[Federal Register: November 30, 2001 (Volume 66, Number 231)] [Rules and Regulations] [Page 59905-59954] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr30no01-31] [[pp. 59905-59954]] Medicare Program; Changes to the Hospital Outpatient Prospective Payment System for Calendar Year 2002 [[Continued from page 59904]] [[Page 59905]] Prosthesis, is no longer on the list, and APC 0259, Level VI ENT Procedures, has been added to the list. These changes result from the application of the limit on the variation of costs of services classified within a group (the "two-times" rule). APC 0185 has been deleted due to the application of this rule. The device-related procedures that had been included with APC 0185 have been incorporated into APC 0259. As a result, APC 0259 has been added to the list of APCs with device costs reflected in their rates, on the basis of the same costs that had been included in APC 0185. We received several comments on this proposal, which are summarized below. Comment: Several commenters asked for clarification of the methodology used in selecting the 25 APCs for which we calculated reductions. Response: We described our methodology for selecting the 25 APCs in some detail in the proposed rule (66 FR 44706). As we stated there, we reviewed the APCs to determine which of them contained services that are associated with a category of devices eligible for a transitional pass-through payment. We carefully examined those APCs with a high frequency of claims in the data, and those that were associated with high-cost devices. We selected those APCs with patterns of billing that could be reasonably associated with devices, that is, with charges in revenue centers that are likely to be used for devices (revenue codes 272 (sterile supplies), 275 (pacemakers), and 278 (other implants)). Comment: Several commenters noted that for 11 of the 25 APCs for which we have identified offsets, the amount of the proposed APC payment for 2002 has either decreased or increased by less than the amount of the offset. For these 11 APCs, Medicare's combined payments for the device and procedure would thus be reduced effective January 1, 2002. Response: The estimate of the offset did not affect the APC rates. Any changes in the APC rates were due to the recalibration of the relative weights using the 1999-2000 data. The offset amount will be subtracted from the pass-through payment amount that would have been made otherwise. Thus, the combined payment for the device and procedure is necessarily reduced for all 25 APCs relative to what the payment would have been in 2002 without the offset. In other words, payments for all 25 device/procedure combinations would have been higher in 2002 by the amount of the offset if we had not identified the packaged costs and applied the offset. We assume, however, that the commenter means that payments for the device/procedure combinations associated with 11 of the 25 APCs will decrease in 2002 relative to the combined payments in 2001. Relative to the payments for 2001, the combined payment for the device and procedure could increase or decrease due to a number of factors affecting the relative weights for the APCs and the costs of the devices themselves. In the cases identified by the commenter, these factors decreased the proposed rates, or increased those rates by less than the amount of the offset, and thus decreased the payment in 2002 for the device/procedure combination relative to the payment for the combination in 2001. Comment: One commenter endorsed the idea of making a reduction in pass-through payments for the costs already represented in the APC rates. However, the commenter expressed concern that reducing the pass- through payment will likely result in underpayments to hospitals that are using the associated devices with procedures, and overpayments to hospitals performing procedures without using the associated devices. Response: We are not certain that the commenter understands how the pass-through offset works. The purpose of this measure is to ensure that the Medicare program pays only for the incremental costs of the new technology, over and above what is already represented in the APC rate for the associated procedure. The offset is applied only when a hospital bills for a device or other pass-through item in conjunction with billing for a procedure in an associated APC. When a hospital bills for a pass-through item along with a procedure, the hospital receives the full APC payment for the procedure. The offset is subtracted from the cost of the pass-through item. The hospital thus receives payment for the cost of the pass-through item over and above the offset amount. Without applying the offset, hospitals would be paid twice for the same costs. There is thus no underpayment for hospitals that are using pass-through items. When a hospital does not bill for a pass-through item with an APC, the hospital receives the full APC payment but no pass-through payment. The offset is not applied in the absence of a bill for a pass-through item. There is thus no overpayment for hospitals that are not using pass-through items. The hospital is paid only for the technology costs incorporated into the base APC rate, not for the incremental costs of new technologies. Comment: One commenter raised a question about a possible consequence of applying predetermined amounts to subtract from pass- through payments as offsets for the device-related costs already included in the APC rates. The commenter observed that use of a hospital-wide cost-to-charge ratio in determining the amount of a pass- through payment makes it possible for the predetermined offset amount to exceed the calculated cost of a device to the hospital. The commenter therefore recommended that the reduction for the costs included in the APC rates never exceed the amount of the pass-through payment. Response: We agree that the application of the pass-through offset should never result in a negative payment amount to the hospital. Our systems do not in fact compute pass-through payment amounts of less than zero. Comment: One commenter recommended that, if we implement a pro rata reduction in the transitional pass-through payments, the same percentage reduction should be applied to the offsets for the technology costs already represented in the APCs associated with pass- through items. Such a reduction in the offset would help hospitals to maintain beneficiary access to new technology services in the event of a substantial pro rata reduction. Response: The statute provides for applying a pro rata reduction only to the pass-through payments themselves, not to the offsets that are required to account for the costs that are represented in the payment rates for associated APCs. Reducing the offset would also increase the estimate of pass-through spending and require a larger pro rata reduction. We are therefore unable to accept the commenter's recommendation. We note, however, that the pro rata reduction is applied to the pass-through payment amount only after the offset. Comment: One commenter endorsed the concept of incorporating pass- through device costs into their associated APCs, but raised a specific question about the device costs associated with APC 0182, Insertion of Penile Prosthesis. The commenter contended that a review of the median cost files suggests that numerous claims could not have included device costs, even though the whole point of the procedure is to implant a device. As a result, the commenter contended that both the pass-through offset for the device and any upward adjustment to incorporate device costs into the APC can only be understated. Two commenters inquired about APC 0108, Insertion/Replacement/Repair of Cardioverter- Defibrillator Leads. The [[Page 59906]] commenter contended that the $5,768 that we have determined as representing device costs in that APC is far too low, since the average device costs between $22,000 and $23,000 in 1996. Response: The first commenter is mistaken in thinking that we published a methodology for incorporating device costs into the APCs in the proposed rule. Rather, we published a methodology for identifying device costs that are already represented in the rates. (We published a methodology for incorporating device costs into the APCs in the November 2, 2001 final rule announcing the CY 2002 conversion factor and the pro rata reduction of transitional pass-through payments (66 FR 55857).) In developing our estimate of the device costs included in the APC rates, we used that portion of hospital costs that were allocated to those revenue centers in which device charges were likely to be billed. Hospitals have considerable flexibility in determining which revenue centers to assign charges, and we believe that in many cases they have allocated device charges to general supply centers. We are unable to separate the device charges from the other charges assigned to those revenue centers. We were thus unable to use costs from those centers in developing our estimates of the device costs associated with the APC rates. As a result, our estimate of the device costs in the APC rates might conceivably be understated. We believe that it does represent, however, a reasonably conservative estimate. We do not know the source of the other commenter's information about the cost for a specific device, but we believe that our offsets accurately capture the costs for device costs that are included in the current APC rates, net of all discounts, rebates, etc. Comment: Several commenters questioned whether we would deduct from pass-through payments the full amount of the offset for the device costs reflected in associated APCs in cases where the payment for the associated APC is reduced due to the multiple procedures discount. Some of these commenters also recommended a methodology for making an appropriate adjustment. Specifically, they recommended that the multiple procedure discount be applied only to the nondevice-related portion of the APC payment amount. Response: We agree with the commenters that the full pass-through offset should not be applied when the APC associated with the use of the device is subject to the multiple procedure discount of 50 percent. The purpose of the offset is to ensure that the program is not making double payment for any portion of the cost associated with the use of a pass-through item. The offset should therefore reflect that portion of the cost for the pass-through item actually reflected in the payment that is received for the associated APC. We believe that the most straightforward methodology for applying this principle is simply to reduce the offset amount by 50 percent whenever the multiple procedure discount applies to the associated APC. Comment: One commenter asked how the offset is applied when one pass-through device is billed with more than one of the 25 APCs in which we have identified costs associated with pass-through items. And conversely, the commenter wondered what happens when two or more devices are billed with only one of the 25 APCs with offsets. Response: The purpose of the offset is to avoid paying twice for costs that are represented both in the APC rates and in the costs of pass-through items. When one pass-through device is billed with two or more APCs with device-related costs, we would be double paying for some costs if we applied only one offset to the pass-through payment. We therefore apply all the offsets for the APCs on a bill when only one device is billed. As we have discussed above, however, the offset for the second APC would be reduced by 50 percent when the multiple service discount applies to that APC. Conversely, the offset is applied only once when one APC is billed, no matter how many devices are billed along with the APC. To apply the offset more than once would be to double-count the pass-through costs represented in that APC. We employed the following methodology in incorporating 75 percent of the device pass-through costs into the costs that are used to establish the APC relative weights. We used a crosswalk that we developed as part of the methodology for estimating total pass-through spending as the basis for determining the device costs that are to be included in setting the relative weight for each APC. This crosswalk matches devices to the primary procedures in which they are used. In developing the total pass-through estimate, we used this crosswalk to produce a device package for each APC associated with device use, based on the one or more devices used in the procedures included in the APC. We then adjusted the costs of each package by subtracting the costs already represented in the payment amount for the APC. (These are the costs that are shown in column 3 of Table 5 below.) In order to account for these costs in determining the new relative weights, we added 75 percent of the costs in this adjusted package to the costs at the claim level for each procedure that uses the package of devices in the APC. At this point, we determined a revised median cost for the APC. That new median cost in turn was used as the basis for calculating the APC's new relative weight. It is important to note that the median cost of an APC will not necessarily increase by the same amount as the costs that are folded into the APC. The middle number (that is, the median) in the ordered sequence of the costs for services in an APC would only vary by the same amount as the folded-in costs if every number in the sequence were increased by the amount of those folded-in costs. However, as we explained in the November 2, 2001 final rule concerning the pro rata reduction on transitional pass-through payments (FR 66 55862-5863), the device costs folded into an APC will not be uniformly distributed among the procedures in that APC. This is because procedures in an APC may require different types or numbers of devices, and some procedures may not require devices at all. Therefore, the increase in median cost for an APC is unlikely to exactly equal the amount of the costs folded into the APC. In the November 2, 2001 final rule, we also discuss in detail how the increase in APC rates due to the incorporation of these pass- through costs will be offset against the 2002 pass-through payments. Table 5 shows the amount of the offsets that we will apply for each APC that contains device costs. Column 4 of Table 5 shows the amount of the offset for each APC into which costs have been folded employing the methodology we have just described. Column 5 then shows the total offset that is to be applied for each APC. For the 25 APCs in which we had previously identified device costs, the amount of the offset in column 5 is the sum of the amount in column 3 (the amount of the offset due to the device costs that we had previously identified in the APC) and the amount in column 4 (the amount of the offset due to the costs that have just been folded in). For all the other APCs listed in the table, the amounts in column 4 and column 5 are identical (and there is no entry in column 3). This is because we had not previously identified device costs that were already represented in the payment amounts for these APCs. [[Page 59907]] Table 5.--Offsets To Be Applied for Each APC That Contains Device Costs ---------------------------------------------------------------------------------------------------------------- Device costs Additional already device costs Total office APC Description reflected in folded into for device APC rate APC rate costs ---------------------------------------------------------------------------------------------------------------- 1 2.................................... 3 4 5 ---------------------------------------------------------------------------------------------------------------- 0032........................... Insertion of Central Venous/Arterial $73.79 $276.41 $350.20 Catheter. 0046........................... Open/Percutaneous Treatment Fracture NA 91.63 91.63 or Dislocation. 0048........................... Arthroplasty with Prosthesis......... NA 501.91 501.91 0057........................... Bunion Procedures.................... NA 155.76 155.76 0070........................... Thoracentesis/Lavage Procedures...... NA 24.94 24.94 0080........................... Diagnostic Cardiac Catheterization... 164.27 124.21 288.48 0081........................... Non-Coronary Angioplasty or 307.06 353.78 660.84 Atherectomy. 0082........................... Coronary Atherectomy................. 242.95 1,187.08 1,430.03 0083........................... Coronary Angioplasty................. 528.64 365.49 894.13 0084........................... Level I Electrophysiologic Evaluation NA 9,783.24 9,783.24 0085........................... Level II Electrophysiologic NA 580.82 580.82 Evaluation. 0086........................... Ablate Heart Dysrhythm Focus......... NA 1,299.58 1,299.58 0087........................... Cardiac Electrophysiologic Recording/ NA 1,964.38 1,964.38 Mapping. 0088........................... Thrombectomy......................... 162.72 251.47 414.19 0089........................... Insertion/Replacement of Permanent 3,175.70 3,242.08 6,417.78 Pacemaker and Electrodes. 0090........................... Insertion/Replacement of Pacemaker 2,921.06 2,196.00 5,117.06 Pulse Generator. 0094........................... Resuscitation and Cardioversion...... NA 17.31 17.31 0103........................... Miscellaneous Vascular Procedures.... NA 202.60 202.60 0104........................... Transcatheter Placement of 428.16 798.68 1,226.84 Intracoronary Stents. 0106........................... Insertion/Replacement/Repair of 657.59 1,038.44 1,696.03 Pacemaker and/or Electrodes. 0107........................... Insertion of Cardioverter- 6,803.85 10,987.63 17,791.48 Defibrillator. 0108........................... Insertion/Replacement/Repair of 6,940.27 19,438.20 26,378.47 Cardioverter-Defibrillator Leads. 0111........................... Blood Product Exchange............... NA 203.11 203.11 0115........................... Cannula/Access Device Procedures..... NA 121.15 121.15 0117........................... Chemotherapy Administration by NA 29.02 29.02 Infusion Only. 0118........................... Chemotherapy Administration by Both NA 27.49 27.49 Infusion and Other Technique. 0119........................... Implantation of Devices.............. NA 3,325.05 3,325.05 0120........................... Infusion Therapy Except Chemotherapy. NA 34.10 34.10 0121........................... Level I Tube Changes and NA 5.09 5.09 Repositioning. 0122........................... Level II Tube Changes and 72.55 212.27 284.82 Repositioning. 0124........................... Revision of Implanted Infusion Pump.. NA 3,282.80 3,282.80 0144........................... Diagnostic Anoscopy.................. NA 126.75 126.75 0151........................... Endoscopic Retrograde Cholangio- 60.92 0.00 60.92 Pancreatography (ERCP). 0152........................... Percutaneous Biliary Endoscopic 107.61 0.00 107.61 Procedures. 0153........................... Peritoneal and Abdominal Procedures.. NA 33.60 33.60 0154........................... Hernia/Hydrocele Procedures.......... 108.11 369.57 477.68 0161........................... Level II Cystourethroscopy and other NA 7.12 7.12 Genitourinary Procedures. 0162........................... Level III Cystourethroscopy and other NA 312.55 312.55 Genitourinary Procedures. 0163........................... Level IV Cystourethroscopy and other NA 889.80 889.80 Genitourinary Procedures. 0179........................... Urinary Incontinence Procedures...... NA 3,359.66 3,359.66 0182........................... Insertion of Penile Prosthesis....... 2,238.90 543.66 2,782.56 0202........................... Level VIII Female Reproductive Proc.. 505.32 1,215.08 1,720.40 0203........................... Level V Nerve Injections............. NA 416.39 416.39 0207........................... Level IV Nerve Injections............ NA 61.60 61.60 0222........................... Implantation of Neurological Device.. 4,458.57 9,510.40 13,968.97 0223........................... Implantation of Pain Management 421.33 3,307.74 3,729.07 Device. 0225........................... Implantation of Neurostimulator 1,182.00 11,862.15 13,044.15 Electrodes. 0226........................... Implantation of Drug Infusion NA 3,341.85 3,341.85 Reservoir. 0227........................... Implantation of Drug Infusion Device. 3,810.46 2,354.31 6,164.77 0229........................... Transcatherter Placement of 1,074.41 391.45 1,465.86 Intravascular Shunts. 0237........................... Level III Posterior Segment Eye NA 138.46 138.46 Procedures. 0246........................... Cataract Procedures with IOL Insert.. 146.82 0.00 146.82 0248........................... Laser Retinal Procedures............. NA 1,262.93 1,262.93 0259........................... Level VI ENT Procedures.............. 12,407.52 3,724.65 16,132.17 0264........................... Level II Miscellaneous Radiology NA 60.06 60.06 Procedures. 0312........................... Radioelement Applications............ NA 1,201.84 1,201.84 0685........................... Level III Needle Biopsy/Aspiration NA 208.20 208.20 Except Bone Marrow. 0686........................... Level V Skin Repair.................. NA 458.65 458.65 0687........................... Revision/Removal of Neurostimulator NA 1,432.44 1,432.44 Electrodes. 0688........................... Revision/Removal of Neurostimulator NA 6,195.52 6,195.52 Pulse Generator Receiver. 0692........................... Electronic Analysis of NA 639.86 639.86 Neurostimulator Pulse Generators. [[Page 59908]] VIII. Conversion Factor Update for CY 2002 Section 1833(t)(3)(C)(ii) of the Act requires us to update the conversion factor used to determine payment rates under the OPPS on an annual basis. Section 1833(t)(3)(C)(iv) of the Act, as redesignated by section 401 of the BIPA, provides that for 2002, the update is equal to the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act, reduced by one percentage point. Further, section 401 of the BIPA increased the conversion factor for 2001 to reflect an update equal to the full market basket percentage increase amount. In the November 2, 2001 final rule, we announced that the conversion factor for CY 2002 is $50.904 (66 FR 55864) based on an increase factor of 2.3 percent for 2002 and a wage index budget neutrality adjustment of 0.9936. IX. Summary of and Responses to MedPAC Recommendations On March 1, 2001 the Medicare Payment Advisory Commission (MedPAC) issued its annual report to Congress, including several recommendations related to the OPPS. In the August 24, 2001 proposed rule, we responded to these recommendations (66 FR 44707-44708). MedPAC Recommendation: MedPAC has offered two recommendations regarding the update to the conversion factor in the OPPS. The first recommendation is that the Secretary should not use an expenditure target to update the conversion factor. The second recommendation is that Congress should require an annual update of the conversion factor in the OPPS that is based on the relevant factors influencing the costs of efficiently providing hospital outpatient care, and not just the change in input prices. Response: Section 1833(t)(3)(C)(ii) of the Act requires the Secretary to update the conversion factor annually. Under section 1833(t)(3)(C)(iv) of the Act the update is equal to the hospital market basket percentage increase applicable under the hospital inpatient PPS, minus one percentage point for the years 2000 and 2002. The Secretary has the authority under section 1833(t)(3)(C)(iv) of the Act to substitute a market basket that is specific to hospital outpatient services. Finally, section 1833(t)(2)(F) of the Act requires the Secretary to develop a method for controlling unnecessary increases in the volume of covered hospital outpatient services, and section 1833(t)(9)(C) of the Act authorizes the Secretary to adjust the update to the conversion factor if the volume of services increased beyond the amount established under section 1833(t)(2)(F) of the Act. In the September 8, 1998 proposed rule on the OPPS, we indicated that we were considering the option of developing an outpatient- specific market basket and invited comments on possible sources of data suitable for constructing one (63 FR 47579). We received no comments in response to this invitation, and we therefore announced in the April 7, 2000 final rule that we would update the conversion factor by the hospital inpatient market basket increase, minus one percentage point, for the years 2000, 2001, and 2002 (65 FR 18502). As required by section 401(c) of the BIPA, we made payment adjustments effective April 1, 2001 under a special payment rule that has had the effect of providing a full market basket update in 2001. We are, however, working with a contractor to study the option of developing an outpatient- specific market basket and would welcome comments and recommendations regarding appropriate data sources. We will also study the feasibility of developing appropriate adjustments for factors that influence the costs of efficiently providing hospital outpatient care, such as productivity increases and the introduction of new technologies, and the availability of appropriate sources of data for calculating the factors. In the September 8, 1998 proposed rule on the OPPS, we proposed employing a modified version of the physicians' sustainable growth rate system (SGR) as an adjustment in the update framework to control for excess increases in the volume of covered outpatient services (63 FR 47586-47587). In response to comments on this proposal, we announced in the April 7, 2000 final rule that we had decided to delay implementation of a volume control mechanism, and to continue to study the options with a contractor (65 FR 18503). We will take MedPAC's recommendation into consideration in making a decision, and before implementing volume control mechanism we will publish a proposed rule with an opportunity for public comment. MedPAC Recommendation: MedPAC recommends that the Secretary should develop formalized procedures in the OPPS for expeditiously assigning codes, updating relative weights, and investigating the need for service classification changes to recognize the costs of new and substantially improved technologies. Response: Beginning with the April 7, 2000 final rule implementing the OPPS, we have outlined a comprehensive process to recognize the costs of new technology in the new system. One component of this process is the provision for pass-through payments for devices, drugs, and biologicals (see the discussion in conjunction with the next MedPAC recommendation). The other component is the creation of new APC groups to accommodate payment for new technology services that are not eligible for transitional pass-through payments. We assign new technology services that cannot be appropriately placed within existing APC groups to new technology APC groups, using costs alone (rather than costs plus clinical coherence) as the basis for the assignment. We describe revised criteria for assignment to a new technology group in section VI.G. of this preamble. When it is necessary, creation of new technology APC groups involves establishment of new codes. New codes are established through a well-ordered process that operates on an annual cycle. The cycle starts with submission of information by interested parties no later than April 1 of each year and ends with the announcement of new codes in October. As we stated previously, in the absence of an appropriate HCPCS code, we would consider creating a HCPCS code that describes the procedure or service. These codes would be solely for hospitals to use when billing under the OPPS. We have also provided a mechanism for moving these services from the new technology APCs to clinically related APCs as part of the annual update of the APC groups. As described in section VI of this preamble, a service is retained within a new technology APC group until we have acquired adequate data that allow us to assign the service to an appropriate APC. We use the annual APC update cycle to assign the service to an existing APC that is similar both clinically and in terms of resource costs. If no such APC exists, we create a new APC for the service. MedPAC Recommendation: MedPAC recommends that pass-through payments for specific technologies should be made in the OPPS only when a technology is new or substantially improved and adds substantially to the cost of care in an APC. MedPAC believes that the definition of "new" should not include items whose costs were included in the 1996 data used to set the OPPS payment rates. Response: The statute requires that, under the OPPS, transitional pass-through payments are made for certain drugs, devices, and biologicals. The [[Page 59909]] items designated by the statute to receive these pass-through payments include the following:Current orphan drugs, as designated under section 526 of the Federal Food, Drug, and Cosmetic Act. Current drugs and biologicals used for the treatment of cancer, and brachytherapy and temperature monitored cryoablation devices used for the treatment of cancer. Current radiopharmaceutical drugs and biologicals. New drugs and biologicals in instances in which the item was not being paid as a hospital outpatient service as of December 31, 1996, and when the cost of the item is "not insignificant" in relation to the OPPS payment amount. Effective April 1, 2001, categories of Medical devices when the cost of the category is "not insignificant" in relation to the OPPS payment amount. We are publishing a separate interim final rule in which we lay out the criteria for establishing categories of devices eligible for pass- through payments. Section 1833(t)(6) of the Act provides that once a category is established, a specific device may receive a pass-through payment for 2 to 3 years if the device is described by an existing category, regardless of whether it was being paid as a hospital outpatient service as of December 31, 1996 or its cost meets the "not insignificant" criterion. Thus, the statute allows for certain devices that do not meet MedPAC's recommended limitation on a "new" device to receive transitional pass-through payments. However, no categories are created on the basis of devices that were paid for on or before December 31, 1996. That is, while devices paid for on or before December 31, 1996 can be included in a category, we would establish a category only on the basis of devices that were not being paid as hospital outpatient services as of December 31, 1996. MedPAC Recommendation: MedPAC recommends that pass-through payments for specific technologies in the OPPS should be made on a budget- neutral basis and that the costs of new or substantially improved technologies should be factored into the update of the outpatient conversion factor. Response: The statute requires that the transitional pass-through payments for drugs, devices, and biologicals be made on a budget neutral basis. Estimated pass-through payments are limited under the statute to 2.5 percent (and up to 2.0 percent for 2004 and thereafter) of estimated total program payments for covered hospital outpatient services. We adjust the conversion factor to account for the proportion of total program payments for covered hospital outpatient services, up to the statutory limit, that we estimate will be made in pass-through payments. As we have discussed in response to MedPAC's recommendation concerning an update framework for the OPPS conversion factor, we will study the feasibility of including appropriate adjustments for factors, including introduction of new technologies, that influence the costs of efficiently providing hospital outpatient care within such a framework. MedPAC Recommendation: MedPAC recommends that the Congress should continue the reduction in outpatient coinsurance to achieve a 20 percent coinsurance rate by 2010. Response: For most services that Medicare covers, the program is responsible for 80 percent of the total payment amount, and beneficiaries pay 20 percent. However, under the cost-based payment system in place for outpatient services before the OPPS, beneficiaries paid 20 percent of the hospital's charges for these services. As a result, coinsurance was often more than 20 percent of the total payment amount for the services. The BBA established a formula under the OPPS that was designed to reduce coinsurance gradually to 20 percent of the total payment amount. Under this formula, a national copayment amount was set for each service category, and that amount is to remain frozen as payment rates increase until the coinsurance percentage falls to 20 percent for all services. On average, beneficiaries paid about 16 percent less in copayments for hospital outpatient services during 2000 under the OPPS than they would have paid under the previous system. However, it is true that the coinsurance remains higher than 20 percent of the Medicare payment amount for many services. Subsequent legislation has placed caps on the coinsurance percentages to speed up this process. Specifically, section 111 of BIPA amended section 1833(t)(8)(C)(ii) of the Act to reduce beneficiary coinsurance liability by phasing in a cap on the coinsurance percentage for each service. Starting on April 1, 2001, coinsurance for a single service furnished in 2001 cannot exceed 57 percent of the total payment amount for the service. The cap will be 55 percent in 2002 and 2003, and will be reduced by 5 percentage points each year from 2004 to 2006 until coinsurance is limited to 40 percent of the total payment for each service. The underlying process for decreasing coinsurance will also continue during this period (see discussion in section IV.A. of this preamble). However, MedPAC projects that under current law, it would take until 2029 to reach the goal of 20 percent coinsurance for all services. We agree with MedPAC's goal of continuing the reduction in outpatient coinsurance, and we would welcome enactment of a practical measure to do so. We received no comments on our responses to the MedPAC recommendations. X. Provider-Based Issues A. Background and April 7, 2000 Regulations On April 7, 2000, we published a final rule specifying the criteria that must be met for a determination regarding provider-based status (65 FR 18504). Since the beginning of the Medicare program, some providers, which we refer to as "main providers," have functioned as a single entity while owning and operating multiple departments, locations, and facilities. Having clear criteria for provider-based status is important because this designation can result in additional Medicare payments for services furnished at the provider-based facility, and may also increase the coinsurance liability of Medicare for those services. The regulations at Sec. 413.65 define provider-based status as "the relationship between a main provider and a provider-based entity or a department of a provider, remote location of a hospital, or satellite facility, that complies with the provisions of this section." Section 413.65(b)(2) states that before a main provider may bill for services of a facility as if the facility is provider-based, or before it includes costs of those services on its cost report, the facility must meet the criteria listed in the regulations at Sec. 413.65(d). Among these criteria are the requirements that the main provider and the facility must have common licensure (when appropriate), the facility must operate under the ownership and control of the main provider, and the facility must be located in the immediate vicinity of the main provider. The effective date of these regulations was originally set at October 10, 2000, but was subsequently delayed and is now in effect for cost reporting periods beginning on or after January 10, 2001. Program instructions on provider-based status issued before that date, found in Section 2446 of the Provider Reimbursement Manual--Part 1 (PRM- [[Page 59910]] 1), Section 2004 of the Medicare State Operations Manual (SOM), and CMS Program Memorandum (PM) A-99-24, will apply to any facility for periods before the new regulations become applicable to it. (Some of these instructions will not be applied because they have been superseded by specific legislation on provider-based status, as described in item X.C below). B. Provider-Based Issues/Frequently Asked Questions Following publication of the April 7, 2000 final rule, we received many requests for clarification of policies on specific issues related to provider-based status. In response, we published a list of "Frequently Asked Questions" and the answers to them on the CMS web site at www.hcfa.gov/medlearn/provqa.htm. (This document can also be obtained by contacting the CMS (formerly, HCFA) Regional Office.) These Qs and As did not revise the regulatory criteria, but do provide subregulatory guidance for their implementation. C. Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) On December 21, 2000, the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-554) was enacted. Section 404 of BIPA contains provisions that significantly affect the provider-based regulations at Sec. 413.65. Section 404 includes a grandfathering provision for facilities treated as provider- based on October 1, 2000; alternative criteria for meeting the geographic location requirement; and criteria for temporary treatment as provider-based. 1. Two-Year "Grandfathering" Under section 404(a) of BIPA, any facilities or organizations that were "treated" as provider-based in relation to any hospital or CAH on October 1, 2000 will continue to be treated as such until October 1, 2002. For the purpose of this provision, we interpret "treated as provider-based" to include those facilities with formal CMS determinations, as well as those facilities without formal CMS determinations that were being paid as provider-based as of October 1, 2000. As a result, existing provider-based facilities and organizations may retain that status without meeting the criteria in the regulations under Secs. 413.65(d), (e), (f), and (h) until October 1, 2002. These provisions concern provider-based status requirements, joint ventures, management contracts, and services under arrangement. Thus, the provider-based facilities and organizations affected under section 404(a) of BIPA are not required to submit an application for or obtain a provider-based status determination in order to continue receiving reimbursement as provider-based during this period. These provider-based facilities and organizations will not be exempt from the Emergency Medical Treatment and Active Labor Act (EMTALA) responsibilities of provider-based facilities and organizations (revised Sec. 489.24(b) and new Sec. 489.24(i)) or from the obligations of hospital outpatient departments and hospital-based entities in Sec. 413.65(g), such as the responsibility of off-campus facilities provide written notices to Medicare beneficiaries of coinsurance liability. These rules are not pre-empted by the grandfather provisions of BIPA section 404 because they do not set forth criteria that must be met for provider-based status as a department of a hospital, but instead identify responsibilities that flow from that status. These responsibilities become effective for hospitals on the first day of the hospital's cost reporting period beginning on or after January 10, 2001. 2. Geographic Location Criteria Section 404(b) of BIPA provides that those facilities or organizations that are not included in the grandfathering provision at section 404(a) are deemed to comply with the "immediate vicinity" requirements of the new regulations under Sec. 413.65(d)(7) if they are located not more than 35 miles from the main campus of the hospital or critical access hospital. Therefore, those facilities located within 35 miles of the main provider satisfy the immediate vicinity requirement as an alternative to meeting the "75/75 test" under Sec. 413.65(d)(7). In addition, BIPA provides that certain facilities or organizations are deemed to comply with the requirements for geographic proximity (either the "75/75 test" or the "35-mile test") if they are owned and operated by a main provider that is a hospital with a disproportionate share adjustment percentage greater than 11.75 percent and is (1) owned or operated by a unit of State or local government, (2) a public or private nonprofit corporation that is formally granted governmental powers by a unit of State or local government, or (3) a private hospital that has a contract with a State or local government that includes the operation of clinics of the hospital to ensure access in a well-defined service area to health care services for low-income individuals who are not entitled to benefits under Medicare or Medicaid. These geographic location criteria are permanent. While those facilities or organizations treated as provider-based on October 1, 2000 are covered by the 2-year grandfathering provision noted above, the geographic location criteria at section 404(b) of BIPA and the regulations at Sec. 413.65(d)(7) will apply to facilities or organizations not treated as provider-based as of that date, effective with the hospital's cost reporting period beginning on or after January 10, 2001. Beginning October 1, 2002, these criteria will also apply to the grandfathered facilities. 3. Criteria for Temporary Treatment as Provider-Based Section 404(c) of BIPA also provides that a facility or organization that seeks a determination of provider-based status on or after October 1, 2000 and before October 1, 2002 shall be treated as having provider-based status for any period before a determination is made. Thus, recovery for overpayments will not be made retroactively for noncompliance with the provider-based criteria once a request for a determination during that time period has been made. For hospitals that do not qualify for grandfathering under section 404(a) of BIPA, a request for provider-based status should be submitted to the appropriate CMS Regional Office (RO). Until a uniform application is available, at a minimum, the request should include the identity of the main provider and the facility or organization for which provider-based status is being sought and supporting documentation to demonstrate compliance with the provider-based status criteria in effect at the time the application is submitted. Once such a request has been submitted on or after October 1, 2000, and before October 1, 2002, CMS will treat the facility or organization as being provider-based from the date it began operating as provider-based (as long as that date is on or after October 1, 2000) until the effective date of a CMS determination that the facility or organization is not provider-based. Facilities requesting a provider-based status determination on or after October 1, 2002 will not be covered by the provision concerning temporary treatment as provider-based in section 404(c) of BIPA. Thus, as stated in Sec. 413.65(n), CMS ROs will make provider-based status effective as of the earliest date on which a request for determination has been made and all requirements for provider-based status in effect as of the date of the request are shown to have been met, not on the date [[Page 59911]] of the formal CMS determination. If a facility or organization does not qualify for provider-based status and CMS learns that the provider has treated the facility or organization as provider-based without having obtained a provider-based determination under applicable regulations, CMS will review all payments and may seek recovery for overpayments in accordance with the regulations at Sec. 413.65(j), including overpayments made for the period of time between submission of the request or application for provider-based status and the issuance of a formal CMS determination. D. Commitment To Re-Examine EMTALA Applicability to Off-Campus Hospital Locations, and to Further Revise Provider-Based Regulations As explained in the proposed rule published on August 24, 2001, (p. 44709) we are aware that many hospitals and physicians continue to have significant concerns with our policy on the applicability of EMTALA to provider-based facilities and organizations. We intend to re-examine these regulations and, in particular, reconsider the appropriateness of applying EMTALA to off-campus locations. We plan to review these regulations with a view toward ensuring that these locations are treated in ways that are appropriate to the responsibility for EMTALA compliance of the hospital as a whole. At the same time, we want to ensure that those departments that Medicare pays as hospital-based departments are appropriately integrated with the hospital as a whole. Because of these considerations, we stated in the preamble to our August 24, 2001 proposals that we intend to publish a proposed rule to address these issues more fully. In response to our statements, we received several comments, which are summarized below. Comment: Several commenters expressed approval of the statement, in the preamble to the August 24, 2001 proposed rule, that CMS plans to reconsider the appropriateness of applying EMTALA to off-campus hospital locations. The commenters offered to work with CMS in establishing further policy in this area. Response: We appreciate the commenters' support, and look forward to working with them on these important issues. Comment: One commenter stated that since CMS is planning to reconsider the appropriateness of applying EMTALA to off-campus hospital locations it should, while the review is taking place, either withdraw the regulations requiring EMTALA compliance at off-campus hospital facilities, or not implement those regulations. Response: We agree that the issues need to be reviewed carefully. EMTALA affords important protections to individuals who come to hospitals to seek care for possible emergency medical conditions. Thus, any change in the scope of the EMTALA regulations must be considered very thoroughly before it is undertaken. At the same time, we are well aware that many hospitals continue to be concerned about what they view as the excessive financial and administrative burden of complying with EMTALA at off-campus locations. In view of the complexity of the issues under view, and in consideration of the very significant impact that any change could have on the health and safety of hospital patients, we remain convinced that it would not be appropriate to anticipate the conclusion of that review by withdrawing or rescinding the regulations at this time. For the same reason, we are not adopting the suggestion that we suspend implementation of the current regulations. Comment: Several commenters recommended that CMS publish additional regulations clarifying various issues related to the criteria for provider-based status. The commenters offered to work with CMS in establishing further policy in this area. Response: We appreciate the commenters' support, and look forward to working with them on these important issues. E. Changes to Provider-Based Regulations To fully implement the provisions of section 404 of BIPA and to codify the clarifications currently stated only in the Qs and As on provider-based status, as described above, we proposed to revise the regulations as follows. 1. Clarification of Requirements for Adequate Cost Data and Cost Finding (Sec. 413.24(d)) As part of the April 7, 2000, final rule implementing the prospective payment system for hospital outpatient services to Medicare beneficiaries, under Sec. 413.24, Adequate Cost Data and Cost Finding, we added a new paragraph (d)(6), entitled "Management Contracts." Since publication of the final rule, we have received several questions concerning the new paragraph. In response to these questions, we proposed to revise that paragraph to clarify its meaning. In addition, for further clarity, we proposed to revise the coding and title of that material. We proposed to redesignate Sec. 413.24(d)(6)(i) as Sec. 413.24(d)(6) and Sec. 413.24(d)(6)(ii) as Sec. 413.24(d)(7). As revised, paragraph (d)(6) would address the situation when the main provider in a provider-based complex purchases services for a provider-based entity or for a department of the provider through a contract for services (for example, a management contract), directly assigning the costs to the provider-based entity or department and reporting the costs directly in the cost center for that entity or department. In any situation in which costs are directly assigned to a cost center, there is a risk of excess cost in that cost center resulting from the directly assigned costs plus a share of overhead improperly allocated to the cost center that duplicates the directly assigned costs. This duplication could result in improper Medicare payment to the provider. Therefore, when a provider has purchased services for a provider-based entity or for a provider department, like general service costs of the provider (for example, like costs in the administrative and general cost center) must be separately identified to ensure that they are not improperly allocated to the entity or the department. If the like costs of the provider cannot be separately identified, the costs of the services purchased through a contract for the provider-based entity or provider department must be reclassified to the main provider and allocated among the main provider's benefiting cost centers. For costs of services furnished to free-standing entities, we proposed to clarify in revised Sec. 413.24(d)(7), that the costs that a provider incurs to furnish services to free-standing entities with which it is associated are not allowable costs of that provider. Any costs of services furnished to a free-standing entity must be identified and eliminated from the allowable costs of the servicing provider, to prevent Medicare payment to that provider for those costs. This may be done by including the free-standing entity on the cost report as a nonreimbursable cost center for the purpose of allocating overhead costs to that entity. If this method would not result in an accurate allocation of costs to the entity, the provider must develop detailed work papers showing how the cost of services furnished by the provider to the entity were determined. These costs are removed from the applicable cost centers of the servicing provider. This revision is not a change in the policy, but instead is a clarification to the policy set forth in the April 7, 2000 [[Page 59912]] final rule. We received no comments on this proposal and are adopting it without change. 2. Scope and Definitions (Sec. 413.65(a)) In Q/A 9 published on the CMS (formerly, HCFA) web site at www.hcfa.gov/medlearn/provqa.htm,we identified specific types of facilities for which provider-based determinations would not be made, since their status would not affect either Medicare payment levels or beneficiary liability. (This document may also be obtained by contacting the CMS (formerly, HCFA) Regional Office.) The facilities identified in Q/A 9 are ambulatory surgical centers (ASCs); comprehensive outpatient rehabilitation facilities (CORFs); home health agencies (HHAs); skilled nursing facilities (SNFs); hospices; inpatient rehabilitation units that are excluded from the inpatient PPS for acute hospital services; independent diagnostic testing facilities and any other facilities that furnish only clinical diagnostic laboratory tests; facilities furnishing only physical, occupational or speech therapy to ambulatory patients, for as long as the $1500 annual cap on coverage of physical, occupational, and speech therapy, as described in section 1833(g)(2) of the Act, remains suspended by the action of subsequent legislation; and end-stage renal disease (ESRD) facilities. Determinations for ESRD facilities are made under Sec. 413.174. We proposed to revise the regulations at Sec. 413.65(a) to clarify that these facilities are not subject to the provider-based requirements and that provider-based determinations will not be made for them. We received a few comments on this proposal, which are summarized below. Comment: One commenter expressed approval of the proposed revision, but suggested that we expand the list of facilities or organizations for which provider-based status is not required to include specific types of neonatal intensive care units and outpatient departments providing specialty pediatric care. The commenter believed such a change would permit these facilities to be treated as provider-based after the grandfather provisions of BIPA section 404 expire, even though they do not meet all criteria in 42 CFR 413.65(d). Response: In Q/A 9 published on the CMS web site at www.hcfa.gov/ medlearn/provqa.htm we identified specific types of facilities for which provider-based determinations will not be made because any determinations regarding their status would not affect either Medicare payment levels or beneficiary liability. In the August 24, 2001 proposed rule, we proposed to codify this list of facilities. Because the comment was submitted in response to this part of our proposal, we considered it in that context. However, the commenter did not succeed in establishing that the units and specialized outpatient departments meet the criteria for inclusion on a list of facilities for which a determination about provider-based status would not affect either Medicare payment levels or beneficiary liability. (On the contrary, the commenter argued that if determinations were made on such units and departments, payments would be reduced significantly.) Moreover, the primary focus of the comment is not to ask that no determinations be made for these units and departments, but instead that those facilities be treated as provider-based even though they do not meet some or all of the provider-based criteria in Sec. 413.65(d). We did not propose to extend provider-based status to such facilities (except insofar as BIPA section 404 requires us to do so), nor can such a proposal be logically inferred from the provisions included in the proposed rule. Thus, while we reviewed this comment with interest, we did not adopt it. We received no other comments on this proposed revision and are adopting it without change. 3. BIPA Provisions on Grandfathering and Temporary Treatment as Provider-Based (Secs. 413.65(b)(2) and (b)(5)) Currently, Sec. 413.65(b)(2) states that a main provider or a facility must contact CMS (formerly, HCFA), and CMS must determine that the facility is provider-based before the main provider bills for services of the facility as if the facility were provider-based, or before it includes costs of those services on its cost report. However, as explained earlier, sections 404(a) and (c) of BIPA require that certain facilities be grandfathered for a 2-year period, and that facilities applying between October 1, 2000 and October 1, 2002 for provider-based status with respect to a hospital be given provider- based status on a temporary basis, pending a decision on their applications. To implement these provisions, we proposed to revise the regulations in Sec. 413.65(b)(2) to state that if a facility was treated as provider-based in relation to a hospital or CAH on October 1, 2000, it will continue to be considered provider-based in relation to that hospital or CAH until October 1, 2002, and the requirements, limitations, and exclusions specified in paragraphs (d), (e), (f), and (h) of Sec. 413.65 will not apply to that hospital or CAH with respect to that facility until October 1, 2002. We further proposed that for purposes of paragraph (b)(2), a facility would be considered to have been treated as provider-based on October 1, 2000, if on that date it either had a written determination from CMS (formerly, HCFA) that it was provider-based as of that date, or was billing and being paid as a provider-based department or entity of the hospital. In addition, we proposed to add a new Sec. 413.65(b)(2) to state that a facility for which a determination of provider-based status in relation to a hospital or CAH is requested on or after October 1, 2000 and before October 1, 2002 will be treated as provider-based in relation to the hospital or CAH from the first date on or after October 1, 2000 on which the facility was licensed (to the extent required by the State), staffed and equipped to treat patients until the date on which CMS (formerly, HCFA) determines that the facility does not qualify for provider-based status. We received one comment on this proposal, which is summarized below. Comment: One commenter stated that our proposed revision to these sections does not adequately implement section 404(c) of BIPA, in that it would require temporary treatment as provider-based for a facility or organization for which such status is requested on or before October 1, 2000 only from October 1, 2000 forward. The commenter believes this is inappropriate because section 404(c) of BIPA provides that such a facility or organization is to be treated as provider-based for "any period before a determination is made." Under the commenter's recommended interpretation of the provision, such temporary treatment would also be available for any period before October 1, 2000. Response: We believe this interpretation of the provision is overly literal, and does not accurately reflect the role of paragraph (c) in the total statutory scheme established by section 404 of BIPA. Section 404(a)(1) describes the treatment to be accorded to facilities treated as provider-based on October 1, 2000, by providing that such facilities will continue to be treated as provider-based until October 1, 2002. Thus, paragraph (a) of section 404 addresses the situation of facilities that existed and were treated as provider based on October 1, 2000. Section 404(c) of BIPA complements this provision by mandating a grace period for those facilities seeking provider-based status determinations on or after October 1, 2000 that either (i) existed on October 1, 2000 but were not treated as provider-based, or (ii) did not exist as of October [[Page 59913]] 1, 2000 (that is, were opened after that date). Taken together, paragraphs (a) and (c) specify the treatment to be given to facilities treated as provider-based on the reference date of October 1, 2000 and to those facilities for which provider-based status is sought within 2 years after the reference date. However, we find no indication that the statute was intended to extend provider-based status for any period before the reference date. Such an extension would not be necessary to protect a provider from possible retroactive liability based on possible delay in considering a provider-based application, and could inappropriately prevent collection of overpayments incurred well before October 1, 2000. Thus, we did not adopt this comment. We received no other comments on this proposal and we are adopting it without change. 4. Reporting (Sec. 413.65(c)(1)) Currently, Sec. 413.65(c) states that a main provider that creates or acquires a facility or organization for which it wishes to claim provider-based status, including any physician offices that a hospital wishes to operate as a hospital outpatient department or clinic, must report its acquisition of the facility or organization to CMS (formerly, HCFA) if the facility or organization is located off the campus of the provider, or inclusion of the costs of the facility or organization in the provider's cost report would increase the total costs on the provider's cost report by at least 5 percent, and must furnish all information needed for a determination as to whether the facility or organization meets the requirements in paragraph (d) of this section for provider-based status. Concern has been expressed that such reporting would duplicate the requirement for obtaining approval of a facility as provider-based before billing its services that way or including its costs on the cost report of the main provider (current Sec. 413.65(b)(2)). To prevent any unnecessary duplicate reporting, we proposed to delete the current requirement from Sec. 413.65(c)(1). We proposed, however, to retain the requirement that a main provider that has had one or more facilities considered provider-based also report to CMS (formerly, HCFA) any material change in the relationship between it and any provider-based facility, such as a change in ownership of the facility or entry into a new or different management contract that could affect the provider-based status of the facility. We received one comment on this proposal, which is summarized below. Comment: A commenter stated that more guidance is needed on the rules regarding reporting to CMS any significant changes in the relationship between a main provider and its provider-based facilities. The commenter asked that we explain the meaning of "significant changes," prescribe the format of such reporting, and specify to whom such reports are to be made. Response: Although the commenter refers to reporting any significant changes, the regulations at Sec. 413.65(c)(1) speak of reporting any "material" changes in the relationship between it and any provider-based facility. As explained in the August 24, 2001 proposed rule, we would consider a "material" change to be anything that may interfere with compliance with the provider-based rules. The August 24, 2001 document further explains that such a change may include but is not limited to a change of ownership, entry into a new or different management contract, or change in the financial operations of the facility or the main provider. The main provider may report such material changes in the form of a letter submitted to its CMS Regional Office with a copy to its fiscal intermediary. While we are responding in this preamble to the commenter's questions and hope that this information is helpful, we do not believe it is essential to include this level of detail in the Code of Federal Regulations. Therefore, we did not revise the regulations based on this comment. We received no other comments on the proposal and are adopting it without change. 5. Geographic Location Criteria (Sec. 413.65(d)(7)) As explained earlier in X.C.2 of this preamble, section 404(b) of BIPA mandates that facilities seeking provider-based status be considered to meet any geographic location criteria if they are located not more than 35 miles from the main campus of the hospital or CAH to which they wish to be based, or meet other specific criteria relating to their ownership and operation. To implement this provision, we proposed to revise Sec. 413.65(d)(7) to state that a facility will meet provider-based location criteria if it and the main provider are located on the same campus, or if one of the following three criteria are met: The facility or organization is located within a 35-mile radius of the main campus of the hospital or CAH that is the potential main provider. The facility or organization is owned and operated by a hospital or CAH that-- (A) Is owned or operated by a unit of State or local government; (B) Is a public or nonprofit corporation that is formally granted governmental powers by a unit of State or local government; or (C) Is a private hospital that has a contract with a State or local government that includes the operation of clinics located off the main campus of the hospital to ensure access in a well-defined service area to health care services to low-income individuals who are not entitled to benefits under Medicare (or medical assistance under a Medicaid State plan); and (D) Has a disproportionate share adjustment (as determined under Sec. 412.106 of this chapter) greater than 11.75 percent or is described in Sec. 412.106(c)(2) of this chapter implementing section 1886(d)(5)(F)(i)(II) of the Act. The facility meets the criteria currently set forth in Sec. 413.65(d)(7)(i) for service to the same patient population as the main provider. We received no comments on this proposal and we are adopting it without change. 6. Notice to Beneficiaries of Coinsurance Liability (Sec. 413.65(g)(7)) Currently Sec. 413.65(g)(7) states that when a Medicare beneficiary is treated in a hospital outpatient department or hospital-based entity (other than an RHC) that is not located on the main provider's campus, the hospital has a duty to provide written notice to the beneficiary, before the delivery of services, of the amount of the beneficiary's potential financial liability (that is, of the fact that the beneficiary will incur a coinsurance liability for an outpatient visit to the hospital as well as for the physician service, and of the amount of that liability). The notice must be one that the beneficiary can read and understand. We clarified in the preamble to an interim final rule with comment period published on August 3, 2000 (65 FR 47670) that if the exact type and extent of care needed is not known, the hospital may furnish a written notice to the patient that explains the fact that the beneficiary will incur a coinsurance liability to the hospital that they would not incur if the facility were not provider-based. The interim final rule further explained that the hospital may furnish an estimate based on typical or average charges for visits to the facility, while stating that the patient's actual liability will depend upon the actual [[Page 59914]] services furnished by the hospital if the beneficiary is unconscious, under great duress, or for any other reason unable to read a written notice and understand and act on his or her own rights, the notice must be provided, before the delivery of services, to the beneficiary's authorized representative. We proposed to amend Sec. 413.65(g)(7) to include this clarifying language. We received no comments on this proposal, and we are adopting it without change. 7. Clarification of Protocols for Off-Campus Departments (Sec. 489.24(i)(2)(ii)) Currently, Sec. 489.24(i) specifies the anti-dumping obligations that hospitals have for individuals who come to off-campus hospital departments for the examination or treatment of a potential emergency medical condition. These obligations are sometimes known as EMTALA obligations, after the Emergency Medical Treatment and Labor Act, which is the legislation that first imposed the obligations. Currently, hospitals are responsible for ensuring that personnel at their off- campus departments are trained and given appropriate protocols for the handling of emergency cases. In the case of off-campus departments not routinely staffed with physicians, RNs, or LPNs, the department's personnel must be given protocols that direct them to contact emergency personnel at the main hospital campus before arranging an appropriate transfer to a medical facility other than the main hospital. Some concern had been expressed that taking the time needed to make such contacts might inappropriately delay the appropriate transfer of emergency patients in cases in which the patient's condition was deteriorating rapidly. In response to this concern, we clarified in the preamble to the interim final rule with comment period published on August 3, 2000 cited above (65 FR 47670) that in any case of the kind described in Sec. 489.24(i)(2)(ii), the contact with emergency personnel at the main hospital campus should be made either concurrently with or after the actions needed to arrange an appropriate transfer, if, prior to transfer, contacting the main hospital campus would significantly jeopardize the individual's life or health. This does not relieve the off-campus department of the responsibility for making the contact, but only clarifies that the contact may be delayed in specific cases in which doing otherwise would endanger a patient subject to EMTALA protection. We proposed to amend Sec. 489.24(i)(2)(ii) to include this clarifying language. We received two comments on this proposal, which are summarized below. Comment: Two commenters expressed approval of the change and recommended that it be adopted in the final rule. However, the commenter recommended that we further clarify the rule by spelling out the circumstances under which personnel at off-campus locations would be expected to call EMS before seeking guidance from the emergency department staff at the main campus delay. Response: As noted above, we plan to reconsider the general issue of the appropriateness of applying EMTALA to off-campus hospital locations. We will consider the commenter's specific suggestion in the course of that more general review. Therefore, we have not made any change in the final rule based on this comment. Comment: One commenter expressed approval of the proposed clarification at Sec. 489.24(i)(2)(ii), under which personnel in off- campus departments that are not routinely staffed with physicians, RNs, or LPNs, may delay contacting the main hospital's emergency department according to protocols if, prior to transfer, contacting the main hospital campus would significantly jeopardize the individual's life or health. However, the commenter pointed out that the introductory paragraph of Sec. 489.24(i)(2) applies the protocol requirement to all off-campus departments (whether or not staffed by physicians and nurses). Therefore, the commenter suggested that we move this provision to the introductory paragraph of Sec. 489.24(i)(2), and so that it will apply to all off-campus departments. The commenter believes that this change would be consistent with the policy stated by CMS on its website (CMS EMTALA guidance, 7/20/01, Q/A ##7 and 13-16). Response: We agree that it would be appropriate, and consistent with our policy in this area, to apply this provision concerning the delay of contact in certain situations to all off-campus departments. As the commeter suggested, we are amending Sec. 489.24(i)(2) to include the clarifying language that had been proposed at Sec. 489.24(i)(2)(ii). 8. Other Changes In addition to the changes cited previously, we proposed to make the following conforming and clarifying changes: Correcting date references in Secs. 413.65(i)(1)(i) and (i)(2), in order to take into account the effective date of the current regulations. Substituting "CMS" for "HCFA" throughout the revised sections of part 413, to reflect the renaming of the Health Care Financing Administration (HCFA) as the Centers for Medicare & Medicaid Services (CMS). We received no comments on these proposals and are adopting them without change. F. Comments on Other Issues We also received a number of comments recommending various changes in the provider-based regulations that were not in our August 24, proposed rule and cannot logically be inferred from those proposals. While we read these comments with interest, we have not made any changes in the final rule based on them. XI. Summary of the Final Rule This final rule revises the Medicare hospital outpatient prospective payment system to implement applicable statutory requirements, including relevant provisions of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, and changes arising from our continuing experience with this system. In addition, it describes changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system. This final rule also announces a uniform reduction of 68.9 percent to be applied to each of the transitional pass-through payments. This final rule finalizes a number of policies discussed in the August 24, 2001 proposed rule as follows: We are implementing BIPA provisions that affect the OPPS in 2002, including the following: + The national coinsurance rate for OPPS services is limited to 55 percent of the APC payment rate established for a procedure or service. + Children s hospitals receive the same hold-harmless protection accorded to cancer hospitals under BBRA. + Special payment provisions for certain services, including screening for glaucoma, payment for contrast agents, and new technology diagnostic mammography. We adjust payments to hospitals for geographic wage differences, as required by the statute, using the FY 2002 hospital inpatient PPS wage index. We have recalibrated the APC weights, also as required by the statute, using median costs drawn from claims data for hospital services furnished on or after July 1, 1999 through June 30, 2000. The methodology that we followed to calculate the final APC relative weights for CY 2002 is similar to the proposed methodology except that we have incorporated pass-through device [[Page 59915]] costs in device-related procedures. Specifically, we have incorporated 75 percent of the estimated cost for pass-through devices into the base APC costs. We have revised and updated the APC groups in accordance with several factors. These changes would affect more than half of the approximately 340 existing APC groups. As a result of consultations with the advisory panel on APC groups, we have reviewed and are accepting a number of the Panel's recommendations. In some cases, we have made additional changes to the APCs based on the use of new data and application of the 2 times rule. We have received recommendations from commenters and interested parties to establish separate APCs for observation services. As proposed, we are creating a new APC to make separate payment for observation services for patients with chest pain, asthma, and congestive heart failure, when certain clinical criteria are met. We have made some minor changes based on public comment. Based on public comment, we made several modifications to our proposed coding scheme for stereotactic radiosurgery. We have revised the criteria for the new technology APC groups that we created to allow payment at an appropriate level for new technologies that do not meet the statutory requirements for pass- through payments. These changes are intended to allow us to reserve these special new technology APC groups for services that are a new, "complete" procedure and not just modifications of existing technologies. We are changing the aggregate method currently used for calculating outlier payments and will begin determining outliers on an APC-by-APC basis rather than the entire bill. To do this, we allocate packaged items on a bill to APCs based on their relative weight. We are excluding from the OPPS the Part B-only services furnished to inpatients of hospitals that do no other billing for hospital outpatient services under Part B. This is in response to complaints we received from State psychiatric hospitals that did not have outpatient departments and, therefore, bill under OPPS only for inpatients. This policy would exempt them from having to make costly revisions to their billing systems. We are excluding from the OPPS hospitals that are located outside the 50 States or the District of Columbia or Puerto Rico, that is, hospitals in Guam, Saipan, American Samoa, and the Virgin Islands. This policy is consistent with their current exclusion from the inpatient PPS and will also save these hospitals from billing system revisions. We will continue to use a list of certain procedures that are designated as inpatient procedures and therefore are not paid by Medicare under the OPPS. Based on comments, we have made minor changes to this list. We are revising the regulations affecting provider-based entities to implement technical BIPA provisions on grandfathering, temporary treatment as provider-based, and certain geographic location criteria; and to clarify requirements for adequate cost data and cost finding, certain reporting requirements, requirements regarding notice to beneficiaries of coinsurance liability, and clarification of anti- patient dumping rules (EMTALA obligations) in off-campus departments. In response to public comments regarding provider-based issues, we are moving the provision concerning the delay of contact in certain situations to the introductory paragraph of Sec. 489.24(i)(2) so that it will apply to all off-campus departments. In addition, we are making editorial and technical revisions to our regulations. We made minor editorial changes in paragraphs (b)(2), (b)(4), (b)(5), (c), (d)(7)(iv), and (g)(7) of Sec. 413.65. In Sec. 413.65(i)(2), we modified the presentation of our language to more clearly present our policy. XII. Collection of Information Requirements Under the Paperwork Reduction Act of 1995, we are required to provide 30-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues: The need for the information collection and its usefulness in carrying out the proper functions of our agency. The accuracy of our estimate of the information collection burden. The quality, utility, and clarity of the information to be collected. Recommendations to minimize the information collection burden on the affected public, including automated collection techniques. Sections 413.65 and 419.42 of this final rule contain information collection requirements that are subject to review by OMB under the Paperwork Reduction Act of 1995. However, Secs. 413.65 and 419.42 have been approved by OMB under approval number 0938-0798, with a current expiration date of August 31, 2003 and OMB approval number 0938-0802, with a current expiration date of December 31, 2001. Process and Information Required To Apply for Transitional Pass-through Payment for Eligible Drugs and Biological Agents, Including Radiopharmaceuticals, Under the Hospital Outpatient Prospective Payment System The application itself for Transitional Pass-Through Payment for Eligible Drugs and Biological Agents, Including Radiopharmaceuticals, may be found at www.hcfa.gov. Transitional pass-through categories are for devices only; they do not apply to drugs or biologicals. The regulations governing transitional pass-through payments for eligible drugs and biologicals remain unchanged. The process to apply for transitional pass-through payment for eligible drugs and biological agents, including radiopharmaceuticals, can be found in the April 7, 2000 Federal Register (65 FR 18481) and on the CMS web site at http:// www.hcfa.gov/medlearn/appdead.htm. If we revise the application instructions in any way, we will post the revisions on our web site and submit the changes for the Office of Management and Budget (OMB) review under the Paperwork Reduction Act. The application process for new categories can be found on the CMS web site at http://www.hcfa.gov// medicare/newcatapp1030f.rtf. We estimate that approximately 100 entities will file an application yearly. We believe it will take each of these entities around 16 hours to gather the necessary information and fill out the application. We have submitted a copy of this final rule to OMB for its review of the information collection requirement described above. The requirement is not effective until it has been approved by OMB. XIII. Regulatory Impact Analysis A. General We have examined the impacts of this final rule as required by Executive Order 12866 (September 1993; Regulatory Planning and Review) and the Regulatory Flexibility Act (RFA) (September 19, 1980; Public Law 96-354). Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize [[Page 59916]] net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more annually). The provisions of this final rule do not result in impacts that exceed $100 million per year. The effects of the changes in this rule are redistributional and do not result in additional expenditures. The impacts discussed below reflect the effects of the final rule published on November 2, 2001. Therefore, this final rule is not an economically significant rule under Executive Order 12866, nor a major rule under 5 U.S.C. 804(2). We note, however, that on November 2, 2001, we published a final rule that announced the updated conversion factor for payments under the OPPS (66 FR 55857). As discussed in more detail in that document, we estimated that the total impact of the changes for CY 2002 payments compared to CY 2001 payments as set forth in the November 2 rule would be approximately a $450 million increase (66 FR 55864). The RFA requires agencies to determine whether a rule will have a significant economic impact on a substantial number of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations and government agencies. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $5 to $25 million or less annually (see 65 FR 69432). For purposes of the RFA, all providers of hospital outpatient services are considered small entities. Individuals and States are not included in the definition of a small entity. In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. With the exception of hospitals located in certain New England counties, for purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area (MSA) and has fewer than 100 beds, or New England County Metropolitan Area (NECMA). Section 601(g) of the Social Security Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain New England counties as belonging to the adjacent NECMA. Thus, for purposes of the OPPS, we classify these hospitals as urban hospitals. It is clear that the changes in this final rule affect both a substantial number of rural hospitals as well as other classes of hospitals, and the effects on some may be significant. Therefore, the discussion below, in combination with the rest of this final rule, constitutes a regulatory impact analysis. Section 202 of the Unfunded Mandate Reform Act of 1995 (Pub. L. 104-4) also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in an expenditure in any one year by State, local, or tribal governments, in the aggregate, or by the private sector, of $110 million. This final rule does not mandate any requirements for State, local, or tribal governments. Executive Order 13132 establishes certain requirements that an agency must meet when it publishes a proposed rule (and subsequent final rule) that imposes substantial direct costs on State and local governments, preempts State law, or otherwise has Federalism implications. We have examined this final rule in accordance with Executive Order 13132, Federalism, and have determined that it will not have any negative impact on the rights, roles, and responsibilities of State, local or tribal governments. B. Changes in This Final Rule In this final rule, we are making several changes to the OPPS that are required by the statute. We are required under section 1833(t)(9)(A) of the Act to revise, not less often than annually, the wage index and other adjustments used to determine the APC payment rates. In addition, we must review the clinical integrity of payment groups and the relative weights at least annually. Accordingly, in this final rule, we are updating the wage index adjustment for hospital outpatient services furnished beginning January 1, 2002. We are also revising the relative APC payment weights based on claims data from July 1, 1999 through June 30, 2000. Finally, we are beginning to calculate outlier payments on an APC-specific basis rather than the current method of calculating outlier payments for each claim. In addition, as an administrative action, we have incorporated 75 percent of the estimated cost of the pass-through devices into the base APC rates. As described in the preamble, budget neutrality adjustments are made to the weights to assure that the revisions in the wage index, APC groups, and relative weights do not affect aggregate payments. In addition, the parameters for outlier payments have been modified so that outlier payments for 2002 are projected to equal the established policy target of 2.0 percent of total payments. Because we are not revising the target percentage, there is no estimated aggregate impact from modifying the method of determining outlier payments. The impact of the wage index, APC reclassification and recalibration, and outlier changes do vary somewhat by hospital group. Estimates of these impacts are displayed on Table 6. We received no specific comments on the impact analysis. However, in commenting on certain proposed policies, commenters sometimes referred to the impact of a policy on hospitals or a specific group of hospitals. We have addressed these comments elsewhere in the preamble to this final rule. The following is a discussion of how the final policies set forth in this rule affect hospitals and beneficiaries. As an informational matter, the impact of changes set forth in Table 6 include the impact of the update to the conversion factor, which was implemented in the November 2 final rule. C. Limitations of Our Analysis The distributional impacts represent the projected effects of the policy changes as well as statutory changes effective for 2002, on various hospital groups. We estimate the effects of individual policy changes by estimating payments per service while holding all other payment policies constant. We use the best data available but do not attempt to predict behavioral responses to our policy changes. In addition, we do not make adjustments for future changes in variables such as service volume, service mix, or number of encounters. Finally, we do not model the impact of the transitional corridor payments, which protect hospitals from losses in 2002 compared to their 1996 payments. We are unable to model this impact because we do not yet have filed cost reports from hospitals for the services furnished under the PPS. The raw cost report data are generally not available until at least 7 months after the end of the cost reporting period. D. Estimated Impacts of This Final Rule on Hospital Payments Column 5 in Table 6 represents the full impact on each hospital group of all the changes for 2002. Columns 2 through 4 in the table reflect the independent effects of the change in the wage index, the APC reclassification and recalibration changes (including the incorporation of pass-through device [[Page 59917]] costs), and the change in outlier method, respectively. In general, the wage index changes favor rural hospitals, particularly the largest in bed size and volume. The only rural hospitals that would experience a negative impact due to wage index changes are those in the Pacific Region, a decrease of 0.1 percent. Conversely, the urban hospitals are generally negatively affected by these changes, with the largest effect on those with 500 or more beds (a 0.5 percent decrease) and those in the Middle Atlantic (a 0.5 percent decrease) and West South Central (a 0.9 percent decrease) Regions. We estimate that the APC reclassification and recalibration changes have generally an opposite impact from the wage index, causing increases in payments for all urban hospitals except those with fewer than 200 beds and volumes of fewer than 21,000 services per year and those located in the New England (a 0.6 percent decrease), Middle Atlantic (a 0.8 percent decrease), and Puerto Rico (an 8.1 percent decrease) Regions. The incorporation of 75 percent of the estimated costs of pass- through devices into the base APC rates has a relatively large negative effect on rural hospitals. In the proposed rule, the estimated impact of the APC reclassification and recalibration changes on rural hospitals was a 1.5 percent decrease in payments. With the incorporation of the device costs, the impact is now estimated to be a 3.8 percent decrease. This impact does not include the effects of any additional transitional corridor payments to rural hospitals. The negative effect is particularly pronounced for rural hospitals with fewer than 100 beds (a decrease of 5.6 percent for hospitals with fewer than 50 beds and a 4.9 percent decrease for hospitals with 50-99 beds). This impact is due to the large increase in payment rates for device- related APCs and the corresponding decrease in nondevice-related APCs, as discussed in more detail above in section II.C. of this preamble. The decrease in the payment rates for clinic visits and diagnostic and preventive services affect rural hospitals disproportionately because they perform far more of these services as compared to the device- related APCs for which payment rates have increased. These impact estimates do not reflect the effects of the hold harmless transitional corridor payments in 2002 for the smallest rural hospitals. We also note that it is not the large academic medical centers that are most positively affected by the incorporation of pass-through device costs. While the group of hospitals that receives the largest increase in payments is hospitals with 500 or more beds (a 3.4 percent increase), minor teaching hospitals will receive an increase of only 2.0 percent and major teaching hospitals, an increase of 0.5 percent. Although teaching hospitals perform many device-related procedures, they also provide a very large number of clinic and emergency room visits, both of which will experience a projected decrease in payment rates of approximately 8 percent. In fact, teaching hospitals that do not also receive disproportionate share payments will experience a projected decrease of 2.1 percent. The largest negative impact for urban hospitals is for those with no teaching adjustment that also do not serve a disproportionate share of low-income patients. Even though this is a relatively small group of hospitals, their payments are projected to decrease by 15.5 percent. The change in outlier policy to an APC-specific payment has a slight negative effect on rural hospitals as a group (a 0.1 percent decrease), no effect on urban hospitals as a group, and slight negative effects on all small hospitals (fewer than 100 beds) as well as those with lower volumes of services. For urban hospitals, other than a projected increase in payments of 0.3 percent for hospitals in the Middle Atlantic Region, no geographic group of hospitals is affected by more than 0.1 percent. For rural hospitals, the Middle Atlantic Region will also experience a positive impact, a 0.2 percent increase. For the rest of the regions, rural hospitals will experience no more than a 0.2 percent decrease, except for hospitals in the Pacific Region, where there is no impact. The overall projected increase in payments for urban hospitals (3.0 percent) is greater than the average increase for all hospitals (2.3 percent). However, due to the large decrease in payments attributable to the APC changes, rural hospitals will experience an average decrease in payments of 0.7 percent. While rural hospitals gain 1.0 percent from the wage index change, they lose a combined 3.9 percent from the APC changes (-3.8 percent) and the change in method of determining outlier payments (a slight decrease of 0.1 percent). These impacts do not include the effects of any additional transitional corridor payments to rural hospitals. Rural hospitals with 100 or more beds will experience an overall increase in payments, however, those with fewer than 100 beds are projected to receive large decreases in payments (-3.5 percent for hospitals with fewer than 50 beds and -2.4 percent for those with 50 to 99 beds). We note that these smallest rural hospitals will be protected by the hold harmless transitional corridor payments for 2002. That is, their Medicare payment margin for services furnished under the OPPS cannot be less than their margin for the services in 1996. In both urban and rural areas, hospitals that provide a higher volume of outpatient services are projected to receive a larger increase in payments than lower volume hospitals. In rural areas, hospitals with volumes of fewer than 5,000 services are projected to experience a relatively large decline in payments (-3.6 percent). The less favorable impact for the low volume hospitals is attributable to the APC changes and the change in outlier method. For example, rural hospitals providing fewer than 5000 services are projected to lose a combined 6 percent due to these changes. Urban hospitals in all regions except Puerto Rico (with a decrease of 5.1 percent) receive an increase on overall payments. The lowest increase is in the Middle Atlantic Region, where hospitals are projected to receive a 1.2 percent increase in payments. Except for increases for hospitals in the South Atlantic (0.3 percent) and West South Central (0.5) Regions and no change in the Mountain Region, rural hospitals experience an overall loss in payments. Again, this is due to the decrease in payments as a result of the APC changes. Major teaching hospitals are projected to experience a smaller increase in overall payments (2.4 percent) than do hospitals with the less intensive teaching programs due to the negative impacts of the wage index (-0.4 percent), a relatively small increase due to the APC recalibration (0.5 percent), and outlier changes (-0.2 percent). Among hospitals with varying shares of low-income patients, those with a DSH patient percentage of zero experience a large decrease in payments because of the APC changes (-7.6 percent) and the outlier changes (-0.3 percent). For hospitals with a greater than 0 percent of low-income patients, the impact on all hospitals is positive, with the lowest increase of 0.3 percent attributable to hospitals with the highest share. E. Estimated Impacts of This Final Rule on Beneficiary Copayments In general, the increase in the APC rates for procedures that use pass-through devices results in increased copayments for beneficiaries who receive those procedures. Many of the device-related APC rates (approximately 50 APCs) have increased by over 100 [[Page 59918]] percent and a small number by over 750 percent. Under the statute, the copayment amount for an APC cannot be less than 20 percent of the payment rate. Therefore, beneficiaries will experience an increase in copayments for most of the device-related APCs. This increase is countered by small decreases in the copayments for some other APCs, particularly clinic and emergency room visits. One important thing to note is that beneficiaries receive far more clinic and emergency visits in a year than they do device-related procedures. For example, in the 1999-2000 claims data base, there are almost 7 million low-level clinic visits, over 3 million mid-level clinic visits, and almost 2 million high-level clinic visits. However, for APC 0084, Level I Electrophysiologic Evaluation (the device-related APC with the largest increase), there were only about 7,000 procedures performed. Thus, the number of services received by beneficiaries with small decreases in copayments far outweighs the number of services for which they will incur some incremental costs. In addition, we note that section 1833(t)(8)(C)(i) of the Act places a limit on the copayment amount for any procedure; that is, the copayment may not be more than the applicable inpatient hospital deductible for the year in which the procedure is performed. For CY 2002, the inpatient deductible is $812. We further note that the complete incorporation of the costs of the current pass-through devices into the base APCs must be done in CY 2003. Therefore, any increase in copayments that occur in 2002 are a transition to increases that must, by statute, occur in 2003. Finally, as discussed in section IV. C above, we have minimized the effects of changes in APC groupings on beneficiary coinsurance and copayments. Table 6.--Impact of Changes for CY 2002 Hospital Outpatient Prospective Payment System [Percent change in total payment to hospitals (program and beneficiary); does not include the effects of additional transitional corridors payments] ---------------------------------------------------------------------------------------------------------------- APC/WGTS/ Number of New wage 75% fold in New outlier All CY2002 hosps \1\ index \2\ \3\ policy \4\ changes \5\ ---------------------------------------------------------------------------------------------------------------- (1) (2) (3) (4) (5) ---------------------------------------------------------------------------------------------------------------- All Hospitals.................................. 5,084 0.0 0.0 0.0 2.3 Non-Tefra Hospitals............................ 4,671 0.0 0.0 0.0 2.3 Urban Hosps.................................... 2,550 -0.2 1.0 0.0 3.0 Large Urban (GT 1 Mill.)....................... 1,459 -0.4 0.8 0.1 2.7 Other Urban (LE 1 Mill.)....................... 1,091 0.0 1.3 0.0 3.5 Rural Hosps.................................... 2,121 1.0 -3.8 -0.1 -0.7 Beds (Urban): 0-99 Beds.................................. 646 -0.1 -3.2 -0.1 -1.2 100-199 Beds............................... 908 -0.2 -1.2 0.0 0.9 200-299 Beds............................... 490 -0.2 0.8 0.0 2.8 300-499 Beds............................... 363 -0.2 2.9 0.0 5.0 500 + Beds................................. 143 -0.5 3.4 0.1 5.3 Beds (Rural): 0-49 Beds.................................. 1,278 0.2 -5.6 -0.2 -3.5 50-99 Beds................................. 508 0.4 -4.9 -0.1 -2.4 100-149 Beds............................... 196 1.5 -3.0 -0.1 0.6 150-199 Beds............................... 73 1.5 -1.6 -0.1 2.0 200 + Beds................................. 66 2.3 -1.7 0.0 2.8 Volume (Urban) LT 5,000................................... 307 -0.4 0.7 -0.2 2.3 5,000-10,999............................... 445 -0.3 -2.4 0.0 -0.5 11,000-20,999.............................. 570 -0.3 -0.9 0.0 1.1 21,000-42,999.............................. 739 -0.3 1.0 0.0 3.0 GT 42,999.................................. 489 -0.2 1.8 0.0 4.0 Volume (Rural): LT 5,000................................... 945 0.3 -5.6 -0.4 -3.6 5,000-10,999............................... 602 0.2 -5.7 -0.2 -3.5 11,000-20,999.............................. 332 0.7 -3.9 -0.1 -1.2 21,000-42,999.............................. 198 1.4 -2.5 0.0 1.1 GT 42,999.................................. 44 2.3 -2.2 0.0 2.3 Region (Urban): New England................................ 135 0.6 -0.6 0.0 2.2 Middle Atlantic............................ 379 -0.5 -0.8 0.3 1.2 South Atlantic............................. 386 -0.1 2.8 0.0 5.0 East North Cent............................ 441 -0.4 0.1 0.0 1.9 East South Cent............................ 154 1.2 2.1 -0.1 5.5 West North Cent............................ 181 -0.4 1.5 0.0 3.3 West South Cent............................ 321 -0.9 2.1 -0.1 3.4 Mountain................................... 128 -0.1 2.4 0.0 4.5 Pacific.................................... 386 -0.4 1.6 -0.1 3.5 Puerto Rico................................ 39 1.0 -8.1 -0.1 -5.1 Region (Rural): New England................................ 52 0.0 -4.1 -0.1 -2.1 Middle Atlantic............................ 74 0.5 -4.9 0.2 -2.0 South Atlantic............................. 270 1.4 -3.2 -0.1 0.3 East North Cent............................ 279 1.1 -4.6 -0.1 -1.5 East South Cent............................ 250 1.3 -3.8 -0.1 -0.4 [[Page 59919]] West North Cent............................ 506 1.2 -3.9 -0.2 -0.9 West South Cent............................ 328 1.5 -3.0 -0.1 0.5 Mountain................................... 215 1.3 -3.2 -0.2 0.0 Pacific.................................... 142 -0.8 -2.8 0.0 -1.5 Puerto Rico................................ 5 4.5 -6.8 -0.1 -0.5 Teaching Status: Non-Teaching............................... 3,576 0.2 -1.4 0.0 0.9 Minor...................................... 803 0.0 2.0 0.0 4.4 Major...................................... 291 -0.4 0.5 0.0 2.4 DSH Patient Percent: 0.......................................... 32 0.7 -7.6 -1.3 -6.4 GT 0-0.10.................................. 1,261 0.0 0.2 0.0 2.5 0.10-0.16.................................. 1,035 0.1 -0.1 0.1 2.4 0.16-0.23.................................. 869 -0.1 0.6 0.0 2.7 0.23-0.35.................................. 786 0.1 0.3 -0.1 2.6 GE 0.35.................................... 688 -0.2 -1.6 -0.1 0.3 Urban IME/DSH: IME & DSH.................................. 1,000 -0.3 1.8 0.1 3.8 IME/No DSH................................. 3 0.0 -2.1 -2.0 -2.3 No IME/DSH................................. 1,531 -0.2 -0.1 0.0 2.0 No IME/No DSH.............................. 16 0.8 -15.5 -0.3 -13.2 Rural Hosp. Types: No Special Status.......................... 794 0.2 -4.8 -0.1 -2.6 RRC........................................ 172 2.1 -2.0 0.0 2.3 SCH/Each................................... 666 0.4 -4.8 -0.1 -2.4 MDH........................................ 329 0.2 -6.2 -0.3 -4.2 SCH and RRC................................ 71 2.0 -2.1 -0.1 2.0 Type of Ownership: Voluntary.................................. 2,774 0.0 0.2 0.0 2.4 Proprietary................................ 757 0.0 1.0 0.0 3.3 Government................................. 1,140 0.3 -1.7 -0.1 0.6 Specialty Hospitals: Eye and Ear................................ 12 0.8 -4.8 0.0 -1.8 Trauma..................................... 151 -0.1 1.5 0.0 3.7 Cancer..................................... 10 -1.3 -0.4 0.4 0.7 Tefra Hospitals (Not Included on Other Lines): Rehab...................................... 169 0.3 7.5 -0.3 9.2 Psych...................................... 103 -0.7 -7.4 -1.7 -7.8 LTC........................................ 99 -0.7 -4.3 -0.4 -3.3 Children................................... 42 -0.6 -0.9 -1.0 -0.5 Note: For CY 2002, under the OPPS transitional corridor policy cancer, children's, and rural hospitals with 100 or fewer beds are held harmless compared to their 1996 payment margin for these services. All other hospitals are protected to some extent when their payment margins are less than they were in 1996 (see Sec. 419.70(b)). These additional payments are not reflected below. \1\ Some data necessary to classify hospitals by category were missing; thus, the total number of hospitals in each category may not equal the national total. \2\ This column shows the impact of updating the wage index used to calculate payment using the final FY 2002 hospital inpatient wage index after geographic reclassification by the Medicare Geographic Classification Review Board. The hospital inpatient final rule for FY 2002 was published in the Federal Register on September 1, 2001. \3\ This column shows the impact of recalibrating the APC weights based on the 1999-2000 hospital claims data and on the reassignment of some HCPCs to APCs as well as the incorporation of the device costs discussed in this rule. \4\ This column shows the difference in calculating outliers on an APC-specific rather than bill basis and with the final thresholds. \5\ This column shows changes in total payment from CY2001 to CY 2002. It incorporates all of the changes reflected in columns 2, 3, and 4. In addition, it shows the impact of the CY 2002 payment update. The sum of the columns may be different from the percentage changes shown here due to rounding. In accordance with the provisions of Executive Order 12866, this final rule was reviewed by the Office of Management and Budget. List of Subjects 42 CFR Part 413 Health facilities, Kidney diseases, Medicare, Puerto Rico, Reporting and recordkeeping requirements. 42 CFR Part 419 Hospitals, Medicare, Reporting and recordkeeping requirements. 42 CFR Part 489 Health facilities, Medicare, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, the Centers for Medicare & [[Page 59920]] Medicaid Services amends 42 CFR chapter IV as follows: PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED NURSING FACILITIES A. Part 413 is amended as set forth below: 1. The authority citation for part 413 continues to read as follows: Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and (n), 1871, 1881, 1883, and 1886 of the Social Security Act (42 U.S.C. 1302, 1395f(b), 1395g, 1395l, 1395l(a), (i), and (n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww). Subpart B--Accounting Records and Reports 2. In Sec. 413.24, the heading to paragraph (d) is republished, paragraph (d)(6) is revised, and a new paragraph (d)(7) is added, to read as follows: Sec. 413.24 Adequate cost data and cost finding. * * * * * (d) Cost finding methods. * * * (6) Provider-based entities and departments: Preventing duplication of cost. In some situations, the main provider in a provider-based complex may purchase services for a provider-based entity or for a department of the provider through a contract for services (for example, a management contract), directly assigning the costs to the provider-based entity or department and reporting the costs directly in the cost center for that entity or department. In any situation in which costs are directly assigned to a cost center, there is a risk of excess cost in that cost center resulting from the directly assigned costs plus a share of overhead improperly allocated to the cost center which duplicates the directly assigned costs. This duplication could result in improper Medicare payment to the provider. Where a provider has purchased services for a provider-based entity or for a provider department, like general service costs of the provider (for example, like costs in the administrative and general cost center) must be separately identified to ensure that they are not improperly allocated to the entity or the department. If the like costs of the main provider cannot be separately identified, the costs of the services purchased through a contract must be reclassified to the main provider and allocated among the main provider's benefiting cost centers. Example: A provider-based complex is composed of a hospital and a hospital-based rural health clinic (RHC). The hospital furnishes the entirety of its own administrative and general costs internally. The RHC, however, is managed by an independent contractor through a management contract. The management contract provides a full array of administrative and general services, with the exception of patient billing. The hospital directly assigns the costs of the RHC's management contract to the RHC cost center (for example, Form HCFA 2552-96, Worksheet A, Line 71). A full allocation of the hospital's administrative and general costs to the RHC cost center would duplicate most of the RHC's administrative and general costs. However, an allocation of the hospital's cost (included in hospital administrative and general costs) of its patient billing function to the RHC would be appropriate. Therefore, the hospital must include the costs of the patient billing function in a separate cost center to be allocated to the benefiting cost centers, including the RHC cost center. The remaining hospital administrative and general costs would be allocated to all cost centers, excluding the RHC cost center. If the hospital is unable to isolate the costs of the patient billing function, the costs of the RHC's management contract must be reclassified to the hospital administrative and general cost center to be allocated among all cost centers, as appropriate. (7) Costs of services furnished to free-standing entities. The costs that a provider incurs to furnish services to free-standing entities with which it is associated are not allowable costs of that provider. Any costs of services furnished to a free-standing entity must be identified and eliminated from the allowable costs of the servicing provider, to prevent Medicare payment to that provider for those costs. This may be done by including the free-standing entity on the cost report as a nonreimbursable cost center for the purpose of allocating overhead costs to that entity. If this method would not result in an accurate allocation of costs to the entity, the provider must develop detailed work papers showing how the cost of services furnished by the provider to the entity were determined. These costs are removed from the applicable cost centers of the servicing provider. * * * * * Subpart E--Payments to Providers 3. Section 413.65 is amended as follows: A. Revising paragraph (a)(1). B. Revising the definition of "Provider-based entity" in paragraph (a)(2). C. Revising paragraph (b). D. Revising paragraph (c). E. Revising the introductory text to paragraph (d). F. Revising paragraph (d)(7). G. Revising paragraph (g)(7). H. Revising the introductory text to paragraph (i)(1). I. Revising paragraph (i)(1)(ii). J. Revising paragraph (i)(2). The revisions read as follows: Sec. 413.65 Requirements for a determination that a facility or an organization has provider-based status. (a) Scope and definitions. (1) Scope. (i) This section applies to all facilities for which provider-based status is sought, including remote locations of hospitals, as defined in paragraph (a)(2) of this section and satellite facilities as defined in Sec. 412.22(h)(1) and Sec. 412.25(e)(1) of this chapter, other than facilities described in paragraph (a)(1)(ii) of this section. (ii) This section does not apply to the following facilities: (A) Ambulatory surgical centers (ASCs). (B) Comprehensive outpatient rehabilitation facilities (CORFs). (C) Home health agencies (HHAs). (D) Skilled nursing facilities (SNFs). (E) Hospices. (F) Inpatient rehabilitation units that are excluded from the inpatient PPS for acute hospital services. (G) Independent diagnostic testing facilities and any other facilities that furnish only clinical diagnostic laboratory tests. (H) Facilities furnishing only physical, occupational, or speech therapy to ambulatory patients, for as long as the $1,500 annual cap on coverage of physical, occupational, and speech therapy, as described in section 1833(g)(2) of the Act, remains suspended by the action of subsequent legislation. (I) ESRD facilities (determinations for ESRD facilities are made under Sec. 413.174 of this chapter). (2) Definitions. * * * * * * * * Provider-based entity means a provider of health care services, or an RHC as defined in Sec. 405.2401(b) of this chapter, that is either created by, or acquired by, a main provider for the purpose of furnishing health care services of a different type from those of the main provider under the name, ownership, and administrative and financial control of the main provider, in accordance with the provisions of this section. * * * * * (b) Provider-based determinations. (1) A facility or organization is not entitled to be treated as provider-based simply [[Page 59921]] because it or the main provider believe it is provider-based. (2) If a facility was treated as provider-based in relation to a hospital or CAH on October 1, 2000, it will continue to be considered provider-based in relation to that hospital or CAH until October 1, 2002. The requirements, limitations, and exclusions specified in paragraphs (d), (e), (f), and (h) of this section will not apply to that hospital or CAH for that facility until October 1, 2002. For purposes of this paragraph, a facility is considered as provider-based on October 1, 2000, if on that date it either had a written determination from CMS that it was provider-based, or was billing and being paid as a provider-based department or entity of the hospital. (3) Except as specified in paragraphs (b)(2) and (b)(5) of this section, a main provider or a facility must contact CMS, and the facility must be determined by CMS to be provider-based, before the main provider bills for services of the facility as if the facility were provider based, or before it includes costs of those services on its cost report. (4) A facility that is not located on the campus of a hospital and that is used as a site where physician services of the kind ordinarily furnished in physician offices are furnished is presumed as a free- standing facility, unless CMS determines the facility has provider- based status. (5) A facility that has requested provider-based status in relation to a hospital or CAH on or after October 1, 2000 and before October 1, 2002 will be treated as provider-based in relation to the hospital or CAH from the first date on or after October 1, 2000 on which the facility was licensed (to the extent required by the State), staffed and equipped to treat patients until the date on which CMS determines that the facility does not qualify for provider-based status. (c) Reporting. A main provider that has had one or more facilities considered provider-based also must report to CMS any material change in the relationship between it and any provider-based facility, such as a change in ownership of the facility or entry into a new or different management contract that would affect the provider-based status of the facility. (d) Requirements. An entity must meet all of the following requirements to be determined by CMS to have provider-based status. * * * * * (7) Location in immediate vicinity. The facility or organization and the main provider are located on the same campus, except when the requirements in paragraphs (d)(7)(i), (d)(7)(ii), or (d)(7)(iii) of this section are met: (i) The facility or organization is located within a 35-mile radius of the main campus of the hospital or CAH that is the potential main provider; (ii) The facility or organization is owned and operated by a hospital or CAH that has a disproportionate share
