rental data may be the subject 
of concern, but we believe it remains the best data source to fulfill 
our requirements that the data be available for all areas, be updated 
annually, and retain consistency area-to-area and year-to-year. In that 
same rule, we discussed our belief that the wage proxies we use are the 
best tools available for the development of the GPCIs. However, we will 
consider the possibility of using different wage proxies or wage data 
sources for some future update of the GPCIs.

C. Medicare Telehealth Services

    As discussed in the CY 2007 PFS proposed rule (71 FR 48994), 
section 1834(m)(4)(F) of the Act defines telehealth services as 
professional consultations, office visits, and office psychiatry 
services (identified as of July 1, 2000 by CPT codes 99241 through 
99275, 99201 through 99215, 90804 through 90809, and 90862) and any 
additional service specified by the Secretary. In addition, the statute 
requires us to establish a process for adding services to or deleting 
services from the list of telehealth services on an annual basis.
    In the December 31, 2002 Federal Register (67 FR 79988), we 
established a process for adding services to or deleting services from 
the list of Medicare telehealth services. This process provides the 
public an ongoing opportunity to submit requests for adding services. 
We assign any request to make additions to the list of Medicare 
telehealth services to one of the following categories:
     Category #1: Services that are similar to office and other 
outpatient visits, consultation, and office psychiatry services. In 
reviewing these requests, we look for similarities between the proposed 
and existing telehealth services for the roles of, and interactions 
among, the beneficiary, the physician (or other practitioner) at the 
distant site and, if necessary, the telepresenter. We also look for 
similarities in the telecommunications system used to deliver the 
proposed service, for example, the use of interactive audio and video 
equipment.
     Category #2: Services that are not similar to the current 
list of telehealth services. Our review of these requests includes an 
assessment of whether the use of a telecommunications system to deliver 
the service produces similar diagnostic findings or therapeutic 
interventions as compared with the face-to-face ``hands on'' delivery 
of the same service. Requestors should submit evidence showing that the 
use of a telecommunications system does not affect the diagnosis or 
treatment plan as compared to a face-to-face delivery of the requested 
service.
    Since establishing the process, we have added the following to the 
list of Medicare telehealth services: Psychiatric diagnostic interview 
examination; ESRD services with two to three visits per month and four 
or more visits per month (although we require at least one visit a 
month by a physician, CNS, NP, or PA to examine the vascular access 
site); and individual medical nutritional therapy.

[[Page 69657]]

    Requests to add services to the list of Medicare telehealth 
services must be submitted and received no later than December 31 of 
each CY to be considered for the next proposed rule. For example, 
requests submitted before the end of CY 2005 are considered for the CY 
2007 proposed rule. For more information on submitting a request for an 
addition to the list of Medicare telehealth services, visit our Web 
site at http://www.cms.hhs.gov/telehealth.

    We received the following requests for additional approved services 
in CY 2005: Nursing facility care; speech language pathology; 
audiology; and physical therapy services.
    After reviewing the public requests, we explained that section 
1834(m)(4)(C)(ii) of the Act defines a telehealth originating site as a 
physician's or practitioner's office; or a hospital, critical access 
hospital (CAH), rural health clinic, or Federally qualified health 
center (FQHC). SNFs are not defined in the statute as originating 
sites. The authority to allow SNFs to serve as telehealth originating 
sites is dependent upon HHS submitting the Report to Congress on 
permitting a SNF to be an originating site (as required by the section 
418 of the MMA) and the Secretary concluding in the Report that it is 
advisable to include a SNF as a Medicare telehealth originating site 
and that mechanisms could be established to ensure that use of a 
telecommunications system does not serve as a substitute for the 
required in-person physician or practitioner visits to SNF residents.
    As discussed in the CY 2007 PFS proposed rule, given that SNFs are 
not defined in the statute as a telehealth originating site and HHS is 
currently reviewing the Report to Congress, it would not be appropriate 
to approve nursing facility care for telehealth at this time.
    In addition, we explained that the statute permits only a 
physician, as defined by section 1861(r) of the Act or a practitioner 
as described in section 1842(b)(18)(C) of the Act (CNS, NP, PA, nurse 
midwife, clinical psychologist, clinical social worker, registered 
dietitian or other nutrition professional), to furnish Medicare 
telehealth services. Since speech language pathologists, audiologists 
and physical therapists are not permitted under the statute to provide 
and receive payment for Medicare telehealth services at the distant 
site, we could not fully consider the request to add speech therapy, 
audiology services and physical therapy to the list of Medicare 
telehealth services (71 FR 48994).
    We received the following comments on the Medicare telehealth 
services.
    Comment: Some commenters stated that the process for adding 
services to the list of Medicare telehealth services does not require 
an originating site to be approved prior to the approval of a service 
for telehealth (and mentioned that we previously approved ESRD-related 
visits furnished under the monthly capitation payment (MCP) for 
telehealth without the approval of a dialysis center as an originating 
site). The commenters believe that approving nursing facility services 
for telehealth is mutually exclusive from the Report to Congress on 
permitting a SNF to be a Medicare telehealth originating site and that 
the findings of the report are not necessary to approve services for 
telehealth. Moreover, the commenters requested that we approve nursing 
facility care for telehealth (initial nursing facility care, subsequent 
nursing facility care, nursing facility discharge services and other 
nursing facility services) prior to the completion of the Report to 
Congress on permitting a SNF to be an originating site.
    Response: As previously discussed in this section, the MMA 
specifically requires an evaluation of SNFs as potential originating 
sites for the furnishing of telehealth services, and a Report to 
Congress on such evaluation. The law provides the authority to add SNFs 
as an originating site if the Secretary concludes in the report that it 
is advisable to do so, and that mechanisms could be established to 
ensure that the use of telehealth does not substitute for the required 
in-person physician or practitioner visits to SNF residents (which 
could have significant implications for the type of services we would 
approve for telehealth). As such, we believe that a decision to add (or 
not add) nursing facility care to the list of Medicare telehealth 
services is related to the conclusions reached in the Report to 
Congress on permitting a SNF to serve as an originating site. Given 
that the conclusions of the Report to Congress are not final, we do not 
believe that it would be appropriate to consider the request to add 
nursing facility care to the list of Medicare telehealth services at 
this time. We intend to review and consider the recommendations of the 
Report to Congress once it is issued and would address the request to 
approve nursing facility care for telehealth in future rulemaking.
    Comment: One commenter expressed support for expanding telehealth 
services and for allowing SNFs to serve as a telehealth originating 
site.
    Response: We appreciate the comment on the use of SNFs as 
telehealth originating sites. As discussed earlier in this section, the 
Report to Congress that could permit an SNF to serve as an originating 
site is currently under review within HHS. We expect to address this 
issue in future rulemaking after the Report to Congress is issued.
    Comment: Two commenters requested clarification on whether the 
public would need to resubmit a request to approve nursing facility 
care for telehealth if it is determined that SNFs could be added as an 
originating site.
    Response: After the Report to Congress is issued regarding SNFs as 
a telehealth originating site, we will address the requests to approve 
nursing facility care for telehealth and discuss our review through 
future rulemaking. It would not be necessary to resubmit a request to 
approve nursing facility care for telehealth.
    Comment: Commenters stated that we added medical nutritional 
therapy (MNT) to the list of telehealth services in the CY 2006 PFS 
rule without nutrition professionals being authorized to furnish 
telehealth services. The commenters note that physical therapists, 
audiologists, and speech language pathologists currently cannot furnish 
Medicare telehealth services and requested an explanation as to why we 
cannot also consider approving audiology, speech language pathology, 
and physical therapy services for telehealth.
    Response: The statute permits a physician, as defined by section 
1861(r) of the Act or a practitioner as described in section 
1842(b)(18)(C) of the Act (that is, CNS, NP, PA, nurse midwife, 
clinical psychologist, clinical social worker, registered dietitian or 
other nutrition professional), to furnish Medicare telehealth services. 
Registered dietitians or nutrition professionals are included in the 
statutory definition of practitioner under section 1842(c)(18)(C)(vi), 
and thus, are permitted under the statute to furnish telehealth 
services (and are the only practitioners permitted by the statute to 
furnish MNT). As such, when approving individual MNT for telehealth, 
registered dietitians and nutrition professionals as defined in Sec.  
410.134 were added to the list of practitioners that may furnish and 
receive payment for a telehealth service in the CY 2006 PFS final rule 
with comment period (70 FR 70160).
    In contrast, speech language pathologists, audiologists and 
physical therapists are not permitted under the statute to provide and 
receive payment for Medicare telehealth services at the

[[Page 69658]]

distant site. Therefore, we do not believe it would be appropriate to 
consider adding audiology, speech language pathology, and physical 
therapy services for telehealth.
    Comment: Two commenters requested that we provide clarification on 
when the telehealth Report to Congress, as required by section 223(d) 
of the BIPA, would be completed and submitted to Congress. Another 
commenter urged us to expedite the completion of the telehealth report 
(as required by the BIPA).
    Response: The Report to Congress on additional sites and settings, 
practitioners, and geographic areas that may be appropriate for 
Medicare telehealth payment, as required by section 223(d) of the BIPA, 
is under development. We will work to expedite the completion of this 
report.

D. Miscellaneous Coding Issues

    The following sections address specific coding issues related to 
payment for services under the PFS.
1. Global Period for Remote Afterloading High Intensity Brachytherapy 
Procedures
    CPT code 77783, Remote afterloading high intensity brachytherapy; 
9-12 source positions or catheters, resides in a family of codes with 
varying numbers of source positions. All of the codes in the family, 
CPT codes 77781 through 77784, are currently designated as 90-day 
global services. CPT codes 77781 through 77784 are used to treat many 
clinical conditions, but primarily patients with prostate cancer, 
breast cancer and sarcoma. Patients with any of these conditions 
usually receive several treatments (2 through 10) over a 2 to 10-day 
period of time. Due to the increasing variability in treatment 
regimens, it is difficult to assign RVUs for a ``typical'' patient 
based on a global period of 90 days.
    Therefore, we proposed that this family of codes (CPT codes 77781, 
77782, 77783 and 77784) be assigned a global period of ``XXX'', which 
will permit separate payment each time the services are provided and 
allow payment to be based on the actual service(s) provided. We will 
request that the RUC revalue the work RVUs and the PE inputs for these 
services if a change in the global period is finalized. However we 
proposed, on an interim basis, to revise the work RVUs and PE inputs to 
reflect the removal of the postoperative visit, CPT code 99212 that is 
currently assigned to these services. The interim work RVUs for these 
services are as follows:
     CPT code 77781 = 1.21
     CPT code 77782 = 2.04
     CPT code 77783 = 3.27
     CPT code 77784 = 5.15
    We proposed to delete the registered nurse (RN) time in the 
postservice period, as well as the patient gowns for the postservice 
visit. We also noted that, to the extent that these services are 
performed as staged procedures, providers may make use of applicable 
modifiers.
    We received the following comments on these coding issues.
    Comment: Many commenters concurred with our proposal. However, some 
commenters wanted either a reconsideration of the proposed work RVU 
reduction, or if needed, a reduction in the CF. One commenter agreed 
with the global period revision but recommended establishment of a 
threshold for brachytherapy codes at a maximum of 10 percent per year. 
Another commenter concurred with the change in the global period; 
however, the commenter recommended no change in the work RVUs or a 
reduction to the 1992 levels, and prior to any work RVU changes it was 
recommended that such changes be reviewed by the RUC. In addition, the 
RUC, in its comments, agreed to include a review of the brachytherapy 
codes on its April 2007 meeting agenda and several commenters expressed 
an interest in working with the RUC on the work RVUs and PE inputs.
    Response: We believe that the commenters misunderstood the intent 
of the proposed work RVU reductions. They are designed to allow the 
billing of the brachytherapy physician service codes on a more frequent 
basis than is currently permitted, and are reflective of the present 
course of treatment regimens. The current codes have a 90-day global 
period and are to be billed only once for the entirety of physician 
services provided during the specified time period.
    Comment: Some commenters expressed concern that the PE inputs for 
the brachytherapy codes should not be reduced to reflect the removal of 
a post-operative visit because there is no visit.
    Response: A post-operative visit is included within the current PE 
inputs for the current 90-day global period brachytherapy codes. The 
change to a global period of ``XXX'' necessitates the removal of this 
visit from the PE inputs because the codes could be billed several 
times during a course of treatment, and each occurrence would not 
include a post-operative visit.
    The brachytherapy family of codes (CPT codes 77781, 77782, 77783 
and 77784) will be assigned a global period of ``XXX'', which will 
permit separate payment each time the services are provided and allow 
payment to be based on the actual service(s) provided. Because of the 
change in the global period a request will be made to the RUC for a 
revaluation of the work RVUs and the PE inputs for these services. On 
an interim basis the work RVUs and the PE inputs will be revised as 
delineated in the proposed rule. In addition, the RN time in the 
postservice period, as well as the patient gowns for the postservice 
visit will be deleted from the PE database as proposed.
    Separate payment will be made for medically necessary post-therapy 
visits based on the documented level of E/M service for the post 
procedure encounter(s).
    We also note that appropriate modifiers are to be used when these 
services are performed as staged procedures.
2. Assignment of RVUs for Proton Beam Treatment Delivery Services
    As discussed in the CY 2006 PFS proposed rule, we have received a 
request to assign PE inputs for the non-facility setting to Proton Beam 
treatment delivery services represented by CPT codes 77520 through 
77525. These services are currently carrier-priced; therefore, payment 
in the facility or non-facility setting is established by each carrier. 
To the extent that physicians and suppliers wish to have national RVUs 
assigned for these services, we encourage them to use the established 
process at the AMA-RUC.
    Comment: We received several comments in response to this 
discussion. Two commenters stated that due to the relatively limited 
availability of these services in freestanding environments given the 
small number of proton therapy centers at this point in time, these 
services should remain carrier priced. However, one commenter indicated 
that allowances established by carriers do not appear to account for 
capital and operating costs. This commenter referenced payment amounts 
proposed for hospital OPDs under the Outpatient Prospective Payment 
System (OPPS), and urged us to provide guidance to carriers in 
establishing appropriate payment for these services under the PFS.
    Other commenters suggested that RVUs should be established for 
these services. Many of these commenters expressed agreement with the 
payment rate for these services under OPPS. These commenters were 
concerned that since each State has its own CMS-contracted carrier, 
variations exist in proton therapy coverage and reimbursement under the 
PFS. These

[[Page 69659]]

commenters requested that we provide payment rates for carriers to use 
when these services are furnished in freestanding centers so that 
payments are consistent with payment rates under OPPS.
    We also received comments from the AMA-RUC and ASTRO regarding this 
discussion. The RUC reiterated the process that is used to develop RVUs 
and ASTRO indicated it would be willing to participate in the 
development of RVUs for these services.
    Response: As discussed in the CY 2006 PFS proposed rule, at the 
present time payment for these services is established at the carrier 
level. The carriers have discretion to establish payment using 
available information about these services. Should providers wish to 
have RVUs established for these services, we would request that they 
use the AMA-RUC process that has been established for recommending RVUs 
and direct PE inputs used to compute national RVUs for PFS services to 
CMS.

E. Deficit Reduction Act (DRA)

    The Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171), was 
enacted February 8, 2006 and included provisions that affect the 
Medicare program. The following section addresses the specific DRA 
provisions that were addressed in the CY 2007 PFS proposed rule (71 FR 
48996).
1. Section 5102--Adjustments for Payments to Imaging Services
    Section 5102 of the DRA includes two provisions that affect 
payments of imaging services under the Medicare PFS. The first 
provision addresses payment for certain multiple imaging procedures for 
CY 2007 and application of BN while the second provision addresses 
limiting the payment amount under PFS to the OPD payment amount for the 
TC of certain imaging services.
a. Payment for Multiple Imaging Procedures for 2007
    In general, Medicare prices diagnostic imaging procedures in the 
following three ways:
     The PC represents the physician's interpretation (PC-only 
services are billed with the 26 modifier).
     The TC represents PE and includes clinical staff, 
supplies, and equipment (TC-only services are billed with the TC 
modifier).
     The global service represents both PC and TC.
    As discussed in the CY 2006 PFS final rule with comment period (70 
FR 70261), in the CY 2006 PFS proposed rule (70 FR 45764 through 
46064), we had proposed to reduce payment for the TC of selected 
diagnostic imaging procedures belonging to one of eleven imaging 
families when the procedures are performed on contiguous body areas by 
50 percent for CY 2006. However, in the final rule with comment period, 
we stated that we would phase-in the 50 percent reduction over 2 years 
beginning with a 25 percent reduction in 2006. We also sought 
additional data and comments on the appropriateness of 50 percent as 
the final level of reduction. The reduction applies to the TC and the 
technical portion of the global service, but does not apply to the PC 
of the service. Currently, we make full payment for the highest priced 
procedure and reduce payment for each additional procedure by 25 
percent, when more than one procedure from the same imaging family is 
performed during the same session on the same day.
    As described in the CY 2006 PFS final rule with comment period, at 
the time, the statute required us to make changes such as this in a 
budget neutral manner, meaning that the estimated savings generated by 
the application of the multiple imaging procedure payment reduction 
were used to increase payment for other physician fee schedule 
services. We increased the CY 2006 PE RVUs by 0.3 percent to offset the 
estimated savings generated by the multiple imaging payment reduction 
policy.
    Subsequent to the publication of the CY 2006 PFS final rule with 
comment period, section 5102(a) of the DRA (Multiple Procedure Payment 
Reduction for Imaging Exempted From Budget Neutrality), required that 
``effective for fee schedules established beginning with 2007, reduced 
expenditures attributable to the multiple procedure payment reduction 
for imaging under the CY 2006 PFS final rule with comment period (42 
CFR 405, et al.) insofar as it relates to the PFSs for 2006 and 2007'' 
are exempted from the BN provision. As a result, we proposed to remove 
the 0.3 percent increase to the CY 2006 PE RVUs from the CY 2007 PE 
RVUs in accordance with the statute.
    In addition, in response to our request for data on the 
appropriateness of the 50 percent reduction in the CY 2006 PFS final 
rule with comment period (70 FR 70261), the ACR provided information 
for 25 code combinations supporting a reduction of between 21 and 44 
percent. Given the expected interaction between the multiple procedure 
imaging policy and the further imaging payment reductions mandated by 
section 5102(b) of the DRA, along with the new information we have 
received from the ACR on the multiple imaging procedure policy as it 
applies to common combinations of imaging services, we believe it would 
be prudent to maintain the multiple imaging payment reduction at its 
current 25 percent level while we continue to examine the appropriate 
payment levels. Therefore, we proposed to continue the multiple imaging 
payment reduction for CY 2007 at the 25 percent level. We would proceed 
through future rulemaking in the event we determine that revisions to 
the policy are warranted.
b. Reduction in TC for Imaging Services Under the PFS to OPD Payment 
Amount
    Section 5102(b)(1) of the DRA amended section 1848 of the Act and 
requires that, for imaging services, if--
    ``(i) The technical component (including the technical component 
portion of a global fee) of the service established for a year under 
the fee schedule * * * without application of the geographic adjustment 
factor * * *, exceeds
    (ii) The Medicare OPD fee schedule amount established under the 
prospective payment system for hospital outpatient department services 
* * * for such service for such year, determined without regard to 
geographic adjustment * * *, the Secretary shall substitute the amount 
described in clause (ii), adjusted by the geographic adjustment factor 
[under the PFS] * * *, for the fee schedule amount for such technical 
component for such year.''
    As required by the statute, for imaging services (described below 
in this section) furnished on or after January 1, 2007, we will cap the 
TC of the PFS payment amount for the year (prior to geographic 
adjustment) by the CY 2007 OPPS payment amount (prior to geographic 
adjustment). We will then apply the PFS geographic adjustment to the 
capped payment amount.
    Section 5102(b)(2) of the DRA exempts the estimated savings from 
this provision from the PFS BN requirement. Section 5102(b)(1) of the 
DRA defines imaging services as ``* * * imaging and computer-assisted 
imaging services, including X-ray, ultrasound (including 
echocardiography), nuclear medicine (including positron emission 
tomography), MRI, CT, and fluoroscopy, but excluding diagnostic and 
screening mammography.''
    To apply section 5102(b) of the DRA, we needed to determine the CPT 
and alpha-numeric HCPCS codes that fall within the scope of ``imaging 
services'' defined by the DRA provision. In general, we believe that 
imaging services provide visual information regarding areas of the body 
that are not

[[Page 69660]]

normally visible, thereby assisting in the diagnosis or treatment of 
illness or injury. We began by considering the CPT 7XXXX series codes 
for radiology services and then adding in other CPT codes and alpha-
numeric HCPCS codes that describe imaging services. We then excluded 
nuclear medicine services that were either non-imaging diagnostic or 
treatment services. We also excluded all codes for unlisted procedures, 
since we would not know in advance of any specific clinical scenario 
whether or not the unlisted procedure was an imaging service. We 
excluded all mammography services, consistent with the statute. We 
excluded radiation oncology services that were not imaging or computer-
assisted imaging services. We also excluded all HCPCS codes for imaging 
services that are not separately paid under the OPPS since there would 
be no corresponding OPPS payment to serve as a TC cap. We excluded any 
service where the CPT code describes a procedure for which fluoroscopy, 
ultrasound, or another imaging modality is either included in the code 
whether or not it is used or is employed peripherally in the 
performance of the main procedure, for example, CPT code 31622 for 
bronchoscopy with or without fluoroscopic guidance and CPT code 43242 
for upper gastrointestinal endoscopy with transendoscopic ultrasound-
guided intramural or transmural fine needle aspiration/biopsy(s). In 
these cases, we are unable to clearly distinguish imaging from non-
imaging services because, for example, a specific procedure may or may 
not utilize an imaging modality, or the use of an imaging technology 
cannot be segregated from the performance of the main procedure. Note 
that we included carrier priced services since these services are 
within the statutory definition of imaging services and are also within 
the statutory definition of PFS services (that is, carrier-priced TCs 
of PET scans).
    A list of proposed codes that identify imaging services defined by 
the DRA OPPS cap provision was found in Addendum F of the proposed 
rule.
    To the extent changes are made to codes for services already on the 
list, we proposed to update the list through program instructions to 
our contractors. To the extent that the same imaging service is coded 
differently under the PFS and the OPPS, we proposed to crosswalk the 
code under the PFS to the appropriate code under the OPPS that could be 
reported for the same service provided in the hospital outpatient 
setting. These crosswalks are listed in Table 8.

                          Table 8.--Crosswalks
------------------------------------------------------------------------
     MFS Code         Descriptor         OPPS Code            Desc
------------------------------------------------------------------------
74185............  Mri angio, abdom  C8900............  MRA w/cont, abd.
                    w or w/o dye.
76093 *..........  Magnetic image,   C8905............  MRI w/o fol w/
                    breast.                              cont, brst, un.
76094 *..........  Magnetic image,   C8908............  MRI w/o fol w/
                    both breasts.                        cont, breast.
71555............  Mri angio chest   C8909............  MRA w/cont,
                    w or w/o dye.                        chest.
73725............  Mr ang lwr ext w  C8912............  MRA w/cont, lwr
                    or w/o dye.                          ext.
72198............  Mr angio pelvis   C8918............  MRA w/cont,
                    w/o & w/dye.                         pelvis.
------------------------------------------------------------------------
* Note: These codes have been renumbered for CY 2007. New code number is
  reflected in Addendum F.

c. Interaction of the Multiple Imaging Payment Reduction and the OPPS 
Cap
    For CY 2007 imaging services potentially subject to both the 
multiple imaging reduction and the OPPS cap, we proposed to first apply 
the multiple imaging payment reduction and then apply the OPPS cap to 
the reduced amount as illustrated in Table 9.

                                                     Table 9
----------------------------------------------------------------------------------------------------------------
                                                                   25% Multiple
                      HCPCS                        Pre-OPPS cap       imaging      OPPS cap rate    Final MPFS
                                                     MPFS rate       reduction                        payment
----------------------------------------------------------------------------------------------------------------
7XXX1...........................................         $341.89         $256.42         $316.55         $256.42
7XXX2...........................................          552.86          414.65          391.83          391.83
----------------------------------------------------------------------------------------------------------------

    We considered first applying the OPPS cap and then applying the 
multiple procedure reduction. However, as indicated in the CY 2006 OPPS 
final rule, we received public comments suggesting that the OPPS 
payment rates may implicitly include at least some multiple imaging 
discount. While we continue to examine this issue, we believe the most 
appropriate policy is to apply the multiple imaging payment reduction 
prior to the application of the OPPS cap.
i. OPPS Cap
    Comment: Many commenters criticized the OPPS cap, maintaining that 
OPPS rate was never intended to reflect the cost of providing 
individual physicians' services. They indicated that it is 
methodologically unjustifiable, and that it undermines the resource-
based system.
    One commenter noted that physician costs are determined on a per 
procedure basis, whereas hospital costs are not determined on a per 
procedure basis because expensive capital equipment is allocated over 
other procedures within a revenue center. Given this methodological 
difference, the commenter indicated that it is not surprising that the 
cost of a procedure under the PFS is greater than under OPPS. Another 
commenter noted that we need to recognize that the delivery of care has 
shifted from the hospital to physicians' offices; that there is an 
increased complexity of care; and the need to practice defensive 
medicine due to the threat of malpractice lawsuits. One commenter noted 
that hospital and IDTF payments should not be the same.
    Various commenters indicated that the cap will have a devastating 
impact and threatens the future viability of outpatient imaging. 
Commenters predicted that the consequences will include:
     Reduced patient access to diagnostic technologies capable 
of

[[Page 69661]]

preventing the onset of more serious conditions, requiring more complex 
and expensive treatment later.
     Shifting of procedures back to hospitals.
     Increased volume to offset the affects of the payment 
cuts.
     Conversion of IDTFs ownership and legal structure to allow 
billing under OPPS, negating any savings from the cap.
    A few commenters requested a delay in implementing the cap and 
requested that we consider co-sponsoring H.R.5704 that calls for a 2-
year moratorium on imaging cuts.
    Response: We acknowledge the commenters concerns and appreciate 
their comments. However, we are obligated to implement the statutory 
provision. We will continue to work with the Congress and specialty 
societies to ensure equitable payments and proper access to care.
    Comment: Several commenters requested that the following procedure 
codes be excluded from the OPPS cap:
     Non-invasive vascular diagnostic study codes (CPT codes 
93875-93990 and G0365) because they either contain no imaging or are 
predominately non-imaging in nature. Particularly noted were 
transcranial Doppler procedures and duplex scans.
     Imaging guidance procedures that are integral to the 
performance of interventional treatment or diagnostic procedures. CPT 
codes cited were: 75894, 75896, 75901-75945, 75952, 75954, 75962, 
75966, 75970, 75989-75996, 76940-76948 and 76965.
     Nuclear medicine codes 78020, 78135, 78140, 78190, and 
78282, based on the fact that other nuclear medicine codes, such as 
radioisotope lab codes were excluded.
     Codes performed in conjunction with radiation therapy (CPT 
codes 76370, 76950, 76965, 77417, and 77421) because they are never 
performed for diagnostic purposes. The commenters were pleased that we 
excluded radiation oncology codes.
     Positron Emission Tomography (PET), PET/ CT, and CT/
Computed Tomographic Angiography (CTA) and Category III codes used to 
report emerging technologies because they are carrier-priced codes and, 
therefore, not paid under the PFS.
     Codes for imaging service that are not separately paid 
under OPPS since there is no corresponding OPPS payment to serve as a 
TC cap. Codes cited were cardiac catheterization codes 93555 and 93556 
and code 0152T.
    Additionally, several commenters proposed the following definition 
of medical imaging procedures for the purpose of the DRA provision: 
``Medical imaging uses noninvasive techniques to view all parts of the 
body and thereby diagnose an array of medical conditions. These 
techniques include the use of ionizing radiation (X-rays and CT scans), 
MRI, ultrasound and scans obtained after the injection of radio 
nucleotides (such as bone scans and PET).''
    Response: The DRA defines imaging service subject to the OPPS cap 
as ``imaging and computer-assisted imaging services, including x-ray, 
ultrasound (including echocardiography), nuclear medicine, (including 
positron emission tomography [PET], magnetic resonance imaging [MRI], 
computed tomography [CT], and fluoroscopy, but excluding diagnostic and 
screening mammography.'' The DRA does not distinguish between 
diagnostic and therapeutic imaging. We have no authority to modify the 
statutory definition of imaging services. Therefore, we cannot exclude 
certain non-invasive diagnostic study procedures, imaging guidance 
procedures, nuclear medicine procedures, and radiation oncology imaging 
procedures. However, in our review of the codes in response to 
comments, we determined that there are certain non-invasive vascular 
diagnostic study codes that do not involve the generation of an image, 
(that is, codes 93875, 93922, 93923, 93924 and 93965.) Therefore, we 
are removing these codes from the list of codes subject to the OPPS 
cap.
    Additionally, we note that imaging guidance procedures that are 
separately billed, are appropriately included on the list of codes 
subject to the cap. However, codes 75952, 75954, and 75993-75996 were 
inadvertently included on the list. These codes do not have a TC and we 
are removing them from the list.
    Regarding carrier-priced services, all physicians' services (as 
defined by the statute under section 1848(j)(3) of the Act) are paid 
under the PFS, regardless of how they are priced. Carrier-priced 
services are services for which an alternative methodology is used to 
arrive at TC payment under the PFS, and, therefore, they are subject to 
the DRA provision. The same is true of Category III codes to the extent 
that they are carrier-priced (and to the extent they are not carrier-
priced, there is no basis to exempt these codes from application of the 
cap).
    Regarding codes that are not separately paid under the OPPS, we 
agree that there is no corresponding OPPS payment to serve as a TC cap. 
Because these codes meet the statutory definition of procedures subject 
to the OPPS cap, we will retain these codes on the list of procedures 
subject to the cap, but payments for the procedures will not be 
affected by the cap.
    Comment: One commenter noted that the Ambulatory Payment 
Classification (APC) groups are intended to set an average payment, 
where some lower cost procedures are paid at a higher average rate, and 
some higher cost procedures are paid at a lower average rate. In 
crosswalking from the PFS to the OPPS payment, the commenter noted that 
it would be more equitable to crosswalk to the median cost by CPT code, 
rather than using the median cost per the APC grouping payment.
    One commenter requested exclusion of codes bundled under OPPS 
having no additional APC payment, but having a TC amount under PFS. The 
commenter noted that the list of bundled services under the APC 
payments will vary from year-to-year and it is inappropriate to not 
make a payment under PFS as there is no packaging of the service into 
another procedure. Another commenter noted that drugs and 
radiopharmaceuticals are bundled into some OPPS procedures. They 
indicated that these should be unbundled to achieve more parity in the 
payment systems.
    Response: The DRA is specific in its requirements to compare the TC 
of a service for a year to the Medicare OPD fee schedule amount. 
Therefore, we will crosswalk the TC to the corresponding OPD fee 
schedule service and use that rate as a cap. For the same reason, we 
must use the OPD payment amount even if there are drugs or 
radiopharmaceuticals bundled into a particular OPD payment amount.
    In regard to the concern that bundled services vary year to year, 
we intend to review the relevant OPD and PFS codes to determine the 
appropriate crosswalk for a given year. We recognize that there will be 
changes and we believe our process will help to ensure that TC codes 
are being crosswalked to the most appropriate OPD codes.
ii. Multiple Procedure Payment Reduction
    Comment: Many commenters expressed appreciation for our decision to 
apply the multiple procedure payment reduction prior to application of 
the OPPS cap, and for maintaining the reduction at 25 percent. However, 
the commenters also indicated that the multiple procedure payment 
reduction is duplicative, inappropriate and excessive in light of the 
OPPS cap, and requested its elimination. Other

[[Page 69662]]

commenters requested continued evaluation, indicating a 25 percent 
reduction is greater than what is justified by any efficiencies 
achieved in, performing multiple procedures. One commenter noted we had 
previously stated that our multiple procedure analysis does not 
disprove earlier assertions by physician and industry representatives 
that some portion of multiple procedure efficiencies may be already 
reflected in OPPS payment rates. Conversely, MedPAC indicated that it 
is unclear why the DRA OPPS cap justifies maintaining the 25 percent 
reduction since the DRA policy applies only to those services where the 
TC exceeds the OPPS rate. In addition, MedPAC requested more 
information on the ACR data cited in the CY 2007 PFS proposed rule (71 
FR 48996).
    Response: When we proposed the multiple procedure payment reduction 
last year, as recommended by MedPAC, our data supported a 50 percent 
payment reduction. However, we agreed to phase-in the reduction over 
two years to allow for a transition of the changes in payment for these 
services attributable to the reduction policy and to provide further 
opportunity for public comment. Subsequently, the Congress passed the 
DRA provision capping imaging procedures at the OPPS payment rate. In 
view of the DRA provision, and additional data received from ACR, we 
determined that it is more appropriate to retain the multiple procedure 
payment reduction at 25 percent, rather than to increase it to 50 
percent as previously proposed. We share the concerns of the providers 
of imaging services that excessive reductions could be harmful to both 
physicians and patients. Therefore, we believe it is more appropriate 
to maintain the 25 percent reduction level while we continue to examine 
this issue.
    The list of codes that identify imaging services defined by the DRA 
OPPS cap provision can be found in Addendum F to this final rule with 
comment period. Note that the list in the proposed rule was affected by 
the renumbering of CPT codes that is effective January 1, 2007. 
Addendum F in this final rule with comment period reflects the 
renumbering of CPT codes that is effective January 1, 2007, and also 
reflects the removal of certain codes in response to comments, as 
discussed previously in this section. Payment for an individual service 
on this list will only be capped if the PFS TC payment amount exceeds 
the OPPS payment amount.
2. Section 5107--Revisions to Payments for Therapy Services
    Section 1833(g) of the Act applies an annual per beneficiary 
combined cap beginning January 1, 1999 on outpatient physical therapy 
and speech-language pathology services and a similar separate cap on 
outpatient occupational therapy services. These caps apply to expenses 
incurred for the respective therapy services under Medicare Part B, 
with the exception of outpatient hospital services. The caps were in 
effect from January 1, 1999 through December 31, 1999, from September 
1, 2003 through December 7, 2003, and beginning January 1, 2006. In 
2000 through 2002, and from December 8, 2003 through December 31, 2005, 
the Congress placed moratoria on implementation of the caps. Section 
1833(g)(2) of the Act provides that, for 1999 through 2001, the caps 
were $1500, and for years after 2001, the caps are equal to the 
preceding year's cap increased by the percentage increase in the 
Medicare Economic Index (MEI) (except that if an increase for a year is 
not a multiple of $10, it is rounded to the nearest multiple of $10).
    As discussed in the CY 2006 PFS proposed rule, we implemented the 
separate statutory limits of $1740 for outpatient physical therapy and 
speech-language pathology services and $1740 for occupational therapy 
on January 1, 2006. The DRA was enacted on February 8, 2006. Section 
5107(a) of the DRA required the Secretary to develop an exceptions 
process for the therapy caps effective January 1, 2006. The exceptions 
process applies only to expenses incurred in 2006. Details of the 
exceptions process were published in a manual change on February 13, 
2006 (CR 4364). The change request consists of three transmittals with 
current numbers of--
     Transmittal 855, CR 4364, Pub. L. 100-04;
     Transmittal 47, CR 4365, Pub. L. 100-02; and
     Transmittal 140, CR 4364, Pub. L. 100-08.
    The transmittals are available on the CMS Web site at http://www.cms.hhs.gov/Transmittals/
.

    In accordance with the statute, the therapy caps will remain in 
effect, but without the exceptions process, for expenses incurred 
beginning on January 1, 2007. The dollar amount of each therapy cap in 
CY 2007 will be $1780 (which is the CY 2006 rate ($1740) increased by 
the percentage increase in the MEI), rounded to the nearest multiple of 
$10. As noted previously in this section, under the statute, the 
exceptions process will not apply to therapy services after December 
31, 2006, but the therapy caps will remain inapplicable to therapy 
services provided in the outpatient hospital setting as provided under 
section 1833(g) of the Act.
    Comment: We received six comments about therapy caps. All indicated 
that the cap exception process was working well to assure provision of 
needed therapy services. Some commenters acknowledged that we do not 
have the authority to extend therapy cap exceptions, but they requested 
that we be aggressive in urging the Congress to intervene to extend the 
exceptions or remove the caps.
    Several commenters urged us to place a high priority in resources 
and funding on continuing to conduct research that could be used to 
identify alternatives to the cap that would ensure that patients 
receive medically necessary therapy services. Some commenters cited the 
Medicare Payment Advisory Commission (MedPAC) recommendations of June 
2006 regarding continued research into measuring patient condition and 
treatment outcomes as a basis for reforming the payment system. 
Commenters also mentioned the Government Accountability Office 
publication issued in November 2005 (GAO-06-59) recommending that DHHS 
``expedite development of a process for ensuring that these services 
were considered in its efforts to standardize existing patient 
assessment instruments.'' Specifically, the one commenter, while 
recognizing important priorities in allocating limited funds, strongly 
urged us to conduct research and pilot studies leading to alternatives 
to therapy caps that ensure the needs of patients are met through high 
quality care. Another commenter agreed and also noted strong support 
for development of a condition-based payment as a viable alternative to 
caps. We received no negative comments concerning the exception process 
or our efforts to develop alternative payment systems based on the 
patient's need for services.
    Response: As commenters noted, we do not have the authority to 
extend the exceptions process beyond the December 31, 2006, statutory 
expiration date. We will continue, to the extent that resources allow, 
pursuing a payment policy that encourages provision of high quality, 
covered services to all beneficiaries who need them.
    Section 5107(b) of the DRA requires the Secretary to implement 
edits for clinically illogical combinations of

[[Page 69663]]

procedure codes and other edits to limit inappropriate payment for 
therapy services by July 1, 2006. As explained in the CY 2006 PFS 
proposed rule, in January 2006, we implemented Correct Coding 
Initiative (CCI) edits for the therapy providers that bill the fiscal 
intermediaries, thus, addressing the section 5107 of the DRA 
requirement for edits for clinically illogical combinations of 
procedure codes. Adoption of these code edits ensures that these 
providers of outpatient Part B therapy services, including SNFs, 
comprehensive outpatient rehabilitation facilities, certain outpatient 
physical therapy and speech-language therapy providers (rehabilitation 
agencies) and home health agencies (HHAs) (where beneficiary is not 
under a Part A plan of care) meet the same CCI edit requirements as 
those that have been in place for physicians, private practice 
therapists, and OPPS hospitals. We also noted that we are considering 
the implementation of other edits in the future to further address 
concerns about inappropriate payment for therapy services.
    Comment: MedPAC indicated that the CCI code-pair edits we have 
implemented are a good start in controlling inappropriate billing, but 
encouraged further work and consultation with experts to develop other 
clinically appropriate edits for therapy services.
    Response: We appreciate the MedPAC's remarks and will consider its 
suggestions in the implementation of future edits.
3. Section 5112--Addition of Ultrasound Screening for Abdominal Aortic 
Aneurysm (AAA)
a. Coverage
    Section 5112 of the DRA amended section 1861 of the Act to provide 
for coverage under Part B of ultrasound screening for AAAs, effective 
for services furnished on or after January 1, 2007, subject to certain 
eligibility and other limitations. This screening test will be 
available even if the qualifying patient does not present signs or 
symptoms of disease or illness.
    To conform the regulations to the statutory requirements of section 
5112 of the DRA, we proposed to include an exception in Sec.  
411.15(a)(1) to permit coverage for ultrasound screening for AAAs that 
meet the conditions for coverage that we proposed to specify under new 
Sec.  410.19(b) (Conditions for coverage of an ultrasound screening for 
abdominal aortic aneurysms). We also proposed to add a new Sec.  
411.15(k)(12).
    As provided in the DRA, this new coverage allows payment for a one-
time only screening examination. We proposed new Sec.  410.19(b) to 
provide for the coverage of the screening examinations for AAAs as 
specified in section 5112 of the DRA. We also proposed to add new Sec.  
410.19(c) (Limitation on coverage of ultrasound screening for abdominal 
aortic aneurysms.) to provide the limitation on coverage for an 
individual who is not an eligible beneficiary as defined in new Sec.  
410.19(a).
    We proposed the definitions set forth in new Sec.  410.19(a) to 
implement the statutory provisions and to help the reader in 
understanding the provisions of this regulation. The definitions 
include the following terms:
     Eligible beneficiary.
     Ultrasound screening for abdominal aortic aneurysms.
    Specifically, section 5112(a)(1) of the DRA amended section 1861 of 
the Act to provide that coverage of ultrasound screening for AAAs will 
be available for an individual: (1) Who receives a referral for such as 
ultrasound screening as a result of an initial preventive physical 
examination (IPPE) (as defined in section 1861(ww)(1) of the Act); (2) 
who has not been previously furnished such as ultrasound screening 
under this title; and (3) who has a family history of AAA or manifests 
risk factors included in a beneficiary category recommended for 
screening by the United States Preventive Services Task Force (USPSTF) 
regarding AAAs.
    Section 5112(a)(2) of the DRA also adds a definition of the term 
``ultrasound screening for an Abdominal Aortic Aneurysm'' to mean, 
``(1) a procedure using sound waves (or other procedures using 
alternative technologies, of commensurate accuracy and cost, that the 
Secretary may specify) provided for the early detection of abdominal 
aortic aneurysm; and (2) includes a physician's interpretation of the 
results of the procedure.''
    Based on this provision, we reviewed the 2005 USPSTF 
recommendations and related material on ultrasound screening for AAAs 
which includes--
     A recommendation for a one-time ultrasound screening for 
men aged 65 to 75 who have smoked at least 100 cigarettes in their 
lifetime;
     No recommendation for, or against, ultrasound screening 
for AAAs for men who have not smoked at least 100 cigarettes in their 
lifetime; and
     A recommendation against routine screening for AAAs in 
women.
    Based on the statutory language and the USPSTF recommendations 
outlined in this section, we proposed to define the term ``eligible 
beneficiary'' for coverage of ultrasound screening examinations for AAA 
to mean an individual who--
     Has received a referral for an ultrasound screening as a 
result of an IPPE (as defined in section 1861(ww)(1) of the Act);
     Has not been previously furnished such a covered 
ultrasound screening examination under the Medicare program; and
     Is included in at least one of the following risk 
categories:
    + Has a family history of an AAA.
    + Is a man age 65 to 75 years who smoked at least 100 cigarettes in 
his lifetime.
    + Is an individual who manifests other risk factors that are 
described in a benefit category recommended by the USPSTF regarding an 
AAA that has been determined by the Secretary through the NCD process.
    To facilitate our consideration of possible expansions of coverage 
in the future for identifying other risk factors in a benefit category 
recommended for screening for the early detection of AAAs by the 
USPSTF, and alternative screening technologies to ultrasound screening 
for AAAs of commensurate accuracy and cost, we proposed to add language 
to our regulations that would allow us to make determinations through 
the NCD process. The NCD process would allow the Secretary to expand 
coverage more quickly following an assessment of those subjects than is 
possible under the standard rulemaking process. We intend to use the 
NCD process, which includes an opportunity for public comments, for 
evaluating the medical and scientific issues relating to the coverage 
of alternative screening technologies and the identification of other 
risk factors for AAAs recommended by the USPSTF that may be brought to 
our attention in the future. Use of an NCD to establish a change in the 
scope of benefits is authorized by section 1871(a)(2) of the Act. An 
aggrieved party can challenge an NCD under the procedures established 
by section 1869(f) of the Act. We proposed to add these coverage 
provisions in new Sec.  410.19 (a)(1)(i) and Sec.  
410.19(a)(2)(iii)(C).
    Section 5112(b) of DRA also amended section 1861(ww)(2) of the Act 
(the IPPE benefit) by adding the new ultrasound screening benefit to 
the list of preventive services for which physicians and other 
qualified nonphysician practitioners (NPPs) must provide ``education, 
counseling and referral'' to new beneficiaries who take advantage of 
the IPPE benefit within the first 6 months after the effective date of

[[Page 69664]]

their first Part B coverage period. Therefore, we also proposed to 
amend Sec.  410.16(a)(7) of the regulations so that it reflects the 
additional responsibilities that physicians and qualified NPPs will 
have under the IPPE benefit for the new ultrasound screening benefit.
    We received 14 comments that generally supported the proposal to 
implement section 5112 of the DRA that provides for Medicare coverage 
of ultrasound screening for AAAs. Several commenters had suggestions 
for revising certain specific coverage provisions of the proposal.
    Comment: Several commenters addressed the issue of the need for 
certification of qualification requirements for the Medicare providers 
or suppliers who furnish beneficiaries with the new ultrasound 
screening for AAAs. A commenter referenced the USPSTF recommendations 
that state, ``There is good evidence that abdominal ultrasonography, 
performed in a setting with adequate quality assurance (that is, in an 
accredited facility with credentialed technologists), is an accurate 
screening test for AAA.'' The commenter noted that the proposed rule 
did not mention the qualifications of the people performing the 
screening and strongly recommended that quality standards be applied to 
any laboratories performing this testing.
    Response: Section 5112 of the DRA provides for coverage of a one-
time ultrasound screening for AAAs for beneficiaries, subject to 
certain eligibility and other limitations. However, section 5112 does 
not expressly address the subject of quality standards for the 
providers or suppliers of these services and, therefore, in the absence 
of a clearly demonstrated need for quality or qualification standards 
that are specifically targeted to ultrasound screenings for AAAs, we do 
not believe it is appropriate to establish at this time such detailed 
standards for these services. We believe that any Medicare provider or 
supplier that is authorized to provide covered diagnostic ultrasound 
services is qualified to provide covered ultrasound screening services 
for AAAs. The ultrasound test is conducted in a similar manner whether 
the test is for a screening or diagnostic purpose. We are adding 
language at Sec.  410.19(b) to reflect this condition.
    Comment: Two commenters expressed concern that many beneficiaries 
who became entitled to Medicare Part B coverage for the first time 
before the IPPE benefit became effective (January 2005) will not be 
able to qualify for coverage of the ultrasound screenings for AAAs 
because of the IPPE referral requirement for the exam.
    Response: The commenters are correct that the IPPE referral 
requirement for coverage of the ultrasound screening for AAAs will 
preclude many older beneficiaries from qualifying for coverage of the 
exam, but that requirement is specified in section 5112 of the DRA. It 
would require a change in the statute to permit us to expand the scope 
of the benefit to older beneficiaries who do not satisfy this 
requirement.
    Comment: Several commenters suggested that we should implement 
safeguards against providers billing for duplicative testing for the 
AAA screening and an abdominal or retroperitoneal ultrasound exam (with 
a diagnosis such as abdominal pain) later the same or the next day.
    Response: We agree that the potential for duplicative billing for 
the screening and the diagnostic ultrasound test of the same type does 
exist. Therefore, we will work with our contractors to implement the 
necessary safeguards to insure that this type of billing does not 
occur.
    Comment: Several commenters are concerned that the proposed rule 
does not provide any guidance on the meaning of the statutory IPPE 
referral requirement for coverage of the AAA screening service. The 
commenter suggests that the term ``referral'' should be interpreted to 
include a practitioner's ``direction to receive care from a qualified 
provider'' that may be provided orally or in written form during or 
after the eligible beneficiary receives his or her IPPE service.
    Response: Section 410.16(a)(7) (as modified in this final rule) 
provides that each eligible beneficiary who takes advantage of that 
benefit is entitled (among other things) to education, counseling, and 
referral, including a brief written plan such as a checklist provided 
to the beneficiary for obtaining appropriate screening and other 
preventive services that are covered as separate Medicare benefits, 
such as the ultrasound screening for AAAs. Based on this referral 
provision for the IPPE benefit, we believe there is considerable 
flexibility that is allowed the IPPE provider in making referrals to 
qualified Medicare providers of screening and other preventive 
services, such as the AAA screening service. However, at a minimum, we 
believe Sec.  410.16(a)(7)of the IPPE regulation requires that the 
referral include a brief written plan provided the beneficiary for 
obtaining, if appropriate, the AAA screening service from a qualified 
Medicare provider.
    Comment: Several commenters recommended that we monitor the 
utilization of the new AAA screening benefit over the next couple of 
years to determine if beneficiary access to this service is a concern 
that requires our efforts to ensure appropriate beneficiary awareness 
and utilization of the benefit.
    Response: We agree that we should monitor use of this benefit to 
ensure that there is appropriate beneficiary awareness and use of the 
service.
    Comment: A commenter urged us to implement a targeted campaign to 
educate beneficiaries and physicians about the new screening benefit 
and to encourage their use of it.
    Response: We will release the appropriate manual and transmittal 
instructions and other information, including a ``Medicare Learning 
Network (MLN) Matters'' provider education article, an updated new 
``Medicare Preventive Services Guide,'' and other information. We would 
encourage the medical community to contribute to this effort by 
distributing their own communications, bulletins, or other publications 
to physicians, qualified NPPs, and beneficiaries.
    Except for the additional language added at Sec.  410.19(b) 
relating to the ability of a provider or supplier to furnish ultrasound 
diagnostic services, we are finalizing this section as proposed to 
provide for coverage of the AAA screening service for beneficiaries 
under the statute, subject to the statutory eligibility and other 
limitations.
b. Payment
    Beginning January 1, 2007, we proposed to pay for ultrasound 
screening for AAAs through the use of a new HCPCS code G0389, 
Ultrasound, B-scan and/or real time with image documentation; for 
abdominal aortic aneurysm (AAA) screening. We proposed that payment for 
this service be made at the same level as CPT code 76775, Ultrasound, 
retroperitoneal (eg, renal, aorta, nodes), B-scan and/or real time with 
image documentation; limited. CPT code 76775 is used to bill for the 
service when it is provided as a diagnostic test, and we believe the 
service associated with the HCPCS codereflects equivalent resources and 
work intensity to those contained in CPT code 76775.
    In addition, since the DRA provides that the Medicare Part B 
deductible will not apply for ultrasound screening for AAA (as defined 
in section 1861(bbb) of the Act), we proposed to revise Sec.  410.160 
to include an exception from the Medicare Part B deductible for the 
ultrasound screening for AAA as described in Sec.  410.19 (Conditions 
for

[[Page 69665]]

coverage of an ultrasound screening for abdominal aortic aneurysms).
    Comment: Commenters were in agreement with the proposed payment 
amount for this service.
    Response: We will adopt the proposed values for this new HCPCS code 
(that is, make it equivalent to CPT code 76775). This service will be 
identified by the following code number and descriptor G0389, 
Ultrasound, B-scan and/or real time with image documentation; for 
abdominal aortic aneurysm (AAA) screening.
    We will also finalize the proposed revisions to Sec.  410.160 to 
include an exception from the Medicare Part B deductible for the 
ultrasound screening for AAA as described in Sec.  410.19.
4. Section 5113--Non-Application of the Part B Deductible for 
Colorectal Cancer Screening Tests
    Current Medicare policy requires that, with limited exceptions, 
incurred expenses for covered part B services are subject to, and count 
toward meeting the Part B annual deductible. Section 5113 of the DRA 
amended section 1833(b) of the Act to provide for an exception to the 
application of the Part B deductible for colorectal cancer screening 
tests. Beginning January 1, 2007, colorectal cancer screening services, 
as described in section 1861(pp)(1) of the Act, are no longer subject 
to the Part B deductible. The conditions for and limitations on 
coverage for colorectal cancer screening tests under Medicare Part B 
are described in Sec.  410.37.
    To conform our regulations to this statutory change, we proposed to 
revise Sec.  410.160 to include an exception from the Part B annual 
deductible for the colorectal cancer screening services described in 
Sec.  410.37.
    Comment: Commenters were supportive of this conforming change. 
However, it was pointed out that we had failed to address the situation 
where a colorectal cancer screening service actually results in a 
beneficiary having a biopsy or a growth removed, requiring the service 
to be coded as a diagnostic procedure. Clarification was requested as 
to whether in such situations, the deductible would still be waived.
    Response: Section 1834(d)(3)(D) of the Act states ``if during the 
course of such screening colonoscopy, a lesion or growth is detected 
which results in a biopsy or removal of the lesion or growth, payment 
under this part shall not be made for the screening colonoscopy but 
shall be made for the procedure classified as a colonoscopy with such 
biopsy or removal.'' Based on this statutory language, in such 
instances the test or procedure is no longer classified as a 
``screening test.'' Thus, the deductible would not be waived in such 
situations.
    After reviewing the public comments, we are finalizing Sec.  
410.160 as proposed.
5. Section 5114--Addition of Diabetes Outpatient Self-Management 
Training Services (DSMT) and Medical Nutrition Therapy (MNT) for the 
FQHC Program
    Section 5114 of the DRA amended section 1861(aa)(3) the Act to add 
DSMT and MNT services to the list of Medicare covered and reimbursed 
services under the Medicare FQHC benefit, effective for services 
provided on or after January 1, 2006. Although this statutory change 
has already been implemented in administrative instructions, we 
proposed to conform the regulations to the new statutory requirement.
    FQHCs certified as DSMT and MNT providers have been allowed to 
bundle the cost of those services into their FQHC payment rates. But 
before the enactment of the DRA, the provision of these services would 
not generate a separate FQHC visit payment. Effective for services 
furnished on or after January 1, 2006, FQHCs that are certified 
providers of DSMT and MNT services can receive per visit payments for 
covered services furnished by registered dietitians or nutrition 
professionals. That is, if all relevant program requirements are met, 
these services are included under the Medicare FQHC benefit as billable 
visits.
    In public response to the proposed rule, we received a small number 
of comments expressing support for our proposal. Therefore, we will 
finalize the changes as proposed.
    To conform the regulations, we are amending Sec.  405.2446(b) to 
expand the scope of FQHC services to include certified providers of 
DSMT and MNT services by adding a new paragraph (b)(10). We are also 
revising Sec.  405.2463 by--
     Revising paragraph (a) to expand the definition of an FQHC 
visit to include certified providers of DSMT and MNT services under new 
paragraph (a)(1)(ii)(B). We are also revising the definition of an 
rural health clinic (RHC) visit in new paragraph (a)(1)(i) to include a 
face-to-face encounter between a patient and a clinical psychologist or 
clinical social worker to conform to statutory language at section 
1861(aa)(1)(B) of the Act. We also proposed to redesignate and revise 
paragraphs (b) and (c) as new paragraphs (a)(2) and (a)(3), 
respectively.
     We are incorporating paragraph (a)(2) into (a)(1), and 
redesignating and revising current paragraph (a)(3) as new paragraph 
(b). We also clarify that it is generally permissible for both FQHCs 
and RHCs to furnish, when necessary, most types of medical and other 
health visits on the same day to the same patient. We also amend this 
paragraph to permit a separate additional FQHC visit for DSMT and MNT 
services (which may occur on the same date of service when the 
beneficiary receives care from their FQHC physician or NPP) when 
reasonable and necessary, consistent with the Congressional mandate 
under section 5114 of the DRA to provide coverage and adequate access 
to these services in the FQHC setting.
     Finally, we are redesignating and revising current 
paragraph (a)(4) as new paragraph (c).

F. Payment for Covered Outpatient Drugs and Biologicals (ASP Issues)

    Medicare Part B covers a limited number of prescription drugs and 
biologicals. For the purposes of this final rule with comment period, 
the term ``drugs'' will hereinafter refer to both drugs and 
biologicals. Medicare Part B covered drugs not paid on a cost or 
prospective payment basis generally fall into the following three 
categories:
     Drugs furnished incident to a physician's service.
     Durable medical equipment (DME) drugs.
     Drugs specifically covered by statute (for example, 
certain immunosuppressive drugs).
    Beginning in CY 2005, the vast majority of Medicare Part B drugs 
not paid on a cost or prospective payment basis are paid under the 
average sales price (ASP) methodology. The ASP methodology is based on 
data submitted to us quarterly by manufacturers. In addition to the 
payment for the drug, Medicare currently pays a furnishing fee for 
blood clotting factors, a dispensing fee for inhalation drugs, and a 
supplying fee to pharmacies for certain Part B drugs.
    In January 2006, the drug coverage available to Medicare 
beneficiaries expanded with the implementation of the Medicare Part D 
benefit. The Medicare Part D benefit does not change Medicare Part B 
drug coverage.
    This section of the preamble discusses changes and issues related 
to the determination of the payment amounts for covered Part B drugs 
and furnishing blood clotting factor. This section also discusses 
changes to how manufacturers calculate and report ASP data to us.

[[Page 69666]]

1. ASP Issues

    Section 303(c) of the MMA amended title XVIII of the Act by adding 
new section 1847A. This new section revised the payment methodology for 
the vast majority of drugs and biologicals not paid on a cost or 
prospective payment basis furnished on or after January 1, 2005. The 
ASP reporting requirements are set forth in section 1927(b) of the Act. 
Manufacturers must submit ASP data for each 11-digit NDC to us 
quarterly. The manufacturers' submissions are due to CMS no later than 
30 days after the last day of each calendar quarter. The methodology 
for developing Medicare drug payment allowances based on the 
manufacturers' submitted ASP data is described in the regulations in 
part 414, subpart K. We update the Part B drug payment amounts 
quarterly based on the data we receive.
    On April 6, 2004, we published the Manufacturer's Submission of 
Average Sales Price Data for Medicare Part B Drugs and Biologicals 
(ASP) interim final rule with comment period (IFC) (69 FR 17935) to 
implement the ASP calculation and reporting requirements. Manufacturers 
were required to submit their initial quarterly ASP data to us shortly 
thereafter, by April 30, 2004. We received comments on the April 6, 
2004 IFC from drug manufacturers, pharmacies, physicians, national 
associations of the pharmaceutical industry, national associations of 
physicians, and consultants. These comments addressed a variety of 
aspects of calculating and reporting ASPs. On September 16, 2004, we 
published the Manufacturer's Submission of Average Sales Price Data for 
Medicare Part B Drugs and Biologicals (ASP) final rule (69 FR 55763) 
addressing only the comments pertaining to the methodology for 
estimating lagged price concessions. We have also addressed ASP 
calculation and reporting requirements in other proposed and final 
rules and information collection notices, including rulemaking to 
implement the Competitive Acquisition Program for Part B Drugs and 
Biologicals (CAP) (70 FR 39069, 70 FR 45842, 70 FR 70215, 70 FR 70477, 
and 71 FR 48130). In addition, we have posted official agency guidance, 
including responses to frequently asked questions, on our Web site to 
implement the ASP provisions in accordance with section 1847A(c)(5)(C) 
of the Act.
    In the CY 2007 PFS proposed rule, we stated that we intended to 
finalize the April 6, 2004 IFC in the near future and that we may 
publish the final rule as part of this rulemaking, or as a separate 
final rule. We also stated that because the comments received during 
the comment period in response to the April 6, 2004 IFC were made 
during the initial months of manufacturers' experience with calculating 
and reporting ASPs and prior to publication of payment amounts based on 
the ASP methodology, we believed there was good reason to give the 
public an opportunity to provide additional comments. Therefore, we 
sought comments on the ASP reporting provisions in the April 6, 2004 
IFC, as well as several topics specifically discussed in the CY 2007 
PFS proposed rule. These topics included: Fees not considered price 
concessions, excluded sales known on a lagged basis, nominal sales, and 
other price concession issues. In this final rule with comment period, 
we are responding to comments received on the April 6, 2004 IFC and the 
CY 2007 PFS proposed rule and revising provisions related to the 
estimation methodology for price concessions known on a lagged basis, 
which were finalized in the September 16, 2004 final rule. Except as 
otherwise specified in this final rule with comment, we are finalizing 
the provisions of part 414, subpart J as presented in the April 6, 2004 
IFC.
a. Comments Not Related to ASP Reporting
    As stated in the CY 2007 PFS proposed rule, we received numerous 
comments on the use and potential impacts of the ASP payment 
methodology. The April 6, 2004 IFC implemented provisions of the MMA 
related to how manufacturers calculate ASP and report their ASP data. 
Thus, comments about the appropriateness and use of 106 percent of the 
ASP as a basis for Medicare Part B drug payment rates are outside the 
scope of the final ASP reporting rule. Implementation of the ASP 
payment methodology as the basis for establishing payment amounts for 
the vast majority of Part B drugs was discussed in notice and comment 
rulemaking in the CY 2005 PFS proposed and final rules (69 FR 47520 and 
69 FR 66299). Comments about the ASP payment methodology that address 
issues other than how manufacturers calculate and report their ASPs are 
outside the scope of this rulemaking. Other topics for which we 
received comments that are not within the scope of this rulemaking and 
are not otherwise addressed are as follows:
     How the ASP-based payment rates are calculated;
     How NDCs are assigned to billing codes;
     Requests for billing codes for specific products;
     Whether alternative payment methodologies or exceptions to 
the ASP-based payment should be considered;
     Billing and claims processing and adjudication issues;
     Variation in local coverage policies:
     Whether Part B policies apply to Medicaid and/or Part D;
     Issues related to Competitive Acquisition of Outpatient 
Drugs and Biologicals Under Part B (CAP); and
     Issues pertaining to the content and format of the 
quarterly Part B drug pricing files.
b. Fees Not Considered Price Concessions
    Section 1847A(c)(5)(A) of the Act states that the ASP is to be 
calculated by the manufacturer on a quarterly basis. As a part of that 
calculation, manufacturers must take into account price concessions 
such as--
     Volume discounts;
     Prompt pay discounts;
     Cash discounts;
     Free goods that are contingent on any purchase 
requirement;
     Chargebacks; and
     Rebates (other than rebates under the Medicaid drug rebate 
programs).
    If the data on these price concessions are lagged, then the 
manufacturer is required to estimate costs attributable to these price 
concessions using the required ratio methodology as specified in Sec.  
414.804(a)(3). This methodology was finalized in the September 16, 2004 
final rule based on comments submitted in response to the April 6, 2004 
IFC. In the CY 2007 PFS proposed rule, we proposed modifications to the 
requirements for estimating lagged price concessions specified Sec.  
414.804(a)(3) to conform with other proposals put forth in the proposed 
rule. Comments received in response to the proposed rule related to 
potential impacts on the estimation of lagged price concessions are 
discussed in the appropriate subsections in this section.
    In response to the April 6, 2004 IFC, commenters representing drug 
manufacturers, national associations of wholesalers and distributors, 
and physicians and other health care providers requested clarification 
and detailed guidance on the treatment of administrative fees, service 
fees and fees paid to pharmacy benefit managers (PBMs) in the ASP 
calculation. We posted guidance on our Web site (http://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg
) to clarify that in the 

absence of specific guidance in the Act or Federal regulations, the 
manufacturer may make reasonable assumptions in its

[[Page 69667]]

calculations of ASP, consistent with the general requirements and 
intent of the Act, Federal regulations, and its customary business 
practices. These assumptions should be submitted along with the ASP 
data. In December 2004, we posted further guidance on our Web site 
addressing service fees and administrative fees paid to buyers (http://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg
).

    On July 6, 2005, we restated our guidance on service fees in the 
preamble of the Competitive Acquisition of Outpatient Drugs and 
Biologicals Under Part B (CAP) interim final rule with comment (70 FR 
39069). Subsequently, we received requests for clarification on how 
fees paid to entities such as group purchasing organizations (GPOs) or 
PBMs must be treated for purposes of the ASP calculation.
    Therefore, we proposed to further clarify in the final ASP 
reporting rule that, beginning with the ASP reporting for sales during 
the first quarter of CY 2007, bona fide service fees that are paid by a 
manufacturer to an entity, whether or not the entity takes title to the 
drug, are not considered price concessions under Sec.  414.804(a)(2) 
insofar as, and to the extent that, they satisfy the definition of a 
bona fide service fee that we proposed at Sec.  414.802. In Sec.  
414.802, we proposed to define bona fide service fees as fees paid by a 
manufacturer to an entity that represent fair market value for a bona 
fide, itemized service actually performed on behalf of the manufacturer 
that the manufacturer would otherwise perform (or contract for) in the 
absence of the service arrangement, and that are not passed on, in 
whole or in part, to a client or customer of an entity, whether or not 
the entity takes title to the drug. We further proposed that our 
current guidance, which provides that bona fide service fees means 
expenses that would have generally been paid for by the manufacturer at 
the same rate had these services been performed by other entities, 
would remain in effect unless we adopted an alternative approach. 
Further, we proposed to clarify in the final ASP reporting rule that 
fees, including service fees, administrative fees and other fees, paid 
to GPOs or PBMs are not considered price concessions under Sec.  
414.804(a)(2) insofar as, and to the extent that, they satisfy the 
definition of a bona fide service fee that we proposed at Sec.  
414.802.
    In the CY 2007 PFS proposed rule, we discussed comments to the 
April 6, 2004 IFC that provided some insight into the types of 
activities that are performed in the distribution of drugs. We noted 
that these comments did not provide detailed information about whether 
and how one would determine the extent to which these activities are 
bona fide services actually performed on behalf of the manufacturer. To 
better understand the scope of appropriate bona fide services and how 
they may vary across categories of drugs, we sought comment on the 
specific types of services entities performed on behalf of the 
manufacturer and the necessity of those services in the efficient 
distribution of drugs. We also stated that we were considering 
providing further guidance on the types of services that may qualify as 
bona fide services for purposes of the ASP calculation. We also 
indicated that we were considering providing further guidance on or 
revising the approach or methodology manufacturers must use to 
determine the fair market value of bona fide services performed on 
their behalf and whether the service fee paid was passed on in whole or 
in part, as well as activities that should not be considered bona fide 
services performed on behalf of manufacturers, and bona fide services 
that may be appropriate for all or specific types of products or 
circumstances. We also sought comments on the costs and relative costs 
of services performed on behalf of manufacturers. Specifically related 
to the determination of whether or not a fee represents fair market 
value for ASP purposes, we solicited comments on the potential 
appropriateness of fees tied to performance of a service, fixed fee, 
revenue generated by product sales, or other basis. In addition, we 
requested comments on the appropriate methods for determining whether a 
fee is passed on in whole or in part and on how Medicare's guidance on 
the treatment of service fees for ASP calculation purposes may differ 
with the treatment of service fees for financial accounting or other 
purposes, and any implications that this may have for manufacturers.
    Comment: We received numerous comments on the topic of service 
fees. Among the commenters there was general agreement with our 
clarification that the treatment of bona fide service fees in the ASP 
calculation should not be conditioned on whether or not the entity 
takes title to the drug. However, many commenters objected to a 
definition of bona fide service fee that would limit in any way the 
services or amount of fee that a manufacturer would establish in a 
contract with any partner in the distribution of drugs or that 
otherwise would limit flexibility and evolution in the industry. Many 
of the commenters on this issue were opposed to establishing a list of 
bona fide services; while a few commenters requested that certain 
services such as ``pick, pack and ship,'' chargeback administration, 
data services, and patient care programs be specifically included in a 
list of bona fide services. A few commenters stated that such a list, 
even if the list were illustrative, would be helpful in standardizing 
the treatment of service fees across manufacturers' ASP calculations. 
Other commenters cautioned that establishing a list of bona fide 
services would require ongoing refinement in order for manufacturers to 
accurately calculate ASPs as service fee arrangements evolved.
    Several commenters recommended that we adopt a more general 
standard for evaluating whether an arrangement represents a bona fide 
service fee arrangement. However, very few suggestions for modifying 
the wording of the proposed definition of bona fide service fee were 
offered. One commenter recommended changing ``itemized'' to ``supply 
chain'' to address concerns regarding how fair market value may be 
determined, and several commenters recommended that we delete the 
requirement that the fees not be passed on; these comments are 
discussed in more detail below in this section.
    In discussing how a more general standard might be applied, several 
commenters suggested allowing the marketplace to decide the appropriate 
scope of services and fair market value. These commenters stated that 
this approach would result in a satisfactory means of determining fees 
that are not price concessions (that is, are bona fide and not passed 
on) by virtue of the competitiveness of the market for drug 
distribution service. Under this approach, any service and price agreed 
to in an arm's-length contract with the manufacturer would be 
sufficient for determining that the services were bona fide and at fair 
market value for ASP purposes.
    Other commenters, who support a general standard, suggest that so 
long as a service is ``reasonably necessary'' or ``necessary and 
useful'' in meeting a manufacturer's business needs, it should be 
considered to be both bona fide and a service performed on behalf of 
the manufacturer. These commenters emphasize that the purpose of the 
service should determine whether it was performed on behalf of the 
manufacturer. As a result, in the opinion of these commenters, all 
activities related to distributing drugs are services a manufacturer 
would either have to perform or contract for if it did not have the 
capacity to perform

[[Page 69668]]

the activity or chose not to perform the activity.
    Some of the comments in support of a general standard pointed to 
the personal services safe harbor from anti-kickback penalties as 
specified in 42 CFR 1001.952(d)(7) as a potential benchmark for 
purposes of identifying services and fees that would be excluded from 
the ASP calculation. Other commenters recommended that any reasonable 
method of determining fair market value should be acceptable. However, 
several commenters requested that we specify the acceptable methods for 
determining fair market value. A small number of commenters requested 
that we specifically address whether the income method, market method 
or cost method could be used to estimate the range for fair market 
value of the bona fide service fee arrangement for ASP purposes. These 
commenters did not provide details on the applicability of these three 
methods for estimating fair market value for commonly performed drug 
distribution services. Many commenters stated that, regardless of the 
method used to determine fair market value, manufacturers should be 
permitted to calculate fair market value across a set of services (in 
lieu of determining fair market value for each itemized service 
specified in an arrangement), and that it would be impossible to 
calculate fair market value adequately for certain low-volume or value-
added services or certain services that can only be performed by the 
purchaser (for example, in the case of wholesalers, compiling, and 
sharing retail customer data). Some commenters noted that service fee 
contracts may be broadly constructed for a set of services across a 
number of drugs without itemizing each service or activity. To reflect 
market practices and trends, as noted above in this section, one 
commenter recommended that we revise the proposed definition of bona 
fide service fees to remove the word ``itemized'' and, in its place, 
insert ``supply chain.''
    Several commenters supported our proposed definition of bona fide 
service fees in general, while also suggesting that we refine or 
eliminate the ``not passed on'' requirement because it is not needed if 
the services included in an arrangement are bona fide and the fee 
represents fair market value. A number of commenters offered that 
including ``itemized'' in the definition was unnecessary for the same 
reason. While a few commenters stated that specific requirements not to 
pass on fees and terms requiring disclosure of any fees passed on could 
be written in the bona fide service fee contracts. In contrast, several 
commenters stated that for a variety of reasons, manufacturers may not 
know or be able to accurately certify that a fee is not passed on in 
whole or in part. These commenters identified anti-trust constraints as 
one such reason.
    Commenters asked that: (1) We clarify that services that can only 
be performed by the party that takes possession of the drug from the 
manufacturer may be considered to be bona fide services; and (2) we 
remove the limitation in our current guidance that bona fide service 
fees must be at the same rate had these services been performed by 
other entities.
    We did not receive comments on services that should not be 
considered bona fide services, or on the costs or relative costs of 
services performed on behalf of manufacturers.
    Response: After consideration of the comments received, we are 
finalizing our proposed definition of bona fide service fees at Sec.  
414.802 which specifies that in order for a fee to be determined not to 
be a price concession, and thus to be excluded from the calculation of 
the ASP, the following conditions must be met:
     The fee paid must be for a bona fide, itemized service 
that is actually performed on behalf of the manufacturer;
     The manufacturer would otherwise perform or contract for 
the service in the absence of the service arrangement;
     The fee represents fair market value; and
     The fee is not passed on in whole or in part to a client 
or customer of any entity.
    We believe that if a fee satisfies the definition of bona fide 
services fees it can be excluded from the calculation of the ASP. We 
believe the specificity and scope of this definition provides an 
appropriate safeguard against the potential risk for inappropriately 
higher ASPs, while adopting a more general standard, a more limited 
definition or relying solely on market forces, as some commenters 
suggested, would not. This is because, taken together, this four 
elements describe those situations in which we believe a fee paid is 
compensation for services rather than a price concession for drugs. We 
disagree with the comments that recommended alternative standards 
because a definition with greater breadth or less specificity or both 
would not as clearly distinguish bona fide services fees from price 
concessions and could result in inappropriately high ASPs and 
insconsistent treatment of services fees (for example, if we were to 
permit a fee for any services at any price to be excluded from the 
calculation of ASP or to eliminate the ``not passed on'' or 
``itemized'' requirements.) However, we found many of the comments 
informative with respect to how our definition of a bona fide service 
fee is met and we discuss below in this section how these comments have 
been incorporated into our guidance. In codifying the definition of 
bona fide service fees, we seek to clarify a framework for 
differentiating between those price concessions that must be included 
in the calculation of ASP and bona fide service fees,which are not 
included in the calculation of ASP. Beginning with the effective date 
of this final rule with comment, the definition of bona fide service 
fees will apply to the ASP reporting for sales during the first 
calendar quarter of 2007. Additional guidance is discussed below.
(1) Bona fide, Itemized, Actually Performed on Behalf of the 
Manufacturer and ``Otherwise Performed''
    The first and second elements of the definition of bona fide 
service fees relate to the scope of bona fide services for which a fee 
paid does not represent a price concession for ASP purposes. To be 
considered a bona fide service fee, the fee must be for services that 
are: Bona fide, itemized, actually performed on behalf of the 
manufacturer, and those the manufacturer would otherwise perform or 
contract for in the absence of the service arrangement. Some commenters 
requested further guidance on these elements. We were persuaded by 
comments that referenced the necessity or usefulness of services. 
Therefore, we interpret these elements of the definition to encompass 
any reasonably necessary or useful services of value to the 
manufacturer that are associated with the efficient distribution of 
drugs. In response to commenters' concerns, we are clarifying that 
services ``on behalf of'' the manufacturer include both those the 
manufacturer has the capacity to perform, and those that can only be 
performed by another entity.
    Although some commenters provided us with general information on 
what they would view to be bona fide services, to avoid inadverently 
limiting the scope of what could constitute a bona fide service, we 
will not establish a list of ``bona fide services'' at this time.
(2) Fair Market Value
    The third element of the definition of bona fide service fees 
specifies that the fees must represent fair market value. In response 
to comments, we are refining our current guidance to address

[[Page 69669]]

concerns that it may not permit exclusion from ASP of fees for services 
that can only be performed by the entity to which the fee is paid. 
Therefore, our guidance is that bona fide service fees means expenses 
that generally would have been paid for by the manufacturer at the same 
rate had these services been performed by other or similarly situated 
entities.
    In addition, we tend to agree with the commenters that, in certain 
circumstances, it may be appropriate to calculate fair market value for 
a set of itemized bona fide services, rather than fair market value for 
each individual itemized service, when the nature of the itemized 
services warrants such treatment. We also tend to agree that the 
appropriate method or methods for determining whether a fee represents 
fair market value may depend upon the specifics of the contracting 
terms, such as the activities the entity will perform and the agreed-
upon mechanism for establishing the payment (for example, percentage of 
goods purchased). We believe manufacturers are well-equipped to 
determine the most appropriate, industry-accepted method for 
determining fair market value of drug distribution services for which 
they contract. Therefore, we are not mandating the specific method 
manufacturers must use to determine whether a fee represents fair 
market value for purposes of excluding bona fide service fees from the 
calculation of ASP.
(3) ``Not Passed On''
    We appreciate the commenter views on the fourth element of the 
definition of bona fide service fees, which specifies that the bona 
fide service fee must not be passed on, in whole or in part, to a 
client or customer of an entity. At this time, we understand that there 
may be significant barriers that limit a manufacturer's ability to 
determine whether a fee that otherwise meets the definition of ``bona 
fide service fee'' described in this rule is passed on, in whole or in 
part, to a client or customer of any entity. Nevertheless, we believe 
that it is essential to retain the ``not passed on'' element in the 
definition of bona fide service fees. The ``not passed on'' element is, 
in our view, a key factor in distinguishing a price concession from a 
bona fide service fee because, if a fee that is passed on is excluded 
from the ASP calculation, then there is a greater risk of the ASP being 
inappropriately higher.
    However, we recognize that, in some instances, manufacturers may 
have no effective way of knowing whether a fee paid that meets the 
other elements of the definition of ``bona fide service fee'' is passed 
on. Although we decided to retain the ``not passed on'' requirement in 
the definition of bona fide service fees because of its importance in 
distinguishing bona fide service fees from price concessions, we 
believe it is appropriate to seek to balance our goal of ensuring 
appropriate Medicare payments are made with the level of burden a 
manufacturer would have to undertake to validate that a fee was not 
passed on. Therefore, with respect to certifying to the accuracy of 
their ASP calculations when it is unknown to the manufacturer whether 
the fee paid was passed on in whole or in part to a client or customer 
of any entity, we are clarifying, in this preamble, how manufacturers 
may address this concern. If a manufacturer has determined that a fee 
paid meets the other elements of the definition of ``bona fide service 
fee,'' then the manufacturer may presume, in the absence of any 
evidence or notice to the contrary, that the fee paid is not passed on 
to a client or customer of any entity.
    Comment: Several commenters indicated that some of the fees that 
they believe would meet our definition of bona fide services fees for 
ASP purposes would be treated as a reduction to revenues for financial 
accounting purposes. Commenters asked us to clarify that the treatment 
of service fees for ASP purposes and financial accounting purposes may 
be different, and that if a fee meets our definition of a bona fide 
service fee it can be excluded from the ASP regardless of its treatment 
for financial accounting purposes.
    Response: Fees that meet our definition of bona fide service fees 
are not considered price concessions for purposes of the ASP 
calculation, regardless of how they are treated for financial 
accounting purposes.
    Comment: Many commenters asserted that all fees and other payments 
to GPOs and PBMs should be excluded from ASP because the statute 
requires only that sales to purchasers be included in ASP, and, they 
argue, GPOs and PBMs are not purchasers, do not take title to and 
possession of products, and the fees paid to GPOs and PBMs are not 
passed on to physicians (or other providers) in a manner that can be 
attributable to a particular purchase or drug. Commenters asked that, 
if we consider fees paid to GPOs and PBMs to be price concessions 
(except to the extent that the fees are bona fide service fees for 
purposes of the ASP calculation), we allow fees paid to the GPOs and 
PBMs under arrangements that meet the anti-kickback safe harbor for 
purchasing arrangements to be excluded from the ASP calculation without 
having to meet our definition of bona fide service fees. Other 
commenters expressed concern that considering GPO and PBM fees to be 
price concessions could artificially deflate ASP such that it would not 
accurately reflect the costs incurred by physicians and other 
providers. Another commenter suggested that we provide additional 
guidance on payments to managed care organizations.
    Response: We note that we did not make a specific proposal with 
respect to how PBM and GPO fees must be treated for ASP purposes other 
than to say that to the extent that such fees meet the definition of 
``bona fide service fee,'' they are excluded from the calculation of 
ASP. We are continuing to develop our understanding of the variety of 
agreements made with entities such as PBMs and GPOs and the possible 
effects of these arrangements on the calculation of ASP and provider 
acquisition costs. For this reason, at this time we believe it is 
premature for us to provide specific guidance with respect to treatment 
of fees paid by manufacturers to PBMs and GPOs in the ASP calculation 
(other than to specify, as we proposed, that PBM and GPO fees that meet 
the definition of ``bona fide service fees'' are excluded from the 
calculation of ASP). Instead, we will continue to consider the comments 
received and to study the matter further. In addition, we may take into 
consideration how fees paid to these entities are addressed in the 
context of the Medicaid drug rebate program. We also note that the 
MedPAC commented that in the upcoming year it would be continuing to 
examine the issue of the average prices physicians pay and the effect 
of price concessions that might not be passed on to physicians.
    In the absence of specific guidance, the manufacturer may make 
reasonable assumptions in its calculations of ASP, consistent with the 
general requirements and the intent of the Act, Federal regulations, 
and its customary business practices. These assumptions should be 
submitted along with the ASP data.
    Recognizing that the treatment of fees to PBMs and GPOs in the ASP 
calculation may have implications for the integrity of the ASP payment 
methodology, we will be paying close attention to this issue and may 
provide more specific guidance in the future through rulemaking or 
through program instruction or other guidance (consistent with our 
authority under section 1847A(c)(5)(C) of the Act).
    Comment: Many commenters noted that the Congress excluded 
wholesaler

[[Page 69670]]

prompt pay discounts from the calculation of average manufacturer price 
(AMP) under the DRA. Commenters asserted that we have the authority to 
extend this provision to ASP reporting and thus could exclude 
wholesaler prompt pay discounts from ASP reporting.
    Response: We do not agree that extending the DRA provision to ASP 
reporting would be consistent with Congressional intent. Section 
1847A(c)(3) does not specify a carve-out for prompt pay discounts 
extended to wholesalers. Therefore, along with all other prompt pay 
discounts, prompt payment discounts extended to wholesalers must be 
included in the calculation of ASP.
c. Estimation Methodology for Lagged Exempted Sales
    Section 1847A(c)(2) of the Act requires manufacturers to exclude 
from the calculation of ASP those sales that are exempt from inclusion 
in the determination of Medicaid best price (BP). In the comments on 
the April 6, 2004 IFC, commenters requested more guidance on the method 
manufacturers should use to exclude exempted sales that are known on a 
lagged basis. Manufacturers identify exempted sales based on direct 
sales and through chargeback and rebate data that may not be 
sufficiently available at the time the ASP is calculated. In the 
absence of specific guidance on how to account for lagged exempted 
sales (that is, exempted sales identified through chargeback or rebate 
processes), manufacturers have relied upon assumptions in accordance 
with their customary business practices to develop their approach for 
excluding these sales from the ASP calculation. In our work with 
manufacturers that submit ASP data, we understand that some 
manufacturers have used a ratio methodology for estimating exempted 
sales known on a lagged basis that is similar to the ratio methodology 
manufacturers must use to estimate price concessions known on a lagged 
basis.
    To establish a uniform approach, we proposed to require, in the 
final ASP reporting rule, that all manufacturers use a 12-month (or 
less, if applicable) rolling average ratio methodology to estimate 
exempted sales known on a lagged basis (through chargebacks or rebates) 
to more accurately exclude these sales from the ASP calculation. 
Specifically, for exempted sales known on a lagged basis, the 
manufacturer would sum the lagged exempted sales for the most recent 
12-month period available (or the number of months the NDC has been 
sold for NDCs with less than 12 months of sales, except for 
redesignated NDCs as described in section II.F.1.e.). The manufacturer 
then calculates a percentage using this summed amount as the numerator 
and the sales (the number of units after non-lagged exempted sales have 
been subtracted from total sales) for the same period (12 months or 
less, if applicable) as the denominator. The result would be a rolling 
average percentage estimate for lagged exempted sales that is applied 
to the sales (the number of units after non-lagged exempted sales have 
been subtracted from total sales) for the quarter being reported. The 
product that results from multiplying the rolling average percentage 
estimate of lagged exempted sales and sales (the number of units after 
non-lagged exempted sales have been subtracted from total sales) would 
determine the number of lagged exempted sales (in units) to be excluded 
from the denominator of the ASP calculation. Manufacturers would be 
required to make a corresponding adjustment to the numerator of the ASP 
calculation to ensure that the total in dollars for the reporting 
quarter does not include revenue related to lagged, exempted sales 
excluded from the denominator using the proposed estimation 
methodology. Further, manufacturers would be required to remove the 
dollar value of lagged exempted sales from their estimates of lagged 
price concessions by subtracting the dollar value of estimated lagged 
exempted sales from the denominator as specified in Sec.  
414.804(a)(3)(i).
    Our proposed methodology for excluding lagged, exempted sales is 
similar to the methodology manufacturers are required to use to 
estimate price concessions known on a lagged basis, and was recommended 
by manufacturers. We believe requiring similar methods to estimate both 
lagged exempted sales and lagged price concessions would be reasonable 
and reduces potential errors in the manufacturers' ASP calculations, 
while ensuring that exempted sales are appropriately removed from the 
ASP calculation. In addition, using an estimation methodology to remove 
lagged exempted sales would reduce the likelihood of quarter-to-quarter 
variations in the ASP.
    We sought comments on the proposed methodology for excluding 
exempted sales known on a lagged basis from the ASP calculation and 
estimate of lagged price concessions. We also solicited suggestions on 
appropriate alternative methodologies that may be less complex.
    Comment: We received comments that were supportive of our approach. 
However, some commenters stated that the proposed methodology would be 
overly complex and inappropriate for certain types of exempted sales 
known on a lagged basis. Several commenters stated that the proposed 
methodology would be helpful and useful for accurately excluding from 
the ASP calculation sales excluded based on the type of entity to which 
the sale is made and known on a lagged basis (for example, sales 
relating to subclauses (I), (II), and (IV) of section 1927(c)(1)(C)(i) 
of the Act). However, most of these commenters cautioned that use of 
the proposed methodology to estimate and exclude from the ASP 
calculation sales which are excluded on the basis of rebates paid to 
State pharmacy assistance programs and Part D plans or qualified 
retiree prescription drug plans (for example, prices under clauses 
(III) and (VI) of section 1927(c)(1)(C)(i) of the Act) and known on a 
lagged basis would be: (1) Inadequate to fully and accurately account 
and adjust for other price concessions applicable to these sales; and 
(2) may lead to an inappropriately low ASP if a manufacturer is unable 
to identify and remove all price concessions associated with an 
exempted sale. Some commenters supported an alternative, two-pronged 
approach. Lagged sales excluded based on the type of entity to which 
the sale is made would be removed from the ASP using the proposed 
methodology if the manufacturer determined that a 12-month rolling 
average estimation methodology was necessary to accurately exclude 
these lagged exempted sales from the ASP calculation. On the other 
hand, the manufacturer would either not make any adjustment for or use 
reasonable assumptions to determine the best method for excluding any 
prices under a State pharmaceutical assistance program, and any prices 
charged which are negotiated by a prescription drug plan under Part D 
of title XVIII, by an MA-PD plan under Part C of title XVIII or by a 
qualified retiree prescription drug plan as defined in section 1860D-
22(a)(2) of the Act. Several commenters suggested we adopt an approach 
that would permit manufacturers not to exclude certain exempted sales 
because: (1) Current information sources may not distinguish all 
exempted sales; (2) certain sales may satisfy more than one of the 
exemptions from the determination of BP so there would be a potential 
for over counting excluded sales (for example, a sale to a 340B

[[Page 69671]]

hospital that is also reimbursed by Medicare Part D); and (3) in some 
instances the manufacturer may be unable to fully identify and adjust 
for the price concessions granted along the distribution chain 
associated with certain exempted sales (for example, the portion of 
volume discounts granted to distributors and pharmacies that were based 
on excluded sales). In addition, a few commenters noted that we did not 
specify a standard method for making the necessary corresponding 
adjustment to the numerator of the ASP calculation to ensure that the 
total in dollars for the reporting quarter does not include revenue 
related to lagged, exempted sales excluded from the denominator using 
the proposed estimation methodology. These commenters suggested that 
the excluded sales be valued at the manufacturer's wholesale 
acquisition cost (less customary prompt pay discounts) for purposes of 
making the necessary adjustment.
    A few manufacturers supported our proposal for calculating excluded 
sales known on a lagged basis; however, one manufacturer requested that 
we consider requiring use of a revenue-based ratio instead of or as an 
alternative to the proposed units-based ratio. This commenter 
recommended that manufacturers be given a choice between a revenue-
based or a units-based method to fit their data systems. Another 
manufacturer noted that a revenue-based ratio would result in 
unintended results if the price of the drug changed during the 12-month 
period used to establish the estimation ratio; therefore, a ratio 
methodology based on units such as the one we proposed should be 
required.
    Response: Section 1847A(c)(2) of the Act requires that 
manufacturers exclude certain sales from their ASP calculations. The 
statute does not make the exclusion of these sales from the ASP 
calculation optional. Therefore, we do not have the discretion to 
permit manufacturers not to exclude sales from ASP that are exempt from 
the determination of BP. Manufacturers must comply with the 
requirements in Sec.  414.804(a)(4)(i). In this final rule with comment 
period we are revising Sec.  414.804(a)(4)(i) by adding a reference to 
nominal prices, as well as sales exempt from inclusion in the 
determination of BP. We believe that this revision conforms the 
regulatory text to the language of the statute.
    To establish a uniform approach for excluding exempted sales known 
on a lagged basis, we proposed to amend Sec.  414.804(a)(4) to require 
that all manufacturers use a 12-month (or less, if applicable) rolling 
average ratio methodology to more accurately estimate and exclude these 
sales from the ASP calculation. Our proposal was based on comments we 
received in response to the April 6, 2004 IFC and subsequent feedback 
from a few manufacturers. The comments received in response to the 
proposed rule reflect a broader set of manufacturers' perspectives. 
Some commenters indicated that for certain types of exempted sales the 
proposed methodology for excluding lagged exempted sales from the ASP 
calculation might lead to inaccuracies in the ASP calculation in their 
particular circumstances. At the same time, a number of commenters 
supported the proposed methodology. We recognize these commenters' 
concerns regarding the difficulties in tracking both the exempted sale 
and its associated price concessions. Given the range of comments, we 
do not believe it is not advisable to mandate the use of the 
methodology, which we proposed at Sec.  414.804(a)(4)(iii), for 
excluding lagged exempted sales. We recognize the proposed ratio 
methodology may not be the most accurate method for identifying and 
excluding certain types of exempted sales known on a lagged basis. 
However we also believe that our proposed ratio methodology may be 
appropriate for identifying and excluding lagged exempted sales in some 
instances. For this reason, we are not including the methodology in our 
regulations, but are allowing the manufacturers to use the methodology 
where applicable. We did not receive specific comments on our proposed 
modifications to Sec.  414.804(a)(1) and (3) clarifying further that 
exempted sales are excluded from the ASP calculation. We are finalizing 
those clarifications as proposed.
d. Nominal Sales
    Section 1847A(c)(2)(B) of the Act requires manufacturers to exclude 
from the ASP calculation sales that are merely nominal in amount, as 
applied for purposes of section 1927(c)(1)(C)(ii)(III) of the Act, 
except as the Secretary may otherwise provide. In the preamble to the 
April 6, 2004 IFC, we stated that, for ASP purposes, sales to an entity 
that are nominal in amount are defined in the Medicaid drug rebate 
agreement (see sample agreement at http://www.cms.hhs.gov/MedicaidDrugRebateProgram/downloads/rebateagreement.pdf
). That is, for 

ASP purposes, a sale at a nominal price is a sale at a price less than 
10 percent of the AMP in the same quarter for which the AMP is 
computed.
    Effective January 1, 2007, the DRA revises the AMP calculation (to 
omit customary prompt pay discounts extended to wholesalers), adds a 
monthly AMP reporting requirement, and establishes limitations on 
nominal sales (only sales to certain entities may qualify as nominal 
sales). Section 1927(c)(1)(D) of the Act limits the nominal sales 
exclusion to sales at a nominal price made to the following entities:
     Covered entities as described in section 340B(a)(4) of the 
Public Health Services Act.
     Intermediate care facilities for the mentally retarded 
(ICFs/MR).
     State-owned or operated nursing facilities.
     Any other facility or entity that the Secretary determines 
is a safety net provider to which sales of such drugs at a nominal 
price would be appropriate based on the factors described in section 
1927(c)(1)(D)(ii) of the Act.
    In light of the DRA changes affecting which sales may be considered 
sales at a nominal price or merely nominal in amount, for purposes of 
section 1927(c)(1)(C)(ii)(III), the CY 2007 PFS proposed rule sought to 
clarify the method manufacturers must follow in 2007 to identify such 
sales for ASP reporting purposes and to exclude sales at a nominal 
price from the calculation of ASP. For 2007 and beyond, we proposed to 
continue to rely on the Medicaid threshold (less than 10 percent of 
AMP) to determine whether a sale is at a nominal price and to apply the 
limitations in section 1927(c)(1)(D) of the Act for determining the 
types of sales that can be considered to be sales at a nominal price 
for purposes of the ASP calculation. We made this proposal for several 
reasons.
    As we indicated in the CY 2007 PFS proposed rule, we believe this 
approach helps maintain continuity in the ASP calculation and minimizes 
manufacturers' reporting burden, as Medicare continues to follow the 
Medicaid approach for identifying sales at a nominal price and 
manufacturers can use a single method for identifying nominal sales for 
both ASP and AMP purposes.
    In addition, we believe the DRA modifications to section 1927 of 
the Act will have minimal effect on reported ASPs. We expect that the 
exclusion of customary prompt pay discounts extended to wholesalers 
from AMP would lead to a modest increase in AMP, and as a result a 
modest increase in the nominal price threshold for purposes of ASP 
reporting. At the same time, we anticipate that the limitation on the 
types of entities to which the

[[Page 69672]]

nominal sales exclusion may apply, as specified in section 
1927(c)(1)(D) of the Act, will result in a modest reduction in the 
number of sales that qualify for the nominal sales exclusion for 
purposes of ASP reporting because we believe that the entities outlined 
in section 1927(c)(1)(D) of the Act generally represent the types of 
entities to which manufacturers sell at a nominal price. Consequently, 
we expect these two countervailing changes would have a minimal overall 
impact on nominal sales that would be excluded from the ASP 
calculation. For these reasons, we proposed to continue to rely on the 
application of section 1927(c)(1)(C)(ii)(III) of the Act (as limited by 
section 1927(c)(1)(D) of the Act) for identifying sales to an entity at 
a nominal price for purposes of excluding such sales from the 
manufacturer's calculation of the ASP.
    We solicited comments on our proposal to continue use of the AMP as 
the basis for identifying the threshold for sales at a nominal price 
for purposes of the exclusion from the ASP calculation and on whether 
an alternative threshold is necessary or desirable to ensure the 
accuracy of the ASP payment methodology. Specifically, we sought 
comments on whether sales at less than 10 percent of the ASP (instead 
of the AMP) should be used as the threshold for determining whether a 
sale to an entity identified in section 1927(c)(1)(D) of the Act is at 
a nominal price. We also sought comments on our belief that the new 
limitations in section 1927(c)(1)(D) of the Act, if applied for ASP 
purposes, will have minimal impact on reported ASPs.
    Comment: We received comments supporting our proposals to continue 
to rely on the application of section 1927(c)(1)(C)(ii)(III) of the 
Act, as modified by section 1927(c)(1)(D) of the Act, to identify and 
exclude sales at a nominal price from the ASP calculation. These 
commenters agreed that using the same standard for Medicare and 
Medicaid purposes would reduce reporting burden.
    Response: We appreciate the comments in support of our proposal. We 
are adopting our proposal to continue to rely on the Medicaid threshold 
(less than 10 percent of AMP) to determine whether a sale is at a 
nominal price, and to apply the limitations in section 1927(c)(1)(D) of 
the Act for purposes of identifying sales at a nominal price in 
determining the ASP.
    Comment: We received a few comments suggesting that the Secretary 
provide a list of additional types of safety net providers that would 
qualify for the nominal sales exclusion.
    Response: The issue of whether the Secretary should designate 
additional types of entities that would qualify as safety net providers 
for purposes of section 1927(c)(1)(D) of the Act is outside of the 
scope of this rulemaking.
    Comment: We received a comment suggesting that because of the short 
timeframe for performing the ASP calculation, manufacturers should be 
allowed to identify sales at a nominal price for ASP purposes using the 
AMP for the previous quarter provided that the manufacturer does this 
consistently across all of its products.
    Response: We are concerned that the commenter's suggestion that we 
allow use of last quarter's AMP to identify sales at a nominal price in 
the current quarter could have an adverse impact on the accuracy of the 
ASP calculation. It is possible for the AMP to change substantially 
from one quarter to the next (for example, when generic products first 
become available). In such situations, using the current quarter's AMP, 
as opposed to last quarter's AMP, would generally result in a more 
accurate identification of sales at a nominal price. Consequently, we 
are continuing to require that for ASP calculation purposes nominal 
sales in a reporting quarter be identified based on the AMP for the 
same quarter.
    In the CY 2007 PFS proposed rule, we also responded to requests for 
clarification on a technical aspect related to the identification of 
nominal sales. Specifically, some manufacturers have asked whether 
sales at a nominal price are identified by performing a series of 
calculations once or whether the manufacturer repeats the series of 
calculations until no remaining ASP eligible sales are below the 
nominal threshold. Manufacturers must identify sales at a nominal price 
by performing the following steps once--
     The manufacturer calculates the AMP for the reporting 
quarter to identify the dollar amount that represents 10 percent of the 
AMP for that reporting period.
     The manufacturer then identifies sales at prices below 
this amount and excludes these sales from the ASP calculation.
     Beginning in 2007, only those sales that meet the criteria 
discussed previously and are to an entity identified in section 
1927(c)(1)(D) of the Act shall be excluded from the calculation of ASP.
    We received no comments concerning this clarification; therefore we 
are finalizing the clarification as proposed.
e. Other Price Concession Issues
    In our ongoing work with manufacturers that submit ASP data, some 
manufacturers have posed questions or raised concerns about how the 
estimate of lagged price concessions is done prior to having 12 months 
of data for a NDC and, when a product is redesignated with a new NDC, 
whether price concessions from the prior NDC must be included in 
calculating the ASP for the new NDC. Manufacturers and other 
stakeholders have also asked us about how Medicare's ASP guidance 
concerning price concessions is to be applied when drugs are sold under 
bundling arrangements.
    In response, we proposed clarifications and solicited comment on 
these issues.
(1) Price Concessions for NDCs With Less Than 12 Months of Sales
    To address situations when a NDC with price concessions known on a 
lagged basis has not been sold for a full 12 months, we proposed to 
revise Sec.  414.804(a)(3) to specify that the period used to estimate 
lagged price concessions is the total number of months the NDC has been 
sold. We proposed to require that manufacturers use less than 12 months 
of data in the estimation methodology for lagged price concessions for 
NDCs with less than 12 months of sales (except when the manufacturer 
has redesignated the product's NDC, as discussed in this section). We 
also clarified in the preamble of the proposed rule that manufacturers 
may include the current ASP reporting quarter in the most recent 12-
month period (or less for NDCs with less than 12 months of sales) so 
long as the manufacturer follows this approach in calculating the ASP 
for all of its reported NDCs.
    Comment: We received a number of comments supporting our proposal.
    Response: We are finalizing our proposal. We will require that 
manufacturers use less than 12 months of data in the estimation 
methodology for lagged price concessions for NDCs with less than 12 
months of sales (except when the manufacturer has redesignated the 
product's NDC, as discussed in this section).
(2) Redesignated NDCs
    From time to time, a manufacturer may change the NDC assigned to a 
specific product and package size while continuing or offering price 
concessions that span across sales of the product under its prior and 
redesignated NDCs. For example, an NDC may be changed to reflect a 
change in the labeler code


[[Continued on page 69673]]


From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]                         
 
[[pp. 69673-69722]] Medicare Program; Revisions to Payment Policies, Five-Year Review 
of Work Relative Value Units, Changes to the Practice Expense 
Methodology Under the Physician Fee Schedule, and Other Changes to 
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[[Continued from page 69672]]

[[Page 69673]]

while lagged price concessions in place under the prior NDC remain in 
effect and carry over to the redesignated NDC. Another example would be 
a manufacturer that modifies its package design or other non-drug 
feature of the NDC and assigns a new NDC to reflect the revised 
packaging.
    We proposed to clarify in the final ASP reporting rule that, when 
an NDC is changed (except when a product is repackaged or relabeled by 
a different manufacturer or relabeler or is privately labeled) and 
lagged price concessions offered for the prior NDC remain in effect, 
the manufacturer must use 12 months (or the total number of months of 
sales of the prior and redesignated NDCs if the total number of months 
of sales is less than 12 months) of sales and price concession data 
from the prior and redesignated NDCs to estimate lagged price 
concessions applicable to the redesignated NDC. In establishing this 
methodology, we are relying on our authority under section 
1847A(c)(5)(A) of the Act.
    We sought comments on our proposed refinements to the estimation of 
lagged price concessions for NDCs with less than 12 months of sales and 
when a manufacturer redesignates the NDC assigned to a product. We also 
solicited suggestions for potentially clarifying these policies 
further.
    Comment: We received a number of comments supporting our proposal. 
In addition, some commenters asked for more guidance concerning what 
circumstances the policy regarding redesignated NDCs would or would not 
apply to. In particular, some commenters suggested the policy should 
not apply when there is a change in the 9-digit NDC (that is, a change 
in the product code). We also received comments asking for 
clarification on how manufacturers should combine price concessions in 
situations where the NDC is redesignated and both products are sold for 
a time concurrently. Some commenters asked whether the lagged price 
concessions for the prior and redesignated NDCs should be combined to 
create a single lagged price concession ratio to be used to estimate 
lagged price concessions for the prior and redesignated NDC, and if so, 
how long this practice should occur. In addition, some commenters noted 
that the Food and Drug Administration (FDA) has issued a proposed rule 
concerning the assignment of NDC codes, and that the issue of 
redesignated NDCs and the ASP calculation may need to be revisited when 
the FDA finalizes its regulation.
    Response: In making our proposal, we intended our proposal to apply 
in instances when a manufacturer redesignates an NDC meaning the 
manufacturer establishes a new NDC as a replacement for a prior NDC for 
the same product and package size. After reviewing the comments, we are 
finalizing our proposal. When a manufacturer redesignates an NDC 
(except when a product is repackaged or relabeled by a different 
manufacturer or relabeler or is privately labeled) for a specific drug 
product and package size and lagged price concessions offered for the 
prior NDC remain in effect, the manufacturer must use 12 months (or the 
total number of months of sales of the prior and redesignated NDCs if 
the total number of months of sales is less than 12 months) of sales 
and price concession data from the prior and redesignated NDCs to 
estimate lagged price concessions applicable to the redesignated NDC. 
Several commenters recommended that we clarify that this policy would 
never apply to a change in the product code for an NDC. We disagree and 
believe the policy could apply to a change in the product code 
depending on the circumstances. When an NDC is redesignated as a 
replacement for a prior NDC for a specific drug product and package 
size and lagged price concessions for the prior NDC remain in effect, 
we believe the policy described previously should apply regardless of 
which segment of the NDC code is changed.
    Several commenters asked for guidance concerning how to handle 
situations where the redesignated NDC and prior NDC are for a time sold 
concurrently. If the redesignated NDC is a replacement for the prior 
NDC and if the two NDCs are sold for only a limited time concurrently, 
then we agree with commenters' suggestion that lagged price concessions 
that are based on sales of the prior NDC and redesignated NDC should be 
combined to calculate a single lagged price concessions ratio (for the 
applicable price concessions) that would be applied to the ASP 
calculation for the prior NDC and for the redesignated NDC. In this 
situation, the manufacturer should combine the lagged price concession 
data that are based on sales of the prior NDC and redesignated NDC as 
described previously until the last lot sold of the prior NDC expires. 
Finally, we agree that the FDA's proposed regulations concerning the 
assignment of NDC codes, once they are finalized, may have implications 
for our policy concerning redesignated NDCs, and we may revisit this 
issue in the future, if we believe it is warranted.
(3) Bundled Price Concessions
    The statute requires that the ASP include volume discounts, prompt 
pay discounts, cash discounts, free goods that are contingent on any 
purchase requirement, chargebacks, and rebates (other than rebates 
under section 1927 of the Act). Thus far, we have not provided specific 
guidance in the ASP context on the issue of how to allocate price 
concessions across drugs that are sold under bundling arrangements. In 
the absence of specific guidance, the manufacturer may make reasonable 
assumptions in its calculations of ASP, consistent with the general 
requirements and the intent of the Act, Federal regulations, and its 
customary business practices. Manufacturers should include these 
assumptions in their ASP submissions.
    As we indicated in the CY 2007 PFS proposed rule, we expect 
manufacturers of drugs reimbursed by Medicare Part B to comply with all 
applicable laws, regulations, and legal decisions including, but not 
limited to the Stark law, other relevant anti-kickback laws, antitrust 
laws, and laws governing fair trade practices (71 FR 49003). Our 
discussion of this issue in the proposed rule or in this final rule 
with comment period should not be construed as an endorsement or 
authorization of any pricing practices that contravene any laws, legal 
decisions, or regulations.
    In the CY 2007 PFS proposed rule, we indicated that we would like 
to better understand how bundling affects sales of Part B drugs and the 
ASP calculation, and any concerns stakeholders may have on this issue 
(71 FR 49003). Furthermore, we indicated that we are considering 
providing guidance, through rulemaking or through program instruction 
or other guidance (consistent with our authority under section 
1847A(c)(5)(C) of the Act) on the methodology manufacturers must use 
for apportioning price concessions across Part B drugs sold under 
bundling arrangements for purposes of the calculation of ASP. We also 
noted that in considering this issue our goal is to ensure that the ASP 
is an accurate reflection of market prices for Part B drugs and that 
the treatment of bundled price concessions in the ASP calculation does 
not create inappropriate financial incentives.
    In the CY 2007 PFS proposed rule, we solicited comments on a number 
of issues related to bundled price concessions, including how 
frequently Part B drugs are sold under bundling arrangements, the 
different structures of bundling arrangements that may exist (for 
example, the number of products

[[Page 69674]]

included in a bundling arrangement; whether the price concessions are 
contingent on the purchase of only one product, the purchase of 
multiple products, or the inclusion of one or more products on a 
formulary; and the timing of the price concessions), and the extent to 
which sales of Part B drugs are bundled with sales of non-Part B drugs 
or non-drug products. We also sought comments on what effect bundling 
arrangements may have on the ASP calculation, on beneficiary access to 
high quality, appropriate care (including access to drugs that may not 
have clinical alternatives), and on costs to the Medicare program and 
beneficiaries. In addition, we solicited comments on whether additional 
guidance on apportioning bundled price concessions for purposes of the 
calculation of ASP is needed and potential methodologies that Medicare 
could consider requiring. Furthermore, we solicited comments on how 
variation in the structure of bundling arrangements may affect the 
impact of potential apportionment methodologies on the ASP calculation.
    Comment: Some commenters recommended that we provide guidance on 
the treatment of bundled price concessions in the ASP calculation. A 
number of these commenters stated that having specific guidance on this 
issue would promote consistency in ASP reporting across manufacturers. 
In addition, many commenters believed that we should issue another 
proposed rule with a specific proposal and offer an opportunity for 
public comment before finalizing any policy. Many of these commenters 
were also concerned about how the treatment of bundled price 
concessions in the ASP calculation would affect providers who do not 
purchase the drug as part of a bundling arrangement.
    Some commenters did not take a position on whether specific 
guidance was needed on the treatment of bundled price concessions in 
the ASP calculation, citing both the general desirability of having 
guidance on various ASP reporting issues and concerns that a specific 
methodology with regard to bundled price concessions and ASP might be 
inflexible and hinder beneficial arrangements.
    While most commenters did not offer a specific suggestion on a 
potential methodology for the treatment of bundled price concessions in 
the ASP calculation, a few commenters did. One commenter suggested that 
Medicare adopt for ASP purposes the apportionment methodology that the 
Medicaid rebate program requires manufacturers to use in the 
calculation of AMP and BP. The current Medicaid National Drug Rebate 
Agreement states that ``for Bundled Sales, the allocation of the 
discount is made proportionately to the dollar value of the units of 
each drug sold under the bundled arrangement.''
    Another commenter suggested that we adopt the current Medicaid 
rebate program methodology for apportioning bundled price concessions 
described above, but create an exception for dominant drugs without 
significant clinical alternatives. This commenter stated that drug 
manufacturers do not have an incentive to provide discounts on dominant 
drugs that do not have significant clinical alternatives. As a result, 
the commenter believes that in situations where a ``dominant'' drug is 
bundled with non-dominant drugs, none of the bundled price concessions 
should be apportioned to the ``dominant'' drug. Furthermore, the 
commenter stated that if the Medicaid methodology were employed without 
an exception for dominant drugs, there would be the potential to lower 
the ASP for a dominant drug in a bundle while increasing the ASP for 
the other, non-dominant drugs in that bundle. The commenter believes 
such a policy would result in an unfair competitive advantage and would 
impose additional costs on the public health system and the Medicare 
program. The commenter stated that determining whether a bundling 
arrangement contained a dominant drug would be relatively easy for 
manufacturers, and suggested a number of criteria such as a drug's 
indication and risk profile, whether it is a single source product, its 
patent-protected status, the drug's market share, the relative 
magnitude of incentives provided on the drug both before and after it 
is inclusion in the bundle, the effect of the introduction of the drug 
into the bundle on the sales volume of other products in the bundle, 
and Medicare expenditures on the drug relative to potential 
alternatives.
    In contrast, another commenter urged us not to adopt a methodology 
where price concessions offered on drugs sold under bundling 
arrangements are allocated across those drugs based on specified 
criteria. The commenter stated that the ASP is intended to reflect the 
prices available in the market for each product, and they believe 
reallocating discounts across drugs is unnecessary and could result in 
inaccurate ASPs, impaired beneficiary access, and inappropriate 
financial incentives. Another commenter stated that manufacturers 
should be allowed to make reasonable assumptions concerning the 
treatment of bundled price concessions in the ASP calculation, and that 
any bundled price concessions that meet a safe harbor to the OIG anti-
kickback statute should be handled like nonbundled price concessions 
for ASP calculation purposes.
    We also received some comments expressing satisfaction with current 
contracts with drug manufacturers, and raising concerns that the 
establishment of guidelines concerning the treatment of bundled price 
concessions in the ASP calculation may require them to renegotiate 
those contracts. In addition, we received some comments expressing 
concern about the affect of bundling arrangements on physician and 
health care provider's choice of products.
    A number of commenters also raised the issue of Part B drugs being 
bundled with non-Part B drugs or other products. Some stated that when 
Part B drugs are bundled with other products, the bundled price 
concessions should not be apportioned from other products to Part B 
drugs, citing concerns that the Part B drug payment rates would be 
inappropriately low. However, another commenter believes that bundled 
price concessions should be allocated from non-Part B drug products to 
Part B drugs, stating that it otherwise results in government 
overpayments. A number of other commenters offered suggestions on how a 
bundle should be defined, with several commenters suggesting that 
discounts contingent on the placement of one or more products on a 
formulary should not constitute a bundle. We also received comments 
recommending that for the purposes of the ASP calculation we only 
consider bundling arrangements to exist in situations where several 
different products are sold for a single price, and the individual 
products do not have separately identifiable prices.
    Finally, we note that the MedPAC commented that it would be 
examining the issue of bundled price concessions and the ASP in the 
upcoming year.
    Response: In considering the issue of bundled price concessions, 
our goal is to ensure the accuracy of the ASP calculation and to 
prevent the treatment of bundled price concessions in the ASP 
calculation from creating inappropriate financial incentives. A number 
of comments suggested, that potential bundling arrangements may be 
complex and vary widely in terms of the structure and types of 
performance requirements upon which a bundled discount may be 
conditioned, the magnitude of price concessions, and the 
characteristics of the drugs or other products included in the bundle 
(for example, whether the bundle includes

[[Page 69675]]

Part B drugs only or other products, the market position of products in 
the bundle, the relative sales volume of products in the bundle, and 
how commonly a particular product is sold under a bundling 
arrangement). Given the potentially wide range of bundling arrangements 
that might exist, based on the information we currently have about such 
arrangements, we are not in a position to determine, at this time, 
whether there is a universal approach for treating bundled price 
concessions in the ASP calculation that would address all potential 
structures of bundling arrangements in a manner that would achieve our 
goal of ensuring the accuracy of the ASP payment methodology and 
preventing inappropriate financial incentives.
    Furthermore, we note that we received a comment suggesting that 
Medicare adopt a special policy concerning the treatment of bundled 
price concessions in the ASP calculation for bundling arrangements that 
include dominant drugs without significant clinical alternatives. We do 
not believe it would be feasible for the Medicare program to establish 
a definition of a dominant drug without significant clinical 
alternatives that would be precise enough to clearly delineate when a 
product was or was not dominant, especially given the potential for 
great variation in the structure of bundling arrangements and the 
characteristics of drugs included in those arrangements.
    Since we do not yet fully understand the variety of bundling 
arrangements that exist in the marketplace and how they are likely to 
evolve over time, we believe it is important to be cautious in 
establishing a specific methodology that all manufacturers must follow 
for ASP purposes. Consequently, we are not establishing a specific 
methodology that manufacturers must use for the treatment of bundled 
price concessions for purposes of the ASP calculation at this time. In 
the absence of specific guidance, the manufacturer may make reasonable 
assumptions in its calculations of ASP, consistent with the general 
requirements and the intent of the Act, Federal regulations, and its 
customary business practices. Our intent in not being prescriptive in 
this area at this time is to allow manufacturers the flexibility to 
adopt a methodology with regard to the treatment of bundled price 
concessions in the ASP calculation that, based on their particular 
circumstances, will best ensure the accuracy of the ASP calculation and 
not create inappropriate financial incentives.
    Recognizing that the treatment of bundled price concessions in the 
ASP calculation has implications for the integrity of the ASP payment 
methodology, we will be paying close attention to this issue and may 
provide more specific guidance in the future through rulemaking or 
through program instruction or other guidance (consistent with our 
authority under section 1847(c)(5)(C) of the Act) if we determine it is 
warranted. Furthermore, as we continue to monitor this issue, we want 
to be sure we are aware of concerns from all stakeholders, and thus we 
encourage the public to relay additional information or concerns to us 
on this issue as they may arise. In addition, we note that MedPAC has 
indicated it will be studying this issue in the upcoming year, and we 
look forward to its work in this area.
    Finally, we emphasize that we expect manufacturers of drugs 
reimbursed by Medicare Part B to comply with all applicable laws, 
regulations, and legal decisions including, but not limited to the 
Stark law, other relevant anti-kickback laws, antitrust laws, and laws 
governing fair trade practices. Our discussion of this issue should not 
be construed as an endorsement or authorization of any pricing 
practices that contravene any laws, legal decisions, or regulations.
f. Other ASP Reporting Issues
    Comment: Several commenters stated that it can be difficult for 
manufacturers to determine which drugs are subject to the ASP reporting 
requirements, considering that section 1927(b)(3)(A)(iii) of the 
statute states that ASP data must be reported for drugs that are 
described in subparagraph (C), (D), (E), or (G) of section 1842(o)(1), 
or 1881(b)(13)(A)(ii) of the Act.
    Response: In general, these subparagraphs refer to broad categories 
of drugs covered by Medicare Part B such as drugs that are administered 
incident to a physician's service in physician offices; certain 
immunosuppressive, oral anticancer, and oral anti-emetic drugs supplied 
by pharmacies; infusion drugs furnished through an item of DME; 
intravenous immune globulin (IVIG), inhalation drugs furnished through 
an item of DME, and separately payable drugs furnished by ESRD 
providers. Because Medicare Part B drugs are subject to local coverage 
determinations (LCDs) by the local claims processing contractors and 
the scope of Part B drug coverage varies among contractors, we do not 
maintain a list of all drugs covered under Part B at any given time in 
all contractor jurisdictions. However, the following resources may be 
helpful and can be retrieved at http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/02_aspfiles.asp#TopOfPage
.

    The NDC to HCPCS crosswalk is posted quarterly on our Web site and 
lists a majority of billing codes used by providers to submit claims 
for drugs. We welcome ongoing feedback on the accuracy of the 
crosswalk. We also publish a list of many of the frequently 
administered drugs that are billed using the not otherwise classified 
billing codes.
    Comment: Several commenters suggested that we develop a formal 
process for requesting a determination of whether for a particular NDC 
the ASP reporting requirements apply. These commenters contend such a 
process is necessary particularly for drugs that may be typically self-
administered, may be used for prevention or cosmetic purposes, are 
available in potentially noncovered forms, and new drugs for which LCDs 
have not yet been made.
    Response: Medicare Part B drug coverage under title XVIII is 
generally limited to certain drugs within specific benefit categories 
as described at the beginning of this section. For the most part, we 
believe manufacturers have identified the drugs for which they have an 
ASP reporting obligation. Medicare has established processes for 
issuing national, as well as local, coverage determinations for Part B 
drugs and other services. Therefore, we are not persuaded by the 
commenters that an entirely separate process is necessary for assisting 
manufacturers in determining whether a drug qualifies for coverage 
under Part B as a means of determining whether it is subject to the ASP 
reporting requirements. We encourage manufacturers to contact us 
directly to discuss the specifics of their ASP reporting concerns.
    Comment: One commenter asked us to clarify whether manufacturers 
have to include in their calculation of the ASP for a given NDC sales 
of that NDC that are used for purposes not covered by Medicare Part B. 
The commenter also wanted to know if NDCs that are labeled for Medicare 
noncovered indications are subject to the ASP reporting provisions.
    Response: With respect to whether a manufacturer may exclude sales 
for noncovered uses from its calculation of the ASP for an NDC and 
whether NDCs that are labeled for cosmetic or other typically 
noncovered use (for example, contraception) are exempt from the ASP 
reporting requirements, we believe the statute provides no such 
exclusion.

[[Page 69676]]

    Comment: Another commenter suggested that we clarify whether 
manufacturers are required to report ASP data for infusion drugs 
administered via DME and for a drug that is usually self-administered 
and not covered by Medicare Part B (even if Medicare utilization data 
suggests that there are small levels of utilization which a 
manufacturer believes are contractor mistakes).
    Response: Section 1927(b)(3)(A)(iii) of the Act specifies the drugs 
for which manufacturers have to report ASP data, and it includes 
infusion drugs furnished through an item of DME (by reference to 
section 1842(o)(1)(D) of the Act). Manufacturers must report ASP data 
for these drugs quarterly.
    With respect to drugs that a manufacturer believes are noncovered 
by Medicare despite a local claims processing contractor's payments for 
the drug, we are aware of one such situation and have been working 
closely with the manufacturer to resolve the matter. We encourage 
manufacturers to contact us directly so that we can consider these 
issues on a case-by-case basis.
    Comment: One manufacturer expressed concern that submitting ASP 
data for a noncovered drug may be viewed as a claim for coverage.
    Response: We do not believe that reporting ASP data for a drug, in 
the absence of other actions, would be a claim of coverage for the 
drug.
    Comment: A few commenters requested clarification regarding when a 
manufacturer's reporting obligation for an NDC ends. One commenter 
noted that ASP will not be a positive number unless there is product 
sold in a quarter, and suggest there is no need to report the ASP after 
the last lot is sold.
    Response: In the March 3, 2006 Federal Register (71 FR 10975), we 
clarified that manufacturers would no longer report ASP data for an NDC 
beginning the reporting period after they report the ASP data for the 
quarter during which the expiration date of the last lot sold occurs. 
We are aware that a manufacturer's ASP will not be a positive value 
unless a reportable sale occurs in the reporting period. However, for 
single source drugs, manufacturers not only have a requirement to 
report ASP but also wholesale acquisition cost (WAC).
    Comment: Several commenters requested that we clarify whether the 
manufacturer that holds title to the NDC is always responsible for 
reporting the ASP data, and whether certain exceptions are permissible 
such as when manufacturers establish licensing agreements or a 
manufacturer divests a product but the NDC's labeler code is not 
changed. Some commenters stated that the title-holding manufacturer 
should determine which entity has the ASP reporting obligation. In 
addition, a commenter requested that manufacturers not be required to 
certify ASP data that they did not have access to or did not generate. 
One commenter suggested that a manufacturer's ASP reporting obligation 
would cease upon the transfer of the product to another manufacturer 
with control over its pricing.
    Response: For ASP purposes, the definition of manufacturer has the 
same definition set forth in section 1927(k)(5) of the Act, which is 
the definition included in the Medicaid drug rebate statute. We believe 
that likewise the ASP reporting obligation should follow the process 
established under the Medicaid drug rebate program, and we see no 
reason to establish separate guidance at this time. Further, we believe 
that manufacturers have means of dealing with these issues within their 
business arrangements.
    Comment: One commenter recommended that we provide guidance that 
sales between wholly-owned subsidiaries of a common parent company 
would not constitute a sale for ASP reporting and calculation purposes.
    Response: We will consider the issue and any broader implications 
it may have for the ASP calculation, and may issue additional guidance 
if we determine it is appropriate.
    Comment: Some manufacturers supported maintaining the same 
definition of manufacturer for ASP purposes and for Medicaid AMP and BP 
purposes. Several commenters requested that we formally state that 
wholesalers and distributors do not have to report ASP data. A retail 
pharmacy chain requested that retail pharmacies be excluded from the 
definition of manufacturer in so far as they repackage drugs for 
purposes of dispensing drugs to customers under state law. Similarly, a 
mail order pharmacy requested that we clarify that mail order 
pharmacies are not considered manufacturers. One commenter suggested 
that only the holders of the product's New Drug Approval, Abbreviated 
New Drug Approval, or Biologic License Application should be considered 
manufacturers or repackagers for the purposes of reporting ASP.
    Response: Under section 1847A of the Act, entities that fall under 
the definition of manufacturers in section 1927(k)(5) of the Act must 
report ASP data. This definition is separate from the FDA process for 
drug applications. We interpret manufacturer for ASP purposes to have 
the same meaning as under the Medicaid Rebate Agreement. Therefore, 
wholesalers that relabel or repackage NDCs and pharmacies must report 
ASP data to the extent that they qualify as manufacturers for Medicaid 
drug rebate purposes.
    Comment: A few commenters requested that we formalize our guidance 
on whether sales in the United States include sales to purchasers in 
the territories.
    Response: We are not addressing this issue in the regulations text.
    Comment: A few commenters requested that we incorporate into the 
regulation our current guidance on the treatment of returned units.
    Response: We issued guidance on our Web site in September 2004 
instructing manufacturers not to make adjustments to the ASP 
calculation to account for returns. We stated in that guidance 
beginning with the data submission for sales during the third quarter 
of 2004 and thereafter, manufacturers should not subtract the value of 
the returns from the numerator of the ASP calculation and should not 
subtract the number of units returned from the denominator. In other 
words, the value of returns should not be included in the numerator and 
the number of returned units should not be included in the denominator 
when calculating the ASP for a reporting quarter. This continues be our 
guidance as we study the issue further, but we have decided not to 
place this guidance into the regulation text at this time.
    Comment: Some of the commenters noted that, at this time, 
manufacturers' reasonable assumptions continue to be an important 
principle in ensuring that the calculation of ASP is appropriate. 
Several commenters suggested we include in the final rule guidance we 
have previously provided through Q&A that in the absence of guidance 
manufacturers may make reasonable assumptions and should provide those 
assumptions in their ASP submission.
    Response: We agree with these commenters; manufacturers' reasonable 
assumptions remain an important aspect of ASP reporting. The 
complexities of each calculation can differ across manufacturers. 
Therefore, it is essential that each manufacturer examine the facts and 
complexities of its business practices and products to determine how it 
will comply with the ASP reporting requirements. We posted a frequently 
asked question on our Web site to inform manufacturers of the 
importance of reasonable assumptions. In that guidance we state, ``In 
the absence of specific guidance in the Act or Federal regulations, the 
manufacturer

[[Page 69677]]

may make reasonable assumptions in its calculations of ASP, consistent 
with the general requirements and the intent of the Act, Federal 
regulations, and its customary business practices. These assumptions 
should be submitted along with the ASP data and the signed 
certification form.''
    Comment: Some commenters wanted to know whether data on nominal 
sales must be reported at this time as required under section 
1927(b)(3)(A)(iii)(III) of the Act.
    Response: We currently consider the requirements of section 
1927(b)(3)(A)(iii)(III) of the Act for the reporting of nominal prices 
for purposes of ASP to be met when the manufacturer reports its ASPs, 
to the extent that the ASPs accurately account for nominal prices that 
are excluded from the ASP calculation. Thus, we are not currently 
requiring this information to be separately reported from the ASP. As 
we gain more experience with the ASP system, we may require this 
information to be separately reported in the future. We note that our 
interpretation of the reporting requirement for nominal prices for 
purposes of ASP has no effect on any Medicaid reporting requirement.
    Comment: Several commenters stated that the statute does not 
require certification of the ASP by the manufacturer's chief financial 
officer (CFO), chief executive officer (CEO) or individual who has 
delegated authority to sign for and reports directly to either the CFO 
or CEO. A large international manufacturer commented that it was 
impractical to have ASP reports certified by international executives. 
Another manufacturer commented that its organizational structure did 
not have executives matching the specified titles, and therefore, it 
was impossible to comply with this requirement. Further, many 
commenters stated that it was inappropriate to require certification of 
the ASP data until sufficient guidance on how to calculate the ASP has 
been established. A few commenters suggested that the certification 
language should be revised to acknowledge that reasonable assumptions 
had been made and to reflect the limited ability of manufacturers to 
accurately estimate lagged price concessions and determine whether fees 
were passed on in whole or in part. Another commenter stated that the 
penalties for failing to report accurate ASP data are a sufficient 
deterrent to abuse, and the certification is unnecessary and should be 
eliminated.
    Response: Because of the consequences for failing to submit 
accurate and timely ASP data, we continue to believe there is good 
reason to require that each ASP report be certified by the manufacturer 
at this time. With the ASP data being the basis of Medicare payment 
rates for the vast majority of Part B covered drugs and biologicals, we 
believe that certification requirement is an important program 
safeguard. We acknowledge the operational constraints some 
manufacturers may experience in obtaining certain senior executive 
level signatures to coincide with the quarterly ASP reporting 
deadlines, although our experience is that nearly all manufacturers are 
able to do so without causing a delay in reporting their ASP data 
timely.
    Comment: Several commenters noted that the Medicaid AMP and BP can 
be restated within the specified time period. These commenters 
requested that we establish procedures to identify potentially errant 
ASP data and to allow for corrections of ASP data.
    Response: If a manufacturer has good cause for resubmitting its 
quarterly ASP data, it may do so following the submission instructions 
available at http://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg. 

Resubmission of ASP data does not constitute a release from liability 
for failure to submit timely and accurate ASP data.
    Comment: Several manufacturers suggested that the reasonable 
assumptions submitted along with the ASP data be afforded the same 
confidential protections as specified for the ASP data.
    Response: We provided guidance on our Web site addressing this 
issue. That guidance states, ``As indicated in section 1927(b)(3)(D) of 
the Act, as amended by MMA section 303(i)(4)(D), information disclosed 
by the manufacturer in connection with the requirement for ASP data 
submission is confidential and, not withstanding other laws, shall not 
be disclosed by the Secretary (or contractor therewith) in a form which 
discloses the identity of a specific manufacturer or wholesaler, prices 
charged for drugs by such manufacturer or wholesaler, except as 
necessary by the Secretary to carry out the provisions of section 1847A 
or 1847B of the Act, and to permit the OIG, the Comptroller General, 
and the Director of the Congressional Budget Office to review the 
information provided. http://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg. 

As is good practice with any sensitive material, manufacturers should 
clearly mark their reported ASP data, if applicable, to indicate that 
the information contained therein is confidential, proprietary, or 
contains trade secrets, for example, as appropriate.
    Comment: One commenter asked that we clarify that the number units 
to be reported are the number of units sold excluding exempted sales.
    Response: The commenter is correct. Effective with the publication 
of the FY 2007 IPPS final rule (August 18, 2006, 71 FR 47870), we 
revised the definition of unit in Sec.  414.802. ``Unit'' means the 
product represented by the 11-digit NDC. During the first 3 years of 
the CAP (as defined in Sec.  414.902), the method of counting units 
excludes units of CAP drugs (as defined in Sec.  414.902) for use under 
the CAP (as defined in Sec.  414.902). The CAP is the Competitive 
Acquisition for Outpatient Part B Drug and Biologicals which began in 
July 2006. Units of drugs sold to an approved CAP vendor for use under 
the CAP are excluded from the ASP calculation. Manufacturers must 
report the number of units sold after adjusting for exempted sales, 
including exempted sales known on a lagged basis.
    Comment: In response to the April 6, 2006 IFC, a commenter stated 
that some manufacturers submit AMP and then restate it in subsequent 
periods to take into account rebates. The commenter requested that we 
provide assurance that they will not be liable for misrepresentation of 
nominal sales, if the manufacturer bases its nominal sales on AMP for 
the reporting quarter and then the manufacturer modifies AMP 
subsequently to take into account rebates.
    Response: Nominal sales for ASP purposes are calculated based on 
the AMP for the reporting quarter. We have not provided guidance on how 
a manufacturer should handle identification of nominal sales if current 
reporting quarter AMP is subsequently restated for Medicaid purposes. 
We did not receive comments on this issue in response to our request in 
the proposed rule regarding the method manufacturers must use to 
identify nominal sales. We believe that maunfacturers may have 
considered this issue in making their comments in support of continued 
use of the AMP as the basis for determining nominal sales excluded from 
the calculation of ASP. We will continue to work with manufacturers to 
determine if further guidance on this issue is warranted. With regard 
to the comment concerning liability, if the Secretary determines that a 
manufacturer has made a misrepresentation in the reporting of its ASP 
for a drug, the Secretary may apply a civil money penalty as specified 
in section 1847A(d)(4) of the Act.
    Comment: One commenter suggests we explore methods of receiving ASP 
data by e-mail. This commenter also

[[Page 69678]]

recommends we include information in the final rule on where and how to 
submit ASP data.
    Response: At this time, we do not permit electronic mail submission 
of ASP data because the confidentiality of the ASP data would not be 
assured. However, we continue to explore opportunities for enhancing 
the efficiency of the ASP submission process. Procedural information on 
how and where to submit ASP data is provided in a Q&A on our Web site. 
We believe it is best to provide information on the logistics of how 
and where to submit the ASP data through our Web site, which can be 
updated more quickly than a regulation.
    Comment: We received comments recommending we provide guidance in 
the final regulation on requirements related to the reporting of WAC 
and urged Addendum A to be revised to include this information.
    Response: In the CY 2006 PFS final rule, we clarified that 
manufacturers must report WAC for all single source drugs (including 
new drugs) each reporting period in addition to reporting ASP. 
Manufacturers must report the WAC in effect on the last day of the 
reporting period. Effective July 2006, we revised the reporting 
template, Addendum A, to include a specific column for reporting WAC. 
Addendum A can be found on our Web site at-- http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/
.

    Comment: We received comments suggesting that we publicize the NDC-
HCPCS crosswalk and have a process for informing manufacturers of where 
changes have occurred, and a process for soliciting and responding to 
input on the crosswalk. Also, they suggest establishing procedures so 
manufacturers can determine whether we are defining package codes 
correctly.
    Response: Every quarter, we publish on the CMS Web site a crosswalk 
of NDCs to HCPCS codes. Included in the crosswalk is information on the 
package size and package quantity that we believe is reflected by each 
NDC. The crosswalk file provides an e-mail address 
sec303aspdata@cms.hhs.gov) to which individuals can send comments. 
Furthermore, as of July 2006, manufacturers are now required to report 
with their ASP submission specific information on the package size of 
each NDC as specified in more detail in the Appendix A data elements 
guide on our Web site.
    Comment: We received comments requesting clarification of how and 
when civil monetary penalties would apply in certain situations where 
ASP was misreported.
    Response: If the Secretary determines that manufacturer has made a 
misrepresentation in the reporting of its ASP for a drug, the Secretary 
may apply a civil money penalty in section 1847A(d)(4) of the Act.
    Comment: One commenter suggested that we consider requiring 
manufacturers to report ASP data monthly.
    Response: Section 1927(b)(3) of the Act sets forth the quarterly 
reporting requirement. We believe changes to the frequency of ASP 
reporting would require a statutory change.
    Comment: One commenter noted that for Medicaid BP determinations 
manufacturers may not exempt prices given to State pharmacy assistance 
programs that we have not identified as a State Pharmaceutical 
Assistance Program excluded from the Medicaid BP and may not exclude 
Medicaid supplemental rebates that are not under an approved 
supplemental rebate agreement. This commenter asked whether the same 
rule applies to excluding exempt sales from the ASP calculation.
    Response: To be excluded from the ASP calculation, the Medicaid 
supplemental rebates must be under an approved supplemental rebate 
agreement authorized by us through a Medicaid State plan, and the State 
pharmacy assistance programs must be identified by us as State 
Pharmaceutical Assistance Program excluded from the Medicaid BP.
    Comment: We received a comment in response to the April 6, 2004 
IFC, asking us to provide more clarification on a methodology that we 
indicated manufacturers should use in situations where a manufacturer 
is unable to associate price concessions with individual 11-digit NDCs. 
The commenter requested information on several technical aspects of the 
formula, including one scenario involving bundled price concessions.
    Response: In the April 6, 2004 IFC with comment, we indicated that 
if a manufacturer is unable to associate price concessions to the 
individual NDC level, the manufacturer should associate those price 
concessions within the group of NDCs for which it can associate the 
price concessions based on the percentage of sales (in dollars) for the 
group of NDCs that is attributable to each individual NDC. This 
guidance was issued in the early stages of ASP implementation, and was 
intended to address situations where manufacturers are unable to 
associate price concessions to the 11-digit NDC level such as when a 
manufacturer reporting maintains data on rebates at the drug level 
rather than at the 11-digit NDC level.
    In response to the commenter's request for clarification on a 
technical aspect of the methodology described above in a situation 
involving bundled price concessions, we are clarifying in this final 
rule with comment that this policy was not intended to be guidance on 
the treatment of bundled price concessions (for example, when price 
concessions on one drug are contingent on the purchase of one or more 
other drugs) in the ASP calculation. As discussed in more detail 
elsewhere in this preamble, we have not provided specific guidance on 
the methodology manufacturers should use for the treatment of bundled 
price concessions in the ASP calculation. In terms of the commenter's 
request for additional clarification on other technical aspects of the 
calculation described above, we believe the level of detail prescribed 
on the technical aspects of the calculation is sufficient, given the 
variation in price concession offerings across manufacturers.
    After consideration of the public comments, we are finalizing 
subpart J (Sec. Sec.  414.800 through 414.806) by--(1) revising Sec.  
414.802 and Sec.  414.804 as specified in this section of the preamble 
to this final rule with comment; and (2) incorporating the provisions 
of Sec.  414.800 and Sec.  414.806 as specified in the April 6, 2004 
IFC without change.
2. Intravenous Immune Globulin (IVIG)
    Comment: We received several comments urging the continuation of 
the 1-year temporary preadministration-related services fee for IVIG 
that we established for 2006. Commenters stated that there continue to 
be concerns with IVIG access and availability and that eliminating the 
fee will have an adverse impact on beneficiary access to care. 
Furthermore, some indicated that we did not provide any rationale in 
the proposed rule for why the fee was no longer needed.
    A number of commenters expressed concerns about the adequacy of 
Medicare's drug and drug administration payment rates for IVIG, and 
made some suggestions for changes to these payment rates that they have 
previously expressed to us. For example, some urged us to take actions 
such as establishing separate HCPCS codes for each IVIG product, 
increasing payment for IVIG administration in physicians' offices, and 
instituting a payment adjustment to the ASP-based payment rates for 
IVIG.
    One commenter provided information from a survey conducted of 800 
patients with primary immune deficiency

[[Page 69679]]

syndrome. The commenter stated that since the beginning of 2005, 
Medicare patients receiving IVIG have been more likely than patients 
with other types of insurance to report a shift in site of care, 
increased intervals between infusions, reduced IVIG dosages, and 
adverse health effects, and they believe that this is the result of 
Medicare reimbursement issues.
    Response: We recognize the importance of IVIG to patients who need 
it and we are concerned about reports of problems with IVIG access and 
availability. Since 2005, we have taken several specific actions that 
are within our statutory authority in response to the IVIG concerns 
that have been raised, including creating separate billing codes for 
lyophilized and non-lyophilized IVIG in April 2005, having discussions 
with manufacturers about their ASP data to confirm that their ASPs have 
been developed in accordance with applicable guidance, and for 2006 
establishing a temporary additional payment for IVIG preadministration-
related services to compensate physicians and hospital OPDs for extra 
resources expended on locating and obtaining appropriate IVIG products 
and on scheduling patients infusions during a period where there may be 
temporary market instability. In addition, we continue to work with 
manufacturers, patient groups, and stakeholders to understand the 
present situation and to assess potential actions that could help 
ensure an adequate supply of IVIG and patients receiving appropriate, 
high quality care.
    Furthermore, there are currently two studies underway in HHS 
concerning IVIG. The HHS Assistant Secretary for Planning and 
Evaluation has commissioned a study to better understand the market for 
IVIG and evaluate the demand, supply, and access to IVIG. The HHS OIG 
is also conducting a study on availability and pricing of IVIG. We 
anticipate that these studies will provide more information on IVIG 
supply, demand, and pricing.
    With several studies on IVIG not yet completed and with comments 
from stakeholders suggesting that some beneficiaries are experiencing 
IVIG access issues such as delayed treatments and site of service 
shifts, we believe it is appropriate to continue the temporary IVIG 
preadministration-related services payment into CY 2007 to help ensure 
continued patient access to IVIG. We will continue to review IVIG 
access during CY 2007 as additional information becomes available, and 
we will discontinue this temporary preadministration-related service 
payment during CY 2007 through rulemaking if we determine it is no 
longer warranted. Consequently, in 2007, we will temporarily allow a 
separate payment for each day of IVIG administration to physicians and 
hospital OPDs that administer IVIG to Medicare beneficiaries. This 
payment is for the extra resources expended on locating and obtaining 
appropriate IVIG products and on scheduling patients' infusions during 
this time when there may continue to be transient disruptions in the 
marketplace. In 2007, the preadministration-related service payment 
will continue to be billed under the same HCPCS code as 2006: G0332, 
preadministration-related services for intravenous infusion of 
immunoglobulin, per infusion encounter (This service is to be billed in 
conjunction with administration of immunoglobulin). This payment will 
on average be about $71 per day of IVIG administration in physicians' 
offices. The payment for preadministration-related services is in 
addition to the separate payments Medicare makes for the IVIG product 
itself and its administration.
    We note that for 2007 we reviewed and revised the resource based 
relative value units crosswalk for G0332. We continue to believe the 
administrative resources associated with IVIG preadministration-related 
services are similar to the clinical staff resources associated with 
ESRD management services, where both types of services are typically 
conducted over the course of a month, without requiring face-to-face 
visits with clinical staff for this ongoing preparation for treatment 
of these patients. Considering the expected staff resources required to 
prepare for IVIG infusions for patients who require them, we believe 
those resources are greater than the lowest level ESRD-related service 
described by HCPCS code G0319, End stage renal disease (ESRD) related 
services during the course of treatment, for patients 20 years of age 
and over; with one face-to-face physician visit per month, but we do 
not believe they are as great as those required by the mid-level ESRD-
related code G0318, End stage renal disease (ESRD) related services 
during the course of treatment, for patients 20 years of age and over; 
with 2 or 3 face-to-face physician visits per month. Therefore, for 
2007, we have crosswalked G0332 to a 50 percent blend of the 2007 
transitional PE RVUs for G0318 and G0319. As we did for 2006, we have 
not allocated physician work RVUs to G0332 since we do not believe 
there is physician work associated with G0332.
    We believe that continuation of this temporary separate payment 
provided through G0332 in CY 2007 for the physician office and hospital 
outpatient resources associated with additional IVIG preadministration-
related services will help facilitate beneficiary access to care in 
this current period where there may be continuing market fluctuations 
for IVIG products. At the same time, we will continue to work with the 
IVIG community, manufacturers, providers, and other stakeholders, and 
will be monitoring IVIG market developments and access to care closely.
    Commenters made several suggestions for changes to Medicare IVIG-
related payments. Regarding comments requesting the establishment of 
brand-specific HCPCS codes for IVIG products, while HCPCS coding is 
outside the scope of this rulemaking, we note that HCPCS coding 
procedures do not provide for brand-specific coding. For further 
discussion of HCPCS coding procedures, see http://www.cms.hhs.gov/medicare/hcpcs/codpayproc.asp
.

    Commenters also expressed concern regarding Medicare ASP+6 percent 
payment rates for IVIG, suggesting we make an adjustment to the payment 
rate. Section 1847(o)(1)(E) of the Act specifies that the payment 
amount for IVIG furnished in physicians' offices and the home will be 
the amount provided under section 1847A of the Act. With limited 
exceptions not applicable here, section 1847A of the Act specifies that 
the payment amount is 106 percent of a drug's ASP. We do not have the 
discretion to adjust the payment rate upward by adjusting the 
percentage that is added on to the ASP to arrive at the payment rate. 
While some commenters suggested we use inherent reasonableness 
authority to increase the IVIG payment rate, we do not believe that we 
have the data to support a determination concerning inherent 
reasonableness. Finally, we received several comments requesting that 
we classify IVIG therapy as a biological response modifier. We note 
that the term ``biological response modifier'' is used in the text 
preceding CY 2006 CPT codes, and as such, we refer commenters to the 
AMA CPT Editorial Panel, as they are the creators and maintainers of 
CPT codes and CPT code instructions.
3. Clotting Factor Furnishing Fee
    Section 303(e)(1) of the MMA added section 1842(o)(5) of the Act 
which requires the Secretary, beginning in CY 2005, to pay a furnishing 
fee, in an amount the Secretary determines to be appropriate, to 
hemophilia treatment

[[Page 69680]]

centers and homecare companies for the items and services associated 
with the furnishing of blood clotting factor. Section 1842(o)(5)(C) of 
the Act specifies that the furnishing fee for clotting factor for years 
after CY 2006 and subsequent years will be equal to the fee for the 
previous year increased by the percentage increase in the consumer 
price index (CPI) for medical care for the 12-month period ending with 
June of the previous year.
    The 2006 furnishing fee for clotting factor is $0.146. The percent 
increase in the CPI for medical care for the 12-month period ending 
with June 2006 is 4.1 percent. Consequently, the furnishing fee will be 
$0.152 per unit clotting factor for CY 2007. While the furnishing fee 
payment rate is calculated at 3 digits, the actual amount paid to 
providers and suppliers is rounded to 2 digits.
4. Widely Available Market Prices (WAMP) and Average Manufacturer Price 
(AMP) Threshold
    Section 1847A(d)(1) of the Act states that ``the Inspector General 
of HHS shall conduct studies, which may include surveys to determine 
the widely available market prices (WAMP) of drugs and biologicals to 
which this section applies, as the Inspector General, in consultation 
with the Secretary, determines to be appropriate.'' Section 1847A(d)(2) 
of the Act states that, ``based upon such studies and other data for 
drugs and biologicals, the Inspector General shall compare the ASP 
under this section for drugs and biologicals with--
     The WAMP for these drugs and biologicals (if any); and
     The AMP (as determined under section 1927(k)(1) of the 
Act) for such drugs and biologicals.''
    Section 1847A(d)(3)(A) of the Act states that, ``the Secretary may 
disregard the ASP for a drug or biological that exceeds the WAMP or the 
AMP for such drug or biological by the applicable threshold percentage 
(as defined in paragraph 1847A(d)(3)(B)).'' The applicable threshold is 
specified as 5 percent for CY 2005. For CY 2006 and subsequent years, 
section 1847A(d)(3)(B) of the Act establishes that the applicable 
threshold is the percentage applied thereafter, subject to such 
adjustment as the Secretary may specify for the WAMP or the AMP, or 
both. In CY 2006, we specified an applicable threshold percentage of 5 
percent for both the WAMP and AMP. We based this decision on the 
limited data available to support a change in the current threshold 
percentage.
    For CY 2007, we proposed to specify an applicable threshold 
percentage of 5 percent for the WAMP and the AMP. At present, the OIG 
is continuing its comparison of both the WAMP and the AMP. Currently, 
we do not have data that suggests that another level is more 
appropriate. Therefore, we believe that continuing the 5 percent 
applicable threshold percentage for both the WAMP and AMP is 
appropriate.
    We received numerous comments regarding our decision to maintain 
the WAMP and AMP threshold at 5 percent, as well as our request for 
comments regarding operational issues surrounding implementation of the 
5 percent threshold.
    Comment: Several comments supported our decision to continue using 
5 percent as the threshold and commended us for requesting comments on 
the important operational issues associated with price comparisons. 
Other commenters acknowledged that that there are many operational 
issues involved with implementation of the 5 percent threshold and 
advised us to proceed cautiously before adjusting payment amounts. 
These commenters stated that the AMP and the ASP use different 
methodologies when accounting for price concessions and such 
differences could result in varied ASP and AMP values. They also 
indicated that we have never issued a final rule describing how the AMP 
is calculated. The commenters indicated that such differences must be 
accounted for prior to substituting the WAMP or the AMP for the ASP. 
Commenters also encouraged us to provide stakeholders with an 
opportunity to comment through rulemaking prior to proceeding with the 
substitutions of payment allowances. Commenters were particularly 
interested in the methodology utilized by the OIG in conducting its 
surveys.
    Response: We understand that there are complicated operational 
issues associated with potential payment rate substitutions. Therefore 
we will proceed cautiously and provide stakeholders, particularly 
manufacturers of drugs impacted by potential price substitutions, with 
adequate notice of our intentions regarding such, including the 
opportunity to provide input with regard to the processes for 
substituting the WAMP or the AMP for the ASP. As required by statute, 
we are finalizing our proposal to establish the WAMP and AMP threshold 
at 5 percent for CY 2007.
5. Payment for Drugs Furnished During CY 2006 and Subsequent Years in 
Connection With the Furnishing of Renal Dialysis Services if Separately 
Billed by Renal Dialysis Facilities
    In the CY 2006 PFS final rule (70 FR 70116), we stated that payment 
for a drug furnished during CY 2006 in connection with renal dialysis 
services and separately billed by freestanding renal dialysis 
facilities and hospital-based facilities would be based on section 
1847A of the Act. For CY 2007, we clarified that the policy would 
extend for CY 2006 and subsequent years until otherwise specified. We 
received comments regarding our policy clarification of the policy, as 
well as our intention to extend the policy beyond CY 2006 until 
otherwise specified.
    Comment: Several commenters supported our decision to clarify that 
the payment policy for separately-billed ESRD drugs applied to CY 2006 
and subsequent years until otherwise specified. These commenters viewed 
the current payment policy as the best option available under the 
statute, citing consistency with the methodology used to pay for other 
Part B drugs. Commenters indicated that the current methodology was 
more accurate and easier to administer than attempting to update a 
prior year's acquisition cost data. Other commenters, while applauding 
our decision to clarify the policy, explicitly encouraged us to be more 
direct and expressly state that the payment for drugs furnished in 
connection with renal dialysis services and separately billed by 
freestanding renal dialysis facilities and hospital-based facilities 
will be based on ASP+6 percent. They indicated that stating that 
payment would be based on ASP+6 percent rather than stating that 
payment will be based on section 1847A of the Act would avoid 
confusion, provide clarity for the provider community, and ensure 
consistency with current regulatory language.
    Response: We appreciate the commenters who acknowledge that the 
current payment methodology is the most appropriate option available. 
We also thank the commenters who noted the discrepancy between the 
preamble language and regulatory text. We acknowledge that we 
inadvertently made reference to ASP+6 percent in our regulatory text 
instead of referring to section 1847A of the Act. In accordance with 
section 1881(b)(13)(A)(iii), payment for drugs furnished in 2006 and 
subsequent years will be based on the acquisition costs or the amount 
determined under section 1847A of the Act, as the Secretary may 
specify. The

[[Page 69681]]

amount determined under section 1847A of the Act, except in limited 
circumstances, is ASP+6 percent. Therefore, we are revising the 
regulatory text to state that payment for a drug furnished during CY 
2006 and subsequent years, until otherwise specified, in connection 
with renal dialysis services and separately billed by freestanding 
renal dialysis facilities and hospital-based facilities is based on 
section 1847A of the Act.
    Comment: MedPAC expressed concern that there is no recent evidence 
that ASP+6 percent reflects the variation in the acquisition of costs 
of physicians and dialysis providers and thus, the current payment rate 
should not be set indefinitely. They also recommended that in the 
future we periodically collect acquisition cost data from providers to 
gauge the appropriate percentage of ASP for the payment amount, 
acknowledging that an analysis of this data could lead to a different 
percentage amount for the payment rate.
    Response: We acknowledge MedPAC's recommendations. We will continue 
to monitor the payment methodology in relation to the acquisition costs 
of physician and dialysis providers for future analysis.
6. Other Issues
    Comment: We have received several comments requesting the creation 
or revision of billing codes for certain drug products.
    Response: Requests for the creation of new or revised billing codes 
for drug products is outside the scope of this rulemaking. There is a 
separate, well-established, process for the public to make requests for 
new or revised billing codes for drug products through the HCPCS panel. 
More information on the HCPCS coding process can be obtained at the 
following Web site: http://www.cms.hhs.gov/MedHCPCSGenInfo/.

    Comment: We received a few comments recommending that Medicare 
increase the pharmacy supplying fee it pays for immunosuppressive, oral 
anti-cancer, and oral-antiemetic drugs for 2007. We also received a 
comment suggesting that we have a process in place to increase the 
supplying fee over time so that it remains adequate. In addition, we 
received a comment asking that we make clear in the final rule that we 
will continue to reimburse the supplying fee in 2007 at the 2006 rates.
    Response: We pay a supplying fee for Medicare Part B drugs and 
biologicals eligible for a supplying fee are immunosuppressive drugs 
described in section 1861(s)(2)(J) of the Act, oral anticancer 
chemotherapeutic drugs described in section 1861(s)(2)(Q) of the Act, 
and oral anti-emetic drugs used as part of an anticancer 
chemotherapeutic regimen described in section 1861(s)(2)(T) of the Act. 
For 2006, we pay a supplying fee of $24 per prescription for the first 
prescription in a 30-day period, and $16 per prescription for all 
subsequent prescriptions in a 30-day period. Medicare also pays a 
special supplying fee rate of $50 for the first immunosuppressive 
prescription after a Medicare covered transplant. Since we did not 
propose a change to these rates for 2007, they will continue to be in 
effect in 2007.
    Comment: We received a comment asking that we clarify how infusion 
drugs administered through DME will be paid in 2007, in light of the 
competitive bidding program that is authorized to be phased-in 
beginning in 2007.
    Response: Beginning in 2004, infusion drugs furnished through an 
item of DME covered under section 1861(n) of the Act are paid at 95 
percent of the AWP in effect as of October 1, 2003. These payment rates 
continue until such time as the Secretary establishes a competitive 
acquisition program for these drugs in specific competitive acquisition 
areas, in which case the payment rates in the competitive acquisition 
areas will be determined under the CAP. Beginning in 2007, the 
Secretary has the authority, under section 1847 of the Act, to phase-in 
implementation of the competitive acquisition program, which will be 
the subject of separate rulemaking.

G. Revisions Related to Payment for Renal Dialysis Services Furnished 
by End Stage Renal Disease (ESRD) Facilities

    In the CY 2007 PFS proposed rule (71 FR 48982), we outlined the 
proposed updates to the case-mix adjusted composite rate payment system 
established under section 1881(b)(12) of the Act, added by section 623 
of the MMA. These included updates to the drug add-on component of the 
composite rate system, as well as the wage index values used to adjust 
the labor component of the composite payment rate.
    Specifically, we proposed the following provisions which are 
described in more detail below in this section.
     A method to annually calculate the growth update to the 
drug add-on adjustment required by section 1881(b)(12) of the Act, as 
well as an estimated growth update adjustment to the add-on amount for 
CY 2007.
     An update to the wage index adjustments to reflect the 
latest hospital wage data, including a BN adjustment to the wage index 
for CY 2007.
    We received a total of 10 comments from the ESRD community that 
represented major organizations and concerned individuals. The comments 
and responses are summarized in the following sections.
    Comment: Several comments focused on the need to specify that 
payment for separately billable ESRD drugs in CY 2007 will continue at 
ASP +6 percent. The comments cross referenced a section in the CY 2007 
PFS proposed rule (71 FR 49004) that discussed proposals for 
establishing the ASP rate for WAMPs and AMP. This proposal preceded the 
section outlining the proposed payment changes for ESRD facilities, and 
thus led to some confusion regarding the use of the ASP-based payment 
methodology for separately billable ESRD drug payments in CY 2007.
    Response: As noted in section II.E.5., entitled, ``Payment for 
Drugs Furnished during CY 2006 and Subsequent Years in Connection with 
the Furnishing of Renal Dialysis Services if Separately Billed by Renal 
Dialysis Facilities,'' we proposed no policy changes to the approach 
that we currently use to pay for separately billed ESRD drugs. 
Therefore, for CY 2007, payment for separately billable drugs furnished 
by ESRD facilities will continue at ASP+6 percent in accordance with 
section 1847A of the Act.
    Comment: We received a comment recommending that we implement the 
MedPAC's recommendation that the composite rate be equalized between 
hospital-based and independent dialysis facilities. The commenter 
stated that, notwithstanding the language under 1881(b)(7) of the Act, 
we had the statutory authority to administratively revise the current 
hospital-based/independent facility rate structure to provide the same 
rate to both facility types.
    Response: While section 1881(b)(7) of the Act provided some 
discretion in establishing the initial composite payment rates, it did 
specify the need to differentiate between hospital-based and other 
renal dialysis facilities. Therefore, based on our analysis of cost 
differences, we established separate composite rates for hospital-based 
facilities and independent facilities. Section 1881(b)(12) of the Act, 
added by section 623(d) of MMA, established a new basic case-mix 
adjusted payment system. The statute instructed us to use, as one of 
the elements of the new system, the services comprising the

[[Page 69682]]

composite rate established under section 1881(b)(7) of the Act. We 
believe that the statute requires that we carry forward the composite 
rate structure established in accordance with section 1881(b)(7) of the 
Act prior to enactment of MMA. The statute directed us to substitute, 
in place of a payment system based solely on the composite rate 
established under section 1881(b)(7) of the Act, a payment system 
comprised of the original composite rate, incorporating the services 
included under that composite rate, plus a drug add-on component. 
Moreover, the 1.6 percent update established under section 623(a) of 
MMA clearly contemplated that the update would be applied to ``such 
composite rate payment amounts * * *'' in effect in the prior year. 
Therefore, in accordance with section 1881(b)(12) of the Act, we will 
continue to maintain the separate composite rates for hospital-based 
and freestanding facilities that were established under section 
1881(b)(7) of the Act.
1. Growth Update to the Drug Add-On Adjustment to the Composite Rates
    Section 623(d) of the MMA added section 1881(b)(12)(B)(ii) of the 
Act which required the establishment of an add-on to the composite rate 
to account for changes in the drug payment methodology stemming from 
enactment of the MMA. Section 1881(b)(12)(C) of the Act provides that 
the drug add-on must reflect the difference in aggregate payments 
between the revised drug payment methodology for separately billable 
ESRD drugs (acquisition costs in CY 2005; ASP+6 percent in CY 2006) and 
the AWP payment methodology in effect in CY 2004.
    In addition, section 1881(b)(12)(F) of the Act requires that, 
beginning in CY 2006, we establish an annual update to the drug add-on 
to reflect the estimated growth in expenditures for separately billable 
drugs and biologicals furnished by ESRD facilities. This growth update 
applies only to the drug add-on portion of the case-mix adjusted 
payment system.
    The CY 2006 drug add-on adjustment to the composite rate is 14.5 
percent. The drug add-on adjustment for CY 2006 incorporates an 
inflation adjustment of 1.4 percent. This computation is explained in 
detail in the CY 2006 PFS final rule with comment period (70 FR 70162). 
We note that the drug add-on adjustment of 14.7 percent that was 
published in the CY 2006 PFS final rule with comment period did not 
account for the 1.6 percent update to the composite rate portion of the 
basic case-mix adjusted payment system that was subsequently enacted by 
the DRA, effective January 1, 2006. Since we compute the drug add-on 
adjustment as a percentage of the weighted average base composite rate, 
the drug add-on percentage was decreased to account for the higher 
composite payment rate resulting in a 14.5 percent add-on adjustment 
for CY 2006. This adjustment was necessary to ensure that the total 
drug add-on dollars remained constant.
a. Estimating Growth in Expenditures for Drugs and Biologicals for CY 
2007
    In developing the growth update to the drug add-on for CY 2006, we 
conducted a trend analysis of prior years' ESRD drug expenditure data 
(2001 through 2004). All 4 years of data used for the trend analysis 
reflected expenditures associated with payment for separately billed 
drugs and biologicals under the AWP methodology. Therefore, we could 
develop growth estimates for CY 2006 using comparable historical 
expenditure data. To extend the trend analysis for CY 2007, we would 
need to include drug expenditure data from CY 2005. However, in CY 
2005, section 1881(b)(13)(A)(ii) of the Act required that we use a 
different drug payment methodology, based on average acquisition costs, 
rather than the AWP methodology used in prior years. Therefore, ESRD 
drug expenditure data for CY 2005 are not comparable to expenditure 
data for CY 2001 through CY 2004 for trend analysis purposes. This data 
issue will extend to subsequent years' data as well since we are now 
paying for separately billable drugs using ASP+6 percent. Because we do 
not have comparable data on which to base continuing trend analysis, we 
decided to re-evaluate our methodology for updating the drug add-on 
adjustment.
    Section 1881(b)(12)(F) of the Act specifies that the drug update 
must reflect ``the estimated growth in expenditures for drugs and 
biologicals that are separately billable * * *'' By referring to 
``expenditures'', we believe the statute contemplates that the update 
would account for both increases in drug prices, as well as increases 
in utilization of those drugs.
    In order to meet this requirement, we proposed an update 
methodology that uses the producer price index (PPI) for prescription 
drugs as a proxy measure of drug pricing growth, in conjunction with an 
estimate of per patient growth in drug utilization. We proposed to 
estimate growth in per patient utilization of drugs by using historical 
data from 2004 and 2005.
    In addition, we indicated that we would reconsider our methodology 
for updating the drug add-on component of the payment system when we 
have sufficient historical data reflecting the revised drug payment 
methodology using ASP pricing.
    Comment: Commenters were generally favorable toward using a 
standard index to update the drug add-on adjustment, but were concerned 
about the calculation of the utilization factor. They suggested that we 
use our National Health Expenditures (NHE) projection that uses only 
the Medicare Part B component of the projection to estimate 
prescription drug expenditures.
    Response: We do not believe that the Part B drug projections 
included in the NHE projections would be the best proxy for the growth 
in ESRD drug expenditures. The NHE projections are based on the 
economic, demographic and Medicare spending projections contained in 
the Medicare Trustees Report, as opposed to an independent forecast of 
economic assumptions, such as the Global Insights projections of the 
PPI for prescription drugs that are used in our Medicare market basket 
forecasts to update many of our payment systems. The NHE projection 
modeling approach is at an aggregate level. It does not capture the 
nuances of both labor and economic markets as accurately as does the 
specific PPI forecast from Global Insights, Inc. We believe that using 
the PPI is a more accurate predictor of ESRD drug pricing growth. In 
addition, we believe that estimating utilization from reported ESRD 
claims data, as discussed below in this section, is superior to using 
NHE's Part B projections.
b. Estimating Growth in Per Patient Drug Utilization
    To isolate and project the growth in per patient utilization of 
ESRD drugs for CY 2007, we needed to remove the enrollment and price 
growth components from the latest historical drug expenditure data and 
consider the residual utilization growth. We proposed to use total drug 
expenditure data from CYs 2004 and 2005 to estimate per patient 
utilization growth for CY 2007.
    We first estimated total drug expenditures. For the CY 2007 PFS 
proposed rule (71 FR 49007), we used the final CY 2004 ESRD facility 
claims data and the latest available CY 2005 ESRD facility claims data, 
updated through December 31, 2005. That is, for CY 2005 we used claims 
that were received, processed, paid, and passed to the National Claims 
History File as of December 31, 2005. For this final rule with comment 
period, we are using

[[Page 69683]]

more updated CY 2005 claims with dates of service for the same time 
period. This updated CY 2005 data file includes claims that were 
received, processed, paid, and passed to the National Claims History 
File as of June 30, 2006.
    For the proposed rule, we adjusted the December 2005 file to 
reflect our estimate of what the total drug expenditures would be using 
the final June 30, 2006 bill file for CY 2005. The net adjustment we 
applied to the CY 2005 claims data was an increase of 13 percent to the 
December 2005 expenditure data. For this final rule, we are using the 
CY 2005 claims file as of June 30, 2006, which represents the final 
claims file for that year. Next, we removed the enrollment and price 
growth components from total estimated drug expenditures for CYs 2004 
and 2005.
    To calculate the per patient utilization growth, we removed the 
enrollment component by using the growth in enrollment data between 
2004 and 2005. This was approximately 3 percent. To remove the price 
effect, we used a two-step process. For the proposed rule, we first 
calculated a weighted average between erythopoeitin (EPO) and non-EPO 
price growth factors to account for the growth in pre-MMA pricing 
between 2004 and 2005. Since EPO was priced at $10 per thousand units 
prior to the implementation of the MMA, there was no growth for EPO 
between 2004 and 2005. For the non-EPO drugs, we used the PPI as a 
proxy for the growth between the 2 years to maintain consistency with 
the established methodology for calculating the drug add-on adjustment 
for CY 2005 which used the PPI to estimate the price growth in 
separately billable drugs (69 FR 66321). For the proposed rule, we next 
incorporated the estimated negative 13 percent weighted price 
difference between 2005 AWP and 2005 AAP pricing as was published in 
the CY 2005 PFS final rule with comment period (69 FR 66319 through 
66334). This two-step process accounts for the price effect from 2004 
to 2005, that is, an overall 12 percent reduction in price between 2004 
and 2005.
    For the proposed rule, following the removal of the enrollment and 
price effects from the expenditure data, we expected the residual 
growth to reflect the per patient utilization growth. To remove the 
enrollment and price effects, we divided the product of the enrollment 
growth of 3 percent (1.03) and the price reduction of 12 percent (1.00 
- 0.12 = 0.88) into the total drug expenditure decrease between 2004 
and 2005 of 9 percent (1.00 - 0.09 = 0.91). The result was a proposed 
utilization factor equal to 1.00 ((0.91/1.03)/0.88) = 1.0).
    We observed no growth in per patient utilization of drugs between 
2004 and 2005. Therefore, we projected no growth in per patient 
utilization for CY 2007.
    Comment: On commenter suggested that we should use the drug 
expenditure weights we developed in computing the drug add-on 
adjustment related to ASP pricing for 2006, rather than the weights 
developed by the OIG with respect to acquisition costs for 2005. This 
would have resulted in an overall price reduction of 13.2 percent 
rather than the overall reduction of 12 percent we used in our 
calculation.
    Response: We believe it would be more appropriate to use the 
published OIG weights as they represent the weights that were used to 
develop the 2005 drug add-on adjustment. If we were to use updated 
weights, it would be more appropriate to use actual 2005 weights. 
Preliminary analysis suggests that if we were to develop weights based 
on the most recent 2005 expenditure data, the resulting price reduction 
factor would be well under 13.2 percent. However, as discussed above in 
this section, we believe the price reduction calculation should be 
consistent with the calculation used to develop the 2005 drug add-on 
adjustment. Therefore, for this final rule with comment we are using 
the same 12 percent price reduction factor calculated in the proposed 
rule.
    Comment: One commenter indicated that their analysis resulted in a 
slightly different value for the reduction in total drug expenditures 
than we calculated between 2004 and 2005. Rather than the 9 percent 
reduction we calculated for the proposed rule, this commenter computed 
a 9.198 percent reduction using the 2004 5 percent sample file compared 
to the 2005 ESRD file.
    Response: Although the 2004 5 percent file may have contained a 
significant number of ESRD claims, our analysis uses 100 percent of the 
2004 ESRD facility claims. As such, we believe the results calculated 
by the commenter are consistent with our results, but that slight 
differences would be expected when an incomplete file is used. For the 
final rule, using the latest, complete ESRD claims file for CY 2005 
(June 30, 2006), we computed a 9.5 percent reduction in total ESRD 
facility drug expenditures between CY 2004 and CY 2005.
    Comment: We received one comment that the source of the 3 percent 
enrollment growth we projected for CY 2007 was unclear, and did not 
match the Part B enrollment growth included in the 2006 Trustees 
Report.
    Response: The 3 percent enrollment growth projection represents the 
estimated growth factor specific to dialysis patients between CY 2004 
and CY 2005.
    Comment: One comment expressed concern that we were basing payment 
policy on the assumption that the new EPO monitoring policy would 
decrease utilization of drugs.
    Response: The determination of the CY 2007 update was not based on 
an assumption that the new EPO monitoring policy would decrease 
utilization. The discussion of the EPO monitoring policy was only 
intended to illustrate the need to use the latest data available to 
determine utilization, especially since new policies such as the EPO 
monitoring could affect utilization growth in the future. The potential 
effect of the monitoring policy was not incorporated into the 
computation of the CY 2007 adjustment factor.
i. Applying the Growth Update to the Drug Add-On Adjustment
    For CY 2006, we estimated the growth update by trending drug 
expenditures forward based on four years of AWP payment data (CY 2001 
through CY 2004). We then applied the estimated growth update 
percentage to the total amount of drug add-on dollars established for 
CY 2005 to come up with a dollar amount for the CY 2006 growth update. 
In addition, we projected the growth in dialysis treatments for CY 2006 
based on the projected growth in ESRD enrollment. We divided the 
projected total dialysis treatments for CY 2006 into the projected 
dollar amount of the CY 2006 growth to develop the per treatment growth 
update amount. This growth update amount, combined with the CY 2005 per 
treatment drug add-on amount, resulted in an average drug add-on amount 
per treatment of $18.88 (or a 14.5 percent adjustment to the composite 
rate) for CY 2006.
    Beginning in CY 2007, we proposed to annually update the per 
treatment drug add-on amount of $18.88 established in CY 2006 and 
convert the update to an adjustment factor as stipulated in section 
1881(b)(12)(F) of the Act. By proposing to apply the update to the CY 
2006 per treatment add-on amount, the need to estimate growth in 
dialysis treatments is eliminated for CY 2007 and future years.
    We received no comments on this proposed change and are therefore 
adopting this provision in this final rule.

[[Page 69684]]

ii. Update to the Drug Add-On Adjustment
    In the proposed rule, we estimated no growth in per patient 
utilization of ESRD drugs for CY 2007. Using the projected growth of 
the CY 2007 PPI for prescription drugs of 4.9 percent, we projected 
that the combined growth in per patient utilization and pricing for CY 
2007 would result in an update equal to the PPI growth or 4.9 percent 
(1.0 x 1.049 = 1.049). This proposed update factor was applied to the 
CY 2006 average per treatment drug add-on amount of $18.88 (reflecting 
a 14.5 percent adjustment in CY 2006), resulting in a proposed weighted 
average increase to the composite rate of $0.93 for CY 2007 or a 0.6 
percent increase in the CY 2006 drug add-on percentage. Thus, the total 
proposed drug add-on adjustment to the composite rate for CY 2007, 
including the growth update, was 15.2 percent (1.145 x 1.006 = 1.152).
    In addition, we proposed to continue to use this method to estimate 
the growth update to the drug add-on component of the case-mix adjusted 
payment system until we have at least 3 years worth of ASP-based 
historical drug expenditure data that could be used to conduct a trend 
analysis to estimate the growth in drug expenditures. Given the time 
lag in the availability of ASP drug expenditure data, we expect that 
the earliest we could consider using trend analysis to update the drug 
add-on adjustment would be 2010. We proposed to reevaluate our 
methodology for estimating the growth update at that time.
    Comment: We received comments requesting clarification concerning 
the PPI projections we use in calculating the growth update to the drug 
add-on adjustment.
    Response: We use the PPI for prescription drugs developed by Global 
Insight for the fourth quarter of 2007, which represents a four quarter 
average percent change projection between 2006 and 2007. For the final 
rule we are using the latest projection for 2007 which is 4.03 percent.
    Comment: A number of comments recommended that a mechanism be 
established to provide for forecasting error adjustment of prior 
estimates. This adjustment would be applied only for the years covered 
by the proposed interim methodology for updating the drug add-on 
adjustment. The comments suggest that once stable expenditure data is 
available to use historical trend analysis for updating the drug add-on 
adjustment, the forecast error adjustment would no longer be necessary.
    Response: We have not accepted this recommendation. While we 
appreciate the concern related to accuracy of an update based on proxy 
measures for price and the proposed utilization computations, the very 
nature of estimating future expenditures under a prospective payment 
system requires that those estimates are based on the best historical 
data available. As such, we believe we have met our obligation under 
the statue in estimating the growth in ESRD drug expenditures for CY 
2007. Moreover forecast error adjustments are rarely made in any of 
CMS' prospective payment systems.
    We also note that even after ASP expenditure data become available 
for purposes of using trend analysis to estimate future expenditures, 
those estimates may not be the same as actual expenditures. That could 
also be the case for the 2006 update currently in effect. While the 
commenters are not suggesting that we revisit the 2006 update, we 
believe that once we set the policy of adjusting any year's estimated 
update, we would need to do so for all years, not just those covered by 
the proposed interim update methodology.
    Comment: One commenter wanted an update on the steps we were taking 
to obtain drug utilization data from hospital-based ESRD facilities for 
purposes of refining the drug add-on adjustment related to those 
providers. In last year's final rule we indicated that we would pursue 
options for obtaining that data (70 FR 70163).
    Response: We have determined that a separate data collection of 
historical drug dosing data for hospital based facilities would be both 
burdensome and costly. Therefore, we decided not to pursue that avenue 
for estimating the drug add-on amount related to those facilities. 
However, once we have 2006 ASP data, we will evaluate the difference in 
payments to hospital-based ESRD facilities under cost reimbursement 
compared to ASP-based payments to determine if our drug add-on estimate 
was reasonable.
iii. Final Growth Update to the Drug Add-On Adjustment for 2007
    Similar to the proposed rule, we estimated no growth in per patient 
utilization of ESRD drugs for CY 2007. We removed the enrollment and 
price effects from the expenditure data to determine the per patient 
utilization growth. To do this, we divided the product of the 
enrollment growth of 3 percent (1.03) and the price reduction of 12 
percent (1.00-0.12 = 0.88) into the total drug expenditure decrease 
between 2004 and 2005 of 9.5 percent (1.0-0.095 = 0.0905). The result 
is a utilization factor equal to 1.0 ((0.905/1.03)/0.88) = 1.0).
    Using the projected growth of the CY 2007 PPI for prescription 
drugs of 4.03 percent, we projected that the combined growth in per 
patient utilization and pricing for CY 2007 would result in an update 
equal to the PPI growth or 4.03 percent (1.0 x 1.0403 = 1.0403). This 
update factor was applied to the CY 2006 average per treatment drug 
add-on amount of $18.88 (reflecting a 14.5 percent adjustment in CY 
2006), resulting in a weighted average increase to the composite rate 
of $0.76 for CY 2007 or a 0.5 percent increase in the CY 2006 drug add-
on percentage. Thus, the total drug add-on adjustment to the composite 
rate for CY 2007, including the growth update, is 15.1 percent (1.145 x 
1.005 = 1.151).
c. OIG Report on New Drug Codes
    Section 623(c)(1) of the MMA mandated that the OIG conduct two 
studies to determine the difference between the Medicare payment amount 
for separately billable ESRD drugs and the facilities' acquisition 
costs for these drugs, as well as estimating the growth rate of 
expenditures for these drugs. The initial study, ``Medicare 
Reimbursement for Existing End Stage Renal Disease Drugs'' (OEI-03-04-
00120), was completed in May 2004, and reported on existing ESRD drugs. 
This report was used to set the CY 2005 payment rates for ESRD drugs 
billed by independent dialysis facilities (69 FR 66322). The second 
study (``Medicare Reimbursement for New ESRD Drugs'' (OEI-03-06-00200)) 
focused on new drugs. New drugs for the purpose of this study were 
defined as an ESRD drug that did not have a billing code prior to 
January 1, 2004.
    One drug, darbepoetin alfa (Aranesp) accounted for the majority of 
all payments for new drugs. Therefore, this was the only new ESRD drug 
studied. The OIG report found that use of this drug was limited to a 
small number of facilities (only 157 facilities reported using this 
drug with concentrated use in approximately 55 of these facilities). 
Because of the recent changes we made to the drug payment methodology 
and the lack of comparable historical data, the OIG report made no 
estimate of an expenditure growth rate for this drug.
    Darbepoetin alfa (Aranesp) is currently paid as a separately 
billable drug at ASP+6 percent. Because of the recent (CY 2006) 
implementation of the ASP+6 percent drug payment methodology, the small 
number of facilities using this drug for ESRD

[[Page 69685]]

patients, and the lack of historical data for trending purposes, we 
have no data to indicate that any difference in payment methods for 
Aranesp (between CY 2004 and CY 2006) would affect our calculation of 
the drug add-on or of the growth update. Moreover, since Aranesp was 
approved in 2001 for use in ESRD patients, we believe that expenditures 
for Aranesp were reflected in the historical data used to establish the 
CY 2005 drug add-on under a generic drug code. Therefore, we proposed 
to make no additional changes to the drug add-on adjustment for CY 
2007. We received no comments on this issue.
2. Update to the Geographic Adjustments to the Composite Rates
    Section 1881(b)(12)(D) of the Act, added by section 623(d) of the 
MMA, gave the Secretary the authority to revise the wage indexes 
previously applied to the ESRD composite rates. The wage indexes are 
calculated for each urban and rural area. The purpose of the wage index 
is to adjust the composite rates for differing wage levels covering the 
areas in which ESRD facilities are located.
a. Updates to the CBSA Definitions
    In the CY 2007 proposed rule (71 FR 49008), we published revised 
CBSA-based geographic areas which reflected all of the changes 
announced by OMB in Bulletins 05-02 and 06-01 issued February 22, 2005 
and December 5, 2005, respectively. Those bulletins changed the titles 
of several of the MSAs and Metropolitan Divisions used in connection 
with the urban wage index.
b. Updated Wage Index Values
    In the CY 2006 PFS final rule with comment period, we stated that 
we intended to update the wage index values annually (70 FR 70167). 
Current ESRD wage index values for CY 2006 were developed from FY 2002 
wage and employment data obtained from the Medicare hospital cost 
reports. The values are calculated without regard to geographic 
reclassifications authorized under sections 1886(d)(8) and (d)(10) of 
the Act and utilize pre-floor hospital data that is unadjusted for 
occupational mix.
    The methodology for calculating the CY 2006 wage index values was 
described in the CY 2006 PFS final rule with comment period (70 FR 
70168). We proposed to use the same methodology for CY 2007, with the 
exception that FY 2003 hospital data will be used to develop the CY 
2007 ESRD wage index values. For a detailed description of the 
development of the CY 2007 ESRD wage index values based on FY 2003 
hospital data see the FY 2007 IPPS final rule entitled, ``Changes to 
the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2007 
Rates,'' (71 FR 48016). Section F of the preamble to that final rule 
describes the cost report schedules, line items, data elements, 
adjustments, and wage index computations. The wage index data affecting 
ESRD composite rates for each urban and rural locale may also be 
accessed on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp.
 The wage data are located in the 

section entitled, ``FY 2007 Final Rule Occupational Mix Adjusted and 
Unadjusted Average Hourly Wage and Pre-Reclassified Wage Index by 
CBSA''.
    Comment: One commenter criticized our use of hospital wage and 
employment data to develop the ESRD wage index. The commenter 
maintained that the use of hospital data presumed that wage levels in 
hospitals and freestanding ESRD facilities are similar, a conclusion 
which has not been substantiated. The commenter urged us to locate an 
alternative data source that reflects information directly tied to ESRD 
facilities.
    Response: Although the mix of occupations in hospitals is broader 
and more diverse, ESRD facilities compete with hospitals for labor. 
While the use of wage and employment data from freestanding ESRD 
facility cost reports would result in the development of a wage index 
which reflected ESRD wage levels among independent facilities, the 
administrative burden posed by the need for the Medicare fiscal 
intermediaries to engage in a separate data collection to compile, 
edit, and validate ESRD wage and employment data would be considerable. 
Given the similarity of the labor market for professional, technical, 
and nursing staff between hospitals and ESRD facilities, we believe our 
use of hospital wage and employment data obtained from the Medicare 
cost reports to develop the ESRD wage index is appropriate.
(i) Wage Index Values for Areas With No Hospital Data
    In CY 2006, while adopting the CBSA designations, we identified a 
small number of ESRD facilities in both urban and rural geographic 
areas where there is no hospital wage data on which to base the 
calculations of the CY 2006 ESRD wage index values.
    The first situation was rural Massachusetts. Because there were no 
reasonable proxies for rural data within Massachusetts, we used the 
prior year's acute care hospital wage index value for rural 
Massachusetts. For CY 2007, we proposed to continue to use this value 
and requested public input on an alternative methodology.
    Since there may be additional rural areas in the future similarly 
impacted by a lack of hospital wage data on which to derive a hospital 
wage index, we stated that we were considering alternative 
methodologies for imputing a rural wage index for areas in States where 
no hospital wage data are available. We also described an alternative 
methodology whereby we would impute a rural wage index value by using a 
simple average CBSA-based rural wage index value at the Census Division 
level. For CY 2007, hospital wage data are not available to compute a 
rural wage index for ESRD facilities in rural Massachusetts, and this 
proposed alternative methodology could be applied in this case. 
Massachusetts is located in Census Division I (New England).
    Under this proposed alternative methodology, the States in Census 
Division I for which rural wage index values are available would be 
used; this would result in a simple average proposed rural wage index 
value of 1.0227 (1.0770 after applying BNF).
    Rural Puerto Rico is similar to rural Massachusetts in that there 
are ESRD facilities where there are no acute care hospitals and, 
therefore, no hospital data. However, the situation for facilities in 
rural Puerto Rico is different in that the floor would be applied to 
rural Puerto Rico ESRD facilities. All areas in Puerto Rico that have 
an index are eligible for the floor because they have wage-index values 
that are less than 0.8000. For CY 2007, we proposed to apply the floor 
to rural Puerto Rico.
    The third situation involves an urban area in Hinesville, GA (CBSA 
25980). For CY 2006, we used a wage index value based on the average of 
the wage index values in all of the other urban areas within the same 
State to serve as a reasonable proxy for the urban areas without 
hospital wage index data. Specifically, we used the average wage index 
value for all urban areas within the State of Georgia as the urban wage 
index for purposes of calculating the value for Hinesville for CY 2006. 
For CY 2007, we proposed to continue using this method for Hinesville, 
GA (CBSA 25980).
    We solicited comments on maintaining our current policy for 
establishing wage index values for rural and urban areas without 
hospitals or adopting an alternative approach. We also indicated that 
we would continue to evaluate existing hospital wage data and, 
possibly, wage data from other

[[Page 69686]]

sources, such as the Bureau of Labor Statistics, to determine if other 
methodologies of imputing a wage index value where hospital wage data 
are not available may be feasible.
    We received no comments on maintaining our current policy for 
establishing wage index values for rural and urban areas without 
hospitals, or an alternative approach for developing wage index values 
for rural areas without hospitals for CY 2007 and subsequent years. 
Therefore, for CY 2007, we will maintain our current policies for 
establishing wage index values for rural and urban areas:
     For rural Massachusetts, we will continue to use the prior 
year's acute care hospital wage index value for rural Massachusetts.
     For rural Puerto Rico, we will apply the CY 2007 ESRD wage 
index floor.
     For Hinesville, GA (CBSA 25980), we will use the average 
wage index value for all urban areas within the State of Georgia as the 
urban wage index for purposes of calculating the value for Hinesville 
for CY 2007.
(ii) Second Year of the Transition
    For each transition year, the share of the blended wage-adjusted 
base payment rate that is derived from the MSA-based and CBSA-based 
wage index values is shown in Table 10. In the CY 2007 PFS proposed 
rule, we proposed no changes to the transition. CY 2007 is the second 
year of the 4-year transition period. Consistent with the transition 
blends, we are implementing a 50/50 blend between an ESRD facility's 
MSA-based composite rate, and its CY 2007 CBSA-based rate reflecting 
its revised wage index values.
    For CY 2007, we are reducing the wage index floor to 0.80. As we 
stated in the CY 2006 PFS final rule with comment period, we intend to 
reassess the continuing need for a wage index floor in CY 2008 and CY 
2009 (70 FR 70169 through 70170). The wage index floors, caps, and 
blended shares of the composite rates applicable to all ESRD facilities 
during CYs 2007 through 2009 are shown in Table 10. They are identical 
to the values shown in Table 20 of the CY 2006 PFS final rule with 
comment period (70 FR 70170) for the applicable years.

                                     Table 10.--Wage Index Transition Blend
----------------------------------------------------------------------------------------------------------------
                                                                                          Old MSA      New CBSA
             CY payment                        Floor                   Ceiling           (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
2007................................  0.80*..................  None...................           50           50
2008................................  Reassess...............  None...................           25           75
2009................................  Reassess...............  None...................            0         100
----------------------------------------------------------------------------------------------------------------
*Each wage index floor is multiplied by a BN adjustment factor. For CY 2007 the BN adjustment is 1.052818
  resulting in an actual wage index floor of 0.8423.

    The following is an example of how the wage-adjusted composite 
rates would be blended during CY 2007 and the 2 subsequent transition 
years.
    Example: An ESRD facility has a wage-adjusted composite rate 
(without regard to any case-mix adjustments) of $135.00 per treatment 
in CY 2006. Using CBSA-based geographic area designations, the 
facility's CY 2007 wage-adjusted composite rate, reflecting its wage 
index value as shown in Addendum H, would be $145.00. During the 
remaining 3 years of the 4-year transition period to the new CBSA-based 
wage index values, this facility's blended rate through CY 2009 would 
be calculated as follows:

CY 2007 = (0.50 $135.00) + (0.50 x $145.00) = $140.00
CY 2008 = (0.25 x $135.00) + (0.75 x $145.00) = $142.50
CY 2009 = (0.00 x $135.00) + (1.00 x $145.00) = $145.00
    We note that this hypothetical example assumes that the calculated 
wage-adjusted composite rate of $145.00 for CY 2007 does not change in 
CYs 2008 and 2009. In actuality, the wage-adjusted composite rate would 
change because of annual revisions to the wage index. However, the 
example serves only to demonstrate the effect on the composite rate of 
the CBSA-based wage index values which will be phased-in during the 
remaining 3 years of the transition period.
    Comment: One commenter representing a number of dialysis facilities 
in Puerto Rico disagreed with our proposal to reduce the wage index 
floor to 0.80, pointing out that wage index values have not been 
realistically updated in quite some time. The commenter was concerned 
with further reductions in composite payments and recommended that the 
reduction in the wage index floor for CY 2007 be suspended. Another 
commenter also recommended that the impact of any further planned 
proposed reductions in the wage index floor be thoroughly considered 
before implementation because of potential impact on the ability of 
dialysis facilities to recruit and retain qualified personnel.
    Response: We believe that the ESRD wage index should not be 
artificially constrained by the application of floors and ceilings. We 
eliminated the cap of 1.30 because of the effect it had on restricting 
payments in high wage areas. While we would like to eliminate the floor 
as well, we recognized that its immediate elimination could 
substantially reduce composite payments in locales where prevailing 
labor costs are lower. Accordingly, in CY 2006 we implemented a 
reduction in the wage index floor to 0.85, and proposed a further 
reduction to 0.80 in CY 2007. We plan to reassess the continuing 
application of the wage index floor in connection with the CY 2008 and 
CY 2009 updates to the composite payment rates.
    The actual wage index values for urban locales in Puerto Rico, 
without application of any floor and prior to the application of the CY 
2007 the BN adjustment, are shown in Table 11.

      Table 11.--Wage Index Values for Urban Locales in Puerto Rico
------------------------------------------------------------------------
         CBSA code                    Urban area            Wage index
------------------------------------------------------------------------
10380......................  Aguadilla-Isabela-San                0.3922
                              Sebastian.
21940......................  Fajardo....................          0.4044
25020......................  Guayama....................          0.3241
32420......................  Mayaguez...................          0.3857
38660......................  Ponce......................          0.4851

[[Page 69687]]


41900......................  San German-Cabo Rojo.......          0.4893
41980......................  San Juan-Caguas-Guaynabo...          0.4397
49500......................  Yauco......................          0.3861
------------------------------------------------------------------------

    The proposed CY 2007 wage index floor of 0.80 is substantially 
higher than each of the above wage index values. After application of 
the BN adjustment to the wage index floor of 0.80, each area in Puerto 
Rico has a wage index of 0.8423 reflected in its composite rate. 
Therefore, we believe that the CY 2007 wage index floor of 0.80 
compared to actual wage levels will not adversely affect access to care 
for dialysis patients in Puerto Rico.
    With respect to the commenter's concern that the wage index values 
have not been updated in quite some time, we point out that the CY 2007 
wage index values were developed from the latest available FY 2003 
hospital wage and employment data obtained from the Medicare cost 
reports. While we will not suspend application of the proposed 0.80 
wage index floor in CY 2007, we intend to carefully assess the 
potential impact of any further proposed reductions in the wage index 
floor for CY 2008 and following years.
c. Budget Neutrality (BN) Adjustment
    Section 1881 (b)(12)(E)(i) of the Act, as added by section 623(d) 
of the MMA, requires that any revisions to the ESRD composite rate 
payment system as a result of the MMA provision (including the 
geographic adjustment) be made in a budget neutral manner. This means 
that aggregate payments to ESRD facilities in CY 2007 should be the 
same as aggregate payments that would have been made if we had not made 
any changes to the geographic adjusters. We note that the BN adjustment 
discussed in this final rule only addresses the impact of changes in 
the geographic adjustments. A separate BN adjustment was developed for 
the case-mix adjustments, currently in effect. Since we did not propose 
any changes to the case-mix measures for CY 2007, the current case-mix 
BN will remain in effect for CY 2007. For CY 2007, we again proposed to 
apply a BNF directly to the ESRD wage index values, as we did in CY 
2006. As we explained in the CY 2006 PFS final rule with comment period 
(70 FR 70170 through 70171), we believe this is the simplest approach 
because it allows us to maintain our base composite rates during the 
transition from the current wage adjustments to the revised wage 
adjustments described earlier in this section. Because the ESRD wage 
index is only applied to the labor-related portion of the composite 
rate, we computed the proposed BNF adjustment based on that proportion 
(53.711 percent).
    To compute the proposed CY 2007 wage index BNF, we used the 
proposed wage index values, 2005 outpatient claims (paid and processed 
as of December 31, 2005), and geographic location information for each 
facility.
    Using treatment counts from the 2005 claims and facility-specific 
CY 2006 composite rates, we computed the estimated total dollar amount 
each ESRD provider would have received in CY 2006 (the first year of 
the 4-year transition). The total of these payments became the target 
amount of expenditures for all ESRD facilities for CY 2007. Next, we 
computed the estimated dollar amount that would have been paid to the 
same ESRD facilities using the ESRD wage index for CY 2007 (the second 
year of the 4-year transition). The total of these payments became the 
second year new amount of wage-adjusted composite rate expenditures for 
all ESRD facilities.
    After comparing these dollar amounts (target amount divided by 
second year new amount), we calculated an adjustment factor that, when 
multiplied by the applicable CY 2007 ESRD wage index, would result in 
aggregate payments within the target amount of composite rate 
expenditures. The proposed BN adjustment factor for the CY 2007 wage 
index was 1.053069.
    To ensure BN we also must apply the BNF to the wage index floor of 
0.8000 which resulted in a proposed adjusted wage index floor of 0.8425 
for CY 2007.
    Comment: We received comments asking that we clarify the 
calculation of the wage index BNF so that commenters could understand 
that the BNF is being calculated correctly. One commenter asked that we 
provide both the data and the methodology so that they could assess the 
accuracy of our computations.
    Response: During the comment period on the CY 2007 PFS proposed 
rule, we made available an ESRD Composite Payment System File. This 
file contained select claim level data from the 2005 ESRD facility 
outpatient claims, updated through December 31, 2005. For more 
information on this file, see the following link: http://www.cms.hhs.gov/IdentifiableDataFiles/05.asp#TopOfPage
.

    After the publication of this final rule with comment period, we 
intend to make available the updated version of the CY 2005 outpatient 
claims (paid and processed as of June 30, 2006) that were used to 
compute the BNF.
    To compute the final CY 2007 ESRD wage index BNF, we used FY 2003 
pre-floor, pre-reclassified, non-occupational mix-adjusted hospital 
wage data to compute the wage index values, 2005 outpatient claims 
(paid and processed as of June 30, 2006), and geographic location 
information for each ESRD facility which may be found through Dialysis 
Facility Compare. The FY 2003 hospital wage index data for each urban 
and rural locale by CBSA may also be accessed on the CMS Web site at: 
http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The wage index 

data are located in the section entitled, ``FY 2007 Final Rule 
Occupational Mix Adjusted and Unadjusted Average Hourly Wage and Pre-
Reclassified Wage Indexes by CBSA''.
    Dialysis Facility Compare can be found by going to the following 
CMS Web site: http://www.cms.hhs.gov/DialysisFacilityCompare/.

    Using treatment counts from the latest 2005 claims file and 
facility-specific CY 2006 composite rates, we computed the estimated 
total dollar amount each ESRD provider would have received in CY 2006 
(the first year of the 4-year transition). The total of these payments 
became the target amount of expenditures for all ESRD facilities for CY 
2007. Next, we computed the estimated dollar amount that would have 
been paid to the same ESRD facilities using the ESRD wage index for CY 
2007 (the second year of the 4-year transition). The total of these 
payments became the second year new amount of wage-adjusted composite 
rate expenditures for all ESRD facilities.
    After comparing these dollar amounts (target amount divided by 
second year new amount), we calculated an adjustment factor that, when 
multiplied by the applicable FY 2007 wage index value, will result in 
aggregate payments to ESRD facilities that will remain

[[Page 69688]]

within the target amount of composite rate expenditures. When making 
this calculation, the ESRD wage index floor value of 0.8000 is used 
whenever appropriate.
    The final BN adjustment factor for the CY 2007 wage index is 
1.052818.
    To ensure BN we also must apply the BNF to all index values, 
including the wage index floor of 0.8000, which results in an adjusted 
wage index floor of 0.8423 for CY 2007.
d. ESRD Wage Index Tables
    Addenda F and G show the CY 2007 ESRD wage index, including the BNF 
adjustment, for urban areas (Addendum F) and rural areas (Addendum G).

H. Private Contracts and Opt-Out Provision--Practitioner Definition

    Section 4507 of the BBA amended section 1802 of the Act to permit 
certain physicians and practitioners to opt-out of Medicare if certain 
conditions were met, and to provide through private contracts services 
that would otherwise be covered by Medicare. Before enactment of the 
BIPA (Pub. L. 106-554), section 1802(b)(5)(C) of the Act, which refers 
to the definition of ``practitioner'' at section 1842(b)(18)(C) of the 
Act, did not include registered dietitians or nutrition professionals 
among the practitioners who may choose to opt-out of Medicare. Section 
105(d) of the BIPA amended the definition of practitioner located at 
section 1842(b)(18)(c) of the Act to include registered dietitians or 
nutrition professionals. Because section 1802(b)(5)(C) of the Act 
references section 1842(b)(18)(c) of the Act in order to define the 
term practitioner for purposes of opting out of Medicare, current law 
permits registered dietitians or nutrition professionals to opt-out of 
Medicare. Because the definition of practitioner located at Sec.  
405.400 does not include registered dietitians or nutrition 
professionals, we proposed to amend that section so that it is 
consistent with section 1802(b)(5)(C) of the Act.
    Commenters were very supportive of our proposals. Therefore, we are 
finalizing the changes to Sec.  405.400 as proposed.

I. Changes to Reassignment and Physician Self-Referral Rules Relating 
to Diagnostic Tests

    In the CY 2007 PFS proposed rule, we stated that recent changes to 
our rules on reassignment of the right to receive Medicare payment may 
have led to some confusion as to whether the anti-markup and purchased 
interpretation requirements apply to certain situations where a 
reassignment has occurred under a contractual arrangement. We also 
stated that we were concerned about the existence of certain 
arrangements that are not within the intended purpose of our physician 
self-referral rules, which allow physician group practices to bill for 
services furnished by a contractor physician in a ``centralized 
building'' as defined at Sec.  411.351. We are concerned that allowing 
physician group practices or other suppliers to purchase or otherwise 
contract for the provision of diagnostic tests and then to realize a 
profit when billing Medicare may lead to patient and program abuse in 
the form of over utilization of services and result in higher costs to 
the Medicare program.
    We proposed to amend our reassignment regulations to clarify how 
the purchased test and purchased interpretation rules apply in the case 
of a reassignment made under the contractual arrangement exception set 
forth at Sec.  424.80(d)(2). In addition, we proposed to change the 
definition of ``centralized building'' at Sec.  411.351 of the 
physician self-referral regulations to place certain restrictions on 
what types of space ownership or leasing arrangements will qualify for 
purposes of the physician self-referral in-office ancillary services 
exception and physician services exception. We received numerous 
comments on our proposals. Instead of issuing final regulations at this 
time, we are studying the issues further and plan to issue final 
regulations in the near future. We remain committed to addressing 
revenue-driven arrangements that may be facilitating over utilization 
of diagnostic services, but do not wish to unduly impact legitimate 
group practice arrangements that enable Medicare beneficiaries to have 
the convenience of receiving medical services at one location.

J. Supplier Access to Claims Billed on Reassignment

    Section 1842(b)(6) of the Act generally provides that Medicare may 
pay Part B benefits only to the physician or other supplier who 
performed the service, or to the beneficiary. This provision, known as 
the prohibition on reassignment, contains several exceptions. Section 
952 of the MMA amended section 1842(b)(6)(A)(ii) of the Act to allow a 
physician or other person who was in a contractual arrangement rather 
than in an employee-employer relationship to reassign his or her right 
to bill and receive payment, irrespective of whether the services were 
performed on the premises of the entity. In implementing section 952 of 
the MMA, we amended Sec.  424.80(d) to provide that a supplier, who 
reassigns his or her right to bill Medicare to an entity with which he 
or she is employed as an independent contractor, has the right to 
access the entity's billing information concerning the services the 
supplier is alleged to have performed and for which the entity billed 
Medicare. We extended such a right in order to give added assurance 
that the services for which such an entity billed Medicare were in fact 
performed and were performed as billed. In the CY 2007 PFS proposed 
rule, we stated that we believe that employees, in addition to 
independent contractors, should have access to records on billings for 
services furnished by them (71 FR 49057 through 49058). We proposed 
changing the title of Sec.  424.80(d) and amending Sec.  424.80(d)(2) 
of our regulations to state that the individual supplier who reassigns 
his or her right to bill and receive Medicare payment to an entity has 
unrestricted access to claims information submitted by that entity for 
services furnished by the individual supplier, irrespective of whether 
the supplier is an employee or an independent contractor of the entity 
receiving payment. Under our proposal, if an entity receiving the 
reassigned benefits were to refuse to provide the billing information 
to the employee supplier requesting the information, the entity's right 
to receive reassigned benefits could be revoked under Sec.  
424.82(c)(3) (which is currently the case with respect to an entity's 
refusal to provide billing information to an independent contractor 
supplier).
    We are adopting the proposal without modification.
    Comment: Two commenters who support the proposal stated they are 
unsure how having unrestricted access to submitted claims data will 
correspond to improved program integrity. They believe that a more 
practical approach to ensure Medicare program integrity would be to 
incorporate physician involvement in compliance programs that are 
structured to address risk areas particular to their operations. These 
commenters are also concerned that providing unrestricted access to 
submitted claims data is not a clear requirement for a billing entity 
to meet.
    Response: We believe that by allowing a physician or other supplier 
access to billing information concerning services allegedly performed 
by that physician or other supplier, we gain more assurance that 
entities that are billing on reassignment are billing for services 
actually performed and are otherwise billing accurately for such 
services.

[[Page 69689]]

With respect to the commenters' suggestion that physician involvement 
in compliance programs offers a more practical approach to ensure 
Medicare program integrity, we believe that physicians should be 
engaged already in compliance programs, and that such involvement 
should include the physician regularly requesting access to billing 
records for services that he or she allegedly performed and that are 
being billed to Medicare, through a reassignment, by the entity that 
employs the physician as an independent contractor or employee. We 
disagree that our proposal would pose an unclear requirement for 
entities to meet. An entity that bills Medicare for services that were 
allegedly performed by a physician or other supplier in the entity's 
employ may not unreasonably refuse to provide access (or unreasonably 
delay in providing access) to the physician or other supplier with 
respect to the relevant billing information. We do not believe it is 
practical or necessary to attempt to define by regulation just how soon 
after a request an entity has to provide access, or whether, in a given 
case, an entity would be justified in refusing to provide access if the 
physician or supplier has already gained access to the records. Rather, 
we believe that entities should be guided by common sense and when in 
doubt may wish to err on the side of providing access, because an 
entity that unreasonably refuses to provide billing information or does 
not provide it in a timely manner may have its right to receive 
reassigned benefits revoked under Sec.  424.82(c)(3).
    Comment: We received one comment opposing the proposal. According 
to this commenter, in section 952 of the MMA, the Congress authorized 
us to make changes to the reassignment rules with respect to contractor 
arrangements only. The Congress evidenced no intent to change the 
reassignment rules with respect to employees, and nor is there any 
evidence of which the commenter is aware that right of access by 
employee suppliers is a current program integrity issue. The commenter 
also believes that access to billing information is a matter that 
should be left to the terms of a provider's employment contract.
    Response: For the reasons stated in the CY 2007 PFS proposed rule 
(71 FR 49057), we believe we are permitted, but not required, to make 
payment under the reassignment provisions. Moreover, we are under a 
statutory command, through section 1833(e) of the Act, to not make 
payment unless we are satisfied that payment is correct. Our rulemaking 
authority for our proposal is not based on section 952 of the MMA, but 
rather on our general rulemaking authority found at sections 1102(a) 
and 1871(a) of the Act. We also believe for the reasons stated in the 
proposed rule that the same program integrity concerns with respect to 
contractor access to billing records also apply to employee access to 
billing records. And, we reiterate that we are aware of allegations of 
employee suppliers being denied access to their billing records. 
Moreover, we do not believe it is sufficient to leave it to physicians 
and other suppliers to negotiate access to billing records as a 
condition of their employment, as the parties may have unequal 
bargaining power.
    Comment: A commenter stated that if the supplier has claims 
liability, he or she should have access to the billing records, but 
that if the supplier does not have claims liability he or she should 
not have access to the billing records.
    Response: Irrespective of whether the supplier has claims 
liability, we have an interest in knowing whether we are paying 
correctly for services that were furnished or furnished as billed. 
Therefore, we wish to provide a right of access to billing information 
to all suppliers who are furnishing services and reassigning payment to 
their employers, and we encourage them to avail themselves of this 
right in order to ensure that we are paying properly.

K. Coverage of Bone Mass Measurement

    In an IFC entitled ``Medicare Coverage of and Payment for Bone Mass 
Measurements'' published in the Federal Register on June 24, 1998 (63 
FR 34320), we implemented section 4106 of the BBA by establishing a new 
section, Sec.  410.31, Bone Mass Measurement: Conditions for Coverage 
and Frequency Standards. Section 4106 of the BBA statutorily defined 
BMM and individuals that are qualified to receive a BMM. The June 24, 
1998 IFC, under the ``reasonable and necessary'' provisions of section 
1862(a)(1)(A) of the Act, also established conditions for coverage of 
the tests that must be ordered by physicians or NPPs. Lastly, as 
directed by section 4106 of the BBA, we established frequency standards 
governing the time period when qualified individuals would be eligible 
to receive covered BMMs.
1. Provisions of the June 24, 1998 IFC
    The June 24, 1998 IFC implemented section 4106 of the BBA by 
establishing conditions for coverage and frequency standards for BMMs 
to ensure that they are paid for uniformly throughout the Medicare 
program and that they are reasonable and necessary for Medicare 
beneficiaries who are eligible to receive these measurements. This 
section summarizes the provisions discussed in the June 24, 1998 IFC.
a. Coverage Conditions and Frequency Standards
    We established conditions for coverage and frequency standards for 
medically necessary BMMs for five categories of Medicare beneficiaries 
in Sec.  410.31.
    In Sec.  410.31(a), we defined ``bone mass measurement'' based on 
the statutory definition in section 4106 of the BBA. In accordance with 
the ``reasonable and necessary'' provisions of section 1862(a)(1)(A) of 
the Act, we established the conditions for coverage of BMMs in Sec.  
410.31(b) of the regulations. Consistent with Sec.  410.32 (Diagnostic 
x-ray tests, diagnostic laboratory tests, and diagnostic tests: 
Conditions), we provided that coverage be available for the BMM only if 
it is ordered by the physician or a qualified NPP (as defined in Sec.  
410.32(a)) treating the beneficiary following an evaluation of the 
beneficiary's need for the test, including a determination as to the 
medically appropriate procedure to be used for the beneficiary. We 
believed that BMMs were not demonstrably reasonable and necessary 
unless (among other things) they are ordered by the physician treating 
the beneficiary following a careful evaluation of the beneficiary's 
medical need, and they are employed to manage the beneficiary's care.
    To ensure that the BMM is performed as accurately and consistently 
in accordance with appropriate quality assurance guidelines as 
possible, we required that it be performed under the appropriate 
supervision of a physician as defined in Sec.  410.32(b)(3). To ensure 
that the BMM is medically appropriate for the five categories specified 
in the law, we provided that it be reasonable and necessary for 
diagnosing, treating, or monitoring the condition of the beneficiary 
who meets the coverage requirements specified in Sec.  410.31(d).
    Furthermore, in Sec.  410.31(c), we set forth limitations on the 
frequency for covering a BMM. Generally, we cover a BMM for a 
beneficiary if at least 23 months have passed since the month the last 
BMM was performed. However, we allow for coverage of follow-up BMMs 
performed more frequently than once every 23 months when medically 
necessary. We listed the following examples of situations where more 
frequent BMMs procedures may be medically necessary to include:
     Monitoring beneficiaries on long-term glucocorticoid 
(steroid) therapy of more than 3 months.

[[Page 69690]]

     Allowing for a confirmatory baseline BMM (either central 
or peripheral) to permit monitoring of beneficiaries in the future if 
the initial test was performed with a technique that is different from 
the proposed monitoring method.
b. Beneficiaries Who May Be Covered
    In Sec.  410.31(d), we amended our regulations to conform to the 
statutory requirement that the following categories of beneficiaries 
may receive Medicare coverage for a medically necessary BMM:
     A woman who has been determined by the physician or a 
qualified NPP treating her to be estrogen-deficient and at clinical 
risk for osteoporosis, based on her medical history and other findings.
     An individual with vertebral abnormalities as demonstrated 
by an x-ray to be indicative of osteoporosis, osteopenia, or vertebral 
fracture.
     An individual receiving (or expecting to receive) 
glucocorticoid (steroid) therapy equivalent to 7.5 mg of prednisone, or 
greater, per day, for more than 3 months.
     An individual with primary hyperparathyroidism.
     An individual being monitored to assess the response to or 
efficacy of an FDA-approved osteoporosis drug therapy.
c. Waiver of Liability
    Section 410.31(e) provides that Medicare payment would be denied 
for a BMM in accordance with section 1862(a)(1)(A) of the Act if the 
regulatory standards are not satisfied. Existing regulations concerning 
limitation on liability are set forth in Sec.  411.400 through Sec.  
411.406 and are applicable to denial of BMMs under Sec.  410.31.
d. Payments for BMMs
    Medicare payments for covered BMMs are paid for under the PFS (42 
CFR part 414) as required by statute. In the June 24, 1998 IFC, we 
revised the definition of ``physician services'' in Sec.  414.2 to 
include bone mass measurements. When BMM procedures are furnished to 
hospital inpatients and outpatients, the TCs of these procedures are 
payable under existing payment methods for hospital services. These 
methods include payments under the prospective payment system, on a 
reasonable cost basis, or under a special provision for determining 
payment rates for hospital outpatient radiology services.
    In the June 24, 1998 IFC, we revised Sec.  414.50(a), regarding 
physician billing for purchased diagnostic tests, to clarify that the 
section does not apply to payment for BMMs.
e. Conforming Changes
    In the June 24, 1998 IFC, to allow for appropriate placement in the 
CFR of the BMM coverage requirements, we redesignated Sec.  410.31 
(Prescription drugs used in immunosuppressive therapy) as Sec.  410.30.
2. Additional Scientific Evidence
    In 2004, the Surgeon General issued a report, Bone Health and 
Osteoporosis (U.S. Department of Health and Human Services, Bone Health 
and Osteoporosis: A Report of the Surgeon General. Rockville, MD: U.S. 
Department of Health and Human Services, Office of the Surgeon General, 
2004). This report provides scientific evidence related to the 
prevention, assessment, diagnosis, and treatment of bone disease. The 
report states that identification of those at risk of bone disease and 
fracture is important so that appropriate interventions can be 
implemented. However, as the report states, ``Assessing the risk of 
bone disease and fracture remains a challenge. Not all of the risk 
factors have been identified, and the relative importance of those that 
are known remains unclear.''
    As bone strength is not measured directly, bone mineral density 
(BMD) remains the single best predictor of fracture risk, with the most 
widely accepted method for measuring BMD being the dual energy x-ray 
absorptiometry (DXA) for a bone density study at the axial skeleton 
(for example, hips and spine). As there are many sources of variability 
in the measurement of BMD, a quality control system related to both the 
methodology and reporting of test results is important to ensure the 
validity of DXA analysis.
    In addition to DXA of the axial skeleton, bone mass can also be 
measured using other techniques. These other techniques include DXA 
bone density study for the appendicular skeleton (for example, radius, 
wrist, heel); quantitative computerized tomography (QCT), BMD study for 
the axial skeleton or appendicular skeleton; radiographic 
absorptiometry (photodensitometry, radiogrammetry); single-photon 
absorptiometry (SPA); single energy x-ray absorptiometry (SXA) for the 
appendicular skeleton; and ultrasound BMD study for the appendicular 
skeleton. For these techniques (except for SPA which was not 
discussed), the 2004 Surgeon General report states, ``While these 
methods do assess bone density and may provide an indication of 
fracture risk, it is important to note that the WHO [World Health 
Organization] recommendations and other guidelines for using BMD and 
interpreting BMD results for diagnosis are based on DXA measurements of 
the hip or spine.'' The report further states, ``Incorporating these 
techniques for bone assessment into future clinical trials and 
observational studies will help in better understanding their 
appropriate use as a means of predicting the risk of bone disease and 
fracture.''
3. Changes to the June 24, 1998 IFC
    We received 18 public comments on the June 24, 1998 IFC. The 
majority of the comments had specific recommendations for changes to 
the IFC. Based on the comments received on the IFC, the Surgeon 
General's report, and other evidence, we proposed changes to Sec.  
410.31. We solicited comments on these proposals.
4. Analysis of and Response to Comments on the June 24, 1998 IFC and 
the CY 2007 PFS Proposed Rule
    In this final rule, we are responding to the public comments that 
we received on our proposed revisions to Sec.  410.31. In addition, as 
we stated in CY 2007 proposed rule, we are responding to the public 
comments received on the June 24, 1998 IFC. We received approximately 
35 timely public comments on our proposed revisions to the regulations 
regarding coverage for bone mass measurements (Sec.  410.31). Most 
commenters supported the proposed coverage revisions and noted their 
specific concerns and provided suggested revisions to several of the 
coverage provisions. However, most of the commenters expressed 
significant concerns regarding proposed payment reductions for these 
tests that would result from initiatives described in other sections of 
the proposed rule relative to PE and other payment calculations. 
Comments and our responses regarding the proposed payment reductions 
are detailed in section II.A.4. of the preamble to this final rule. The 
following is a summary of our proposals and the comments received and 
our responses on the coverage for bone mass measurement:
a. ``BMM'' Definition (Sec.  410.31(a))
    At Sec.  410.31(a)(2), we proposed to revise the definition of 
``bone mass measurement'' to remove coverage for the use of SPA, which 
uses isotope sources to measure BMD. Many medical experts indicate that 
SPA has largely been replaced by the newer techniques of DXA, which are 
believed to be superior in accuracy and precision. Medicare claims data 
in recent years

[[Page 69691]]

continue to show a steady decline in the use of the SPA procedure by 
the beneficiary population. Further, there is a lack of evidence to 
support continued use of SPA, an older procedure where the metrics have 
not been correlated with fracture rate.
    We proposed to revise the definition of a ``bone mass measurement'' 
to read, ``Is performed with either a bone densitometer (other than a 
single-photon or dual-photon absorptiometry) or with a bone sonometer 
system that has been cleared for marketing for this use by the FDA 
under 21 CFR part 807, or approved for marketing by the FDA for this 
use under 21 CFR part 814.''
    Comment: We requested comments on our proposal to noncover SPA, 
including any evidence of benefit for this technique, particularly in 
comparison with other alternatives. Most of the commenters supported 
the position that SPA has largely been replaced by the newer, more 
accurate, and precise techniques such as SEXA and DXA, and we should 
not continue to cover them. However, a commenter from the June 24, 1998 
IFC suggested that while use of SPA devices (at the wrist) is declining 
as newer and faster equipment is becoming available, we should continue 
to cover their use indefinitely based on the view that their accuracy 
and precision are close to that of x-ray based techniques at the wrist 
and heel and that their radiation exposure is low.
    Response: We agree with the more recent comments concerning SPA and 
note that we proposed to noncover SPA tests beginning in CY 2007. In 
response to the June 24, 1998 IFC comment regarding continuing coverage 
indefinitely, we note that Medicare claims data in recent years 
continue to show a steady decline in the use of the SPA procedure by 
the beneficiary population as the more accurate and precise procedures 
have become much more widely available. We agree that there is a lack 
of evidence to support continued use of the older SPA procedure where 
the metrics have not been correlated with fracture risk. Therefore, we 
are revising the definition of ``bone mass measurement'' in Sec.  
410.31(a) to remove coverage for the use of SPA. As a result, the 
status indicator for CPT code 78350 will change from active (A) to 
noncovered (N) effective January 1, 2007.
    Comment: A June 24, 1998 IFC commenter expressed the view that 
available research and their experience had demonstrated that the use 
of peripheral DXA at the heel is superior to any other BMD test taken 
at any other peripheral site. The commenter believes that the heel DXA 
is a superior approach for the initial osteoporosis screening because 
of its--(1) strong correlation to fracture probability; (2) the 
reactive nature of the heel to bone mass changes; (3) patient 
preference for a less threatening exam; (4) the elimination of 
radiation exposure to the abdomen that results from a central bone mass 
measurement; and (5) the ability of the peripheral heel DXA to deliver 
a service at a lower cost than most other BMM technologies.
    Response: Based on our review of the available medical literature, 
we have determined that there is insufficient evidence to conclude that 
peripheral DXA at the heel is a superior method of BMD measurement when 
compared to other peripheral sites. Thus, we are not making any changes 
to our proposal based on this comment.
    Comment: A commenter expressed concern about our statement in the 
June 24, 1998 IFC indicating that QCT can measure bone density at the 
spine and hip. The commenter indicated that only central (axial) DXA 
can measure BMD at the spine or hip and QCT is limited to the spine or 
the wrist. The commenter also stated that spine QCT exposes the patient 
to a significantly higher dose of radiation and that the technique is 
significantly less precise than central DXA or peripheral DXA or 
ultrasound. The commenter recommended that we drop coverage of this 
technique once there is sufficient geographic overlap between QCT and 
the alternative techniques, which are believed to be less costly, 
safer, and a more precise means of measuring bone mass than the QCT 
technique.
    Response: On the basis of our review of the existing medical 
literature, we have determined that QCT can provide both central (spine 
and hip) and peripheral BMD measurements but does expose the patient to 
significantly higher doses of radiation. Though the appropriate use of 
QCT has yet to be defined, it may be used as an alternative to spine 
and hip DXA measurements as a method for measuring BMD (Surgeon 
General's Report, 2004). Therefore, we are not making any changes to 
our proposal as a result of this comment.
    Comment: Another commenter from the June 24, 1998 IFC stated that 
there is insufficient evidence to support the clinical utility of BMD 
measurements of an individual's finger, tibia, or patella, which are 
performed by the use of either a peripheral x-ray or an ultrasound 
device, and suggested that measurement of those peripheral sites not be 
covered under Medicare.
    Response: Measurement of peripheral bone density for screening and 
initial diagnosis can be accomplished by various techniques, though the 
appropriate use of these technologies in the prediction of bone disease 
and the risk of fracture has yet to be clearly defined. Therefore, we 
are not revising our proposal based on this comment.
b. Conditions for Coverage (Sec.  410.31(b))
    In Sec.  410.31(b), we proposed to revise the conditions for 
coverage for BMMs by requiring that for a medically necessary BMM to be 
covered for an individual being monitored to assess the response to or 
efficacy of an FDA-approved osteoporosis drug therapy (Sec.  
410.31(d)(5)) the individual would be required to meet the present 
conditions for coverage under Sec.  410.31(b), and the monitoring would 
have to be performed by the use of an DXA system (axial system).
    We recognized that in the June 24, 1998 IFC, we allowed the 
physician or qualified NPP treating the beneficiary more flexibility in 
ordering those diagnostic measurements, but we proposed to limit that 
flexibility for the type of BMM that is used for monitoring individuals 
receiving osteoporosis drug therapy and other purposes (as discussed 
later in this section) because of new evidence and other information 
received since publication of the June 24, 1998 IFC that supports the 
need for requiring the use of the DXA measurement (axial skeleton) in 
those circumstances. In addition to the 2004 Surgeon General's Report 
that recognized the superiority of the DXA (axial skeleton) for 
measuring bone mass over time, the International Society for Clinical 
Densitometry currently recommends that if an individual has a low bone 
mass using a peripheral measurement (appendicular skeleton) he or she 
should have a DXA (axial skeleton) performed for monitoring or 
confirmatory diagnostic purposes.
    Therefore, we also proposed to revise Sec.  410.31(b) by adding a 
requirement that in the case of any individual who qualifies for a BMM 
as provided for in Sec.  410.31(d) and who receives a confirmatory 
baseline BMM to permit monitoring in the future, Medicare may cover a 
medically necessary BMM for that individual, if the present conditions 
for coverage under Sec.  410.31(b) are met, and the BMM is performed by 
a DXA system (axial skeleton) (if the initial measurement was not 
performed by this system).
    As indicated previously in this section, the most widely accepted 
method for measuring BMD is the use of DXA (Surgeons General's Report 
2004) at axial skeletal sites. DXA (axial skeleton) measures BMD at the 
hip and

[[Page 69692]]

spine (sites likely to fracture in patients who have osteoporosis). DXA 
is precise, safe, and low in radiation exposure, and permits more 
accurate and reliable monitoring of individuals over time. DXA of the 
femoral neck is the best validated test to predict hip fracture and is 
comparable to forearm measurements for predicting fractures at other 
sites (Evidence Report/Technology Assessment No 28, Agency for 
Healthcare Research and Quality (AHRQ), January 2001).
    Comment: Several June 24, 1998 IFC commenters expressed concern 
regarding the following statement from the June 24, 1998 IFC that 
``there is a consensus that measurements of the central skeletal sites 
is the preferred method of assessment'' as compared with measurements 
of peripheral skeletal sites. These commenters stated that peripheral 
devices provide basically the same measurement benefits as central 
devices and have the added advantages of being easier to use, allowing 
greater patient accessibility, and reducing patient radiation exposure. 
However, the majority of the commenters on both the IFC and the 
proposed rule, strongly supported the aforementioned statement from the 
IFC and expressed specific concern that the IFC allowed for coverage of 
peripheral BMMs that have not been demonstrated to be useful in 
monitoring patients who are receiving osteoporosis drug therapies. 
These commenters agreed that only central devices (especially the DXA 
device) were useful in monitoring patients receiving pharmacologic 
therapy and they specifically recommended that peripheral tests be 
limited to screening for osteoporosis, and not be used for monitoring 
patients receiving FDA-approved osteoporosis drug therapy.
    Response: As we indicated in the proposed rule, we agree that the 
most widely accepted method for measuring BMD is the use of dual x-ray 
absorptiometry (DXA) (Surgeon General's report 2004) at central 
skeletal sites. DXA measures BMD at the hip and spine (sites likely to 
fracture in patients who have osteoporosis), is precise, safe, and low 
in radiation exposure, and permits monitoring over time. DXA of the 
femoral neck is the best validated test to predict hip fracture and is 
comparable to forearm measurements for predicting fracture at other 
sites (AHRQ report 2001). The World Health Organization (WHO) 
classification of BMD for the diagnosis of osteoporosis is based 
primarily on reference data obtained by DXA of the axial skeleton. When 
monitoring the effectiveness of therapy, these central skeletal sites 
are more likely than peripheral sites to show an increase in BMD over 
time. For these reasons, we believe that the use of DXA at central 
sites is the best method for measuring BMD for both monitoring patients 
receiving FDA-approved osteoporosis drug therapy, and confirming BMD 
measurements performed on peripheral devices for patients who may be 
monitored in the future. In view of the comments received and our 
review of the medical literature, and other information, we are 
adopting our revision of Sec.  410.31(b) without change.
    Comment: While most of the commenters supported our proposal to 
limit coverage of monitoring patients receiving osteoporosis drug 
therapy and for performing confirmatory baseline tests to the DXA of 
the central (axial) skeleton, several commenters urged us not to 
preclude coverage of QCT of the central (axial) skeleton for these 
purposes for individuals who have had an initial screening with a 
peripheral test. These commenters stated that the QCT technology has 
been relied upon for some time now by certain hospitals and imaging 
centers, and it would be unfair to them and their patients to preclude 
coverage for their tests in the final rule.
    Response: We agree with the commenters who supported our proposal 
to limit coverage of monitoring patients receiving osteoporosis drug 
therapy, for performing confirmatory baseline test to the DXA of the 
central (axial) skeleton, and to not allow coverage of the QCT for 
these purposes. (Surgeon General's Report, 2004). The radiation 
exposure is significantly higher, for example, with the use of the 
lumbar spine QCT than is the case with the use of the DXA at central 
skeletal sites (Surgeon General's Report, 2004). Therefore, we are not 
making any change to our proposal based on these comments.
    Comment: A commenter supported our proposal to change the 
conditions of coverage and standards on frequency of bone mass 
measurements to encourage the use of DXA of the axial skeleton for 
confirmatory baseline tests and for monitoring a patient's response to 
therapy, but cautioned that the medical literature does not support the 
use of DXA or other BMMs to assess efficacy of osteoporosis therapies. 
The commenter recommended that CMS clarify that BMM is not appropriate 
for monitoring the efficacy of osteoporosis therapies in preventing 
bone fractures.
    Response: We recognize that the goals of monitoring patients are to 
increase adherence to treatment regimens and determine treatment 
response even though monitoring by densitometry has not been 
demonstrated to be effective in improving compliance (NIH Consensus 
Panel, 2001). Importantly, BMD changes are not correlated with the 
fracture risk reduction resulting from antiresorptive treatment (Roux, 
Garnero 2005). Therefore, while the efficacy of antiresorptive 
treatments has been verified in large trial powered to show reductions 
in fracture risk, it does not appear that fracture risk can be measured 
in individual patients being treated for osteoporosis. We are not 
making any changes to the final rule based on this comment.
c. Bone Mass Measurement: Standards on Frequency of Coverage (Sec.  
410.31(c))
    To conform the examples of a BMM exception to the standards on 
frequency of coverage in Sec.  410.31(c)(2) to the regulation change we 
proposed in Sec.  410.31(b)(3), we proposed to revise the confirmatory 
baseline test example in Sec.  410.31(c)(2)(ii) to read, ``Allowing for 
a confirmatory baseline measurement to permit monitoring of 
beneficiaries in the future if the requirements of paragraph (b)(3) of 
this section are met.''
    Comment: A number of commenters offered recommendations on the 
exceptions in paragraph (c)(2) to the general rule in paragraph (c)(1) 
that provided that ``Except as allowed under paragraph (c) (2) of this 
section, Medicare may cover a bone mass measurement (BMM) for a 
beneficiary if at least 23 months have passed since the month the last 
BMM was performed.'' The exceptions specified were-- (1) monitoring 
beneficiaries on long-term glucocorticoid (steroid) therapy of more 
than 3 months; and (2) allowing for a confirmatory baseline BMM to 
permit monitoring of beneficiaries in the future. These commenters 
indicated that in addition to the exceptions specified in paragraph 
(c)(2), there were certain individuals who were at higher risk of bone 
loss due to a disease, drug therapy, or other reasons who should be 
measured more frequently than once every 2 years. Most of these 
commenters recommended that these individuals should have a follow-up 
measurement at least once every 12 or every 12 to 18 months. Another 
commenter asked us to make an exception under paragraph (c) (2) for 
individuals with hyperparathyroidism who due to their diagnosis require 
both a DXA of the axial and the appendicular skeleton upon initial 
testing.
    Response: In establishing the frequency of coverage general rule in 
Sec.  410.31(c)(1) of the IFC, we relied upon the guidance of the 
American Association of Clinical

[[Page 69693]]

Endocrinologists, the ACR, and the National Osteoporosis Foundation, 
which appeared to be generally in agreement for the need to follow 
certain clinical guidelines for performing follow-up BMMs to the 
initial BMM that is performed. Based on that information, we specified 
in the June 24, 1998 IFC a general frequency of coverage interval of 
one follow-up examination every 2 years, identifying examples of 
situations where more frequent BMMs may be covered when medically 
necessary. We have decided to basically retain that general frequency 
of coverage standard and continue to allow Medicare contractors to 
cover additional exceptions to the specified exception examples based 
on medical necessity, even though there is a lack of evidence that 
adjusting therapy based on serial densitometry at any level improves 
outcomes (AHRQ Report 2001). Follow-up testing should be done when the 
expected change in BMD is at least equal to or exceeds the least 
significant change, which is the smallest change in BMD that is beyond 
the range of error, as changes in BMD are usually small in proportion 
to the error inherent in the test itself (Baim, Wilson et al., 2005). 
Each DXA facility should determine its precision error and then 
calculate the least significant change (Baim, Wilson et al., 2005). 
Regarding the comment on individuals with hyperparathyroidism, we 
recognize that the mechanics of bone loss may be different for these 
patients than they are for estrogen-deficient post-menopausal women, 
resulting in fracture risks that may be different and more difficult to 
determine (Miller, Bilezikian, 2002). Thus, it may be medically 
necessary for a treating provider to perform both a DXA of the axial 
and the appendicular skeleton in the initial screening of patients with 
this diagnosis. However, we believe the evidence is insufficient to 
establish a national policy exception to the 2-year frequency standard 
for these individuals as specified in Sec.  410.31(c). Nonetheless, we 
have decided to allow the treating provider to determine what is 
medically necessary in any particular case, subject to the review of 
the local Medicare contractor.
    Comment: A June 24, 1998 IFC commenter questioned whether we would 
cover bone mass measurements for individuals on steroid therapy every 6 
months after the initial treatment, as well as a baseline exam at the 
start of therapy as was suggested in the reference to the 
recommendations of others in the June 24, 1998 IFC (63 FR 34234).
    Response: For those individuals on steroid therapy who are at high 
risk for osteoporosis, as well as for other medical circumstances where 
it might be appropriate to cover more than one BMM every 2 years, the 
treating provider currently has considerable flexibility in accordance 
with our regulations to determine the frequency of testing in any 
particular case, subject to the review of the local Medicare 
contractor. However, in the absence of sufficient evidence in the 
medical literature to support any specific frequency interval for 
individuals receiving steroid therapy, we are not establishing any 
specific frequency interval for coverage of these individuals in this 
regulatory example of possible exceptions to the general standard in 
section Sec.  410.31(c) of the final rule. Rather, we are leaving this 
to our local Medicare contractors, based on the best evidence that is 
available to them and their medical consultants.
    Comment: A June 24, 1998 IFC commenter expressed concern regarding 
our policy in Sec.  410.31(c)(2)(ii) that allows coverage of a 
confirmatory baseline BMM (either central or peripheral) to permit 
monitoring of beneficiaries in the future if the initial test was 
performed with a technique that is different from the proposed 
monitoring method. That is, a qualified individual may be tested 
initially with DXA at the hip and spine and then have a confirmatory 
test with a peripheral device on which the patient is to be monitored 
every 2 years. The commenter suggested that this policy be revised to 
preclude coverage of the confirmatory test by the use of a peripheral 
device because its precision is significantly poorer than the 
stationary table DXA. The commenter believes that peripheral devices 
are best suited for screening and initial diagnosis and not for 
monitoring a patient's response to drug therapy.
    Response: We agree that confirmatory testing with a peripheral 
device should be precluded from coverage. As stated in the Surgeon 
General's report, as well as recommendations by the International 
Society of Clinical Densitometry (Journal of Clinical Densitomery 2004; 
7:1-5), central skeletal sites are most appropriate for monitoring the 
effectiveness of therapy, as they are more likely than peripheral sites 
to show an increase in BMD in response to treatment. Therefore, we 
included a provision in the proposed rule revising Sec.  
410.31(c)(2)(ii) to preclude coverage of a confirmatory test that is 
performed with the use of a peripheral device and to limit such 
coverage to a central (axial) DXA. For the reasons described above, as 
well as the general support of the public commenters on the proposed 
rule, we are adopting this revision as final without change.
d. Bone Mass Measurement: Beneficiaries Who May Be Covered (Sec.  
410.31(d))
    The Congress has recognized that individuals receiving long-term 
glucocorticoid steroid therapy are qualified individuals for purposes 
of section 1861(rr)(1) of the Act. Therapy to prevent bone loss in most 
patients beginning long-term therapy has been recommended at a 
prednisone equivalent of greater than 5 mg/day for at least 3 months 
(McIlwain, 2003). Based on our review of the current evidence, we 
proposed to reduce the dosage equivalent in Sec.  410.31(d)(3) from an 
average of 7.5 mg/day of prednisone for at least 3 months to an average 
of 5.0 mg/day of prednisone for the same period.
    Comment: A number of commenters expressed concern that certain 
categories of individuals that warranted inclusion under the BMM 
benefit were not covered and they recommended that the IFC be revised 
to include them in the final rule. However, a commenter noted that the 
Medicare law needed to be amended so that the legal definition of 
``qualified'' individuals for BMM coverage keeps pace with additional 
current scientific and clinical evidence on who is at risk for 
osteoporosis. Overall, more than 27 additional categories of 
``qualified'' individuals were recommended for coverage of bone mass 
measurements under the benefit. These included patients diagnosed with 
male hypogonadism, Parkinson's disease, multiple sclerosis, myasthenia 
gravis, Gaucher's disease, mastocytosis, malabsorption syndromes, 
history of bulimia, chronic lung disease, renal disease, diabetes 
mellitus, rheumatoid arthritis, secondary hyperparathyroidism and 
nonvertebral fractures, tobacco dependence, as well as patients on 
heparin therapy, anticonvulsant therapy, methotrexate therapy, thyroid 
replacement therapy, and antiepileptic drug therapy, etc.
    Response: We have carefully reviewed the above additional 
categories of individuals who have been recommended for Medicare 
coverage under the final rule, and have concluded that they do not 
qualify for coverage under the specific statutory language mentioned 
above. Section 1861(rr) of the Act provides that the term ``qualified 
individual'' for purposes of this benefit means ``an individual who is 
(in accordance with regulations prescribed by the Secretary)--(A) an 
estrogen-deficient

[[Page 69694]]

woman at clinical risk for osteoporosis; (B) an individual with 
vertebral abnormalities; (C) an individual receiving long-term 
glucocorticoid steroid therapy; (D) an individual with primary 
hyperparathyroidism; or (E) an individual being monitored to assess the 
responsive to or efficacy of an approved osteoporosis drug therapy.'' 
Therefore, we believe a change in the Medicare statute would be 
required in order for us to cover these additional categories of 
individuals under the BMM benefit.
    Comment: Most of the commenters supported our broad interpretation 
of the statutory category of ``An estrogen-deficient woman and at 
clinical risk for osteoporosis'' that was specified in the interim 
final regulation provision Sec.  410.31(d)(1). A June 24, 1998 IFC 
commenter noted that because the risk factors associated with 
osteoporosis are so numerous and complex, it is appropriate to allow a 
woman's treating physician or other treating practitioner to determine 
whether she is estrogen-deficient or a clinical risk of osteoporosis. 
However, several June 24, 1998 IFC commenters were concerned about how 
the definition would be implemented by Medicare contractors. A 
commenter expressed concern that because there is not an existing ICD-
9-CM diagnosis code to describe the condition of estrogen-deficient, 
this could result in the need for practitioners to use several other 
ICD-9-CM codes that describe conditions likely to result from estrogen 
deficient, and in variations in Medicare coverage from carrier to 
carrier.
    Response: We allowed the treating physician or other treating 
practitioner the discretion and flexibility to determine whether a 
female beneficiary is estrogen-deficient and at clinical risk for 
osteoporosis. Creating a code specifically for reimbursement when the 
condition is described by other codes is not required. Therefore, we 
are not making any changes to our proposals based on these comments.
    Comment: Several IFC commenters indicated that the beneficiary 
category in Sec.  410.31(d)(5) of ``An individual being monitored to 
assess the response to or efficacy of an FDA-approved osteoporosis drug 
therapy'' is too limited and should be expanded to include coverage of 
individuals receiving other treatments, including certain medications 
that do not have FDA approval for osteoporosis treatment, and certain 
rehabilitation treatments such as therapy-weight lifting and similar 
interventions. A commenter noted, for example, that didronel, which has 
been approved by the FDA for the treatment of Paget's disease, is not 
FDA-approved for osteoporosis treatment but, its safety and efficacy in 
reducing or reversing steroid-induced osteoarthritis is supported by a 
large body medical literature.
    Response: We recognize that not all Medicare beneficiaries who are 
treated for osteoporosis are prescribed FDA-approved osteoporosis drug 
therapy. However, in implementing the statutory mandate in section 
1861(rr)(2) of the Act to include as a ``qualified individual'' for 
Medicare-covered bone mass measurements ``an individual being monitored 
to assess the response to, or efficacy of an approved osteoporosis drug 
therapy,'' we do not believe it is appropriate for us to extend such 
coverage to beneficiaries who are receiving non-FDA approved 
osteoporosis drug therapies. Thus, we are not adopting the changes 
recommended by the commenters.
    Comment: A number of commenters addressed our proposal to revise 
Sec.  410.31(d)(3) which stated that one of the categories of 
beneficiaries who was entitled to receive Medicare coverage for a 
medically necessary BMM was ``An individual receiving (or expecting to 
receive) glucocorticoid (steroid) therapy equivalent to 7.5 mg of 
prednisone, or greater, per day for more than 3 months.'' The majority 
of these commenters suggested that the minimum requirement of 7.5 mg of 
prednisone, or greater, per day provision was too strict, and that a 
dose requirement of 5.0 mg per day was more appropriate. However, 
several commenters stated that even lower dosage amounts than 5.0 mg 
have been shown to cause significant bone loss over prolonged periods 
of time, usually because of comorbidities such as rheumatoid arthritis. 
A commenter recommended that this beneficiary category be expanded to 
allow coverage for any patient taking steroids for longer than 3 months 
regardless of the dose that is taken by the patient. Another commenter 
was also concerned about the 7.5 mg of prednisone, or greater, per day 
provision, but suggested a minor change that would allow an individual 
receiving (or expecting to receive) glucocorticoid (steroid) therapy 
equivalent to an average of 7.5 mg of prednisone, or greater, per day 
for more than 3 months to be covered under the benefit. This commenter 
stated that use of the average measurement is more in line with the 
realities of modern medicine and would clarify that those individuals 
who are receiving the same dosage at different intervals (every other 
day) are eligible for coverage.
    Response: We agree that the minimum 7.5 mg of prednisone dose 
provision needs to be lowered and that use of an average dose 
measurement in specifying this standard is appropriate. Patients with 
glucocorticoid-induced osteoporosis appear to be at high risk for 
fractures. Researchers have reported that reductions in bone mass have 
been seen as early as 3 months after starting therapy (McIlwain, 2003). 
Therapy to prevent bone loss in most patients beginning long-term 
therapy has been recommended at a prednisone equivalent of >=5 mg/day 
for at least 3 months (McIlwain, 2003). Based on the comments that we 
have received and our review of the current evidence, we are adopting 
our proposal to revise Sec.  410.31(d)(3) to reduce the minimum dosage 
requirement from 7.5 mg to an average of 5.0 mg/day of prednisone for 
at least 3 months.
    Comment: Several IFC commenters expressed concern that Medicare 
beneficiaries at risk for osteoporosis due to their use of 
antiepileptic drugs are not eligible for an initial bone mass screening 
because they are not included in any of the five categories of patients 
defined as ``qualified individuals.'' The commenter indicates that if 
it is not possible to change this under current law is it possible for 
us to confirm that follow-up monitoring tests would be covered every 2 
years for a patient on anti-epileptic drugs who shows signs of 
osteoporosis and who is then placed on osteoporosis FDA-approved drug 
therapy.
    Response: We agree that patients on antiepileptic drugs may be at 
increased risk for fractures. Still, the current law does not generally 
address this group of patients as ``qualified'' individuals under 
section 1861(rr) of the Act. Monitoring of individuals on anti-
epileptic drugs who may also be FDA-approved drug therapy for 
osteoporosis, of course, may be covered as provided under the BMM 
benefit.
e. Use of the NCD Process (Sec.  410.31(f))
    To facilitate future consideration of coverage of additional BMM 
systems for purposes of proposed paragraphs Sec.  410.31(b)(2) and 
(b)(3), which will limit coverage of BMMs for monitoring individuals 
receiving osteoporosis drug therapy and for performing confirmatory 
baseline measurements, we proposed to identify additional BMM systems 
for those purposes through the NCD process. By using the NCD process, 
we could conduct a timely assessment of FDA-approved BMMs. Use of an 
NCD to add coverage of effective BMM systems for these purposes is 
authorized by the reasonable and necessary provision of

[[Page 69695]]

sections 1862(a)(1)(A) and 1871(a)(2) of the Act.
    Comment: One commenter requests that we give Medicare carriers 
discretion to cover new and advanced technologies that become available 
to screen for risk of fracture rather than requiring that such 
technologies be evaluated through the NCD as specified in the proposed 
rule. The commenter stated that the NCD process can be long and 
cumbersome, and that requiring that new technologies be added through 
this process could prevent beneficiaries from having access to these 
new and better technologies for some length of time.
    Response: The IFC implemented section 4106 of the BBA by 
establishing conditions for coverage and frequency standards for BMMs 
to ensure that (among other things) they are paid for uniformly 
throughout the Medicare program. To ensure that important new and 
advanced BMM technologies as defined under the statute and regulations 
are paid for uniformly under the program, we believe they should be 
identified and evaluated through the NCD process. By relying on the NCD 
process for this purpose, we believe we will able to conduct a timely 
assessment of FDA-approved BMMs for possible uniform coverage under the 
program that is not possible if we left this to local contractor 
discretion. In most circumstances, the NCD process is required to be 
completed within 9 to 12 months of the time that we accept a formal 
request for an NCD on a particular procedure.
    Comment: Several commenters noted that the WHO is currently in the 
process of developing a standardized methodology for determining 
fracture risk. A commenter indicated that although DXA is one important 
tool for measuring fracture risk, there are other clinical risk factors 
that are also important to evaluation, specifically to determine which 
patients are likely to best respond to treatment. The commenters 
suggested that employing the new risk assessment methodology may lead 
to better patient outcomes by helping providers better identify those 
patients who should be on therapy and they ask CMS to recognize this 
new assessment methodology for coverage under Medicare Part B when WHO 
completes its work on it.
    Response: We do not know enough about the parameters of the 
standardized methodology for determining fracture risk that the WHO is 
developing to respond very specifically to this comment. However, if 
this standardized methodology for measuring fracture risk relies on the 
use of a device or technique that meets our definition of a BMM as 
defined in Sec.  410.31(a), we believe it would be appropriate to 
consider evaluating any formal request for an NCD for such a device or 
technique, if it were submitted to us for evaluation.
f. Other Issues
    Comment: A commenter questioned why there was no discussion in the 
IFC about the importance of ethnicity as a risk factor for low bone 
mass and osteoporosis. The commenter suggests that ethnicity is one of 
the most important risk factors for low bone mass and osteoporosis.
    Response: We agree that ethnicity as well as many other risk 
factors may result in certain individuals being considered to be more 
likely to develop osteoporosis than other individuals. For example, the 
National Osteoporosis Foundation (NOF) and other medical professional 
organizations have reported that Caucasians and Asians appear to be 
more at risk for developing osteoporosis than other ethnic groups. 
However, the NOF has also indicated that significant risk has been 
reported in people of all ethnic backgrounds, including African-
Americans and Hispanic-Americans. The reason that this subject was not 
discussed in the IFC was that ethnicity was not specifically identified 
in the BMM Amendment that was enacted in 1997 as a risk factor or 
medical indication that warranted Medicare coverage of bone mass 
measurements. Therefore, a careful examination of this subject is 
beyond the scope of this final rule. However, we expect that in 
completing an evaluation of the beneficiary's need for the bone mass 
measurement, as provided in Sec.  410.31(b)(1), the physician or other 
qualified practitioner (as these terms are defined in the regulation) 
will take ethnicity and other significant risk factors into account in 
ordering medically necessary tests for individual patients to the 
extent that it is possible to do so under the statutory beneficiary 
categories specified in Sec.  410.31(d).
    Comment: Several commenters indicated that the IFC offered 
insufficient guidance on how to document the medical necessity of bone 
mass measurements performed on ``qualified individuals'' (Sec.  
410.31(d)) by the use of ICD-9-CM diagnosis codes. The commenter 
suggested that we develop national guidelines that would help providers 
in documenting the medical necessity of bone mass measurements.
    Response: The IFC did not provide guidance on the ICD-9-CM 
diagnosis codes that could be used by physicians or other providers in 
documenting Medicare claims for bone mass measurements. However, our 
original intent was that local Medicare contractors were to be 
responsible for developing those appropriate specific diagnostic coding 
guidelines for the physicians and other providers in their respective 
localities and for communicating those guidelines to them and to the 
general medical community, and they have been doing that successfully 
since 1998. We expect our contractors will continue to do this as 
necessary in the future.
    Comment: A commenter suggests the need for a unique CPT code or 
modifier to help distinguish a ``confirmatory baseline bone mass 
measurement'' from a BMM that may be in violation of the frequency of 
coverage standard of one follow-up monitoring test every 2 years.
    Response: We do not believe there is a need to establish a unique 
CPT code or modifier to distinguish a ``confirmatory baseline bone mass 
measurement'' for a BMM that may be in violation of the frequency of 
coverage standard of one follow-up monitoring test every 2 years 
because local Medicare contractors rely on the use of frequency screens 
(or edits) in determining whether follow-up tests are medically 
necessary for individual patients. These frequency screens (or edits) 
do not require the use of a unique CPT code or modifier by providers in 
billing for these follow-up tests in order for local contractors to be 
effective in making their medical necessity determinations.
    In view of the comments and our review of the medical literature, 
and other information, we are adopting our proposed revisions to Sec.  
410.31 as final without change.

L. Independent Diagnostic Testing Facility (IDTF) Issues

1. IDTF Changes
    During the course of a national review in 2003-2004, the OIG found 
a potential $71 million in improper payments made to IDTFs (Review of 
Claims Billed by Independent Diagnostic Testing Facilities for Services 
Provided to Medicare Beneficiaries During Calendar Year 2001 (A-03-03-
00002)). The OIG found that erroneous payments were made as the result 
of poor or missing documentation or lack of medical necessity. 
Moreover, in recent years, we have determined with the help of our 
contractors that a number of IDTFs in California and other States are 
perpetrating schemes to defraud the Medicare program.

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    Since 2000, the number of IDTFs in California has increased by 40 
percent, which is a far greater percentage increase than the Medicare 
population in that State. The number of IDTFs billing Medicare in 
California alone increased more than 400 percent from 2000 to 2005. The 
increased use of IDTF services has not lowered the use of diagnostic 
testing within other settings. The increased rates of utilization 
within IDTFs are likely to be unrealistic due to an increase in the 
need for diagnostic testing within California's Medicare population. 
Also, these IDTFs are growing at a rate faster than we can survey these 
facilities. The actual growth of IDTFs is not a problem. However, the 
results of the OIG audit make it clear that we need to closely monitor 
IDTFs and establish standards to ensure quality care for Medicare 
beneficiaries. To address the erroneous payments identified by the OIG, 
we proposed to establish IDTF performance standards similar to those in 
Sec.  424.57 which we adopted for Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS) Suppliers in the 
Additional Supplier Standards final rule published in the October 11, 
2000 Federal Register (65 FR 60366).
    In the CY 2007 PFS proposed rule, we proposed that each IDTF be 
required to be in compliance with the proposed fourteen suppler 
standards discussed in section II.L.2. of this final rule with comment 
period to obtain or retain enrollment in the Medicare program (71 FR 
49061). Accordingly, at Sec.  410.33(h), we proposed that if an IDTF 
fails to meet one or more of the standards at the time of enrollment or 
at the time of re-enrollment, then its enrollment application would be 
denied. Also, if at any time we determine that an enrolled IDTF no 
longer meets the performance standards, its billing privileges would be 
revoked.
    We believe that these performance standards are needed to ensure 
that minimum quality standards are met to protect beneficiaries, as 
well as the Medicare Trust Fund. These standards are merely good 
business practices that will help to ensure that suppliers are 
providing a quality care to Medicare beneficiaries. Examples of the 
kind of standards are a primary business phone number and address. 
Another example is a posting of standards for review by patients and 
the public.
    For IDTFs, we proposed to adopt a number of standards that we 
adopted for DMEPOS suppliers, including supplier standard number 6 
which requires a supplier to maintain a comprehensive liability 
insurance policy of $300,000 or 20 percent of its average annual 
Medicare billings, whichever amount is greater, that covers both the 
place of business and all customers and employees of the IDTF.
    Furthermore, we proposed in the new performance standard number 7 
that an IDTF agrees not to directly solicit patients. This provision 
does not preclude the IDTF from public advertisement or marketing its 
services to physicians and other suppliers, however it does prohibit 
recruitment of beneficiaries through direct solicitation.
    Additionally, the IDTF will be required to grant us, or our 
designated fee-for-service contractors, including our agents, to have 
access to the IDTF physical location, all equipment, and beneficiary 
medical records during normal business hours. For portable equipment, 
an IDTF will be required to maintain a catalog of portable equipment 
and be able to produce the cataloged equipment within 2 business days. 
If the IDTF denies this access, the IDTF's Medicare enrollment will be 
immediately revoked.
    To ensure that equipment used by an IDTF is maintained and operates 
properly, we sought public comments regarding IDTF supplier standard 
number 11, which requires that an IDTF must have its testing equipment 
calibrated per equipment instructions or in compliance with applicable 
industry standards. Specifically, we sought public comments regarding 
the organizations or entities that may currently establish testing 
specifications for diagnostics equipment. Further, if these 
organizations or entities do not exist, we invited public comments on 
the establishment of a supplier standard that relies on the 
manufacturer's maintenance and calibration standards.
2. Performance Standards for IDTFs
    The IDTF would be required to meet the following standards as of 
January 1, 2007 and any newly or reenrolling IDTF would be required to 
certify in its enrollment application that it meets and will continue 
to meet the standards. At Sec.  410.33, we proposed to specify that the 
IDTF is required to--
     Operate its business in compliance with all applicable 
Federal, State, and local licensure and regulatory requirements for the 
health and safety of patients;
     Provide complete and accurate information on its 
enrollment application as stated in the ``Requirements for Providers 
and Suppliers to Establish and Maintain Enrollment final rule'' (April 
21, 2006, 71 FR 20754). Any change in enrollment information must be 
reported to the designated fee-for-service contractor on the Medicare 
enrollment application within 30 calendar days;
     Maintain a physical facility on an appropriate site. For 
the purposes of this standard, a post office box or commercial mailbox 
is not considered a physical facility. The physical facility must 
contain space for equipment appropriate to the services designated on 
the enrollment application, facilities for hand washing, adequate 
patient privacy accommodations, and the storage of both business 
records and current medical records;
     Have all applicable testing equipment available at the 
physical site, excluding portable equipment. A catalog of portable 
equipment, including equipment serial numbers, must be maintained at 
the physical site. In addition, portable equipment must be made 
available for inspection within 2 business days of our inspection 
request. The IDTF will be required to maintain a current inventory of 
the equipment (including serial/registration numbers), provide this 
information to the designated fee-for-service contractor and notify the 
contractor of any changes in equipment;
     Maintain a primary business phone under the name of the 
business. The business phone must be located at the designated site of 
the business. The telephone number or toll free numbers must be 
available in a local directory and through directory assistance;
     Have a comprehensive liability insurance policy of at 
least $300,000 or 20 percent of its average annual Medicare billings, 
whichever amount is greater, that covers both the place of business and 
all customers and employees of the IDTF. The insurance policy must be 
carried by a non-relative owned company. The policy must list the 
serial numbers of any and all equipment used by the IDTF;
     Agree not to directly solicit patients, which includes, 
but is not limited to, a prohibition on telephone, computer, or in-
person contacts. The IDTF will accept only those patients referred for 
diagnostic testing by an attending physician, who is furnishing a 
consultation or treating a beneficiary for a specific medical problem 
and who uses the results in the management of the beneficiary's 
specific medical problem. NPPs may order tests as set forth in Sec.  
410.32(a)(3);
     Answer beneficiaries' questions and respond to their 
complaints. Documentation of those contacts must be maintained at the 
physical site;
     Openly post these standards for review by patients and the 
public;
     Disclose to the government, any person having ownership, 
financial or

[[Page 69697]]

control interest, or any other legal interest in the supplier at the 
time of enrollment or within 30 days of a change;
     Have its testing equipment calibrated per equipment 
instructions and in compliance with applicable national standards;
     Have technical staff on duty with the appropriate 
credentials to perform tests. The IDTF must produce the applicable 
Federal or State licenses and/or certifications of the individuals 
performing these services;
     Have proper medical record storage and be able to retrieve 
medical records upon request from CMS or its designated fee-for-service 
contractor within 2 business days; and
     Permit CMS, including its agents or its designated fee-
for-service contractors, to conduct unannounced, on-site inspections to 
confirm the IDTF's compliance with these standards. The IDTF is 
required to provide access, during regular business hours, to CMS and 
beneficiaries, as well as maintain a visible sign posting the normal 
business hours of the IDTF.
3. Supervision
    To ensure quality care is provided to Medicare beneficiaries, we 
proposed to revise Sec.  410.33(b)(1) to read that physicians will be 
limited to providing supervision to ``no more than three IDTF sites.''
4. Place of Service
    In addition to establishing specific performance standards for 
IDTFs, at Sec.  410.33(i), we proposed to define the ``point of the 
actual delivery of service'' as the correct ``Place of Service'' for 
the claim form in the case of diagnostic testing performed outside the 
IDTF's physical location. For example, when an IDTF performs a 
diagnostic test at a beneficiary's residence, we believe that it is 
reasonable to establish the beneficiary's residence as the ``Place of 
Service.'' Previously, there has been no set procedure, so therefore, 
we believe that the information is gathered at the collection point 
from the beneficiary, and this is the point service. While most 
diagnostic tests are performed in an office setting, we solicited 
public comments regarding the types of services that can be safely and 
appropriately used in a residential setting.
5. Analysis of and Responses to Public Comments
    Comment: Several commenters agreed with our proposal to limit the 
number of IDTFs that a physician can oversee to three. Conversely, some 
commenters expressed concern about our proposal to limit the number of 
IDTFs that a physician can oversee.
    Response: While we understand the concerns associated with limiting 
the number of IDTFs that a physician can oversee to three, we believe 
that limiting the number of IDTFs that a physician can oversee will 
promote quality of care. We are defining the supervising physician to 
be the person who is listed in Attachment 2, Section E on the CMS-855B 
enrollment application.
    Comment: Several commenters suggested that the proposed standards 
be revised to reflect that mobile IDTFs will have different needs and 
requirements from those IDTFs which are stationary.
    Response: We appreciate this comment and have revised our policy in 
this final rule with comment period to address IDTF performance 
standards for both fixed and mobile IDTFs.
    Comment: Several commenters recommended that we expand the proposed 
IDTF performance standards to all imaging services.
    Response: While we appreciate this comment, we will consider this 
change in a future rulemaking document.
    Comment: One commenter expressed concern regarding our proposal 
that an IDTF maintain a physical facility on an appropriate site and 
that IDTFs would be required to maintain a specified number of square 
feet per facility.
    Response: While we understand the commenter's concern, it was never 
our intent to establish a minimum square foot requirement. We believe 
that the size of an IDTF can vary depending on the services performed. 
Accordingly, we believe that the size of a fixed-based IDTF should be 
of sufficient size to provide the services offered by the IDTF, such as 
maintaining records, and performing administrative tasks.
    Comment: Several commenters recommended that physicians can be 
proficient in analyzing test results without being considered a 
specialist in the field relating to that specific type of diagnostic 
testing.
    Response: This issue is outside of the scope of the provisions of 
the proposed rule, and therefore, we are not providing a response at 
this time.
    Comment: In lieu of the specific performance standards proposed, 
several commenters recommended that we use accreditation as a method 
for improving compliance and limiting fraud and abuse with IDTFs.
    Response: While we appreciate this comment, we are not able to 
adopt this recommendation. We believe that it is essential that we 
obtain additional information from the public before adopting IDTF 
accreditation standards.
    Comment: Several commenters recommended establishing a grace period 
before carriers begin the revocation process for those IDTFs that fail 
to meet the new performance standards.
    Response: While we understand the concerns of the commenters, we do 
not believe that it is practical to delay implementation of these 
standards. With the publication of this final rule with comment period, 
all IDTFs are being notified of the new performance standards. 
Moreover, we believe that most IDTFs meet the performance standards 
that we are adopting, or that they can do so within the time period 
between the publication of this final rule with comment period and its 
effective date. In addition, as we put this policy into operation, we 
will consider phasing-in our implementation approach. In the event that 
an IDTF's billing privileges are revoked, the supplier can appeal the 
revocation.
    Comment: Several commenters expressed the concern that an 
unannounced site visit by CMS or our representatives could be 
potentially disruptive to an IDTF's operations.
    Response: We believe that unannounced site visits are a useful tool 
to ensure that IDTFs are meeting their enrollment requirements and 
performance standards. We will work closely with our contractors to 
limit any disruptions during a site visit.
    Comment: One commenter recommended that we eliminate the IDTF 
benefit.
    Response: We believe that establishing performance standards and 
the other changes in this regulation will improve quality and assist us 
in our efforts to reduce fraud and abuse in the Medicare program. 
Accordingly, we are finalizing this proposal.
    Comment: One commenter recommended eliminating the requirement to 
maintain a primary business phone located at the designated site for 
business, especially with regards to mobile IDTFs.
    Response: We believe that it is essential that fixed and mobile 
IDTFs maintain a primary business telephone number. Moreover, we 
believe the primary business telephone number for fixed-based IDTFs is 
located at the practice location for the IDTF. For mobile IDTFs, we 
believe that the primary business telephone number is the home location 
for the mobile facility.
    Comment: Several commenters recommended that we clarify where

[[Page 69698]]

mobile IDTFs would store patient records.
    Response: We believe that it is appropriate for a mobile IDTF to 
store patient records at their home location.
    Comment: In lieu of the proposed performance standards, several 
commenters recommended that we implement modality specific standards to 
address the diverse nature of the services provided by IDTFs.
    Response: We are not able to adopt this recommendation because we 
believe that it is essential that we obtain additional information from 
the public before adopting modality-specific standards.
    Comment: Several commenters stated that our proposal for a 
physician to be responsible for overall operations and administration 
of an IDTF has no basis, and that a physician should solely play a 
clinical or technical role.
    Response: We believe that a supervising physician, as identified in 
Attachment 2 of the CMS-855B Medicare enrollment application, is 
fundamentally responsible for the proper administration of an IDTF's 
services.
    Comment: Several commenters questioned our interpretation for the 
point-of-service for services provided outside the IDTF, specifically 
at the beneficiary's residence.
    Response: The beneficiary's location will be considered the place 
of service for pure, home-based testing. Those diagnostic tests which 
have another element outside of the testing location will continue to 
have the IDTF as the place of service of that diagnostic procedure.
    Comment: Several commenters recommended that there is a need for a 
supervising physician within an IDTF and that the language in the 
proposed rule stating that, ``a physician could oversee no more than 
three IDTFs,'' could be interpreted to mean that a physician does not 
have to oversee an IDTF.
    Response: We concur with this recommendation and believe that this 
standard should be interpreted as a physician will oversee one to no 
more than three IDTFs, not that an IDTF does not need a supervising 
physician.
    Comment: We received numerous comments concerning one aspect of 
performance standard 6. We proposed that the IDTF would have to 
maintain a comprehensive liability insurance policy of $300,000 or 20 
percent of the IDTF's Medicare billings, whichever amount is greater. 
We received comments suggesting the removal of the 20 percent condition 
as this would be an undue burden to the IDTF. Additionally, we received 
comments suggesting that we establish a flat rate such as the $300,000 
proposed, having a $300,000 policy for each facility, an increase to a 
$500,000 flat coverage, a comprehensive insurance policy of $1 million, 
or an aggregate rate of $3 million.
    Response: In order to reduce administrative burden associated with 
calculating comprehensive liability insurance for suppliers and to 
ensure compliance of this new standard, we will establish a 
comprehensive liability insurance amount of $300,000 per location for 
IDTFs. We agree with the recommendation that comprehensive liability 
insurance coverage of $300,000 per facility location is more 
appropriate, given that the likelihood of an incident occurring would 
increase as the number of facilities increases. We believe that the 
$300,000 per location represents the reasonable level of coverage for a 
facility's comprehensive liability insurance and we will change 
performance standard 6 to reflect this change.
    Comment: One commenter suggested that we eliminate the provision 
that insurance policy must be carried by a non-relative-owned company.
    Response: Consistent with our DMEPOS supplier standards, we believe 
the comprehensive liability insurance must be obtained from a verified 
third party to ensure that the coverage exists.
    Comment: Several commenters recommended our performance standards 
address State requirements, and that we should develop a Federal set of 
standards that would not vary from State to State.
    Response: While we understand this concern, we believe that each 
State should continue to establish its own licensing requirements. 
Further, we believe that all IDTFs must maintain compliance with 
applicable Federal, State, and local licensure and regulatory 
requirements.
    Comment: Several commenters expressed concern with our proposed 
supplier standard 7 which states that an IDTF agrees not to directly 
solicit patients, and these commenters recommended that we remove or 
clarify standard seven.
    Response: We understand the concerns of the commenters, but we are 
not attempting to prohibit public advertising. Supplier standard 7 is 
designed to prohibit an IDTF or its representative from direct, person-
to-person solicitation of beneficiaries by means of phone, computer, or 
in-person. Clearly, an IDTF can use public advertisement, including 
advertising on television, radio, internet, direct mailing, billboards, 
or newspapers.
    Comment: One commenter recommended that complaints by beneficiaries 
should be documented on paper and kept at a home office location.
    Response: At this time, we are not requiring that an IDTF collect 
and maintain a log of beneficiaries' questions and complaints because 
we did not propose this requirement in the CY 2007 PFS proposed rule. 
In a future rulemaking document, we will address a formal collection 
process for this documentation.
    Comment: Several commenters expressed concern regarding the storage 
and specifications of medical records (namely the comprehensive medical 
records of the beneficiaries they are currently treating or have 
treated), as well as how we would be defining current medical records, 
largely due to the additional burden of HIPAA requirements associated 
with a patient's comprehensive medical treatments.
    Response: We view current medical records as consisting of the 
services provided by the IDTF to its current and prior patients. Upon 
request, CMS or its contractors may request comprehensive medical 
records for an IDTF.
    Comment: Several commenters expressed support for IDTF supplier 
standard 11 which mandates the calibration of all IDTF testing 
equipment. These commenters recommended that we work with the National 
Electrical Manufacturers Association (NEMA) prior to establishing any 
calibration and maintenance requirements.
    Response: We appreciate these comments and intend to work with NEMA 
and other organizations in the development of calibration and 
maintenance requirements.
    Comm