[Federal Register: November 13, 2000 (Volume 65, Number 219)]
[Rules and Regulations]
[Page 67797-67846]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13no00-24]
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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 Part 419
Medicare Program; Prospective Payment System for Hospital Outpatient
Services; Interim Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 419
[HCFA-1005-IFC]
RIN 0938-A156
Medicare Program; Prospective Payment System for Hospital
Outpatient Services
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Interim final rule with comment period.
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SUMMARY: This interim final rule with comment period provides for the
annual update to the Medicare hospital outpatient prospective payment
system conversion factor that is used to calculate the payment amount
for each payment group, effective January 1, 2001. It also updates the
wage index values and incorporates the year 2001 changes in the
procedure codes that are used to make payments under this system. In
this rule, we are also responding to public comments received on those
portions of the April 7, 2000 final rule with comment period (which
established the hospital outpatient prospective payment system) that
implemented related provisions of the Balanced Budget Refinement Act
(BBRA) of 1999. In addition, we are responding to public comments on
the August 3, 2000 interim final rule with comment period that modified
the April 7, 2000 final rule with comment period by revising the
criteria used to define new or innovative medical devices, drugs, and
biologicals eligible for transitional pass-through payments and
correcting the criteria for grandfathering provider-based Federally
Qualified Health Centers (FQHC) into the prospective payment system.
DATES:
Effective Date: These regulations are effective on January 1, 2001.
Comment Period: We will consider comments if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on January
12, 2001.
ADDRESSES: Mail written comments (1 original and 3 copies) to the
following address:
Health Care Financing Administration, Department of Health and Human
Services, Attention: HCFA-1005-IFC, P.O. Box 8013, Baltimore, MD 21244-
8013.
To ensure that mailed comments are received in time for us to
consider them, please allow for possible delays in delivering them.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Comments mailed to the above addresses may be delayed and received
too late for us to consider them. Because of staff and resource
limitations, we cannot accept comments by facsimile (FAX) transmission.
In commenting, please refer to file code HCFA-1005-IFC. of the 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 office at 200 Independence
Avenue, SW., Washington, DC, on Monday through Friday of each week from
8:30 to 5 p.m. (phone: (202) 690-7890).
FOR FURTHER INFORMATION CONTACT:
Janet Wellham (410) 786-4510, Chuck Braver, (410) 786-6719, or Jana
Petze (410) 786-9374, (for general information).
Kity Ahern, (410) 786-4515 (for information related to ambulatory
payment classification groups and transitional pass-through payments
related to drugs and biologicals).
Majorie Baldo, (410) 786-4617 or Barry Levi, (410) 786-4529 (for
information related to transitional pass-through payments for medical
devices).
George Morey (410) 786-4653 (for information related to the criteria
for grandfathering provider-based FQHCs into the prospective payment
system).
SUPPLEMENTARY INFORMATION:
Availability of Copies and Electronic Access
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.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. The Website address is
http://www.gpoaccess.gov/nara/index.html.
To assist readers in referencing sections contained in this
document, we are providing the following table of contents:
Table of Contents
I. Background
A. General Summary of April 7, 2000 Final Rule With Comment Period
that Implemented Amendments Enacted by the Balanced Budget Act of
1997 and the Balanced Budget Refinement Act of 1999
B. June 30, 2000 Notice of Delay of Effective Date for the April 7,
2000 Final Rule with Comment Period
C. August 3, 2000 Interim Final Rule with Comment Period
D. Summary of This Interim Final Rule with Comment Period
II. Analysis of, and Responses to, Public Comments on the BBRA 1999
Provisions and the August 3, 2000 Interim Final Rule with Comment
Period
A. April 7, 2000 BBRA 1999 Provisions
1. Outlier Adjustment
2. Transitional Pass-Through for Additional Costs of Innovative
Medical Devices, Drugs, and Biologicals
a. Definition of a device
b. Eligibility criteria
c. Investigational device exemption (IDE) device
d. Removing cost of predicate item
e. Excluded costs
f. Effect on conversion factor
g. Cost significance tests
h. Brand-specific versus categorization approaches
i. Issues pertaining to specific items
j. Pass-through applications process
k. Payment for pass-through items
l. Focus medical review
3. Budget Neutrality Applied to New Adjustments
4. Limitation on Judicial Review
5. Inclusion in the Hospital Outpatient Prospective Payment
System of Certain Implantable Items
6. Payment Weights Based on Median or Mean Hospital Costs
7. Limitation on Variation of Costs of Services Classified
Within a Group
8. Annual Review of the Components of the Hospital Outpatient
Prospective Payment System
9. Copayment Amounts Not Affected by Pass-Throughs
10. Extension of Cost Reductions
11. Clarification of Congressional Intent Regarding Base Amounts
Used in Determining the Hospital Outpatient Prospective Payment
System
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12. Transitional Corridors for Application of Outpatient
Prospective Payment System
a. Interim payment versus final settlement
b. Payment-to-cost ratios
c. Cost-to-charge ratios
d. Interim payments limited to 85 percent of the estimated
transitional corridor payment
e. Providers having more than one 1996 cost report
f. Providers having no 1996 cost report
g. Prospective payment system delay and transitional corridor
payments
h. Rural hold-harmless provision
i. Covered charges
j. Cancer hospitals and transitional corridor payments
k. Teaching hospitals and transitional corridor payments
13. Limitation on Coinsurance for a Procedure
14. Reclassification of Certain Hospitals
B. August 3, 2000 Interim Final Rule With Comment Period
1. Transitional Pass-Through Provisions
a. "Not insignificant" cost criteria
b. Definition of medical device
2. Revision to Grandfather Provision for Certain FQHCs and
"Look-Alikes"
3. Clarification of Notice of Beneficiary Cost-Sharing Liability
4. Clarification of Protocols for Off-Campus Departments
5. Typographical Errors in the Provider-Based Regulations
III. Provisions of This Interim Final Rule With Comment Period
A. Changes Relating to the BBRA 1999 Public Comments
B. Annual Updates to Components of the Hospital Outpatient
Prospective Payment System
1. APC Groups
a. New codes
b. Deleted codes
c. Revisions to correct errors or inconsistencies
d. Device-related codes
e. Inpatient codes moved to the outpatient setting
f. "Two-times" rule
g. Inpatient codes moved to outpatient and affected by device
h. Newly covered codes
i. Pass-through requests for drugs
2. Inpatient Procedures List Update
3. Wage Index Adjustment
4. Conversion Factor Update
IV. Waiver of Notice of Proposed Rulemaking
V. Collection of Information Requirements
VI. Regulatory Impact
A. General
B. Analysis for Changes in this Interim Final Rule with
Comment Period
C. Federalism
D. Executive Order 12866 and 5 U.S.C. 804(2) Regulation Text
Addenda
Note to the Addenda
Addendum A--List of Hospital Outpatient Ambulatory Payment
Classifications with Status Indicators, Relative Weights, Payment
Rates, and Coinsurance Amounts--Calendar Year 2001
Addendum B--Hospital Outpatient Department (HOPD) Payment Status by
HCPCS Code and Related Information--Calendar Year 2001
Addendum C--[Reserved]
Addendum D--Status Indicators: How Various Services Are Treated
under the Hospital Outpatient Prospective Payment System
Addendum E--CPT Codes Which Will Be Paid Only As Inpatient
Procedures--Calendar Year 2001
Addendum F--Wage Index for Urban Areas
Addendum G--Wage Index for Rural Areas
Addendum H--Wage Index for Hospitals That Are Reclassified
Alphabetical List of Acronyms Appearing in the Interim Final Rule With
Comment Period
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
CAT Computerized axial tomography
CCI [HCFA's] Correct Coding Initiative
CCR Cost center specific cost-to-charge ratio
CMHC Community mental health center
CORF Comprehensive outpatient rehabilitation facility
CPI Consumer Price Index
CPT [Physicians'] Current Procedural Terminology, 4th Edition,
2000, copyrighted by the American Medical Association
DME Durable medical equipment
DMEPOS DME, prosthetics (which include prosthetic devices and
implants) orthotics, and supplies
DRG Diagnosis-related group
FDA Food and Drug Administration
FQHC Federally qualified health center
HCPCS HCFA Common Procedure Coding System
HHA Home health agency
ICD-9-CM International Classification of Diseases, Ninth Edition,
Clinical Modification
IME Indirect medical education
JCAHO Joint Commission on Accreditation of Healthcare Organizations
MRI Magnetic resonance imaging
MSA Metropolitan statistical area
NECMA New England County Metropolitan Area
PPS Prospective payment system
RFA Regulatory Flexibility Act
RHC Rural health clinic
RRC Rural referral center
SCH Sole community hospital
SNF Skilled nursing facility
I. Background
A. General Summary of April 7, 2000 Final Rule With Comment Period That
Implemented Amendments Enacted by the Balanced Budget Act of 1997 and
the Balanced Budget Refinement Act of 1999
On April 7, 2000, we published in the Federal Register (65 FR
18434) a final rule with comment period to implement a new prospective
payment system for hospital outpatient services. This new system
establishes prospective payment rates for covered outpatient hospital
services using ambulatory payment classification (APC) groups. The
April 7, 2000 final rule with comment period implemented section 4523
of the Balanced Budget Act of 1997 (the BBA 1997), Public Law 105-33,
and related sections of the Balanced Budget Refinement Act of 1999 (the
BBRA 1999), Public Law 106-113. Section 4523 of the BBA 1997 amended
section 1833 of the Social Security Act (the Act) by adding subsection
(t) to provide for implementation of a prospective payment system for
hospital outpatient services furnished to Medicare beneficiaries.
Section 1833(t) of the Act, as added by the BBA 1997--
Authorizes the Secretary to designate the hospital
outpatient services that would be paid under the prospective payment
system and requires that the hospital outpatient prospective payment
system include hospital inpatient services designated by the Secretary
that are covered under Medicare Part B for beneficiaries who are
entitled to Part A benefits but who have exhausted them or are
otherwise entitled to them.
Sets forth certain requirements for the hospital
outpatient prospective payment system, including the requirement that a
classification system for covered outpatient services be developed that
may consist of groups arranged so that the services within each group
are comparable clinically and with respect to the use of resources.
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. (This provision has subsequently been changed
by the BBRA 1999, as discussed later in this preamble.)
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.
Authorizes the Secretary 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 the Secretary determines to be necessary to ensure
equitable payments.
Requires the Secretary to develop a method for controlling
unnecessary
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increases in the volume of covered outpatient services.
Specifies how beneficiary deductibles are to be treated
when 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 a group of covered
services) furnished during 1996 and updated to 1999 using the
Secretary's estimated charge growth from 1996 to 1999.
Prescribes the formula for calculating the initial
conversion factor used to determine 1999 Medicare payment amounts and
the method for updating the conversion factor in subsequent years.
Describes the method for determining the Medicare payment
amount and the beneficiary coinsurance amount for services covered
under the outpatient prospective payment system. (This section was
amended by the BBRA 1999, as discussed later in this preamble.)
Requires the Secretary to establish a procedure whereby
hospitals may voluntarily elect to reduce beneficiary copayment for
some or all covered services to an amount no less than 20 percent of
the Medicare payment amount. Hospitals are further allowed to
disseminate information on any such reductions of copayment amounts.
Section 4451 of the BBA 1997 added section 1861(v)(1)(T) to the Act,
which provides that any reduction in copayment, must not be treated as
a bad debt.
Authorizes periodic review and revision of the payment
groups, relative payment weights, wage index, and conversion factor.
(This section was amended by the BBRA 1999, as discussed later in this
preamble.)
Describes how payment is to be made for ambulance
services, which are specifically excluded from the hospital outpatient
prospective payment system under section 1833(t)(1)(B) of the Act.
Provides that the Secretary may establish a separate
conversion factor for services furnished by cancer hospitals that are
excluded from the hospital inpatient prospective payment system.
Prohibits administrative or judicial review of the
hospital outpatient prospective payment system classification system,
the payment 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 prospective payment system.
(This section was expanded by the BBRA 1999, as discussed later in this
preamble.)
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 prospective payment system for some services
described in section 1832(a)(2) of the Act 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 hospital outpatient prospective payment
system.
Before enactment of section 4521(b) of the BBA 1997, the blended
payment formulas for ambulatory surgery centers (ASC) procedures,
radiology, and other diagnostic services, the ASC or physician fee
schedule portion were 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) of the BBA 1997, which amended sections
1833(i)(3)(B)(i)(II) and 1833(n)(1)(B)(i) of the Act, corrected 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 ASC
surgery, radiology, and other diagnostic services calculated by blended
payment methods is now calculated by subtracting the full amount of
coinsurance due from the beneficiary (based on 20 percent of the
hospital's billed charges).
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. (This section
was further amended by the BBRA 1999.)
(Refer to the April 7, 2000 hospital outpatient prospective payment
system final rule with comment period for a more in-depth description
of how the changes made by the BBA 1997 and the BBRA 1999 were
implemented.)
On November 29, 1999, after we had published a proposed rule to
implement section 4253 of the BBA 1997, the BBRA 1999 was enacted. The
BBRA 1999 made major changes that affected the hospital outpatient
prospective payment system that was established by the BBA 1997 and
implemented in the April 7, 2000 final rule with comment period.
Therefore, in the April 7, 2000 final rule with comment period, we also
implemented 14 provisions of the BBRA 1999 that affected the hospital
outpatient prospective payment system and solicited public comments on
those provisions. The BBRA 1999 provisions on which we solicited
comments included the following:
1. Outlier Adjustment
Section 201(a) of the BBRA 1999 amended section 1833(t) of the Act
by adding a new paragraph (5) to provide that the Secretary must make
payment adjustments (that is, an outlier payment) for covered services
whose costs exceed a threshold determined by the Secretary. 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 the hospital outpatient prospective payment
system 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 added new section 1833(t)(6) to the
Act, establishing transitional pass-through payments for certain
medical devices, drugs, and biologicals. This provision specifies the
types of items for which additional payments must be made; describes
the amount of the additional payments; limits these payments to at
least 2, 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 must
reduce pro rata the amount of the additional payments if, before the
beginning of a year, he or she estimates that these payments would
otherwise exceed the caps.
3. Budget Neutrality Applied to New Adjustments
Section 201(c) of the BBRA 1999 amended section 1833(t)(2)(E) of
the Act to require that the establishment of outlier and transitional
pass-through payment adjustments be made in a budget neutral manner.
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4. Limitation on Judicial Review
Section 201(d) of the BBRA 1999 amended 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,
drugs, and biologicals, the insignificant cost determination for these
items, the duration of the additional payment or portion of the
prospective payment system payment amount associated with particular
devices, drugs, or biologicals, and any pro rata reduction.
5. Inclusion in the Hospital Outpatient Prospective Payment System of
Certain Implantable Items
Section 201(e) of the BBRA 1999 amended section 1833(t)(1)(B) of
the Act to include as covered hospital outpatient services implantable
prosthetics, durable medical equipment (DME), diagnostic x-ray,
laboratory, and other tests associated with those implantable items.
6. Payment Weights Based on Median or Mean Hospital Costs
Section 201(f) of the BBRA 1999 amended 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 amended 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 cost (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 Prospective Payment System
Components
Section 201(h) of the BBRA 1999 amended redesignated section
1833(t)(8) of the Act to require at least an annual review of the
payment 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. Section 201(h)(2) provides that
the first annual review must be conducted in 2001 for application in
2002. The section was 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 Health and Human Services (HHS) for
review and advisory purposes.
9. Coinsurance Not Affected by Pass-Throughs
Section 201(i) of the BBRA 1999 amended 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 additional
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 amended section 1861(v)(1)(S)(ii)
of the Act to extend, until the first date that the hospital outpatient
prospective payment system 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 Prospective Payment System
Section 201(l) of the BBRA 1999 provided 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 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."
12. Transitional Corridors for Application of Outpatient Prospective
Payment System
Section 202 of the BBRA 1999 amended section 1833(t) of the Act by
redesignating paragraphs (7) through (11) as paragraphs (8) through
(12), respectively, and adding a new paragraph (7), which provides for
a transitional adjustment to limit payment reductions under the
hospital outpatient prospective payment system. More specifically, from
the date the prospective payment system is implemented through 2003, a
provider, including a CMHC, will receive an adjustment if its
prospective payment system payments for outpatient services furnished
during the year is less than a set percentage of its "pre-BBA" amount
for that year. The pre-BBA amount is the product of the reasonable
costs the hospital incurs for prospective payment system services
during the year and the payment-to-cost ratio for covered prospective
payment system services furnished during the cost report period ending
during 1996. Two categories of hospitals, rural hospitals with 100 or
fewer beds and cancer hospitals, will be held harmless under this
provision. Small rural hospitals will be held harmless for services
furnished before January 1, 2004. 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 amended redesignated section
1833(t)(8) of the Act to provide that the copayment 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 added section 1886(d)(8)(E) to the Act
to permit reclassification of certain urban hospitals as rural
hospitals for purposes of section 1886(d) of the Act. Section 401 added
section 1833(t)(13) to the Act to provide that a hospital being treated
as a rural hospital under section 1886(d)(8)(E) is also to be treated
as a rural hospital under the hospital outpatient prospective payment
system.
A discussion of how each of these BBRA 1999 provisions was
implemented in the April 7, 2000 final rule with comment period appears
in section II of this preamble preceding our summary of the public
comments received and our responses to those comments.
[[Page 67802]]
B. June 30, 2000 Notice of Delay of Effective Date for the April 7,
2000 Final Rule With Comment Period
On June 30, 2000, we published a notice in the Federal Register (65
FR 40535) announcing a delay in the effective date of the April 7, 2000
hospital outpatient prospective payment system final rule with comment
period from July 1, 2000 to August 1, 2000. This delay was based on our
determination that the appropriate claims processing changes could not
feasibly be made to our computer systems and properly tested in time to
ensure that proper payments would be made for Medicare hospital
outpatient services under the new prospective payment system by the
original July 1, 2000 effective date.
C. August 3, 2000 Interim Final Rule With Comment Period
On August 3, 2000, we published an interim final rule with comment
period in the Federal Register (65 FR 47670) that changed one criterion
and postponed the effective date for two other criteria that a new
device, drug, or biological must meet in order for its cost to be
considered "not insignificant" for purposes of determining its
eligibility for transitional pass-through payments from the hospital
outpatient prospective payment system. It also changed the transitional
pass-through payment policy to include new single use medical devices
that come in contact with human tissue and are surgically implanted or
inserted into patients, whether or not the devices remain with the
patients following their release. These policies were a departure from
those presented in the April 7, 2000 final rule with comment period.
The August 3, 2000 rule also corrected a trigger date for
grandfathering of provider-based FQHCs to conform with the intent not
to disrupt existing FQHCs with longstanding provider-based treatment
that we discussed in the April 7, 2000 rule. Under the criteria in the
April 7, 2000 final rule with comment period, FQHCs would have been
treated as departments of a provider without regard to the criteria for
provider-based status if they continued to qualify as FQHCs and were
designated as FQHCs before 1995. In accordance with the August 3, 2000
interim final rule with comment period and this interim final rule with
comment period, facilities that continue to qualify as FQHCs and were
designated as FQHCs or "look-alikes" on or before April 7, 2000 would
continue to be treated as provider-based facilities. In addition, we
clarified how the requirement for prior notices to beneficiaries is to
be applied in emergency situations. We also clarified the protocols for
off-campus departments in emergency situations.
D. Summary of This Interim Final Rule With Comment Period
In section II of this preamble, we--
Respond to public comments received timely on the 14 BBRA
1999 provisions that were included in the April 7, 2000 final rule with
comment period. (We received numerous public comments on other aspects
of the April 7, 2000 final rule with comment period that were not open
for comment. We will not address those comments in this rule.)
Respond to public comments on the August 3, 2000 interim
final rule with comment period that revised the criteria for defining
new or innovative medical devices, drugs, and biologicals eligible for
pass-through payments and corrected the criteria for the grandfathering
provision for certain FQHCs as provider-based.
In section III of this preamble, we are updating, for services
furnished during calendar year 2001, the wage index values and the
conversion factor, and revising the APCs to reflect new codes for 2001
effective January 1, 2001. As required under section 1833(t)(8)(A) of
the Act, in 2001, we will begin our annual review process of the APC
groups, relative weights, and the wage and other adjustments for the
prospective payment systems payments that will become effective on
January 1, 2002. The statute requires the Secretary to consult with an
expert outside advisory panel composed of an appropriate selection of
representatives of providers to review (and advise the Secretary
concerning) the clinical integrity of the groups and weights. This
provision allows these experts to use data other than those collected
or developed by us during our review of the APC groups and weights.
II. Analysis of, and Responses to, Public Comments on the BBRA 1999
Provisions and the August 3, 2000 Interim Final Rule With Comment
Period
We received a total of 747 pieces of timely correspondence
containing public comments on the April 7, 2000 final rule with comment
period. In addition to receiving comments from various organizations
throughout the hospital industry, we also 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 the comments addressed the BBRA 1999 provisions relating to
the limitation on variation of costs of services classified within a
group, the transitional pass-through provision for devices, drugs, and
biologicals, and the inclusion of implantable items.
We received 13 comments in response to the August 3, 2000 interim
final rule with comment period. These comments were submitted by major
associations, drug and device manufacturers, providers, a private
citizen, and a law firm. More than half of the comments addressed
issues for which we did not solicit comments in the August 3, 2000
interim final rule with comment period. Those comments specifically
addressed payment policy and typographical errors present in the April
7, 2000 final rule with comment period. The remaining commenters
addressed the revisions to the criteria to define new or innovative
medical devices, drugs, and biologicals eligible for pass-through
payments and corrections to the criteria for the grandfathering
provision for certain FQHCs. These commenters took issue with some of
the provisions and raised additional concerns regarding our actions. A
summary of the public comments and our responses to them appears
following the discussion of the April 7, 2000 final rule with comment
period.
We have carefully reviewed and considered all comments received
timely. The modifications that we are making in response to commenters'
suggestions and recommendations are summarized in section III.A of this
preamble and, as appropriate, reflected in the regulation text.
A. April 7, 2000 BBRA 1999 Provisions
Below we discuss the implementation of the BBRA 1999 provisions
addressed in the April 7, 2000 final rule with comment period and
modified in the August 3, 2000 interim final rule with comment period,
the public comments received on each provision, and our response to
those comments.
1. Outlier Adjustment
Section 1833(t)(5) of the Act, as added by section 201(a) of the
BBRA 1999, required that the Secretary make an additional payment (that
is, an outlier adjustment) for outpatient services for which a
hospital's charges, adjusted to cost, exceed a fixed multiple of the
sum of the outpatient prospective payment system payment and the
transitional pass-through payments. The Secretary is
[[Page 67803]]
authorized to determine the amount of this fixed multiple and the
percent of costs above the threshold that is to be paid under this
outlier provision. Under the statute, projected outlier payments may
not exceed an "applicable percentage" of projected total program
payments. The applicable percentage means a percentage specified by the
Secretary (projected percentage of outlier payments relative to total
payments), subject to the following limits: For years before 2004, the
projected percentage that the Secretary specifies cannot exceed 2.5
percent; for 2004 and later, the projected percentage cannot exceed 3.0
percent. Section 1833(t)(2)(E) of the Act requires that these payments
be budget neutral.
Section 1833(t)(5)(D) of the Act grants the Secretary authority
until 2002 to identify outliers on a bill basis rather than on a
specific service basis and to use an overall hospital cost-to-charge
ratio (CCR) to calculate costs on the bill rather than using
department-specific CCRs for each hospital.
In the April 7, 2000 final rule with comment period, in accordance
with the statute, we presented how the additional outlier payments are
to be calculated.
To set the threshold or fixed multiple and the payment percentage
of costs above that multiple for which an outlier payment would be
made, we first had to determine what specified percentage of total
program payment, up to 2.5 percent, we should select. We decided to set
the outlier target at 2.0 percent. In order to set the fixed multiple
outlier threshold and payment percentage, we simulated the prospective
payment system payments. We calibrated the threshold and the payment
percentage applying an iterative process so that the simulated outlier
payments were 2.5 percent of simulated total payments. For purposes of
the simulation, we set a "target" of 2.5 percent (rather than 2.0
percent), because we believed that a given set of numerical criteria
would result in a higher percentage of outlier payments under the
simulation using 1996 data than under the prospective payment system.
This is because we believe that the 1996 data reflects undercoding of
services, which means simulated total payments would likely be
understated and, in turn, the percentage of outlier payments would be
overstated. In addition, we were not able to fully estimate the amount
and distribution of pass-through payments using the 1996 data. Our
inability to make these estimates further understated the total
payments under the simulation. We believe that a set of numerical
criteria that results in simulated outlier payments of 2.5 percent
using the 1996 data would result in outlier payments of 2.0 percent
under the prospective payment system. The difference arises from the
effect of undercoding in the historical data and the payment of pass-
throughs under prospective payment system. We set the outlier threshold
at 2.5 times the prospective payment system payments.
Comment: Several commenters asked us to clarify how series bills
for services such as chemotherapy that are billed monthly for multiple
sessions are treated in determining outlier payments. They also asked
that we clarify how bills for multiple clinic visits on the same day
are treated in calculating the outlier payment.
Response: In accordance with section 1833(t)(5)(D) of the Act,
until 2002, outliers will be determined on a bill basis rather than on
a specific service basis. Therefore, the charges (converted to costs)
associated with all services under the hospital outpatient prospective
payment system reported on series bills or all payable multiple clinic
visits billed on a single claim would be used to determine whether the
outlier threshold is exceeded and to calculate the outlier payment.
Comment: One commenter suggested that we prospectively adjust the
conversion factor if we determine that the actual outlier expenditures
are less than estimated in a given year.
Response: Consistent with our outlier policies in other prospective
payment systems, we will not adjust the conversion factor for a given
year to account for an underestimation (or overestimation) of outlier
payments in a previous year. The statute does not provide for such an
adjustment to the conversion factor. We set outlier policies
prospectively, using the best available data. Outlier payments, like
many aspects of a prospective payment system, reflect estimates, and we
believe it would be inappropriate to adjust the conversion factor
(upward or downward) for a given year simply because an estimate for a
previous year ultimately turned out to be inaccurate. If we
underestimate or overestimate the percentage of outlier payments, the
divergence of our estimate from actual experience might provide
information that might help us improve estimates in the future, but it
would have no direct effect on the conversion factor for any following
year.
Comment: One commenter urged us to provide additional information
about the cost-to-charge ratios that will be used to determine whether
a claim exceeds the outlier threshold for payment. The commenter stated
that the preamble language on page 18498 of our April 7, 2000 final
rule with comment period conflicts with statements contained in Program
Memorandum Transmittal No. A-00-23 regarding which cost-to-charge ratio
would be used to determine whether a claim meets the outlier threshold
requirements for payment. According to the commenter, we stated in the
final rule with comment period that we will use a hospital's overall
cost-to-charge ratio to make this determination, but stated in the
program memorandum that we will use an outpatient cost-to-charge ratio.
The commenter asked us to clarify the conflicting statements.
Response: On September 8, 2000, we issued Program Memorandum
Transmittal No. A-00-63, titled "Cost-to-Charge Ratios (CCRs) for
Calculating Certain Payments Under the Hospital Outpatient Prospective
Payment System" which describes how we calculated the cost-to-charge
ratios that are used to determine payments for outliers, interim
transitional corridors, and device pass-throughs for calendar year
2000. That program memorandum defined the cost-to-charge ratio that is
used to calculate these payments as the overall hospital outpatient
cost-to-charge ratio. This is consistent with what we stated in our
April 7, 2000 final rule with comment period. The September program
memorandum contains the latest and most complete information available
on cost-to-charge ratio calculation for the hospital outpatient
prospective payment system.
Comment: One commenter assumed that we will use department level
cost-to-charge ratios after 2002 to determine if a particular
outpatient service qualifies for outlier payment. The commenter asked
if we will use a "national cost-to-charge mapping procedure" to
determine the appropriate department cost-to-charge ratios to use. The
commenter expressed concern about the appropriateness of that approach
because of the variability among providers in assigning costs to
departments. For this reason, the commenter recommended, if we use a
national cost-to-charge mapping procedure, we permit providers to
request outlier payments if they can demonstrate that the actual
department cost-to-charge ratio to which they assign costs for a
service results in a cost calculation that meets the outlier threshold.
Response: We plan to address this issue and seek comments on it in
the rulemaking process for the annual update for 2002.
Comment: One commenter urged us to publish annually the "cost
reporting
[[Page 67804]]
year" used to determine the cost-to-charge ratios that will be used in
determining outlier payments. The commenter also asked that we explain
how we computed cost-to-charge ratios for hospitals that have merged or
been acquired.
Response: On September 8, 2000, we issued Program Memorandum
Transmittal No. A-00-63 that describes the specific criteria we used
and provides detailed instructions for calculating the cost-to-charge
ratios for hospitals that have merged or been acquired. It also
identifies the specific cost reporting year end that was used to
calculate each provider's cost-to-charge ratio.
Comment: One commenter asked that we lower the outlier threshold
from 2.5 to 2.0. The commenter strongly recommended that we permanently
retain the lowered threshold to ensure appropriate patient care and
adequate provider reimbursement.
Response: We oppose lowering the outlier threshold to 2.0. As
discussed in our April 7, 2000 final rule with comment period, we set
the outlier threshold at 2.5 by simulating total prospective payment
system payments (using 1996 hospital outpatient data) and using an
iterative process to calculate a threshold under which outlier payments
are projected to equal 2.0 percent of total payments. If we lowered the
threshold as the commenter suggests, then the projected percentage of
outlier payments would increase and we would have to reduce the
conversion factor correspondingly (thus reducing the payment for all
non-outlier cases.)
2. Transitional Pass-Through for Additional Costs of Innovative Medical
Devices, Drugs, and Biologicals
Section 1833(t)(6) of the Act, as added by section 201(b) of the
BBRA 1999, requires the Secretary to make additional payments to
hospitals, outside the hospital outpatient prospective payment system
for a period of 2 to 3 years for specific items. The items designated
by the law are the following: Current orphan drugs, as designated under
section 526 of the Federal Food, Drug, and Cosmetic Act; current drugs,
biologic agents, and brachytherapy devices used for treatment of
cancer; current radiopharmaceutical drugs and biological products; and
new medical devices, drugs, and biologic agents, in instances where the
item was not being paid as a hospital outpatient service as of December
31, 1996, and where the cost of the item is "not insignificant" in
relation to the hospital outpatient prospective payment system payment
amount. In this context, "current" refers to those items for which
hospital outpatient payment is being made on the first date the new
prospective payment system is implemented.
Section 1833(t)(6)(C)(i) of the Act sets the additional payment
amounts for the drugs and biologicals as the amount by which the amount
determined under section 1842(o) of the Act (95 percent of the average
wholesale price (AWP)) exceeds the portion of the otherwise applicable
hospital outpatient department fee schedule amount that the Secretary
determines to be associated with the drug or biological. Section
1833(t)(6)(C)(ii) of the Act provides that the additional payment for
medical devices be the amount by which the hospital's charges for the
device, adjusted to cost, exceed the portion of the otherwise
applicable hospital outpatient department fee schedule amount
determined by the Secretary to be associated with the device. Under
section 1833(t)(6)(D), the total amount of pass-through payments for a
given year cannot be projected to exceed an "applicable percentage"
of total payments. For a year (or a portion of a year) before 2004, the
applicable percentage is 2.5 percent; for 2004 and subsequent years,
the applicable percentage is 2.0 percent. If the Secretary estimates
that total pass-through payments would exceed the caps, the statute
requires the Secretary to reduce the additional payments uniformly to
ensure the ceiling is not exceeded.
These pass-through payments must be made in a budget neutral
manner. In addition, these additional payments do not affect the
computation of the beneficiary coinsurance amount.
In the April 7, 2000 final rule with comment period, we specified
the types of items for which additional payments would be made;
described the amount of the additional payments; announced that these
payments would be limited to at least 2 years but not more than 3
years; and announced a cap of 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.
a. Definition of a Device
Comment: Some commenters argued that we have adopted a very narrow
definition of a device that restricts pass-through payments to
prosthetic devices and excludes valuable new nonprosthetics from pass-
through consideration. They asserted that the definition of a device
should mirror the definition set forth in the Federal Food, Drug, and
Cosmetic Act. They agreed that such a definition should exclude capital
equipment, reusable items, and incidental supplies. However, they
argued that we should clarify and revise our definition of devices to
those that are "implanted or inserted" and "remain with the patient
after the patient is released from the hospital outpatient
department."
Response: The definition of a device under the Food, Drug, and
Cosmetic Act is extremely broad. In summary, it refers to a device as
an instrument, apparatus, implement, machine, contrivance, implant, in
vitro reagent, or other similar or related article, including any
component, part, or accessory, which is--
Recognized in the official national formulary, or the U.S.
Pharmacopeia, or any supplement to them;
Intended for the use of the diagnosis of conditions other
than diseases such as pregnancy;
Intended to affect the structure or any function of the
body of man or other animals; or
Considered an in vitro diagnostic product, including those
previously regulated as drugs, and which does not achieve any of its
principal intended purposes through chemical action within or on the
body of man or other animals and which is not dependent upon being
metabolized for the achievement of any of its principal intended
purposes.
This definition is inappropriate for use in the context of the
transitional pass-through payments for several reasons: It would
include (as the commenters noted) items that are treated as supplies,
reusable items, or capital equipment by Medicare payment systems,
including the outpatient prospective payment system. It has a number of
inappropriate elements, including reference to pharmaceuticals and to
use in animals. Further, it is insufficiently specific for Medicare
purposes, as it does not mention medical necessity or the test of
whether the cost of a device is "not insignificant" relative to the
associated APC.
We have instead provided a definition of a device specific to the
purposes of the transitional pass-through provision. This definition
was presented in the preamble to the April 7, 2000 final rule with
comment period and revised in the August 3, 2000 interim final rule
with comment period, which added Sec. 413.43(e)(4).
In the August 3, 2000 interim final rule with comment period, we
revised the criteria that we had set forth in the
[[Page 67805]]
April 7, 2000 final rule with comment period to define a device. Among
the changes included is a revision of the criterion relating to whether
a device must remain with the patient. The new criterion
(Sec. 419.43(e)(4)(iv)) includes devices that are surgically implanted
or inserted in a patient "whether or not they remain with the patient
when the patient is released from the hospital outpatient department."
This change allows pass-through payments for devices that are
surgically implanted or inserted even temporarily in a patient
providing the devices meet all other requirements for pass-through
payments. As a result, nonprosthetic devices, such as cardiac
catheters, guidewires, or stents that commenters noted would be
excluded, may be eligible for pass-through status.
In Sec. 419.43(e)(4)(iv), we have retained the limitation to
devices that are surgically implanted or inserted because we believe
this offers the best interpretation of section 201(e) of the BBRA 1999,
which indicates that implantable devices are to be included in the
APCs. To further clarify how we interpret Sec. 419.43(e)(4)(iv), we
consider that a device is surgically implanted or inserted if it is
introduced into the human body through a surgically created incision.
We do not consider an item used to cut or otherwise create a surgical
opening to be a device that is surgically implanted or inserted. We
consider items used to create incisions, such as scalpels,
electrocautery units, biopsy apparatuses, or other commonly used
operating room instruments, to be supplies or capital equipment, and
hence, in accordance with Sec. 419.43(e)(4)(vi) or (vii), we consider
these items not eligible for transitional pass-through payments. We
believe the function of these items is different and distinct from that
of devices that are used for surgical implantation or insertion.
Generally, we would expect that surgical implantation or insertion of a
device occurs after the surgeon uses certain primary tools, supplies,
or instruments to create the surgical path or site for implanting the
device.
We have discovered some items that do not meet the requirement of
being surgically implanted or inserted were erroneously approved for
pass-through payments. Consequently, we will eliminate these items from
the list of items eligible for pass-through payments, effective January
1, 2001.
Comment: One commenter claimed that it was inappropriate for us to
change the definition of devices through letters to manufacturers. The
commenter believed that this was done outside the rulemaking process.
Response: We did not make a change to our policy through a letter.
As we began to evaluate the hundreds of applications for approval of
numerous devices, it was apparent that our definition for new medical
devices as published in our April 7, 2000 final rule with comment
period would have resulted in denials for items that we believe might
warrant pass-through payments. Examples of such potential denials are
many types of general and specialty catheters. Based on our experience
in reviewing these applications, we decided to change three of the
eight specific criteria that a new device must meet in order to be
eligible for pass-through payments. We published these changes in our
August 3, 2000 interim final rule with comment period.
b. Eligibility Criteria
Comment: Some commenters believed that we should accept and process
applications for items while they are undergoing the FDA review
process.
Response: We have accepted and begun processing all applications,
including those for which items are pending FDA approval or clearance.
However, in those instances where the FDA approval or clearance
documentation is missing, the application is considered incomplete. In
order for an item to be eligible for transitional pass-through
payments, it must have been approved or cleared by the FDA for
marketing. We will not make a final determination on any applications
that are pending FDA approval or clearance until all the required
documentation is submitted. Resources permitting, we will commence
preliminary processing of the applications when received. The applying
party is responsible for providing us with proper evidence of FDA
approval or clearance for any item, once approval or clearance has been
obtained. Once we receive documentation of FDA approval or clearance
and determine the item is determined to be eligible for transitional
pass-through payments, payment for the item will commence at the start
of the next quarterly update of pass-through items.
Comment: Some commenters asked that we clarify that items must meet
Medicare coverage requirements in order to qualify for pass-through
status.
Response: As stated in both our April 7, 2000 final rule with
comment period and our August 3, 2000 interim final rule with comment,
items that qualify for pass-through payments must be covered by
Medicare. They must have been determined to be reasonable and necessary
for the diagnosis or treatment of an illness or injury or to improve
the functioning of a malformed body part, as required by section
1862(a)(1)(A) of the Act. (See Sec. 419.43(e)(4)(iii).)
c. Investigational Device Exemption (IDE) Devices
Comment: Some commenters recommended that we automatically define
as "new" any device that receives an investigational device exemption
(IDE) from the FDA, with a Category B designation. They believed that
we should pay for IDE devices through the pass-through payment
methodology rather than limit the payment to no more than what is
currently paid for an equivalent device.
Response: As stated in our August 3, 2000 interim final rule with
comment period, we have changed the payment methodology for eligible
IDE Category B devices so that they will be paid using the transitional
pass-through methodology. Since these noninvestigational devices are
required to meet the same eligibility criteria as other devices, we
determined that they should be paid in a similar manner. However, we do
not accept the commenter's recommendation that all IDE Category B
devices "automatically" be considered as new. The statute defines
"new" medical device on the basis of a date certain (that is, payment
for the device was not being made as an hospital outpatient service as
of December 31, 1996) rather than based on a class of devices (such as
IDEs).
d. Removing Cost of Predicate Item
Comment: Some commenters stated that we did not have adequate data
to ensure appropriate removal of the costs for predecessor items
(particularly radiopharmaceuticals and devices) from their relevant
APCs. They advocated that we reevaluate this provision as soon as
possible after implementation of our new system and make necessary
changes.
Response: We will be continuously evaluating our data to remove the
costs of predecessor items from the pass-through payments. As of
January 1, 2001, a specific dollar amount will be deducted from
selected devices (see explanation below). Over time, such deductions
will be made, as we are able to make appropriate estimates from the
data.
e. Excluded Costs
Comment: A number of commenters stated that the APC construction
excluded costs for implantable devices billed with revenue codes 274,
275 and 278. The commenters recommended
[[Page 67806]]
that implantable devices associated with these revenue codes be
included on the pass-through list until data is collected to adequately
reflect the cost of such devices. In addition to claims that revenue
codes 274, 275 and 278 were not represented in the data, some
commenters alleged that implant procedures were infrequently performed
on an outpatient basis prior to 1997 and therefore the costs associated
with them were not represented in the data used to develop the APC
rates. Some commenters recommended, on that basis, that all implantable
devices be included for pass-through payment regardless of FDA approval
dates.
Response: Following enactment of the BBRA of 1999, we did not have
sufficient time to re-run our data to package the costs of implantable
device revenue centers into the APC weights and still be able to
publish a final rule in time to implement the prospective payment
system by July 1, 2000.
As of January 1, 2001, the APC rates will reflect the inclusion of
revenue codes 274, 275 and 278. While the aggregate amount of these
revenue centers is small (0.3 percent of total charges in 1996), the
costs of certain procedures such as implantation of cardiac pacemakers
did increase substantially. As detailed in section III.B.1 of this
interim final rule, some APC groups were modified because of the
inclusion of these revenue centers, and rates for some procedures will
increase to reflect these costs. A reduction in an amount equal to the
increase in the APC rates will be deducted from the relevant devices
that are either eligible for pass-through payments or that can be
billed for additional payment through the new technology APCs.
f. Effect on Conversion Factor
Comment: Some commenters believed that lowering the outpatient
prospective payment system conversion factor to reflect the 2.5 percent
transitional pass-through adjustment could affect hospitals' financial
health. They asserted that any risks to the financial health of
hospitals resulting from reducing the conversion factor should be
balanced against any benefits that would be gained from higher payments
for new drugs and devices. Another commenter advocated that we increase
the conversion factor if we find that the transitional pass-through
payments do not comprise 2.5 percent of the total outpatient
prospective payment system payments.
Response: Section 1833(t)(2)(E), as amended by section 201(c) of
the BBRA 1999, requires that transitional pass-through payments be
implemented in a budget neutral manner. We set prospective payment
system rates prospectively and, consistent with our policies in other
aspects of the prospective payment system, we will not adjust (upward
or downward) the conversion factor for a given year to account for the
difference between 2.5 percent and the actual percentage of pass-
through payments in a previous year.
g. Cost Significance Tests
Comment: Some commenters asserted that we could preclude some
worthwhile technologies from achieving pass-through status if we set
the "not insignificant" cost threshold at 25 percent of the APC
payment rate for the relevant procedure with which it is used. They
contend that technologies associated with higher payment APCs would be
more likely to be disqualified.
Response: We have lowered the cost threshold from 25 percent to 10
percent of the applicable fee schedule amount for the service
associated with the item. This change is effective for services
furnished on or after August 1, 2000.
Comment: A hospital association asked that we clarify how the "not
insignificant" criteria will be applied when a new device, drug, or
biological is associated with more than one APC. The commenter stated
that, under the current provisions of the rule, an item could be
determined to be eligible for pass-through payment when used in
performing a procedure in one APC, but not another. The commenter
suggested that an item that meets the criteria for one APC be treated
as a pass-through item for all APCs in which it is used.
Response: We agree with the stated approach. This has been the
policy that we have applied in processing applications.
Comment: One manufacturer stated that we did not make information
available on the "not insignificant" rule in sufficient time for
applicants to take the criteria into account in preparing applications
for payment effective August 1, 2000. The commenter alleged that the
term "not insignificant" can be interpreted widely and caused
manufacturers not to apply for all potentially eligible pass-through
items. The commenter recommended that we review applications submitted
for the following HCPCS codes to be certain that they meet the
published cost criteria and remove them from the pass-through list if
they do not. The commenter also advocated that we allow other
manufacturers to submit applications retroactive to July 1, 2000, to
assure that we are not promoting a competitive disadvantage for some
companies.
HCPCS Codes
C1029
C1034
C1061
C1072
C1073
C1074
C1100
C1101
C1155
Response: In order for a device to be included on the pass-through
list, it must meet the criteria for transitional pass-through payments.
These criteria include a test of whether the cost of a device is "not
insignificant" relative to the payment for the associated APC. This
test was first put forth in the April 7, 2000 final rule with comment
period, and subsequently revised in the August 3, 2000 interim final
rule with comment period. All the devices denoted by the HCPCS codes
listed above were tested and met the 10-percent "not insignificant"
test as well as the other applicable criteria. The "not
insignificant" test was applied uniformly to all applications that had
been received timely. We believe that permitting retroactive
applications is unwarranted (and would be inconsistent with principles
of prospectivity); moreover, resource and systems constraints would
make it infeasible to give retroactive effect to determinations of
eligibility for pass-through payments.
h. Brand-Specific Versus Categorization Approaches
Comment: Many commenters criticized us for implementing a brand-
specific approach to items on the pass-through list. Device
manufacturers in particular recommended a category scheme to classify
pass-through devices. Representatives of the device industry also
offered to assist us in creating the categories. They argued that a
category system would allow devices to be added immediately upon FDA
approval. They stated that under a category approach manufacturers
would only approach us to obtain new pass-through categories and codes
when items reflect a technological advance and are significantly more
costly than existing payment amounts.
Response: We adopted a trade-name specific approach for several
reasons. First, such an approach provides better information. Codes
that are largely item-specific allow us to track what procedures the
items are used with and costs of the items. When the pass-through
payments for an item ends, we would expect to have good information
[[Page 67807]]
for assigning it to relevant APCs and ensuring appropriate payment for
these APCs. Adopting a scheme with a significant degree of
categorization would require use of averages in making assignments and
setting payment rates. Decisions based on these more limited data would
be likely to lead to intensified concerns about the appropriateness of
APC assignment and payment.
Second, this approach permits finer discrimination in eligibility
decisions. An item-by-item approach allows us to be sure individual
items in fact meet the criteria for eligibility. Of major concern in
this instance is whether a device is "new" using the standard of the
statute. Section 1833(t)(6)(A) of the Act limits transitional pass-
through payment to those devices for which "* * * payment for the
device * * * as an outpatient hospital service under this part was not
being made as of December 31, 1996." Adopting categories would in some
cases mix "old" and "new" devices. In these instances, either some
old devices would get special treatment that they would not be eligible
for if they were examined on an item-specific basis, or an entire
category could be considered old, thus depriving some new devices from
special treatment they would be eligible for if they were examined on
an item-specific basis.
Third, an item-specific scheme avoids issues associated with the
design of categories needed for purposes of transitional pass-through
payments. It largely avoids concerns about what items should be in what
category or whether new categories should be created to accommodate
items that may appear to be little different from those in existing
categories.
Fourth, an item-specific approach allows us to assure that a newly
arriving device can obtain the full period of pass-through status it is
arguably eligible for under the statute. A categorization approach
would likely lead to latecomers being eligible for pass-through
payments for a shorter period. Insofar as revision to APC payment rates
reflected the costs of items in the category by the time the category
was terminated, the shorter period would be of little consequence.
However, if the costs of the late-coming item were significantly
higher, this procedure could appear objectionable. A solution in this
case would be to create a new code, which could be specific to that
item, thus departing from a categorization approach.
We recognize that a category approach would lessen concerns about
competitive disadvantages that may have been inadvertently created by
an item specific approach and about access to specific items by
hospitals and their patients. However, we found no satisfactory way of
establishing categories that would not run into difficulty regarding
the test of whether a device is "new" as described above.
Consequently, we are making no change in our approach.
Comment: Many commenters argued that competitive advantages have
resulted and will continue to result from using a brand-specific
approach to implementing transitional pass-through payments for
devices. Some commenters alleged that our use of the FDA approval date
as a proxy for determining payment in concert with the brand-specific
approach causes further competitive disadvantages. Some hospitals
claimed that the brand-specific approach would create winners and
losers if a device that one hospital uses obtains pass-through status,
but one that another hospital uses does not. A number of commenters
asserted that a category approach would decrease the administrative
burden on hospitals, manufacturers, and us that a brand-specific
approach for application and approval of new devices now incurs.
Response: It was never our intent to competitively disadvantage
anyone or any product. To the maximum extent possible, given the
limitations under the BBRA 1999 and our resource constraints, we have
worked closely with the pharmaceutical and medical device industries to
identify and resolve such issues. By October 1, 2000, we had determined
that more than 700 devices are eligible for pass-through payments.
Therefore, we believe that hospitals will receive additional payments
for many of the devices they use.
i. Issues Pertaining to Specific Items
Comment: A medical association advocated pass-through status for
the following devices: new pacemakers, implantable cardioverter
defibrillators, insertable loop recorders, electrophysiology catheters
(ablation and diagnostic), intracardiac echocardiography ultrasound
catheters, and advanced three-dimensional mapping system catheters.
Response: All of these items are already on the pass-through list.
For a complete list of items approved on the pass-through list, refer
to Addendum B of this rule for short descriptions of the items. Refer
to Program Memoranda Transmittals Nos.
A-00-42,
A-00-61 and
A-00-72 for
the long descriptors for each of the C-codes listed in Addendum B. We
are developing an additional program memorandum that we expect to issue
shortly. This additional program memorandum will contain a list of
additional devices, drugs, and new technology services that will be
effective January 1, 2001.
Comment: Several device manufacturers alleged that the following
devices were not included on the pass-through list:
PALMAZ Balloon-Expandable Stent
Corinthian IQ Biliary Stent
SMART Cordis Nitinol Stent
CARTO EP Navigation System Catheters
HYDROLYSER Catheter
Indigo Prostate Seeding Needle
Lioresal Intrathecal
SynchroMed and SynchroMed EL infusion pumps
Response: All of these devices have been approved for pass-through
payments and assigned C-codes. They have been assigned the following
codes: the PALMAZ Balloon-Expandable Stent, C8522; Corinthian IQ
Biliary Stent, C5004; SMART Cordis Nitinol Stent, C1372; CARTO EP
Navigation System Catheters, C1047; HYDROLYSER Catheter, C1054; Indigo
Prostate Seeding Needle, C1706; Lioresal Intrathecal, C9007, C9008,
C9009, and C9010; SynchroMed and SynchroMed EL infusion pumps, C8505
and C3800, respectively.
Comment: Another device manufacturer claimed that the following
devices were not included on the pass-through list:
Mitek Bone Anchors
Innovasive Bone Anchors
VAPR and VAPR Thermal T Electrode
Gynecare TVT Tension-Free Support for Incontinence System (TVT)
Gynecare Thermachoice Uterine Balloon Therapy System
Response: Many of the items above have been approved for pass-
through status and assigned C-codes. The Mitek and Innovasive Bone
Anchors have been assigned to C1109; VAPR and VAPR Thermal T Electrode,
to C1323; TVT Single-Use Tension-Free Vaginal Tape, to C1370; and the
Gynecare Thermachoice II Catheter, to C1056. However, some of the items
included in the Gynecare TVT Tension-Free Support for Incontinence
System and the Gynecare Thermachoice Uterine Balloon Therapy System did
not meet the criteria for pass-through status and, therefore, are
ineligible for additional payments. The eligible pass-through items are
listed in Addendum B.
Comment: A device manufacturer believed that we should have
approved the Targis System, which provides prostatic microwave
thermotherapy, for pass-through payments.
Response: We assigned the prostatic microwave thermotherapy
procedure to
[[Page 67808]]
a new technology APC, that is, APC 0980. In making this assignment, we
took into account the costs associated with performing this procedure,
including the cost of the Targis system. Therefore, we would not also
make a pass-through payment for the system.
Comment: A number of commenters contended that only 39 of the more
than 70 eligible radiopharmaceuticals have been given pass-through
status. They recommended that we approve the following
radiopharmaceuticals for pass-through payments:
Strontium Sr 82 Rubidium Rb 82 Generator
Sodium Chromate Cr-51
Co 57 Cobaltous Chloride
Co 57 Cyanocobalamin
Ferrous Citrate Fe59
Fludeoxyglucose F 18
Intrinsic Factor Concentrate Capsules
In 111 Imciromab (Myoscint)
In 111 Labeled WBCs, Platelets
I 123 and I 131 Hippurate
Iodinated I 131 Albumin (I 131 Albumin)
Iodinated I 125 Albumin (I 125 Albumin)
Iothalamate Sodium I 125 Albumin (I125 Iothalamate)
Technetium Tc 99m Pertechnetate
Technetium Tc 99m Albumin Colloid
Technetium Tc 99m Lidofenin
Technetium Tc 99m Tebroxime
Technetium Tc 99m Nofetumomab (Verluma)
Technetium Tc 99m HMPAO labeled WBCs
Technetium Tc 99m Human Serum Albumin
Technetium Tc 99m Serum Albumin (Tc 99m HSA kit)
Xenon XE 127 Gas
Response: While a number of radiopharmaceuticals are already on the
pass-through list, we are unable to add some of the ones listed above
because we do not have AWPs for them. The AWPs are the basis for
payment for these items and without the AWPs we cannot approve them for
pass-through payments. As soon as the AWPs are made available to us, we
will complete our review to determine their pass-through status. If
eligible, they will be added to the pass-through list during the
appropriate quarterly update cycle.
Comment: One commenter stated that our transitional pass-through
policy for devices precludes pass-through eligibility for capital
equipment and therefore does not provide a mechanism under our new
system for recognizing the incremental costs associated with capital
equipment. The commenter recommended that we recognize capital-
equipment costs through our new technology APCs.
Response: Under our new outpatient prospective payment system,
capital costs are not paid separately. Payment for these costs are
included in the total APC payment amount for each procedure or medical
visit and will be updated through our annual updating process.
Therefore, the new technology APCs will not be used to make separate
payments for capital related costs.
Comment: A number of commenters claimed that we denied pass-through
status for the contrast agents.
Response: As clarified in our August 3, 2000 interim final rule
with comment, contrast agents other than radiopharmaceuticals are
considered supplies and are not eligible for pass-through payments.
(See Sec. 419.43(e)(4)(vii).)
Comment: A medical association claimed that we denied pass-through
status requests for high dose rate brachytherapy. Another industry
group alleged that many brachytherapy related items that manufacturers
applied for were excluded from the pass-through list.
Response: Since publishing our initial list of potentially eligible
pass-through items to our website on March 9, 2000, we have added 38
brachytherapy items to our pass-through list. High-dose rate
brachytherapy will be eligible for pass-through payment effective for
services furnished on or after January 1, 2001.
j. Pass-Through Applications Process
Comment: Some commenters urged that we process transitional pass-
through applications in a more timely manner. A few other commenters
believed that we should have chosen a date later than July 14, 2000 as
the application deadline for the October 1, 2000 quarterly update for
pass-through items.
Response: We have committed considerable resources to process pass-
through applications in a timely manner. Since publication of our
preliminary list of 149 potentially eligible pass-through items on our
website on March 9, 2000, we have approved nearly 1000 additional items
for pass-through payments. We have instituted a coding strategy that
allows us to assign a temporary HCPCS code immediately to an eligible
pass-through item if a national HCPCS code has not been assigned. We
have committed to making quarterly updates to the pass-through list, a
commitment that is unprecedented in Medicare's history. We have
reviewed all applications timely submitted for each update cycle.
Unfortunately, however, we have had to defer items with significantly
unclear applications or for which sufficient information was not
included to determine that the item meets the statutory criteria. We
have endeavored to work closely with the applicants to obtain this
information and respond timely to their questions.
Regarding objections to setting a July 14, 2000 deadline for
receipt of pass-through applications for the October 1 update, this
deadline was established in order to evaluate the applications and make
the necessary systems modifications in time for the October release to
our fiscal intermediaries and standard systems maintainers.
Comment: One commenter believed that we should update our
transitional pass-through list more frequently than quarterly. Some
other commenters were concerned that the quarterly updating process
could potentially create systems problems for both HCFA and hospitals
that would delay payments. They believed that such a delay would, in
turn, create cash flow difficulties for hospitals. They urged that we
develop contingency plans to address cash flow problems resulting from
the transitional pass-through process.
Response: Because of the complexity of our new system, we cannot
institute systems changes more frequently than quarterly for pass-
through payments. While we believe that making quarterly updates to the
pass-through list will present challenges both for HCFA and the
hospital industry, we have not been advised that any hospital is
experiencing cash flow problems attributable to the transitional pass-
through process.
Comment: One commenter urged us to issue guidelines that detail the
planned methodologies, data sources, and associated timelines for
updating the pass-through list.
Response: Since March 10, 2000, we have published information on
our website which provides detailed instructions and deadlines for
submitting transitional pass-through applications. These instructions
have been revised as needed in order to clarify and update information
and may be found on the following HCFA website:
hcfa.gov/medlearn/refopps.
Comment: One commenter claimed that our method and timing of
assigning HCPCS codes to eligible transitional pass-through items would
preclude Medicare beneficiaries from receiving appropriate treatment.
The commenter also alleged that hospitals will not always be adequately
reimbursed for their costs for such items and that they will have an
incentive to switch to more invasive treatment options with higher
costs.
[[Page 67809]]
Response: We have expedited the process of assigning HCPCS codes to
pass-through items. When an item is determined eligible for pass-
through status, a temporary HCPCS code is assigned immediately in order
that hospitals may begin billing the item as soon as it is effective
for payment.
In addition, section 1833(t)(6)(C)(i) of the Act requires that the
hospital's additional payment for drugs and biologicals be determined
as the difference between the amount determined under section 1842(o)
of the Act (95 percent of AWP) and the portion of the hospital
outpatient department fee schedule amount determined by the Secretary
to be associated with those items. For devices, the additional payment
is the difference between the hospitals' charges adjusted to costs and
the portion of the applicable hospital outpatient department fee
schedule amount associated with the device. We believe that this
payment method will appropriately reimburse hospitals for eligible
pass-through items and that hospitals will act in a prudent manner and
not compromise their patients' safety and care.
k. Payment for Pass-Through Items
Comment: Several commenters questioned how payment would be made
when a pass-through item is included on an outpatient claim. Another
commenter stated that our April 7, 2000 final rule with comment period
does not state the actual payment amount that will be made for each
pass-through item, or provide a good reason for not updating drug and
biological average wholesale prices quarterly, or pledge timely
correction of payment amount errors. The latter commenter believed that
we should make available the actual APC payment rates for pass-through
items and institute quarterly pricing-updates for drug and biological
APCs.
Response: Transitional pass-through payments for devices are
established by taking the hospital charges for each billed item (on an
item-by-item basis), reducing them to cost by use of the hospital's
cost-to-charge ratio, and subtracting an amount representing the device
cost contained in the APC payments for procedures involving that
device. Note that for services furnished prior to January 1, 2001, we
have not subtracted an amount for the predicate device that is packaged
in the relevant APC. However, we will implement this policy beginning
with services furnished on or after January 1, 2001. These calculations
are all done in the outpatient prospective payment system pricer.
Because there are no predetermined APC payment rates for eligible pass-
through devices, we cannot publish them in the same manner as we
publish the APC payment rates for other services.
For drugs and biologicals, pass-through payments are determined
based on 95 percent of the AWP for the eligible drug or biological. We
described in our April 7, 2000 final rule (65 FR 18481) the process we
used to subtract the cost of the eligible drug or biological contained
in the APC payments for procedures involving that drug,
radiopharmaceutical or biological. The year 2000 AWPs for pass-through
drugs and biologicals on which payments are currently based will be
updated annually at the beginning of the next quarter following
publication of the updated values. Due to the complexity of our new
system, we cannot update AWPs quarterly as requested.
Comment: A number of commenters stated that the codes for drugs in
Addendum K of our April 2000 final rule are specific to the dosage
amount dispensed and asked what happens if the dosage dispensed to a
patient is not equal to the amount associated with the eligible codes.
The commenters requested additional information about how providers
should account for these situations. They asked if we would allow
providers to bill for the product amount associated with the container
opened to treat the patient and round up to the nearest whole billing
unit.
Response: The APC payment amount for drugs and biologicals is
established at the lowest dosage level for the specific drug or
biological. If the dosage required in treating the patient exceeds the
lowest level specified in the HCPCS code descriptor for the drug or
biological, providers may bill the number of units necessary to treat
the patient and round them up to the nearest unit. To determine the
payment for the drug or biological, multiply the number of billed units
by the APC payment amount.
Comment: One commenter stated that the APC payment amount for
Eptifibatide, a drug on the pass-through list, does not equal 95
percent of the average wholesale price ($6.28 per 5-mg. service unit).
The commenter claimed that the APC payment is 42 percent lower than 95
percent of the AWP. The commenter asked that we correct the payment
immediately.
Response: The correct APC payment amount for Eptifibatide
injection, 5 mg. is $12.57, of which $1.68 is the minimum unadjusted
coinsurance.
Comment: One commenter stated that the APC payment amount for
Quadramet, a pass-through drug, is incorrect. The commenter claimed the
AWP for this drug is $2,975 rather than $2,875, which the commenter
believed is the basis for our APC payment amount. The commenter stated
that the pass-through payment should be $942.08 instead of $910.42.
Response: The correct APC payment amount for Quadramet is $942.09.
Of this amount, $134.87 is the minimum unadjusted coinsurance.
Comment: A commenter stated that the APC payment amount for
Thyrogen, a pass-through drug, should be $494.00 rather than $404.18
per vial.
Response: The APC payment amount of $404.18 is for 0.9 mg. units of
Thyrogen rather than 1.1 mg., which appears to be the standard vial
dosage. However, because Thyrogen is not available in a vial dosage
less than 1.1 mg., we are eliminating the APC payment for 0.9 mg. units
(HCPCS code J3240) effective for outpatient prospective payment system
services furnished on or after January 1, 2001. We have established a
new code, C9108, for Thyrogen, 1.1 mg. with an APC payment amount of
$494.00. This new code is effective for outpatient prospective payment
system services furnished on or after January 1, 2001.
Comment: A medical association acknowledged our short lead-time for
implementing the transitional pass-through provision and urged that we
hold a series of face-to-face meetings with physicians and suppliers to
clarify and revise our pass-through policies.
Response: Since publishing our April 7, 2000 final rule with
comment period, we have met on numerous occasions with physicians and
representatives of hospitals, pharmaceutical companies and device
manufacturers. During these meetings, we have discussed our
transitional pass-through policies and clarified information regarding
the pass-through applications process.
Comment: One commenter stated that the April 7, 2000 final rule
with comment period requiring the submittal of applications for
national HCPCS codes to bill eligible transitional pass-through was
published after the application deadline had passed. The commenter
alleged that some manufacturers obtained information about the pass-
through provisions prior to publication of the final rule, submitted
their applications timely, and thus dominated the hospital outpatient
market.
Response: On March 9, 2000, we posted information on our website
similar to that contained in the April 7, 2000 final rule with comment
period about applying for national HCPCS codes for pass-through items.
We also
[[Page 67810]]
discussed the coding deadline with representatives of the
pharmaceutical and device manufacturers associations as well as with
hospital industry representatives through conference calls, meetings,
and e-mails. We note that the instructions and deadline for submitting
applications for a national HCPCS code are well established and were
published on HCFA's website (http://www.hcfa.gov/medicare/hcpcs.htm)
more than a year prior to publication of our April 7, 2000 final rule
with comment period. Subsequent to these publications, we adopted a new
system for assigning codes exclusively for pass-through items to
expedite their availability to the hospital industry and Medicare
beneficiaries. Therefore, interested parties applying for pass-through
status for items have not been required to obtain national HCPCS codes
for these items unless they want to bill other payment systems in
addition to the hospital outpatient prospective payment system.
l. Focus Medical Review
Comment: One commenter asked that we clarify why we intend to
conduct focused medical review of pass-through eligible drugs,
biologicals and medical devices.
Response: Our goal is to identify inappropriate billing for these
services and to ensure that payment is not made for noncovered
services.
3. Budget Neutrality Applied to New Adjustments
In the April 7, 2000 final rule with comment period, in accordance
with section 1833(t)(2)(E) of the Act, as amended by section 201(c) of
the BBRA 1999, we made the outlier and transitional pass-through
payment adjustments under section 1833(t)(5) and section 1833(t)(6) of
the Act, respectively, budget neutral. We did not receive any public
comments on this provision.
4. Limitation on Judicial Review
In the April 7, 2000 final rule with comment period (65 FR 18503-
18504), in accordance with section 1833(t)(12) of the Act (as amended
by section 201(d) of the BBRA 1999 and redesignated by section 202(a)
of the BBRA 1999), we implemented the extension of 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 factors used to determine additional
payments for certain medical devices, drugs, and biologicals, the
insignificant cost determination for these items, the duration of the
additional payment or portion of the prospective payment system payment
amount associated with particular devices, drugs, or biologicals, and
any pro rata reduction.
We did not receive any public comments on this provision.
5. Inclusion in the Hospital Outpatient Prospective Payment System of
Certain Implantable Items
In the April 7, 2000 final rule with comment period, we specified
that section 1833(t)(1)(B) of the Act, as amended by section 201(e) of
the BBRA 1999, provides that "covered OPD services" include
implantable items described in section 1861(s)(3), (6), or (8) of the
Act.
The conference report accompanying the BBRA 1999, H.R. Rept. No.
479, 106th Cong., 1st Sess. at 869-870, (1999), expresses the belief of
the conferees that the current DMEPOS fee schedule is not appropriate
for certain implantable medical items such as pacemakers,
defibrillators, cardiac sensors, venous grafts, drug pumps, stents,
neurostimulators, and orthopedic implants as well as items that come
into contact with internal human tissue during invasive medical
procedures, but are not permanently implanted. In the conference report
agreement, the conferees state their intention that payment for these
items be made through the hospital outpatient prospective payment
system, regardless of how they might be classified on current HCFA fee
schedules.
In the April 7, 2000 final rule with comment period, we included
the following in the list of items and services whose costs are
included in hospital outpatient prospective payment rates: Prosthetic
implants (other than dental) that replace all or part of an internal
body organ (including colostomy bags and supplies directly related to
colostomy care), and including replacement of these devices;
implantable DME; and implantable items used in performing diagnostic x-
rays, diagnostic laboratory tests, and other diagnostic tests. In
accordance with the BBRA 1999 provision, we require that an implantable
item be classified to the group that includes the service to which the
item relates. We indicated that we would continue to review the impact
of packaging implantables in future updates. For more detailed
information on this provision, refer to the April 7, 2000 final rule
with comment period (65 FR 18443-18444).
Comment: Two commenters (hospitals) expressed concern that the APC
for the Cyberonics-NeuroCybernetic Prosthesis (NCP) System, an
implantable device used to treat epilepsy patients with partial-onset
seizures, will not adequately reimburse hospitals for the cost of the
device and the implantation procedure cost. The hospitals recommended
that HCFA create a separate APC group for the NCP System implantation.
Response: The NCP System was approved for pass-through status
effective for services furnished on or after August 1, 2000 (see
Program Memorandum Transmittal No. A-00-42 issued on July 26, 2000).
The two components of this system, the NeuroCybernetic Prosthesis
Generator and the NeuroCybernetic Prosthesis Lead, will be paid based
on the hospital's charges that are converted to cost using the
hospital's assigned cost-to-charge ratio. These devices have been
assigned to two separate pass-through APCs (1048 and 1306,
respectively) and should be billed using HCPCS code C1048 for the
generator and C1306 for each lead.
Comment: Several commenters from physician practices and a device
manufacturer raised concerns that the APC payment level for the
Contigen Implant procedure is inadequate to cover the facility costs
and the Contigen Implant supplies. According to the commenters, the APC
reimbursement amount only covers the 2-3 Contigen Implant syringes used
per procedure. The commenters recommended that we map the Contigen
Implant procedure and the collagen skin test to higher paying
completely new APCs, to more adequately reflect reasonable costs for
syringes and skin tests used in the procedure, in addition to
appropriate facility fees.
Other commenters raised concerns that the separate APC
reimbursement for the pre-Contigen Implant procedure testing is
inadequate to reimburse for the reasonable cost of the supply. They
recommended that we allow payment of Contigen Implant syringes
according to the DMEPOS fee schedule.
One commenter recommended that we create a special ancillary APC to
cover Contigen Implant syringes and the collagen skin test.
Response: While we understand the commenters' concerns, Contigen
Implant syringes do not qualify for transitional pass-through status
because they do not meet all of the device criteria set forth in
Sec. 419.43(e)(4). Specifically, they are not items that are surgically
implanted or inserted in a patient. However, both collagen implant
[[Page 67811]]
material and the collagen skin test are paid as APCs (that is, APCs
6012 through 6016 and 343, respectively). We will examine data after
the first year of billing under the prospective payment system to
determine if we are adequately capturing the cost of performing these
procedures.
As stated in our April 7, 2000 final rule with comment period, we
will initiate the annual review process for the various components of
our system, including the APC groupings, in calendar year 2001 for
services furnished on or after January 1, 2002. We expect to publish
our proposed rule for 2002 in the spring of 2001.
Comment: A device manufacturer inquired as to what will happen when
devices are taken off the transitional pass-through list after 2 to 3
years. The commenter stated that the additional expense of these
implantable devices will require that HCFA reassign these CPT codes to
an APC that is comparable clinically and in terms of resources used at
the close of the transition period. If this does not occur, the
commenter indicated that hospitals would be seriously underpaid for the
use of these technologies and other technologies in similar
circumstances.
Response: As stated above, the BBRA 1999 allows for 2 to 3 years of
transitional pass-through payments to be made for new devices, drugs,
and biologicals. After the temporary payment period expires for any
item, its cost will be packaged with the relative procedure code or
medical visit and assigned to the APC group that is clinically related
and comparable in resources used. Thus, the APC groupings, weights, and
payments will be updated in a subsequent year to include costs
associated with former pass-through items.
Comment: A coalition of health care providers and insurers
indicated that providers should be allowed to report all DME,
orthotics, and prosthetic devices, both implantable and nonimplantable,
on the UB-92 to the fiscal intermediary. The fiscal intermediary should
be able to either pay for the item via the DMEPOS fee schedule or
through the APC. This also would allow a tracking system for future
ratesetting, and consolidate the billing into one claim. This would
consolidate all charges on one bill per encounter, which simplifies
processing and is consistent with other third party payer claims
processing as well as Medicare inpatient claims processing.
Response: Section 201(e) of the BBRA 1999 amended section
1833(t)(1)(B) of the Act to require that covered outpatient prospective
payment system services include implantable medical items, described in
section 1861(s)(3), (6), or (8) of the Act. These items were formerly
paid under the DMEPOS fee schedule. The statute is explicit in defining
which DME items are payable under the hospital outpatient prospective
payment system.
Also, we cannot adopt the suggested billing changes for DME as the
commenter suggested. All services that are billed through the fiscal
intermediaries, whether they are paid under the hospital outpatient
prospective payment system or DMEPOS, may be submitted on the UB-92 (or
the equivalent electronic transaction). However, there are numerous,
very exacting, specific criteria and rules that govern Medicare
coverage and payment for nonimplantable DME and oxygen. The DME
regional carriers are exclusively qualified to deal with these issues.
Therefore, claims for nonimplantable DME and oxygen cannot be billed to
the fiscal intermediaries. Instead, providers must continue to submit
claims for nonimplantable DME and oxygen to the DME regional carriers
using form HCFA-1500 (or the equivalent electronic transaction).
It should be noted that if a health care provider submits an
electronic claim for these services, the transaction must comply with
the standards adopted by the Secretary in the August 17, 2000 final
rule (65 FR 50312) Standards for Electronic Transactions. The
compliance date of that rule is October 16, 2002.
Comment: A device manufacturer expressed concern about how the new
system will change the payment mechanism for cochlear implants. Under
the DMEPOS fee schedule, payments were fixed and unrelated to hospital
charges. Now, under the new system, hospitals must properly establish
charges that, when multiplied by the ratio of cost to charges, provide
an accurate reflection of cost. This manufacturer was concerned that
they will have to collect data to determine the charges hospitals have
set for these devices and the applicable ratio of cost to charges. They
believe the charges may not have been set appropriately to be
consistent with the ratio of cost to charges. If not, pass-through
payments might be substantially less than the actual cost for these
medical devices.
This manufacturer indicated that it is working to obtain the
required charge and cost report data from providers of cochlear implant
procedures and will report back to us once it has these data. The
manufacturer requested that we agree to work with them in setting any
future update to the payment allowance recognizing the short timeframe
available to collect the data.
Response: We appreciate the commenter's offer to assist us in
collecting cost and charge data on cochlear implants billed by
hospitals. However, for purposes of making transitional pass-through
payments for new medical devices such as cochlear implants, it is not
necessary for manufacturers to obtain cost report data from hospitals
to assist us in developing hospital-specific, cost-to-charge ratios to
calculate these payments. We have already calculated these ratios and
assigned them to providers. Each provider is responsible for accurately
reporting its charges in order that we may calculate the appropriate
payment for the pass-through device.
6. Payment Weights Based on Median or Mean Hospital Costs
Section 1833(t)(2)(C) of the Act requires the Secretary to
establish relative payment weights for covered hospital outpatient
services. This section requires that the weights be developed using
data on claims from 1996 and data from the most recent available
hospital cost reports.
As specified in the April 7, 2000 final rule with comment period
(65 FR 18482), section 201(f) of the BBRA 1999 amended section
1833(t)(2)(C) of the Act to authorize the Secretary to base the
relative payments weights on median or mean hospital costs. In
implementing the BBRA 1999 provision, we decided to adopt as final our
previously proposed policy to base the relative payment weights on
median (as opposed to mean) costs. We had already used median costs to
reconstruct our database for the outpatient prospective payment system
group weights and conversion factors in a proposed rule and we believe
that this method is still valid, especially considering the time
constraints for implementation of the BBRA 1999 provision. We indicated
that, among other things, reconstructing our database to evaluate the
impact of using mean costs after the BBRA 1999 was enacted would have
delayed implementation of the hospital outpatient prospective payment
system rule.
Comment: A group of hospitals urged us to adopt a mean-based APC
relative weight system to implement section 201(f) of the BBRA 1999,
which authorizes, but does not require, the Secretary to use mean
(rather than median) costs in determining the APC payment weights. The
commenters contend that use of the geometric mean is standard in the
industry as the basis
[[Page 67812]]
for calculating payment weights for prospective payment systems. They
pointed out that the geometric mean is used because costs are not
distributed "normally" (that is, there are no negative costs) and
that for APCs that include low volume, high costs procedures, the
geometric mean is preferable for adequately accounting for these costs.
The commenters believed that our use of median costs also forced us to
select an arbitrary value for relative weight 1.0, because finding the
median of medians is meaningless. The commenters believed that, given
the Congress' clarification in section 201(f) of the BBRA 1999, we
should at least evaluate the impact of a mean-based system in our
system review for 2001.
Response: We plan to further evaluate the feasibility of using mean
rather than median costs for calculating APC payment weights in future
updates. In order to make a decision about whether we should change the
basis we are using for determining payment weights, we have to analyze
and rerun claims data and conduct extensive impact analyses to assess
the impact such a change would have on different types of providers and
different types of services.
7. Limitation on Variation of Costs of Services Classified Within a
Group
Section 1833(t)(2) of the Act was amended by section 201(g) of the
BBRA 1999 to limit the variation in resource use among the procedures
or services within an APC group. Specifically, section 1833(t)(2) of
the Act provides that the items and services within a group cannot be
considered comparable with respect to the use of resources if the
highest cost item or service within a group is more than 2 times
greater than the lowest cost item or service within the same group. The
Secretary is to use either the mean or median cost of the item or
service.
Section 1833(t)(2) of the Act, as amended, also allows the
Secretary to make exceptions to this limit on the variation of costs
within each group in unusual cases such as low volume items and
services, although we may not make such an exception in the case of a
drug or biological that has been designated as an orphan drug under
section 526 of the Federal Food, Drug, and Cosmetic Act.
In the April 7, 2000 final rule with comment period, we elected to
use the median cost because we have continued to set the relative
payment weights for each APC based on median hospital costs. We
modified the composition of the APC groups and then made additional
changes to the APC in response to public comments on individual or
serial APCs.
In determining whether or not to accept changes recommended by
commenters, we focused on five criteria that are fundamental to the
definition of a group within the APC system. The decision to accept or
decline a modification to an APC group was determined based on whether
the change enhanced, detracted from, or had no effect on the integrity
of an APC group within the context of the following five criteria:
Resource homogeneity;
Clinical homogeneity;
Provider concentration;
Frequency of services; and
Minimal opportunity for upcoding and code fragmentation.
For a full explanation of these criteria, refer to the April 7,
2000 final rule with comment period (65 FR 18457).
After we modified the composition of the APC groups based on the
recommendations of commenters, we applied the median cost variation
limit required by section 201(g) of the BBRA 1999 to the revised APC
groups. As a result of our analysis of the array of median costs within
the revised APC groups, we had to split some otherwise clinically
homogeneous APC groups into smaller groups. We listed the APC groups
that we had designated as exceptions to the "two times" requirement
and our reasons for granting the exception. We based the exceptions on
factors such as low procedure volume, suspect or incomplete cost data,
concerns about inaccurate or incorrect coding, or compelling clinical
arguments. We indicated that we would be examining the extent to which
the APC reorganization due to the "two times" rule results in
upcoding (refer to the April 7, 2000 final rule with comment period (65
FR 18458-18475)).
Comment: We received requests to examine 51 APCs that commenters
alleged violated the "two times" rule.
Response: We reevaluated the APCs listed below, upon which we
received comments, and found that most of them did not warrant
revision. We received no new information about these APC groups that
would alter our previous decision. These APCs are identified below
under numbers 1 and 2.
Our review also revealed that a few APC groups did warrant revision
and we have reconfigured these APCs accordingly. We have listed these
APCs under number 3. In addition, our review identified some APCs that
are additional exceptions to the "two times" requirement. These APC
groups and our reasons for the exception are listed below under number
4.
In reviewing the APC groups for conformance to the "two times"
requirement, we exempted from the analysis codes for unlisted services
and procedures and those codes that represent less than 2 percent of
the claims in the APC (our test for low volume).
1. Taking into account the exemptions mentioned above, the
following APC groups that we reviewed based on comments have not been
reconfigured:
0005 Level II Needle Biopsy/Aspiration Except Bone Marrow
0076 Endoscopy Lower Airway
0088 Thrombectomy
0090 Level II Implantation/Removal/Revision of Pacemaker, AICD or
Vascular Device
0111 Blood Product Exchange
0112 Extracorporeal Photopheresis
0121 Level I Tube changes and Repositioning
0143 Lower GI Endoscopy
0146 Level I Sigmoidoscopy
0149 Level II Anal/Rectal Procedure
0150 Level III Anal/Rectal Procedure
0151 Endoscopic Retrograde Cholangio-Pancreatography (ERCP)
0162 Level III Cystourethroscopy and other Genitourinary Procedures
0260 Level I Plain Film Except Teeth
0262 Plain Film of Teeth
0265 Level I Diagnostic Ultrasound Except Vascular
0268 Guidance Under Ultrasound
0269 Echocardiogram Except Transesophageal
0278 Diagnostic Urography
0280 Level II Diagnostic Angiography and Venography Except Extremity
0282 Level I Computerized Axial Tomography
0283 Level II Computerized Axial Tomography
0284 Magnetic Resonance Imaging
0286 Myocardial Scans
0290 Standard Non-Imaging Nuclear Medicine
0291 Level I Diagnostic Nuclear Medicine Excluding Myocardial Scans
0292 Level II Diagnostic Nuclear Medicine Excluding Myocardial Scans
0294 Level I Therapeutic Nuclear Medicine
0297 Level II Therapeutic Radiologic Procedures
0301 Level II Radiation Therapy
0303 Treatment Device Construction
0304 Level I Therapeutic Radiation Treatment Preparation
0305 Level II Therapeutic Radiation Treatment Preparation
2. The following APC groups were listed in the April 7, 2000 final
rule
[[Page 67813]]
with comment period as exceptions to the "two times" rule and our
review found no factual basis for modifying our decision:
0030 Breast Reconstruction/Mastectomy
0264 Level II Miscellaneous Radiology Procedures
0274 Myelography
0279 Level I Diagnostic Angiography and Venography Except Extremity
0311 Radiation Physics Services
0371 Allergy Injections
3. We have reconstructed the four APCs shown below as a result of
adding the cost of certain devices used in performing procedures
included in these APCs. We discuss this change in section III.B. of
this preamble.
0080 Diagnostic Cardiac Catheterization
0081 Non-Coronary Angioplasty or Atherectomy
0082 Coronary Atherectomy
0083 Athrectomy
4. Following are additional exceptions to the "two times" rule
and our reasons for the exceptions. We are excepting these APCs from
the "two times limit" on an interim basis, until we can review data
from the first year of billing under the hospital outpatient
prospective payment system.
0142 Small Intestine Endoscopy: The codes in APC 0142 are
clinically similar and should show a relative progression of cost with
slight increases in complexity. This effect does not occur, presumably
due to low volume (although exceeding our low volume threshold) or
inconsistent coding. Splitting this APC into two, based on current
data, would be unjustified.
0145 Therapeutic Anoscopy: The costs of the codes in this APC are
aberrant, with several of them exceeding the costs of more extensive
procedures such as sigmoidoscopy and colonoscopy.
0152 Percutaneous Biliary Endoscopic Procedures: The codes in this
APC have so few occurrences that we cannot justify splitting the group.
Several of the codes call for the use of devices such as stents that
may be paid for separately.
0161 Level II Cystourethroscopy and other Genitourinary
Procedures: The costs of the codes in this APC are aberrant, with more
comprehensive codes costing less than the base codes.
0195 Level V Female Reproductive Procedures: This is a low volume
APC, with aberrant cost data. In several instances, codes that are more
comprehensive cost less than the related, simpler code.
0296 Level I Therapeutic Radiologic Procedures: We believe the
codes at the lower end of the median cost in this APC would be
underpaid if we were to move them to a lower-paying APC.
0300 Level I Radiation Therapy: We believe we would underpay codes
at the lower end of median cost in this APC if we were to move them to
a lower-paying APC.
0312 Radioelement Applications: We believe the costs in this very
low volume APC are aberrant. However, the group is completely coherent
clinically. The radioactive elements related to these codes would
receive separate payment.
0313 Brachytherapy: We believe the costs in this very low volume
APC are aberrant. The group is coherent clinically. The radioactive
elements related to these codes would receive separate payment.
0314 Hyperthermic Therapies: This APC has an extremely low volume,
with aberrant costs.
8. Annual Review of the Components of the Hospital Outpatient
Prospective Payment System
In the April 7, 2000 final rule with comment period (65 FR 18501-
18502), we indicated that, in accordance with section 1833(t)(9) (as
redesignated and revised by sections 201(h) and 202(a) of the BBRA
1999), we would review and update annually, for implementation
effective January 1 of each year, the APC groups, the relative payment
weights, and the wage and other adjustments that are components of the
hospital outpatient prospective payment system. In accordance with
section 201(h)(2) of the BBRA 1999, an annual review process will begin
in calendar year 2001 for the hospital outpatient prospective payments
that would take effect for services furnished on or after January 1,
2002. This review process will involve consultation with an expert
advisory panel. We will provide notice of the formation of the expert
advisory panel in the Federal Register. The expert outside advisory
panel will review and make recommendations to us on the clinical
integrity of the groups and weights and may use data other than those
collected or developed by us for their review and advisory functions.
We note that in section III of this preamble, we are updating the
wage index values and the conversion factor under the hospital
outpatient prospective payment system effective for calendar year 2001.
We also are making appropriate changes to the APC groups to reflect
additions and deletions of CPT codes and changes to a limited number of
APCs to incorporate the cost of certain devices used in performing
those procedures that were excluded from our initial ratesetting
methodology.
Comment: One commenter stated that the wage index for the
Hattiesburg, Mississippi Metropolitan Statistical Area (MSA), .7306,
was printed incorrectly in our April 7, 2000 final rule with comment
period. The commenter stated that use of this value would result in an
underpayment for that area. The commenter further stated that, "the
appropriate wage index for the Hattiesburg, Mississippi MSA for the
fiscal year 2000 is .7634." The commenter was concerned that we had
previously acknowledged this error and promised to correct it via a
program memorandum to fiscal intermediaries dated April 2000
(Transmittal Number A-00-17), but had failed to do so in our April 7,
2000 final rule with comment period.
Response: We apologize for the confusion. The fiscal year 2000
hospital inpatient prospective payment system wage index value for the
Hattiesburg, Mississippi (MSA) was changed from .7306 to .7634 in
accordance with section 153 of the BBRA 1999 that required us to
include wage data from Wesley Medical Center in calculating the wage
index for this MSA. On August 1, 2000, we published in the Federal
Register an interim final rule with comment period (65 FR 47026) that
included Hattiesburg's new hospital inpatient prospective payment
system wage index. For services paid under the hospital outpatient
prospective payment system, the new wage index value is effective for
services furnished on or after August 1, 2000.
9. Copayment Amounts Not Affected by Pass-Throughs
Section 1833(t) of the Act, as established by the BBA of 1997,
includes a mechanism designed to achieve a beneficiary coinsurance
level equal to 20 percent of the prospectively determined payment rate
established for the service. In the April 7, 2000 final rule with
comment period, we specified how a copayment amount is calculated
annually for each APC group under the hospital outpatient prospective
payment system.
We also explained that sections 201(a) and (b) of the BBRA 1999
amended section 1833(t) of the Act to provide for additional payments
to hospitals for outlier cases and for certain medical devices, drugs,
and biologicals and that these additional payments to hospitals will
not affect copayment amounts. Redesignated section 1833(t)(8)(D) of the
Act, as amended by section 201(i) of the BBRA 1999, provides that the
copayment amount is to be computed as
[[Page 67814]]
if outlier adjustments, adjustments for certain medical devices, drugs,
and biologicals, as well as any other adjustments we may establish
under section 1833(t)(2)(E) of the Act, had not occurred.
In addition, we specified that section 202 of the BBRA 1999 added a
new section 1833(t)(7) to the Act to provide transitional corridor
payments to certain hospitals through calendar year 2003 and
indefinitely for certain cancer centers. Section 1833(t)(7)(H) of the
Act provides that the transitional corridor payment provisions will
have no effect on determining copayment amounts.
We specified that copayment from beneficiaries will not be
collected for the additional payments made to hospitals (outlier and
transitional pass-throughs) by Medicare. Beneficiary copayment amounts
will be calculated as if the outlier and transitional pass-throughs had
not occurred (65 FR 18487-18488).
When a drug or device pass-through payment is reduced by the
otherwise applicable APC payment amount that is associated with the
drug or device, it is only the portion of the payment that represents
an additional pass-through payment that is not subject to copayment.
The portion that does not represent an additional pass-through payment
will be subject to copayment.
We did not receive any public comments on this provision.
10. Extension of Cost Reductions
In the April 7, 2000 final rule with comment period (65 FR 18439),
we announced that, in accordance with section 1861(v)(1)(S)(ii) of the
Act (as amended by section 201(k) of the BBRA 1999), the 5.8 and 10
percent reductions for hospital operating and capital costs,
respectively, would extend until the first date that the hospital
outpatient prospective payment system is implemented (which was August
1, 2000).
We did not receive any public comments on this provision.
11. Clarification of Congressional Intent Regarding Base Amounts Used
in Determining the Hospital Outpatient Prospective Payment System
Section 201(l) of the BBRA 1999 provided that, "With respect to
determining the amount of copayments described in paragraph (3)(A)(ii)
of section 1833(t) of the Act, as added by section 4523(a) of 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." In accordance with this provision, in the April 7, 2000
final rule with comment period (65 FR 18482-18493), we explained how we
determined APC group weights, calculated an outpatient prospective
payment system conversion factor, and determined national prospective
payment rates, standardized for area wage variations, for the APC
groups. We then explained how we calculated the aggregate hospital
outpatient prospective payment to hospitals in a budget neutral manner
and how we calculated beneficiary coinsurance amounts for each APC
group.
We did not receive any public comments on this provision.
12. Transitional Corridors for Application of Outpatient Prospective
Payment System
Section 1833(t)(7) of the Act, as added by section 202(a)(3) of the
BBRA 1999, provides for payment adjustments during a transition period
to limit the decline in payments under the outpatient prospective
payment system for hospitals. These additional payments are to be
implemented without regard to budget neutrality and are in effect
through 2003.
In the April 7, 2000 final rule with comment period (65 FR 18499-
18500), we specified that, from the date the prospective payment system
is implemented through 2003, a provider, including a CMHC, will receive
an adjustment if its prospective payment system payments for outpatient
services furnished during the year is less than a set percentage of its
pre-BBA amount for that year. The pre-BBA amount is the product of the
reasonable cost the hospital incurs for prospective payment system
services furnished during the year and the payment-to-cost ratio for
covered prospective payment system services furnished during the cost
reporting period ending in calendar year 1996. Additionally, we
provided that small rural hospitals with 100 or fewer beds and cancer
hospitals will be held harmless under this provision. Small rural
hospitals will be held harmless for services furnished before January
1, 2004. The hold-harmless provision applies permanently to cancer
centers. We announced that we will make interim payments to the
affected hospitals subject to retrospective adjustments and that these
provisions do not affect beneficiary coinsurance. Finally, we specified
that this provision is not subject to budget neutrality.
a. Interim Payment Versus Final Settlement
Comment: One commenter recommended that we make retroactive
payments to hospitals in those "situations where underpayments have
been made between the prospective payment system payments as compared
to the pre-prospective payment system amounts." Another commenter
asked that we set forth the process that would be used to determine
retroactive payment adjustments if the hospital's interim payments are
higher or lower than its actual experience. The commenter further asks
that we state whether the interim payments will be compared to
outpatient payments shown on settled or audited cost reports.
Response: Final transitional corridor payments are determined based
on a provider's settled cost report. At the time the cost report is
settled, the reasonable costs incurred by the provider to furnish
outpatient prospective payment system services during the calendar year
are known and that amount is then multiplied by the provider's 1996
payment-to-cost ratio to calculate the pre-BBA amount. The pre-BBA
amount for a calendar year is compared to the actual prospective
payment system payments the provider received to determine whether the
provider may be entitled to a transitional corridor payment. Although
the final transitional corridor payment is based on a settled cost
report, beginning in October 2000, we have been making monthly interim
payments to providers based on estimates of what their transitional
corridor payments should be based on the monthly bills the provider
submits. The monthly payments are designed to maintain some additional
cash flow to providers that may otherwise realize significant losses on
services that are being paid under the prospective payment system.
b. Payment-to-Cost Ratios
Comment: One commenter argued that our formula for calculating the
base payment-to-cost ratio for the transitional corridor payments does
not comport with the statutory requirements. The commenter stated that
we define the denominator of the base payment-to-cost ratio to be
"[the] reasonable cost of these services for the period, without
applying the cost reductions under section 1861(v)(1)(S) of the Act."
The commenter contends that the phrase "without applying the cost
reductions under section 1861(v)(1)(S) of the Act" is not included in
section 1833(t)(7)(F)(ii)(II) of the Act, as
[[Page 67815]]
amended by section 212 of the BBRA 1999. The commenter claimed that by
defining the denominator in this manner, the payment-to-cost ratio is
understated and transitional corridors payments to hospitals would be
reduced. The commenter stated that such a reduction is contrary to
Congressional intent and urged us to modify our base payment-to-cost
denominator set forth in Sec. 419.70(f)(2)(ii) to exclude the phrase
"without applying the cost reduction under section 1861(v)(1)(S) of
the Act."
Response: The phrase "without applying the cost reductions under
section 1861(v)(1)(S) of the Act" was intended to make clear that a
hospital's 1996 "reasonable costs" do not include the effects of the
reductions in section 1861(v)(1)(S) of the Act. We did not mean to
suggest that we were taking the hospital's 1996 "reasonable costs"
an 
