[Federal Register: April 7, 2000 (Volume 65, Number 68)]
[Rules and Regulations]
[Page 18433-18482]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ap00-17]
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Part II
Department of Health and Human Services
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Health Care Financing Administration
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42 CFR Parts 409, et al.
Office of the Inspector General; Medicare Program Prospective Payment
System for Hospital Outpatient Services; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 409, 410, 411, 412, 413, 419, 424, 489, 498, and 1003
[HCFA-1005-FC]
RIN 0938-AI56
Office of Inspector General; Medicare Program; Prospective
Payment System for Hospital Outpatient Services
AGENCY: Health Care Financing Administration (HCFA), HHS, and Office of
Inspector General (OIG), HHS.
ACTION: Final rule with comment period.
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SUMMARY: This final rule with comment period implements a prospective
payment system for hospital outpatient services furnished to Medicare
beneficiaries, as set forth in section 1833(t) of the Social Security
Act. It also establishes requirements for provider departments and
provider-based entities, and it implements section 9343(c) of the
Omnibus Budget Reconciliation Act of 1986, which prohibits Medicare
payment for nonphysician services furnished to a hospital outpatient by
a provider or supplier other than a hospital, unless the services are
furnished under an arrangement with the hospital. In addition, this
rule establishes in regulations the extension of reductions in payment
for costs of hospital outpatient services required by section 4522 of
the Balanced Budget Act of 1997, as amended by section 201(k) of the
Balanced Budget Refinement Act of 1999.
DATES: Effective date: July 1, 2000, except that the changes to
Sec. 412.24(d)(6), new Sec. 413.65, and the changes to Sec. 489.24(h),
Sec. 498.2, and Sec. 498.3 are effective October 10, 2000.
Applicability date: For Medicare services furnished by all
hospitals, including hospitals excluded from the inpatient prospective
payment system, and by community mental health centers, the
applicability date for implementation of the hospital outpatient
prospective payment system is July 1, 2000.
Comment date: Comments on the provisions of this rule resulting
from the Balanced Budget Refinement Act of 1999 will be considered if
we receive them at the appropriate address, as provided below, no later
than 5 p.m. on June 6, 2000. We will not consider comments concerning
provisions that remain unchanged from the September 8, 1998 proposed
rule or that were revised based on public comment.
See section VIII for a more detailed discussion of the provisions
subject to comment.
ADDRESSES: Mail written comments (one original and three copies) to the
following address ONLY: Health Care Financing Administration,
Department of Health and Human Services, Attention: HCFA-1005-FC, P.O.
Box 8013, Baltimore, MD 21244-8013.
If you prefer, you may deliver, by courier, your written comments
(one original and three copies) to one of the following addresses:
Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
C5-14-03, Central Building, 7500 Security Boulevard, Baltimore, MD
21244-1850.
Comments mailed to those addresses may be delayed and could be
considered late.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-1005-FC.
Comments received timely will be available for public inspection as
they are received, generally beginning approximately 3 weeks after
publication of a document, in Room 443-G of the Department's offices at
200 Independence Avenue, SW., Washington, DC, on Monday through Friday
of each week from 8:30 a.m. to 5 p.m. (Phone (202) 690-7890).
For comments that relate to information collection requirements,
mail a copy of comments to:
Health Care Financing Administration, Office of Information Services,
Security and Standards Group, Division of HCFA Enterprise Standards,
Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850, Attn:
John Burke, HCFA-1005-FC; and
Lauren Oliven, HCFA Desk Officer, Office of Information and Regulatory
Affairs, Room 3001, New Executive Office Building, Washington, DC
20503.
Copies: To order copies of the Federal Register containing this
document, send your request to: New Orders, Superintendent of
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date
of the issue requested and enclose a check or money order payable to
the Superintendent of Documents, or enclose your Visa or Master Card
number and expiration date. Credit card orders can also be placed by
calling the order desk at (202) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8. As an alternative, you can view and
photocopy the Federal Register document at most libraries designated as
Federal Depository Libraries and at many other public and academic
libraries throughout the country that receive the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Janet Wellham, (410) 786-4510 or Chuck Braver, (410) 786-6719 (for
general information)
Joel Schaer (OIG), (202) 619-0089 (for information concerning civil
money penalties)
Kitty Ahern, (410) 786-4515 (for information related to the
classification of services into ambulatory payment classification (APC)
groups)
George Morey (410) 786-4653 (for information related to the
determination of provider-based status)
Janet Samen (410) 786-9161 (for information on the application of APCs
to community mental health centers)
SUPPLEMENTARY INFORMATION: To assist readers in referencing sections
contained in this document, we are providing the following table of
contents. Within each section, we summarize pertinent material from our
proposed rule of September 8, 1998 (63 FR 47552) followed by public
comments and our responses.
Table of Contents
I. Background
A. General and Legislative History
B. Summary of Provisions of the Balanced Budget Act of 1997 (the
BBA 1997)
1. Prospective Payment System (PPS)
2. Elimination of Formula-Driven Overpayment
3. Extension of Cost Reductions
C. The September 8, 1998 Proposed Rule
D. Overview of Public Comments
E. Summary of Relevant Provisions in the Balanced Budget
Refinement Act of 1999 (the BBRA 1999)
1. Outlier Adjustment
2. Transitional Pass-Through for Additional Costs of Innovative
Medical Devices, Drugs, and Biologicals
3. Budget Neutrality Applied to New Adjustments
4. Limitation on Judicial Review
5. Inclusion in the Hospital Outpatient PPS of Certain
Implantable Items
6. Payment Weights Based on Mean Hospital Costs
7. Limitation on Variation of Costs of Services Classified
Within a Group
8. Annual Review of the Hospital Outpatient PPS Components
9. Coinsurance Not Affected by Pass-Throughs
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10. Extension of Cost Reductions
11. Clarification of Congressional Intent Regarding Base Amounts
Used in Determining the Hospital Outpatient PPS
12. Transitional Corridors For Application of Outpatient PPS
13. Limitation on Coinsurance for a Procedure
14. Reclassification of Certain Hospitals
II. Prohibition Against Unbundling of Hospital Outpatient Services
A. Background
B. Office of Inspector General (OIG) Civil Money Penalty
Authority and Civil Money Penalties for Unbundling Hospital
Outpatient Services
C. Summary of Final Regulations on Bundling of Hospital
Outpatient Services
D. Comments and Responses
III. Hospital Outpatient Prospective Payment System (PPS)
A. Hospitals Included In or Excluded From the Outpatient PPS
B. Scope of Facility Services
1. Services Excluded from the Scope of Services Paid Under the
Hospital Outpatient PPS
a. Background
b. Comments and Responses
c. Payment for Certain Implantable Items Under the BBRA 1999
d. Summary of Final Action
2. Services Included Within the Scope of the Hospital Outpatient
PPS
a. Services for Patients Who Have Exhausted Their Part A
Benefits
b. Partial Hospitalization Services
c. Services Designated by the Secretary
d. Summary of Final Action
3. Hospital Outpatient PPS Payment Indicators
C. Description of the Ambulatory Payment Classification (APC)
Groups
1. Setting Payment Rates Based on Groups of Services Rather than
on Individual Services
2. Packaging Under the APC System
a. Summary of Proposal
b. General Comments and Responses (Supporting or Objecting to
Packaging)
c. Packaging of Casts and Splints
d. Packaging of Observation Services
e. Packaging Costs of Procuring Corneal Tissue
f. Packaging Costs of Blood and Blood Products
g. Packaging Costs for Drugs, Pharmaceuticals, and Biologicals
h. Summary of Final Action
3. Treatment of Clinic and Emergency Department Visits
a. Provisions of the Proposed Rule
b. Comments and Responses
4. Treatment of Partial Hospitalization Services
5. Inpatient Only Procedures
6. Modification of APC Groups
a. How the Groups Were Constructed
b. Comments on Classification of Procedures and Services Within
APC Groups
c. Effect of the BBRA 1999 on Final APC Groups
d. Summary of APC Modifications
e. Exceptions to the BBRA 1999 Limit on Variation of Costs
Within APC Groups
7. Discounting of Surgical Procedures
8. Payment for New Technology Services
a. Background
b. Comments and Responses
D. Transitional Pass-Through for Innovative Medical Devices,
Drugs, and Biologicals
1. Statutory Basis
2. Identifying Eligible Pass-Through Items
a. Drugs and Biologicals
b. Medical Devices
3. Criteria to Define New or Innovative Medical Devices Eligible
for Pass-through Payments
4. Determination of "Not Insignificant" Cost of New Items
5. Calculating the Additional Payment
6. Process to Identify Items and to Obtain Codes for Items
Subject to Transitional Pass-Throughs
E. Calculation of Group Weights and Conversion Factor
1. Group Weights (Includes Table 1, Packaged Services by Revenue
Center)
2. Conversion Factor
a. Calculating Aggregate Calendar Year 1996 Medicare and
Beneficiary Payments for Hospital Outpatient Services (Pre-PPS)
b. Sum of the Relative Weights
F. Calculation of Coinsurance Payments and Medicare Payments
Under the PPS
1. Background
2. Determining the Unadjusted Coinsurance Amount and Program
Payment Percentage
a. Calculating the Unadjusted Coinsurance Amount for Each APC
Group
b. Calculating the Program Payment Percentage (Pre-deductible
Payment Percentage)
3. Calculating the Medicare Payment Amount and Beneficiary
Coinsurance Amount
a. Calculating the Medicare Payment Amount
b. Calculating the Coinsurance Amount
4. Hospital Election to Offer Reduced Coinsurance
G. Adjustment for Area Wage Differences
1. Proposed Wage Index
2. Labor-Related Portion of Hospital Outpatient Department PPS
Payment Rates
3. Adjustment of Hospital Outpatient Department PPS Payment and
Coinsurance Amounts for Geographic Wage Variations
4. Special Rules Under the BBRA 1999
H. Other Adjustments
1. Outlier Payments
2. Transitional Corridors/Interim Payments
3. Cancer Centers and Small Rural Hospitals
I. Annual Updates
1. Revisions to APC Groups, Weights and the Wage and Other
Adjustments
2. Annual Update to the Conversion Factor
3. Advisory Panel for APC Updates
J. Volume Control Measures
K. Claims Submission and Processing and Medical Review
L. Prohibition Against Administrative or Judicial Review
IV. Provider-Based Status
A. Background
B. Provisions of the Proposed Rule
C. Comments and Responses
D. Requirements for Payment
V. Summary of and Response to MedPAC Recommendations
VI. Provisions of the Final Rule
VII. Collection of Information Requirements
VIII. Response to Comments
IX. Regulatory Impact Analysis
A. Introduction
B. Estimated Impact on the Medicare Program
C. Objectives
D. Limitations of Our Analysis
E. Hospitals Included In and Excluded From the Prospective
Payment System
F. Quantitative Analysis of the Impact of Policy Changes on
Payment Under the Hospital Outpatient PPS: Basis and Methodology of
Estimates
G. Estimated Impact of the New APC System (Includes Table 2,
Annual Impact of Hospital Outpatient Prospective Payment System in
CY2000-CY2001)
X. Federalism
XI. Waiver of Proposed Rulemaking Regulations Text
Addenda
Addendum A--List of Hospital Outpatient Ambulatory Payment
Classification Groups with Status Indicators, Relative Weights,
Payment Rates, and Coinsurance Amounts
Addendum B--Hospital Outpatient Department (HOPD) Payment Rates and
Payment Status by HCPCS, and Related Information
Addendum C--Hospital Outpatient Payment for Procedures by APC
Addendum D--1996 HCPCS Codes Used to Calculate Payment Rates That
Are Not Active CY 2000 Codes
Addendum E--CPT Codes Which Will Be Paid Only As Inpatient
Procedures
Addendum F--Status Indicators
Addendum G--Service Mix Indices by Hospital
Addendum H--Wage Index for Urban Areas
Addendum I--Wage Index for Rural Areas
Addendum J--Wage Index for Hospitals That Are Reclassified
Addendum K--Drugs, Biologicals, and Medical Devices Subject to
Transitional Pass-Through Payment
Alphabetical List of Acronyms Appearing in the Final Rule
APC Ambulatory payment classification
APG Ambulatory patient group
ASC Ambulatory surgical center
AWP Average wholesale price
BBA 1997 Balanced Budget Act of 1997
BBRA 1999 Balanced Budget Refinement Act of 1999
CAH Critical access hospital
CAT Computerized axial tomography
CCI [HCFA's] Correct Coding Initiative
CCR Cost center specific cost-to-charge ratio
CCU Coronary care unit
CMHC Community mental health center
CMP Civil money penalty
CORF Comprehensive outpatient rehabilitation facility
CPI Consumer Price Index
CPT [Physicians'] Current Procedural Terminology, 4th Edition,
2000,
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copyrighted by the American Medical Association
DME Durable medical equipment
DMEPOS DME, orthotics, prosthetics, prosthetic devices, prosthetic
implants and supplies
DRG Diagnosis-related group
DSH Disproportionate share hospital
EACH Essential access community hospital
EBAA Eye Bank Association of America
ED Emergency department
EMS Emergency medical services
EMTALA Emergency Medical Treatment and Active Labor Act
ENT Ear/Nose/Throat
ESRD End-stage renal disease
FDA Food and Drug Administration
FDO Formula-driven overpayment
FQHC Federally qualified health center
HCPCS HCFA Common Procedure Coding System
HHA Home health agency
HRSA Health Resources and Services Administration
ICD-9-CM International Classification of Diseases, Ninth Edition,
Clinical Modification
ICU Intensive care unit
IHS Indian Health Service
IME Indirect medical education
IOL Intraocular lens
JCAHO Joint Commission on Accreditation of Healthcare Organizations
LTH Long-term hospital
MDH Medicare-dependent hospital
MedPAC Medicare Payment Advisory Commission
MRI Magnetic resonance imaging
MSA Metropolitan statistical area
NECMA New England County Metropolitan Area
OBRA Omnibus Budget Reconciliation Act
OT Occupational therapy
PPO Preferred provider organization
PPS Prospective payment system
RFA Regulatory Flexibility Act
RHC Rural health clinic
RPCH Rural primary care hospital
RRC Rural referral center
SCH Sole community hospital
SGR Sustainable growth rate
SNF Skilled nursing facility
TEFRA Tax Equity and Fiscal Responsibility Act of 1982
TPA Tissue Plasminogen Activator
Y2K Year 2000
I. Background
A. General and Legislative History
When the Medicare program was first implemented, it paid for
hospital services (inpatient and outpatient) based on hospital-specific
reasonable costs attributable to serving Medicare beneficiaries. Later,
the law was amended to limit payment to the lesser of a hospital's
reasonable costs or its customary charges. In 1983, section 601 of the
Social Security Amendments of 1983 (Pub. L. 98-21) completely revised
the cost-based payment system for most hospital inpatient services by
enacting section 1886(d) of the Social Security Act (the Act). This
section provided for a prospective payment system (PPS) for acute
hospital inpatient stays, effective with hospital cost reporting
periods beginning on or after October 1, 1983.
Although payment for most inpatient services became subject to the
PPS, Medicare hospital outpatient services continued to be paid based
on hospital-specific costs, which provided little incentive for
hospitals to furnish outpatient services efficiently. At the same time,
advances in medical technology and changes in practice patterns were
bringing about a shift in the site of medical care from the inpatient
to the outpatient setting. During the 1980s, the Congress took steps to
control the escalating costs of providing outpatient care. The Congress
amended the statute to implement across-the-board reductions of 5.8
percent and 10 percent to the amounts otherwise payable by Medicare for
hospital operating costs and capital costs, respectively, and enacted a
number of different payment methods for specific types of hospital
outpatient services. These methods included fee schedules for clinical
diagnostic laboratory tests, orthotics, prosthetics, and durable
medical equipment (DME); composite rate payment for dialysis for
persons with end-stage renal disease (ESRD); and payments based on
blends of hospital costs and the rates paid in other ambulatory
settings such as separately certified ambulatory surgical centers
(ASCs) or physician offices for certain surgery, radiology, and other
diagnostic procedures. However, Medicare payment for services performed
in the hospital outpatient setting remains largely cost-based.
In the Omnibus Budget Reconciliation Act of 1986 (OBRA 1986) (Pub.
L. 99-509), the Congress paved the way for development of a PPS for
hospital outpatient services. Section 9343(g) of OBRA 1986 mandated
that fiscal intermediaries require hospitals to report claims for
services under the HCFA Common Procedure Coding System (HCPCS). Section
9343(c) of OBRA 1986 extended the prohibition against unbundling of
hospital services under section 1862(a)(14) of the Act to include
outpatient services as well as inpatient services. The HCPCS coding
enabled us to determine which specific procedures and services were
being billed, while the extension of the prohibition against unbundling
ensured that all nonphysician services provided to hospital outpatients
would be billed only by the hospital, not by an outside supplier, and,
therefore, would be reported on hospital bills and captured in the
hospital outpatient data that could be used to develop an outpatient
PPS.
A proposed rule to implement section 9343(c) was published in the
Federal Register on August 5, 1988. However, those regulations were
never published as a final rule, so we included them in the hospital
outpatient PPS proposed rule published in the Federal Register on
September 8, 1998 (63 FR 47552) and will implement them as part of this
final rule.
Section 1866(g) of the Act, as added by section 9343(c) of OBRA
1986, and amended by section 4085(i)(17) of the Omnibus Budget
Reconciliation Act of 1987 (OBRA 1987) (Pub. L. 100-203), authorizes
the Department of Health and Human Services' Office of Inspector
General to impose a civil money penalty (CMP), not to exceed $2,000,
against any individual or entity who knowingly and willfully presents a
bill in violation of an arrangement (as defined in section 1861(w)(1)
of the Act).
In section 9343(f) of the OBRA 1986 and section 4151(b)(2) of the
Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-508), the
Congress required that we develop a proposal to replace the current
hospital outpatient payment system with a PPS and submit a report to
the Congress on the proposed system.
The Secretary submitted a report to the Congress on March 17, 1995,
summarizing the research we conducted searching for a way to classify
outpatient services for purposes of developing an outpatient PPS. The
report cited ambulatory patient groups (APGs), developed by 3M-Health
Information Systems (3M-HIS) under a cooperative grant with HCFA, as
the most promising classification system for grouping outpatient
services and recommended that APG-like groups be used in designing a
hospital outpatient PPS.
The report also presented a number of options that could be used,
once a PPS was in place, for addressing the issue of rapidly growing
beneficiary coinsurance. As a separate issue, we recommended that the
Congress amend the provisions of the law pertaining to the blended
payment methods for ASC surgery, radiology, and other diagnostic
services to correct an anomaly that resulted in a less than full
recognition of the amount paid by the beneficiary in calculating
program payment (referred to as the formula-driven overpayment).
Three sections of the Balanced Budget Act of 1997 (the BBA 1997)
(Pub. L. 105-33), enacted on August 5, 1997, affect Medicare payment
for hospital outpatient services. Section 4521 of the BBA 1997
eliminates the formula-driven overpayment for ambulatory surgical
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center procedures, radiology services, and diagnostic procedures
furnished on or after October 1, 1997. In November 1998, we issued cost
report instructions (Provider Reimbursement Manual, Part II, Chapter
36, Transmittal 4) that implemented this provision for services
furnished on or after October 1, 1997. Section 4522 of the BBA 1997
amends section 1861(v)(1)(S)(ii) of the Act by extending cost
reductions in payment for hospital outpatient operating costs and
hospital capital costs, 5.8 percent and 10 percent respectively, before
January 1, 2000. Section 4523 of the BBA 1997 amends section 1833 of
the Act by adding subsection (t), which provides for implementation of
a PPS for outpatient services. (Under Section 4523 of the BBA 1997 the
outpatient PPS does not apply to cancer hospitals before January 1,
2000.) Set forth below in section I.B is a detailed description of the
changes made by the BBA 1997.
On November 29, 1999, the Balanced Budget Refinement Act of 1999
(the BBRA 1999), Pub. L. 106-113, was enacted. This Act made major
changes that affect the proposed hospital outpatient PPS. The
legislative changes are summarized in section I.E, below. More specific
details on individual provisions that we are implementing in this final
rule with comment period are included under the various sections of
this preamble.
B. Summary of Provisions in the Balanced Budget Act of 1997 (the BBA
1997)
1. Prospective Payment System (PPS)
Section 4523 of the BBA 1997 amended section 1833 of the Act by
adding subsection (t), which provides for a PPS for hospital outpatient
department services. (The following citations reflect the statute as
enacted by the BBA 1997.) Section 1833(t)(1)(B) of the Act authorizes
the Secretary to designate the hospital outpatient services that would
be paid under the PPS. That section also requires that the hospital
outpatient PPS include hospital inpatient services designated by the
Secretary that are covered under Part B for beneficiaries who are
entitled to Part A benefits but who have exhausted them or otherwise
are not entitled to them. Section 1833(t)(1)(B)(iii) of the Act
specifically excludes ambulance, physical and occupational therapy, and
speech-language pathology services, for which payment is made under a
fee schedule.
Section 1833(t)(2) of the Act sets forth certain requirements for
the hospital outpatient PPS. The Secretary is required to develop a
classification system for covered outpatient services that may consist
of groups arranged so that the services within each group are
comparable clinically and with respect to the use of resources.
Section 1833(t)(2)(C) of the Act specifies data requirements for
establishing relative payment weights. The weights are to be based on
the median hospital costs determined by 1996 claims data and data from
the most recent available cost reports. Section 1833(t)(2)(D) of the
Act requires that the portion of the Medicare payment and the
beneficiary coinsurance that are attributable to labor and labor-
related costs be adjusted for geographic wage differences in a budget
neutral manner.
The Secretary is authorized under section 1833(t)(2)(E) of the Act
to establish, in a budget neutral manner, other adjustments, such as
outlier adjustments or adjustments for certain classes of hospitals,
that are necessary to ensure equitable payments. Section 1833(t)(2)(F)
of the Act requires the Secretary to develop a method for controlling
unnecessary increases in the volume of covered outpatient services.
Section 1833(t)(3) of the Act specifies how beneficiary deductibles
are to be treated in calculating the Medicare payment and beneficiary
coinsurance amounts and requires that rules be established regarding
determination of coinsurance amounts for covered services that were not
furnished in 1996. The statute freezes beneficiary coinsurance at 20
percent of the national median charges for covered services (or group
of covered services) furnished during 1996 and updated to 1999 using
the Secretary's estimated charge growth from 1996 to 1999.
Section 1833(t)(3) of the Act also prescribes the formula for
calculating the initial conversion factor used to determine Medicare
payment amounts for 1999 and the method for updating the conversion
factor in subsequent years.
Sections 1833(t)(4) and (t)(5) of the Act describe the method for
determining the Medicare payment amount and the beneficiary coinsurance
amount for services covered under the outpatient PPS. Section
1833(t)(5)(B) of the Act requires the Secretary to establish a
procedure whereby hospitals may voluntarily elect to reduce beneficiary
coinsurance for some or all covered services to an amount not less than
20 percent of the Medicare payment amount. Hospitals are further
allowed to disseminate information on any such reductions of
coinsurance amounts. Section 4451 of the BBA 1997 added section
1861(v)(1)(T) to the Act, which provides that any reduction in
coinsurance must not be treated as a bad debt.
Section 1833(t)(6) authorizes periodic review and revision of the
payment groups, relative payment weights, wage index, and conversion
factor.
Section 1833(t)(7) of the Act describes how payment is to be made
for ambulance services, which are specifically excluded from the
outpatient PPS under section 1833(t)(1)(B) of the Act.
Section 1833(t)(8) of the Act provides that the Secretary may
establish a separate conversion factor for services furnished by cancer
hospitals that are excluded from hospital inpatient PPS.
Section 1833(t)(9) of the Act prohibits administrative or judicial
review of the hospital outpatient PPS classification system, the
groups, relative payment weights, wage adjustment factors, other
adjustments, calculation of base amounts, periodic adjustments, and the
establishment of a separate conversion factor for those cancer
hospitals excluded from hospital inpatient PPS.
Section 4523(d) of the BBA 1997 made a conforming
amendment to section 1833(a)(2)(B) of the Act to provide for
payment under the hospital outpatient PPS for some services described
in section 1832(a)(2) that are currently paid on a cost basis and
furnished by providers of services, such as comprehensive outpatient
rehabilitation facilities (CORFs), home health agencies (HHAs),
hospices, and community mental health centers (CMHCs). This amendment
provides that partial hospitalization services furnished by CMHCs be
paid under the PPS.
2. Elimination of Formula-Driven Overpayment
Before enactment of section 4521(b) of the BBA 1997, using the
blended payment formulas for ASC procedures, radiology, and other
diagnostic services, the ASC or physician fee schedule portion was
calculated as if the beneficiary paid 20 percent of the ASC rate or
physician fee schedule amount instead of the actual amount paid, which
was 20 percent of the hospital's billed charges. Section 4521(b), which
amended sections 1833(i)(3)(B)(i)(II) and 1833(n)(1)(B)(i) of the Act,
corrects this anomaly by changing the blended calculations so that all
amounts paid by the beneficiary are subtracted from the total payment
in the calculation to determine the amount due from the program.
Effective for services furnished on or after October 1, 1997, payment
for surgery, radiology, and other diagnostic services calculated by
blended payment methods is now calculated by
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subtracting the full amount of coinsurance due from the beneficiary
(based on 20 percent of the hospital's billed charges).
3. Extension of Cost Reductions
Section 1861(v)(1)(S)(ii) of the Act was amended by section 4522 of
the BBA 1997 to require that the amounts otherwise payable for hospital
outpatient operating costs and capital costs be reduced by 5.8 percent
and 10 percent, respectively, through December 31, 1999.
C. The September 8, 1998 Proposed Rule
We published a proposed rule in the Federal Register on September
8, 1998 (63 FR 47552) setting forth the proposed PPS for hospital
outpatient services. In that proposed rule, we explained that, due to
Year 2000 (Y2K) systems concerns, implementation of the new payment
system would be delayed until after January 1, 1999. (The statement in
the rule that the statute requires implementation "effective January
1, 1999," and other similar statements in other rules, were not
intended to mean that the statute requires retroactive implementation
of the hospital outpatient PPS. As noted elsewhere in this rule, the
statute does not impose such a requirement.) As noted in that document,
the scope of systems changes required to implement the hospital
outpatient PPS is so enormous as to be impossible to accomplish
concurrently with the critical work that we, our contractors, and our
provider-partners had to perform to ensure that all of our respective
systems were Y2K compliant. Section XI of the proposed rule (63 FR
47605) explains in greater detail the reasons for delaying
implementation.
The proposed rule originally provided for a 60-day comment period.
However, the comment period was extended four times, ultimately ending
on July 30, 1999. (See 63 FR 63429, November 13, 1998; 64 FR 1784,
January 12, 1999; 64 FR 12277, March 12, 1999; and 64 FR 36320; July 6,
1999.)
On June 30, 1999, we published a correction notice (64 FR 35258) to
correct a number of technical and typographical errors contained in the
September 8, 1998 proposed rule. The numerical values in the proposed
rule reflected incorrect data and data programming. Among other
corrections, the notice set forth revised numerical values for the
current payment, total services (total units), relative weights,
proposed payment rates, national unadjusted coinsurance, minimum
unadjusted coinsurance, and service-mix index.
D. Overview of Public Comments
We received approximately 10,500 comments in response to our
September 8, 1998 proposed rule. That count includes the numerous
requests from hospital and other interested groups and organizations
that we extend the public comment period to allow additional time for
analysis of the impact of our proposals. As we explain above, we
extended the comment period four times, to end finally on July 30,
1999.
In addition to receiving comments from a number of organizations
representing the full spectrum of the hospital industry, we received
comments from beneficiaries and their families, physicians, health care
workers, individual hospitals, professional associations and societies,
legal and nonlegal representatives and spokespersons for beneficiaries
and hospitals, members of the Congress, and other interested citizens.
The majority of comments addressed our proposals regarding payment for:
Corneal tissue; payment for high-cost technologies, both existing and
future; payment for blood and blood products; and payment for high cost
drugs, including chemotherapy agents. We also received numerous
comments addressing: Our approach to ratesetting using the ambulatory
payment classification (APC) system; our method of calculating the
payment conversion factor; and the potentially negative impact of the
proposed hospital outpatient PPS on hospital revenues. In addition, we
received many comments concerning the proposed regulations for
provider-based entities.
We carefully reviewed and considered all comments received timely.
The many modifications that we made to our proposed regulations in
response to commenters' suggestions and recommendations are reflected
in the provisions of this final rule. Comments and our responses are
addressed by topic in the sections that follow.
E. Summary of Relevant Provisions in the Balanced Budget Refinement Act
of 1999 (the BBRA 1999)
As noted above, subsequent to publication of the proposed rule, the
BBRA 1999 was enacted on November 29, 1999. The BBRA 1999 made major
changes that affect the proposed hospital outpatient PPS. Because these
changes are effective with the implementation of the PPS, we have had
to make some revisions from the September 8, 1998 proposed rule. The
provisions of the BBRA 1999 that we are implementing in this final rule
with comment period follow.
1. Outlier Adjustment
Section 201(a) of the BBRA 1999 amends section 1833(t) by
redesignating paragraphs (5) through (9) as paragraphs (7) through (11)
and adding a new paragraph (5). New section 1833(t)(5) of the Act
provides that the Secretary will make payment adjustments for covered
services whose costs exceed a given threshold (that is, an outlier
payment). This section describes how the additional payments are to be
calculated and caps the projected outlier payments at no more than 2.5
percent of the total projected payments (sum of both Medicare and
beneficiary payments to the hospital) made under hospital outpatient
PPS for years before 2004 and 3.0 percent of the total projected
payments for 2004 and subsequent years.
2. Transitional Pass-Through for Additional Costs of Innovative Medical
Devices, Drugs, and Biologicals
Section 201(b) of the BBRA 1999 adds new section 1833(t)(6) to the
Act, establishing transitional pass-through payments for certain
medical devices, drugs, and biologicals. This provision does the
following: Specifies the types of items for which additional payments
must be made; describes the amount of the additional payment; limits
these payments to at least 2 years but not more than 3 years; and caps
the projected payment adjustments annually at 2.5 percent of the total
projected payments for hospital outpatient services each year before
2004 and no more than 2.0 percent in subsequent years. Under this
provision, the Secretary has the authority to reduce pro rata the
amount of the additional payments if, before the beginning of a year,
she estimates that these payments would otherwise exceed the caps.
3. Budget Neutrality Applied to New Adjustments
Section 201(c) of the BBRA 1999 amends section 1833(t)(2)(E) of the
Act to require that the establishment of outlier and transitional pass-
through payment adjustments is to be made in a budget neutral manner.
4. Limitation on Judicial Review
Section 201(d) of the BBRA 1999 amends redesignated section
1833(t)(11) of the Act by extending the prohibition of administrative
or judicial review to include the factors for determining outlier
payments (that is, the fixed multiple, or a fixed dollar cutoff amount,
the marginal cost of care, or applicable total payment percentage), and
the determination of additional payments for certain medical devices,
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drugs, and biologicals, the insignificant cost determination for these
items, the duration of the additional payment or portion of the PPS
payment amount associated with particular devices, drugs, or
biologicals, and any pro rata reduction.
5. Inclusion in the Hospital Outpatient PPS of Certain Implantable
Items
Section 201(e) of the BBRA 1999 amends section 1833(t)(1)(B) of the
Act to include as covered outpatient services implantable prosthetics
and DME and diagnostic x-ray, laboratory, and other tests associated
with those implantable items.
6. Payment Weights Based on Mean Hospital Costs
Section 201(f) of the BBRA 1999 amends section 1833(t)(2)(C) of the
Act, which specifies data requirements for establishing relative
payment weights, to allow the Secretary the discretion to base the
weights on either the median or mean hospital costs determined by data
from the most recent available cost reports.
7. Limitation on Variation of Costs of Services Classified Within a
Group
Section 201(g) of the BBRA 1999 amends section 1833(t)(2) of the
Act to limit the variation of costs of services within each payment
classification group by providing that the highest median (or mean
cost, if elected by the Secretary) for an item or service within the
group cannot be more than 2 times greater than the lowest median (or
mean) cost for an item or service within the group. The provision
allows the Secretary to make exceptions in unusual cases, such as for
low volume items and services.
8. Annual Review of the Hospital Outpatient PPS Components
Section 201(h) of the BBRA 1999 amends redesignated section
1833(t)(8) of the Act to require at least annual review of the groups,
relative payment weights, and the wage and other adjustments made by
the Secretary to take into account changes in medical practice, the
addition of new services, new cost data, and other relevant information
and factors. That section of the Act is further amended to require the
Secretary to consult with an expert outside advisory panel composed of
an appropriate selection of provider representatives who will review
the clinical integrity of the groups and weights and advise the
Secretary accordingly. The panel may use data other than those
collected or developed by the Department of HHS for the review and
advisory purposes.
9. Coinsurance Not Affected by Pass-Throughs
Section 201(i) of the BBRA 1999 amends redesignated section
1833(t)(7) of the Act to provide that the beneficiary coinsurance
amount will be calculated as if the outlier and transitional pass-
throughs had not occurred; that is, there will be no coinsurance
collected from beneficiaries for the additional payments made to
hospitals by Medicare for these adjustments.
10. Extension of Cost Reductions
Section 201(k) of the BBRA 1999 amends section 1861(v)(1)(S)(ii) of
the Act to extend until the first date that the hospital outpatient PPS
is implemented, the 5.8 and 10 percent reductions for hospital
operating and capital costs, respectively.
11. Clarification of Congressional Intent Regarding Base Amounts Used
in Determining the Hospital Outpatient PPS
Section 201(l) of the BBRA 1999 provides that, "With respect to
determining the amount of copayments described in paragraph (3)(A)(ii)
of section 1833(t) of the Social Security Act, as added by section
4523(a) of the BBA, Congress finds that such amount should be
determined without regard to such section, in a budget neutral manner
with respect to aggregate payments to hospitals, and that the Secretary
of Health and Human Services has the authority to determine such amount
without regard to such section." Pursuant to this provision, we are
calculating the aggregate PPS payment to hospitals in a budget neutral
manner.
12. Transitional Corridors for Application of Outpatient PPS
Section 202 of the BBRA 1999 amends section 1833(t) of the Act by
redesignating paragraphs (7) through (11) as paragraphs (8) through
(12), and adding a new paragraph (7), which provides for a transitional
adjustment to limit payment reductions under the hospital outpatient
PPS. More specifically, for the years 2000 through 2003, a provider,
including a CMHC, will receive an adjustment if its payment-to-cost
ratio for outpatient services furnished during the year is less than a
set percentage of its payment-to-cost ratio for those services in its
cost reporting period ending in 1996 (the base year). Two categories of
hospitals, rural hospitals with 100 or fewer beds and cancer hospitals,
will be held harmless under this provision. Small rural hospitals, for
services furnished before January 1, 2004, will be maintained at the
same payment-to-cost ratio as their base year cost report if their PPS
payment-to-cost ratio is less. The hold-harmless provision applies
permanently to cancer centers. Section 202 also requires the Secretary
to make interim payments to affected hospitals subject to retrospective
adjustments and requires that the provisions of this section do not
affect beneficiary coinsurance. Finally, this provision is not subject
to budget neutrality.
13. Limitation on Coinsurance for a Procedure
Section 204 of the BBRA 1999 amends redesignated section 1833(t)(8)
of the Act to provide that the coinsurance amount for a procedure
performed in a year cannot exceed the hospital inpatient deductible for
that year.
14. Reclassification of Certain Hospitals
Section 401 of the BBRA 1999 adds section 1886(d)(8)(E) to the Act
to permit reclassification of certain urban hospitals as rural
hospitals. Section 401 adds section 1833(t)(13) to the Act to provide
that a hospital being treated as a rural hospital under section
1886(d)(8)(E) also be treated as a rural hospital under the hospital
outpatient PPS.
[CONTINUED]
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