[Federal Register: November 1, 2002 (Volume 67, Number 212)]
[Rules and Regulations]
[Page 66767-66816]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no02-20]
[[pp. 66767-66816]] Medicare Program; Changes to the Hospital Outpatient Prospective
Payment System and Calendar Year 2003 Payment Rates; and Changes to
Payment Suspension for Unfiled Cost Reports
[[Continued from page 66766]]
[[Page 66767]]
Act explicitly indicates that the 2 to 3 year period for which
categories of devices may be in effect applies from the first date on
which payment was made under the OPPS for any device described by the
category, which was August 2000.
Specific Category Applications
Comment: Several commenters commented on specific pass-through
device category applications which we had open as of the time of the
comment or applications which we had previously denied as eligible for
pass-through payment.
Response: We evaluate all pass-through device category applications
individually and respond to applicants directly.
D. Expiration of Transitional Pass-Through Payments in Calendar Year
2003 for Drugs and Biologicals (Including Radiopharmaceutical Agents,
Blood, and Blood Products)
Under the OPPS, we currently pay for drugs and biologicals,
including radiopharmaceutical agents, blood, and blood products, in one
of three ways: packaged payment, separate APCs and transitional pass-
through payment.
Drugs as Packaged Supplies
As we explained in the April 7, 2000 final rule, we generally
package the cost of drugs and biologicals into the APC payment rate for
the primary procedure or treatment with which the drugs are usually
furnished (65 FR 18450). Hospitals do not receive separate payment from
Medicare for packaged items and supplies, and hospitals may not bill
beneficiaries separately for any such packaged items and supplies whose
costs are recognized and paid for within the national OPPS payment rate
for the associated procedure or service. (Transmittal A-01-133, a
Program Memorandum issued to Intermediaries on November 20, 2001,
explains in greater detail the rules regarding separate payment for
packaged services.) Hospitals bill for costs directly related and
integral to performing a procedure or furnishing a service using a
revenue center or packaged HCPCS code (status indicator ``N''). As
discussed earlier in section III.A.2 of the preamble, we list the
packaged services, by revenue center, that we use to calculate per-
service costs.
As specified in the regulations at Sec. 419.2(b), costs directly
related and integral to performing a procedure or furnishing a service
on an outpatient basis are included in the determination of OPPS
payment rates for the procedure or service. In the August 9, 2002
proposed rule, we provided some illustrations of situations in which
drugs are considered to be supplies. For example, sedatives
administered to patients while they are in the preoperative area being
prepared for a procedure are supplies that are integral to being able
to perform the procedure. Similarly, mydriatic drops instilled into the
eye to dilate the pupils, anti-inflammatory drops, antibiotic
ointments, and ocular hypotensives that are administered to the patient
immediately before, during, or immediately following an ophthalmic
procedure are considered an integral part of the procedure without
which the procedure could not be performed. The costs of these items
are packaged into and reflected within the OPPS payment rate for the
procedure. Likewise, barium or low osmolar contrast media are supplies
that are integral to a diagnostic imaging procedure as is the topical
solution used with photodynamic therapy furnished at the hospital to
treat non-hyperkeratotic actinic keratosis lesions of the face or
scalp. Local anesthetics such as marcaine, lidocaine (with or without
epinephrine) and antibiotic ointments such as bacitracin, placed on a
wound or surgical incision at the completion of a procedure, are other
examples we cited in the proposed rule. The hospital furnishes these
items while the patient is in the hospital and registered as an
outpatient for the purpose of receiving a therapy, treatment,
procedure, or service. These and other such supplies may be furnished
pre-operatively, while the patient is being prepared for a procedure;
intra-operatively, while the procedure is being performed; or post-
operatively, while the patient is in the recovery area prior to
discharge. Or, these items may be part of an E/M service furnished
during a clinic visit or in the emergency department. All of these
supplies are directly related and integral to the performance of a
separately payable therapy, treatment, procedure, or service with which
they are furnished. Therefore, we do not generally recognize them as
separately payable services. We package their cost into the cost of the
primary procedure, and we pay for them as part of the APC payment.
We received several comments concerning the treatment of drugs as
supplies, which are summarized below, along with our responses.
Comment: Several commenters asked for clarification of CMS's policy
with respect to self-administered drugs, claiming the discussion in the
preamble which lists examples of drugs, including self-administered
drugs, that are packaged and paid as integral to an outpatient service
conflicts with section 1861(s)(2) of the Act and CMS manuals which
consider self-administered drugs to be non-covered.
Response: Our policy is based on the premise that certain drugs are
so integral to a treatment or procedure that the treatment or procedure
could not be performed without them. Because such drugs are so clearly
a component part of the procedure or treatment, we believe that they
are more appropriately considered as supplies and should be packaged as
supplies into the APC payment for the procedure or treatment. Moreover,
the payment for packaged supplies is included in the APC payment for
the procedure or treatment, so beneficiaries should not be separately
billed for them.
Comment: A commenter stated that virtually all drugs furnished in
the outpatient setting are integral to an outpatient service and asked
that CMS clarify those circumstances when usually self-administered
drugs would not be considered integral to a service and therefore, non-
covered.
Response: A drug would be treated as a packaged supply in cases
where, although the drug is not separately payable, it is directly
related and integral to a procedure or treatment and is required to be
provided to a patient in order for a hospital to perform the procedure
or treatment during a hospital outpatient encounter. A drug would not
be treated as a packaged supply if it failed to meet these conditions.
For example, we would not treat as packaged supplies any drugs that are
given to a patient for their continued use at home after leaving the
hospital. Another example would be a situation where a patient who is
receiving an outpatient chemotherapy treatment develops a headache. Any
medication given the patient for the headache would not meet the
conditions necessary to be treated as a packaged supply. Similarly, if
a patient who is undergoing surgery needs his or her daily insulin or
hypertension medication, the medication would not be treated as a
packaged supply.
Comment: A commenter from a teaching hospital indicated that
revenue code 819, which is required for the acquisition of bone marrow
or blood-derived peripheral stem cells, is bundled into the charge for
the transplantation procedure, CPT 38240. The commenter noted that the
transplant CPT code pays approximately $350-$400; however, charges for
acquiring stem cells are generally $25,000-$35,000 each. Therefore, the
commenter recommended that we create
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a new biological pass-through code for the stem cells until we can
build the cost of the acquisition into the procedure, and the code
should be retroactive to January 1, 2002.
Comment: A commenter from a teaching hospital indicated that
revenue code 819, which is required for the acquisition of bone marrow
or blood-derived peripheral stem cells, is bundled into the charge for
the transplantation procedure, CPT 38240. The commenter noted that the
transplant CPT code pays approximately $350-$400; however, charges for
acquiring stem cells are generally $25,000-$35,000 each. Therefore, the
commenter recommended that we create a new biological pass-through code
for the stem cells until we can build the cost of the acquisition into
the procedure, and the code should be retroactive to January 1, 2002.
Response: We understand the commenter's concern. Pass-through
payments, after December 31, 2002, will only be made for medical
devices, drugs, or biologicals in accordance with section
1833(t)(6)(A)(iv) of the Act. Stems cells are not medical devices nor
do they meet the statutory prerequisite for calling these items ``drugs
and biologicals,'' as stated in sections 1861(t)(A) and (B) of the Act.
For example, stems cells do not receive FDA approval and are not listed
in the United States Pharmacopoeia.
The commenter indicates that the hospital is not being paid
adequately for stem cell acquisition costs. However, the commenter
should note that hospitals should be reporting all charges associated
with the purchase of stem cells under Revenue Code 819. Therefore, to
the extent that hospitals are billing a charge for the cost of
acquiring stem cells under Revenue Code 819, those costs would be
packaged into the median cost of CPT 38240 and be reflected in the APC
payment rate. These services may also qualify for outlier payments.
Separate APCs for Drugs Not Eligible for Transitional Pass-Through
Payment
There are certain new technology drugs and biologicals that are not
eligible for transitional pass-through payments but for which we have
made separate payment. Beginning with the April 7, 2000 rule (65 FR
18476), we created separate APCs for these drugs and biologicals as
well as devices. We proposed to create temporary individual APC groups
for the various drugs classified as tissue plasminogen activators and
other thromobolytic agents that are used to treat patients with
myocardial infarctions as well as certain vaccines to allow separate
payment so as not to discourage their use where appropriate. In the
case of blood and blood products, wide variations in patient
requirements convinced us that we should pay for these items separately
rather than packaging their costs into the procedural APCs. Moreover,
the Secretary's Advisory Council on Blood Safety and Access recommended
that blood and blood products be paid separately to ensure that to
minimize incentives that would be inconsistent with the promotion of
blood safety and access.
In the case of the other drugs and vaccines that we proposed not
package into payment for visits or procedures, we paid separately for
them because we wanted to avoid creating an incentive to cease
providing these drugs when they were medically indicated.
We based the payment rate for the APCs for these drugs and
biologicals on median hospital acquisition costs using 2001 claims
data. We set beneficiary copayment amounts for these drug and
biological APCs at 20 percent of the payment amount. In 2003 we will
use status indicator ``K'' to denote the APCs for drugs and biologicals
(including blood and blood products) and certain brachytherapy seeds
that are paid separately from and in addition to the procedure or
treatment with which they are associated but that are not eligible for
transitional pass-through payment.
General
BBRA provided for special transitional pass-through payments for a
period of 2 to 3 years for the following drugs and biologicals (pass-
through payments for devices are addressed in section IV.C. of the
preamble):
[sbull] Current orphan drugs, as designated under section 526 of
the Federal Food, Drug, and Cosmetic Act.
[sbull] Current drugs and biologic agents used for treatment of
cancer.
[sbull] Current radiopharmaceutical drugs and biological products.
[sbull] New drugs and biological agents.
In this context, ``current'' refers to those items for which
hospital outpatient payment was being made on August 1, 2000, the date
on which the OPPS was implemented. A ``new'' drug or biological is a
product that is not paid under the OPPS as a ``current'' drug or
biological, was not paid as a hospital outpatient service before
January 1, 1997, and for which the cost is not insignificant in
relation to the payment for the APC with which it is associated.
Section 1833(t)(6)(D)(i) of the Act sets the payment rate for pass-
through eligible drugs as the amount by which the amount determined
under section 1842(o) of the Act, that is, 95 percent of the applicable
average wholesale price (AWP), exceeds the difference between 95
percent of the applicable AWP and the portion of the otherwise
applicable fee schedule amount (that is, the APC payment rate) that the
Secretary determines is associated with the drug or biological.
Therefore, in order to determine the pass-through payment amount, we
first had to determine the cost that was packaged for the drug or
biological within its related APC. In order to determine this amount,
we used data on hospital acquisition costs for drugs from a survey that
is described more fully in the April 7, 2000 and the November 30, 2001
final rules. The ratio of hospital acquisition cost, on average, to AWP
that we used is as follows:
[sbull] For sole-source drugs, the ratio of acquisition cost to AWP
equals 0.68.
[sbull] For multisource drugs, the ratio of acquisition cost to AWP
equals 0.61.
[sbull] For multisource drugs with generic competitors, the ratio
of acquisition cost to AWP equals 0.43.
Section 1833(t)(6)(C)(i) of the Act specifies that the duration of
transitional pass-through payments for current drugs and biologicals
must be no less than 2 years nor any longer than 3 years beginning on
the date that the OPPS is implemented. Therefore, the latest date for
which current drugs that have been in transitional pass-through status
since August 1, 2000 will be eligible for transitional pass-through
payments is July 31, 2003. We proposed to remove these drugs from
transitional pass-through status effective January 1, 2003 because the
statute gives us the discretion to do so and because we generally
implement annual OPPS updates on January 1 of each year. We would be in
violation of the law if we were to not remove these drugs and
biologicals from transitional pass-through status by August 1, 2003.
The next update of the OPPS that will go into place will not be
effective until January 1, 2004, at which time the statute's 3-year
limit on pass-through payments for these drugs would have been
exceeded. We further proposed to remove from transitional pass-through
status, beginning January 1, 2003, those drugs for which transitional
pass-through payments were made effective on or prior to January 1,
2001 because the law gives us the discretion to do so and we believe
that, to the extent possible, payments should be made under the OPPS,
without pass-through payment, when the law permits, as it does in this
case.
As explained above, our policy has been to package payment for
drugs and
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biologicals into the payment for the procedure or service to which the
drug is integral and directly related. In general, packaging the costs
of items and services into the payment for the primary procedure or
service with which it is associated encourages hospital efficiencies
and also enables hospitals to manage their resources with maximum
flexibility. Packaging costs into a single aggregate payment for a
service procedure or episode of care is a fundamental principle that
distinguishes a prospective payment system from a fee schedule. Our
proposal to package the costs of devices that we discuss in section
IV.C of this preamble is based on this principle. As we refine the OPPS
in the future, we intend to continue to package, to the maximum
possible extent, the costs of any items and services that are furnished
with an outpatient procedure or service into the APC payment for
services with which it is billed.
In spite of our commitment to package as many costs as possible, we
are aware of concerns that were presented at the April 5, 2002 Town
Hall meeting and that have been brought to our attention by various
interested parties, that packaging payments for certain drugs,
especially those that are particularly expensive or rarely used, might
result in insufficient payments to hospitals, which could adversely
affect beneficiary access to medically necessary services.
The options that we considered included packaging the costs of all
drugs and biologicals, both those with status indicator ``K'' in 2002
and those that would no longer receive pass-through payments in 2003,
or continuing to make separate payment for both categories of drugs and
biologicals through separate APCs. After careful consideration of the
various options for 2003, we proposed to package the cost of many drugs
for which separate payment is made currently. But we also proposed to
continue making separate payment for certain orphan drugs (as discussed
below), blood and blood products, vaccines that are paid under a
benefit separate from the outpatient hospital benefit (that is,
influenza, pneumococcal pneumonia, and hepatitis B), and certain higher
cost drugs as explained below. The payment rates for those drugs for
which we would make separate payment in 2003 would be an APC payment
rate based on a relative weight calculated in the same way that
relative weights for procedural APCs are calculated.
Comments on this proposal and our responses are summarized below:
Comment: We received many comments regarding the significant
reduction in the payment rates for numerous drugs and biologicals that
are sunsetting from their transitional pass-through status. The
commenters asserted that proposed payment rates are significantly lower
than the costs hospitals incur in acquiring and dispensing these
products. As a result, inadequate payment may drive hospitals to
discontinue stocking these products, and thus threaten beneficiary
access to important drugs and biologicals. The commenters attributed
the dramatic reduction in payment rates on the flaws in the 2001 claims
data and deficiencies in the methodology that was used to derive the
APC median costs. Commenters suggested numerous ways to correct the
payment rates until reliable and sufficient claims data became
available. Commenters proposed the following suggestions: maintain
separate pass-through payments for APCs whose proposed payment rates
decreased; pay a flat amount per item on a per patient basis; develop a
rate setting methodology that does not depend upon the hospital's
ability to record the proper number of units of a drug utilized; use
information provided by commenters to set the 2003 payment rates;
revise payment rates to include payment for the drug and related
pharmacy overhead costs; pay 90 to 100 percent of AWP for non-pass-
through drugs; use an appropriate ratio of acquisition cost to AWP as
estimated in the proposed rule; conduct a new external survey of
hospitals' drug acquisition costs to obtain more current data; or pay
according to the median hospital cost for the item.
Response: As discussed elsewhere in this rule, in order to lessen
the impact of the dramatic reduction in the proposed payment rates for
many of the drugs and biologicals from 2002 to 2003, we decided that
the most appropriate mechanism is to apply a dampening option to all of
the APCs that decreased in median costs by more than 15 percent. For
these APCs, we limited the reduction in median costs from 2002 median
costs to half of the difference between the total proposed reduction
and 15 percent. However, budget neutrality adjustments needed to
compensate for the effects of this dampening subsequently reduced
payment rates of all APCs by an additional percentage. Also, we applied
a special dampening option to all blood and blood products and
hemophilia clotting factors that limited the decrease in their payment
rates to about 15 percent. These adjustments yielded significant
moderation in the reduction of the final 2003 payment rates. These
adjustments are described in detail in section III.B of the preamble.
After carefully reviewing all of the comments, a dampening option
seemed most plausible and practical for us to undertake. Most of the
recommendations proposed by the commenters were not feasible or not
suitable for the purposes of OPPS.
Comment: Many commenters indicated that the median costs derived
from the claims data was not reflective of the hospitals' true costs
for acquiring and dispensing these drugs and biologicals.
Response: We agree with this point; however, the commenters should
note that we intend to pay only for the cost of acquiring the drug
under a drug APC and not for costs associated with the administration
of the drug. Costs associated with administering the drug and with
other pharmacy overhead are captured in pharmacy revenue cost centers
and reflected in the median cost of APCs involving drug administration.
Therefore, we believe that it is not appropriate for us to duplicate
these costs in both the administration and drug APCs.
Comment: Several commenters noted that many drugs and biologicals
were packaged into administration APCs; however, they were surprised to
see decreases in the proposed payment rates for several of the
administration APCs. The commenters stated that the addition of the
costs of the packaged products should have caused the APC median cost
levels to increase, thus their payment rates should have also increased
compared to 2002. However, the commenters assert that the proposed
payment rates for several administration APCs in which the drugs were
packaged does not adequately cover the acquisition cost of the drugs
themselves. Thus, they recommended that we reevaluate our data to
ensure that costs of the packaged drug were included with the data for
the applicable administration APCs, or otherwise explain how we plan to
reimburse hospitals for the costs of the packaged drugs; retain the
2002 payment rates for administration services and pay for the drugs
separately; or use our authority to limit any payment reductions for
certain services. One commenter suggested that we conduct a survey of
cancer centers to determine the true cost of infusion procedures and
make an adjustment to the APC rates based on our finding.
Response: After reanalyzing our data, we were able to verify that
the median costs of the drugs were indeed packaged into the median
costs of the
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administration APCs. We acknowledge that the median costs of several
administration APCs before we packaged drug costs declined between
those median costs used to set the 2002 rates and those median costs
developed from the 2001 claims for the 2003 rates. This decline
occurred because, in setting the 2002 rates, we packaged in 75 percent
of the cost of pass through devices we projected would be billed with
the administration codes, based on manufacturer prices. The 2001 claims
data, however, did not reflect the charges that we predicted would be
billed for such devices. An increase in the median cost of a service
does not guarantee that the payment rate for the service will increase
because payment rates under the OPPS are based on relative costs and
the budget neutrality adjustment. If the relative cost of a service
increases at a lower rate than other services, the payment rate may
actually decline. In addition, all rates are affected by the budget
neutrality adjustment that has lowered rates over the past several
years. (We note that it is possible for the budget neutrality
adjustment to increase rates as occurred in the proposed rates.) As
noted elsewhere, for APCs whose median costs decreased by more than 15
percent from 2002 to 2003, the dampening option described elsewhere in
this rule limits the decreases in their payment rates.
Comment: A commenter requested that we describe the methodology
used to calculate the payment rates for sunsetting pass-through drugs
that are being assigned to separate APCs.
Response: We have provided a detailed description of the
methodology we used in the calculation of the APC payment rates for
sunsetting drugs and biologicals in section III.B of the preamble.
Comment: A major hospital association supported our proposal to
incorporate pass-through drugs into APC rates. However, the commenter
was concerned that many of these same drugs would continue to receive
95 percent of AWP in other settings, and differential payments may
result in patient care being directed out of the hospital outpatient
setting and into physician offices for non-clinical reasons.
Response: We believe that the payment rates for sunsetting pass-
through drugs and biologicals reflect hospital acquisition cost to a
sufficient extent so that hospitals will not, in general, stop
furnishing these products to beneficiaries. While Medicare payment in
other settings will be higher, the extent of response that may be
expected to these payment differentials is unclear. We note that the
same differentials prevailed for years prior to the introduction of the
outpatient prospective payment system. We believe that the appropriate
policy response is to address the use of AWP as a basis for payment in
non-hospital sites.
Comment: A state hospital association indicated that confusion
exists among hospitals over which drugs can be self-administered and
that instructions from fiscal intermediaries are inconsistent and/or
confusing. The commenter requested that we publish a definitive list of
drugs that are to be considered to be self-administrable, and thus is
not part of covered services. Another commenter from a hospital urged
us to clarify whether self-administrable drugs (both those that are
integral and non-integral to the patient's procedure) in outpatient and
observation settings are the patient's responsibility or should be
packaged under procedure APCs. Another commenter from a hospital
organization suggested that we exempt hospitals from determining which
drugs should be classified as self-administered or allow hospitals to
classify drugs based on the dosing form and pursue payment from the
beneficiary.
Response: On May 15, 2002, we issued Transmittal AB-02-072 entitled
``Medicare Payment for Drugs and Biologicals Furnished Incident to a
Physician's Service.'' The program memorandum gives instructions to the
fiscal intermediaries for applying the exclusion to drugs that are
usually self-administered by the patient. Each fiscal intermediary
makes its determination on each drug based on whether the drug meets
all of the program requirements for coverage. The payment rates that we
are finalizing in this rule only indicate the Medicare payment amounts
under OPPS when a drug is covered by Medicare; therefore, determination
of a payment amount does not represent a determination that the
Medicare program covers the drug. We discuss elsewhere in this preamble
how Medicare makes payments for drugs that are considered to be
supplies.
Comment: Several commenters suggested that we publish various sorts
of additional information about the methodology we used to calculate
the payment rates, including technical details of the methodology used
in analysis of the 2001 claims.
Response: We do not believe the final rule is the appropriate
vehicle for conveying the extensive background technical detail that
may be of interest to the analytical community. However, we plan to
hold a meeting in December 2002 or January 2003 to address the
questions these commenters or other interested parties may have about
our methodology.
Comment: Several commenters were concerned that fiscal
intermediaries have addressed the issue of drug units of service with
respect to billing and waste differently, and requested that we provide
clear and consistent guidance to the fiscal intermediaries as well to
providers on how to define ``waste.''
Response: In the fall of 1996, we issued a memorandum to our
regional offices with guidance regarding our current policy on drug and
biological product wastage. Although this memorandum focused on
guidance for carriers, it overall reflects our current policy for drug
and biological product wastage.
We recognize that some drugs may be available only in packaged
amounts that exceed the needs of an individual patient. Once the drug
is reconstituted in the hospital's pharmacy, it may have a limited
shelf life. Since an individual patient may receive less than the fully
reconstituted amount, we encourage hospitals to schedule patients in
such a way that the hospital can use the drug most efficiently.
However, if the hospital must discard the remainder of a vial after
administering part of it to a Medicare patient, the provider may bill
for the amount of drug discarded along with the amount administered.
Example 1: Drug X is available only in a 100-unit size. A
hospital schedules three Medicare patients to receive drug X on the
same day within the designated shelf life of the product. An
appropriate hospital staff member administers 30 units to each
patient. The remaining 10 units are billed to Medicare on the
account of the last patient. Therefore, 30 units are billed on
behalf of the first patient seen and 30 units are billed on behalf
of the second patient seen. Forty units are billed on behalf of the
last patient seen because the hospital had to discard 10 units at
that point.
Example 2: An appropriate hospital staff must administer 30
units of drug X to a Medicare patient, and it is not practical to
schedule another patient who requires the same drug. For example,
the hospital has only one patient who requires drug X, or the
hospital sees the patient for the first time and did not know the
patient's condition. The hospital bills for 100 units on behalf of
the patient, and Medicare pays for 100 units.
Comment: A few commenters urged us to provide a crosswalk
identifying which drugs are being associated with which APCs and in
what amounts, to help ensure that costs are being appropriately
transferred to and allocated among APCs.
Response: Our methodology did not rely on a crosswalk, and we do
not have one available. In our methodology, we
[[Page 66771]]
packaged drugs and biologicals that fell below the $150 median cost per
line threshold into the procedure APCs they were billed from April 1,
2001 to March 31, 2002. Interested parties may analyze the claims data
that is available to the public to determine the extent to which the
costs of specific drugs and biologicals were included in payment rates
of the procedure APCs.
Comment: A commenter expressed concern related to the adenosine
products J0150 and J0151. The commenter stated that although these two
codes reflect different uses and doses of the adenosine products, OPPS
only recognizes billing only under the lowest dose of J0150 and J0151
is assigned a status indicator of E. Consequently, the hospitals have
been billing for both products under code J0150. The commenter
requested that we clear the confusion that exists among hospitals when
billing for these products by reinstating J0151 under a separately paid
APC with an adequate payment rate and revising J0150 so that the code
is specific to its actual use.
Response: After reviewing the comment, we assigned a status
indicator of N to J0150 to indicate that J0150 will be packaged in
2003; and changed the status indicator for J0151 from E to K and
assigned it to APC 0917.
Comment: One commenter requested that we update the HCPCS
description for all drugs to accurately report all medications in the
way manufacturers currently package them. The commenter claimed that
our current use of codes causes confusion and has the potential to
create reimbursement problems for providers and the Medicare program.
Response: To the extent possible, when creating the ``C'' codes
used to report drugs and biologicals eligible for transitional pass-
through payment under OPPS, we employ the lowest common measurement of
dosage for each drug so that hospitals can bill the number of units
that are required to treat the patient by using multiple units of a
single code. As drugs and biologicals retire from pass-through status,
we expect to retire the ``C'' codes for these items. We expect these
items will receive appropriate ``non-C'' HCPCS codes.
Comment: Several commenters claimed that our proposal to package
many of the non-pass-through, lower cost drugs and biologicals with
HCPCS codes for therapeutic administration is a violation of the ``two-
times'' rule. Therefore, they recommended that we continue to pay for
all drugs and biologicals separately or by revising the APCs in which
the drugs are packaged.
Response: We do not agree with the commenters' assertion that
packaging of drugs and biologicals results in violations of the two-
times rule, stated in section 1833(t)(2) of the Act. We understand the
commenters' confusion and attempt to provide a clarification on how we
apply the ``two-times'' rule to determine APC structures. Most APC's
consist of one or more services, which reported with CPT or HCPCS G
codes, that are similar clinically and in terms of resource use. Many
individual items (for example, sterile supplies or pharmaceuticals such
as anesthetic agents) are integral to the procedure, and thus we have
packaged them with the procedure. In some instances, such as APCs for
transitional pass-through drugs and devices, the APC includes no
procedure, and the APC is used only to pay for a specific item.
The ``two times'' rule requires that the highest median cost of a
service or item within an APC cannot be more than two times greater
than the lowest median cost of a service or item within that APC. We
apply the ``two-times'' rule to the total cost of each procedure (which
includes items that are packaged within that procedure). In the case of
APCs containing only items, we apply the rule to the cost of each item
that is grouped in the APC. We do not apply the two times rule to the
variation in cost of individual items or ancillary services we
attribute to a single HCPCS code.
If we were to attempt to apply the rule to all items within the
various procedures, accounting for the variation in cost of supplies
such as bandages, reusable instruments, and other medical supplies
would be a practical impossibility. It would lead to a highly
fragmented set of payment cells and a greatly more complex payment
system that would reduce the incentives for effective management by
hospitals. We do not believe the Congress would have intended such a
result.
Consistent with the principles of prospective payment, we package
the cost of as many items as possible into the median cost of a
procedure. Therefore, our payment methodology for 2003 includes
packaging the costs of drugs and biologicals with median costs below
$150 per line into the costs of the procedures with which they were
billed. We reviewed the median cost of the procedures used for
administration of drugs and biologicals, before and after we packaged
the costs of drugs and biologicals. Our review indicates that the final
median cost appropriately accounts for the administration procedure and
the cost of the administered drug and/or biologic.
Comment: Numerous commenters were concerned about the proposed
reduction in payment rates for several radiopharmaceutical products.
They asserted that hospitals would not be reimbursed adequately for
these products, and thus, beneficiary access could be negatively
impacted. They recommended that we should not base payments on the 2001
claims data and use a different methodology instead. They suggested
that we estimate acquisitions costs using the proposed ratios for
acquisition cost to AWP based on analysis conducted by the agency;
maintain the 2002 payment levels; or create new APCs using cost ranges
and assign radiopharmaceuticals to APCs based on their costs, as
determined by AWP plus overhead fees, or another proxy for actual
hospital costs.
Response: We are concerned about the possible effects of payment
reductions on beneficiary access, and accordingly, we have included
radiopharmaceuticals in the dampening policy described section III.B.
of the Preamble.
Comment: Several commenters were concerned with our proposal to
package numerous radiopharmaceutical products. They claimed that given
the problems with the claims data and the great variation in the cost
and use of radiopharmaceuticals for the same procedure, all
radiopharmaceuticals should be paid under their own APCs, in addition
to their associated nuclear medicine procedures. This would assure
appropriate reimbursement for both the product and procedure, and would
be the best way to capture hospital costs for radiopharmaceuticals in
future claims data.
Response: While we acknowledge the commenters' concerns, we believe
that the most appropriate payment structure is one that packages
services together to the extent it is reasonable to do so, and thus
presents hospitals with bundled payments that permit them to
effectively manage resource allocation in the treatment of particular
patients. Accordingly, we have not adopted this suggestion.
Comment: A manufacturer and a trade association suggested that we
could improve the accuracy of the APC payment rates by establishing new
revenue codes to accurately capture data and calculate costs for
radiophamaceuticals in future years.
Response: While we do want to improve the accuracy of APC payment
rates, we are reluctant to impose new requirements on hospital cost
reports. In addition, the creation of new revenue centers must be made
through a process that includes other payers as well as representatives
of various providers.
[[Page 66772]]
Therefore, we will not adopt this suggestion for 2003. As discussed in
section III. B of this final rule, we expect to address the issue of
improving the accuracy of our data further in the future.
Comment: A hospital organization indicated that there is a
competitive disadvantage between different types of providers (clinic,
Independent Diagnostic Testing Facilities (IDTF), and outpatient
hospital) and their payment policies for Low Osmolar Contrast Media
(LOCM). The commenter stated that in a clinic or IDTF, LOMC receives
separate payment when clinical conditions are met. However, when LOCM
is administered in an outpatient hospital without an intrathecal
procedure or if one of the Medicare coverage conditions is non-covered,
hospitals are expected to issue an ABN to the patient. The commenter
recommended that we allow hospitals to bill for LOCM even when the
patient does not meet conditions, or instruct the clinics and IDTFs to
seek ABNs for LOCM in non-covered circumstances. A state hospital
association suggested that we eliminate the medical necessity
requirement for LOCM since it is not applicable to hospital outpatient
services.
Response: These suggestions involve several different Medicare
payment systems, and appropriate resolution of this concern will
require further analysis. We will consider this issue further in the
future.
Comment: One commenter requested clarification on whether there
will be any more changes to the payment calculation for HCPCS C1775
(FDG, per dose) other than what is proposed in Table X of the proposed
rule.
Response: According to our new policy for radiopharmaceuticals, as
described elsewhere in this final rule, FDG will no longer be granted
pass-through status in 2003. It will instead be paid separately under
its own APC and be assigned to a status indicator of K.
Comment: Another commenter requested that we describe our waste
policy on whether a hospital may bill for a medication that is ordered
and mixed, but not administered to the patient due to a change in
patient status or a no-show by the patient for that day's visit. If the
drug cannot be used later or on another patient, the hospital would
still incur the costs.
Response: If the drug is not administered to a Medicare
beneficiary, then payment may not be made by the Medicare Program.
Packaging Issue
Comment: Several commenters indicated that our methodology of
analyzing single line-items on drug claims is not consistent with how
hospitals bill for certain particular drugs and biologicals. This
inconsistency particularly affects whether a drug or biological falls
below the $150 median cost per line threshold or not. They claimed that
we incorrectly assumed ``that a single administration of a drug was
billed as a single line item on a claim and that the correct number of
units was placed in the `units' field of the claim form.'' Commenters
noted that this was not always true because hospitals often bill for
certain drugs using multiple lines in a claim that represents one
patient encounter. They indicated that in our calculation of the median
cost per line for a drug, we multiplied the median cost per unit of the
drug by the average number of units billed per line. Thus, our
methodology does not take into account all of the units of a drug
administered during one encounter if the units were billed in multiple
lines on the claim, and consequently, may not reflect the full cost of
delivering the drug.
Response: For 2003, we chose to use the $150 median cost per line
threshold level to determine whether to package a drug, as opposed to
another packaging criterion, for the reasons of administrative
simplicity, administrability, and responsiveness. However, in our
analysis of the data, we observed that instances where a drug was
billed on multiple lines in a claim were rare (less than 1 percent of
total billings for drugs). We reiterate that our intent is to review
and refine the packaging methodology in the future and will take the
commenters' concern into account.
Orphan Drugs
We recognize that orphan drugs that are used solely for an orphan
condition or conditions are generally expensive and, by definition, are
rarely used. We believe that if the cost of these drugs were packaged
into the payment for an associated procedure or visit, the payment for
the procedure might be insufficient to compensate a hospital for the
typically high cost of this special type of drug. Therefore, we
proposed to establish separate APCs to pay for those orphan drugs that
are used solely for orphan conditions.
To identify the orphan drugs for which we would continue to make
separate payment, we applied the following criteria:
[sbull] The drug must be designated as an orphan drug by FDA and
approved by FDA for the orphan condition.
[sbull] The current United States Pharmacopoeia Drug Information
(USPDI) shows that the drug had neither an approved use for other than
an orphan condition nor an off label use for conditions other than the
orphan condition. There are three orphan drugs that are used solely for
orphan conditions for which we proposed to make separate payment: J0205
Alglucerase injection; J0256 Alpha 1 proteinase inhibitor; and J09300
Gemtuzumab ozogamicin.
Comment: Several commenters stated that the proposed payment rates
for the orphan drugs would grossly underpay hospitals for providing
these drugs to patients. They recommended that we pay for orphan drugs
according to current year acquisition and actual total costs of
providing the products; maintain the 2002 payment levels; or remove
from them from the OPPS system and set payment according to the
methodology used in the physician office and other non-inpatient
settings.
Response: After reviewing the comments, we have decided to remove
the three orphan drugs that do not have any other non-orphan
indications from the OPPS system and will pay for them on a reasonable
cost basis. Other drugs that have orphan status according to the FDA
will be partly protected by the dampening options described in section
III.B of this final rule.
Comment: Several commenters objected to what they characterized as
our definition of ``orphan drug.'' These commenters believe we should
treat comparably all drugs and biologicals that have been designated as
under section 526 of the Federal Food, Drug, and Cosmetic Act.
Response: We emphasize that we are not creating a new definition of
orphan drugs; instead, we continued to rely on the definition stated in
the Federal Food, Drug, and Cosmetic Act. However, within the set of
drugs that the FDA has identified as orphan drugs, we have identified a
subset of three drugs that have only orphan indications and decided to
remove them from the outpatient prospective payment system. We have
distinguished these drugs from other orphan drugs because of their low
volume of patient use and their lack of other indications, which means
they can rely on no other source of payment. Many orphan drugs are
approved for multiple indications, including non-orphan indications
that have significant patient use that provide the drugs with financial
support. For example, epoetin alfa was originally identified as an
[[Page 66773]]
orphan drug for use in ESRD patients; however, currently it is being
used extensively in patients with chemotherapy-induced anemia. Once a
drug is granted orphan status, no further effort is made to update this
status, even though indications for use may change substantially with
experience. After consulting with our clinical advisors, we have
decided to remove from OPPS the three orphan drugs that have no other
non-orphan indications. We recognize the importance of all orphan
drugs, however, and accordingly we have applied the dampening policies
described in section III.B of the preamble to the other orphan drugs.
Blood and Blood Products
From the onset of the OPPS, we have made separate payment for blood
and blood products either in APCs with status indicator ``K'' or as
pass-through drugs and biologicals with status indicator ``G'' rather
than packaging them into payment for the procedures with which they
were administered. As we explained in the April 7, 2000 final rule (65
FR 18449), the high degree of variability in blood use among patients
could result in payment inequities if the costs of blood and blood
products were packaged with their administration. We also want to
ensure that costs associated with blood safety testing are fully
recognized. The safety of the nation's blood supply continues to be
among the highest priorities of the Secretary's council on Blood Safety
and Access. Therefore, we proposed to continue to pay separately for
blood and blood products.
Comment: Several major blood collection organizations, specialty
physician groups, a large trade association, hospital associations, and
individual hospitals supported our decision to maintain separate APCs
for blood and blood products; however, the commenters were concerned
with the reduction in payment rates for these products in the proposed
rule.
The commenters provided several suggestions. They recommended that
we base the payment rates for blood products on current year
acquisition costs and actual total costs rather than on hospital claims
from previous years, and use industry data on the current hospital
costs of blood and blood products that have been submitted to us;
consider costs related to additional costs that hospitals incur in
storing and preparing units for transfusion when assigning APC relative
weights to blood and blood products; continue the 2002 payment rates
until more accurate information on the actual costs of blood and blood
products are gathered; or reimburse hospitals on a reasonable cost
basis for blood and blood products.
Response: After carefully reviewing the comments and comparing the
industry data against our data, we were convinced that the proposed
reduction in payment rates for many of the blood and blood products
would result in payment that is significantly lower than hospital
acquisition costs. Thus, inadequate reimbursement may compromise access
to beneficiaries and the safety of these products. We continue to be
aware of the variability in the use of blood and blood products in
various procedures, and by our desire to recognize costs of new tests
being performed on blood, we have decided to apply a special dampening
option to blood and blood products that had significant reductions in
payment rates from 2002 to 2003. For these products, as described in
section III.B of the preamble, we limited the decrease in their median
costs by 11 percent, which limited the decrease in payment rates to
approximately 15 percent. We note that the APCs for these products are
intended to cover product costs; costs for storage, etc., are packaged
into the APCs for the procedures with which the products are used.
Comment: A commenter from an individual hospital disagreed with our
proposal to not change the current OPPS payment policy for
transfusions. The commenter stated that their hospital has more than
the average number of cases that require more than one unit of blood,
and thus, averaging the payment would adversely affect specialty
hospitals.
Response: For transfusion services that are paid under OPPS,
hospitals can bill for the administration of the transfusion and the
number of units of blood transfused. With the payment rates for
transfusion and blood and blood products that are in the final rule, we
believe that hospitals, including those that specialize in the
transfusion of multiple units of blood, will receive adequate payment
for transfusion services. The hospitals will receive separate payment
for the blood in addition to the APC payment for the transfusion
service. Even though we will not change our payment policy for
transfusions for 2003, this is an issue that we will continue to
monitor in the future.
Comment: Two commenters requested that we provide special
comprehensive billing and coding guidelines in the area of blood, blood
processing, and transfusion medicine, and the proper use or non-use of
the transfusion medicine codes. They stated that Transmittal A-01-50
does not clarify all of the confusing issues that hospitals currently
experience in billing and coding for blood-related services.
Response: We acknowledge that need for comprehensive billing and
coding guidelines in the areas mentioned by the commenters and agree
that the program memorandum that was issued previously may require
further clarification. Therefore, this is an area that we expect to
focus on during the upcoming year.
Comment: Several hospitals, advocacy organizations, manufacturers,
and beneficiaries were concerned that the proposed decrease in
reimbursement for certain clotting factors would not enable hospitals
to recover the acquisition costs of the products. They indicated that
inadequate reimbursement would create incentives for hospitals to not
provide these products at all or to provide only those clotting factors
that limit financial loss. Commenters also indicated that given the
high cost of the clotting factors, the average cost to charge ratio
methodology that might apply to other drugs does not apply to clotting
factors, and the proposal would shift patients to the inpatient setting
where costs of care are higher. Their recommendations were that we
adjust the proposed payment with a rate consistent with the average
acquisition cost of the drugs; maintain the 2002 payment rates; use
current hospital inpatient payment rates in place of the proposed
rates; or remove from the OPPS system and set payment according to the
methodology used in the physician office and other non-inpatient
settings.
Response: We recognize the importance of insuring adequate
reimbursement and access to hemophilia clotting factors for our
beneficiaries, as did the Congress when it created a separate benefit
category for clotting factors in section 1861(s)(2)(I) of the Act.
Accordingly, we have adopted a provision to insure that the payment
rates for these products does not decrease by more than approximately
15 percent from 2002 to 2003.
Comment: Several commenters were very concerned with the proposed
payment rates for plasma products and their recombinant analogs
therapies. They argued that reduction in payments would create
significant patient access problems since the hospitals will be unable
to recoup costs incurred in acquiring and dispensing such therapies.
They recommended that we pay for these products on a reasonable cost
basis; revise the payment rates significantly to allow hospitals to
recover their acquisition and dispensing costs; base payment on current
acquisition costs and actual total costs
[[Page 66774]]
of the products in outpatient settings; maintain payment at the 2002
level; or establish an add-on payment to be based on a national formula
derived outside of OPPS.
Response: We recognize the importance of these drugs, and
consequently included them in the dampening procedure described section
III.B of the preamble.
Comment: Several commenters urged us to clarify the category of
``blood and blood products'' to include drugs and biologicals that are
derived from plasma fractionation and their biotechnology analogs. They
stated that the rationale for creating separate APCs for blood and
blood products also equally apply to plasma-based products and their
recombinant therapies. These commenters recommended that we continue to
pay for all plasma-derived and recombinant analog therapies in separate
APCs and include them in the category of ``blood and blood products''
as it is done under the FDA's definition of ``blood and blood
products.''
Response: We acknowledge that plasma-based products and their
recombinant therapies are derived from blood however, these products
are highly processed and not manufactured by local blood banks. Upon
consultation with our clinical advisors, we have determined that these
products do not have the same access and safety concerns as other blood
and blood products. Thus, it is reasonable for us to distinguish these
products from other blood and blood products. For the purposes of OPPS,
we will not consider any plasma-derived products and their recombinant
analogs, including albumin and immune globulins and except for
hemophilia clotting factors, to fall under the category of ``blood and
blood products''. Accordingly, we apply to these products the same
packaging procedures applicable to other drugs and biologicals.
Vaccines Covered Under a Benefit Other Than OPPS
Outpatient hospital departments administer large numbers of the
vaccines for influenza (flu), pneumococcal pneumonia (PPV), and
hepatitis B, typically by participating in immunization programs
encouraged by the Secretary because these vaccinations greatly reduce
death and illness in vulnerable populations. In recent years, the
availability and cost of the vaccines (particularly the flu vaccine)
have varied considerably. We want to avoid creating any disincentives
to provide these important preventative services that might result from
packaging their costs into those of primary procedures, visits, or
administration codes. Therefore, we proposed to pay for these vaccines
under OPPS through the establishment of separate APCs.
We received no comments on our proposal to pay for these vaccines
under separate APCs. However, we have had considerable discussion with
providers in the past about the cost to hospitals of influenza and
pneumococcal pneumonia vaccines in particular. In particular, we have
had many discussions in which we were advised by providers that OPPS
payment was insufficient for them to be able to guarantee that they
would be able to offer these important vaccines to Medicare patients
they treat. They cited the timing of updates to OPPS rates as well as
volatility of costs as a result of irregular supplies of these vaccines
as their major concern. Public health officials encourage high risk
individuals, including Medicare beneficiaries, to receive flu
immunitions beginning each September. Each flu season, a new vaccine is
produced; the cost of the vaccine is also typically higher than the
previous year's vaccine cost. Thus, from September through December,
providers paid under the OPPS for administering flu vaccines do not
receive the benefit of the update that occurs in January. In recent
years, the cost of the vaccine has been volatile because of irregular
supplies.
Therefore, we have decided to pay hospitals for influenza and
pneumococcal pneumonia vaccines under reasonable cost methodology.
Section 1833(t)(2)(A)(i) of the Act gives the Secretary discretion to
define outpatient hospital services for purposes of payment under the
OPPS. Until now we have defined it to include influenza and
pneumococcal pneumonia vaccines. However, in view of the importance of
these vaccines to the public health and our strong desire to ensure
that hospitals are paid appropriately for these vaccines, we have
decided to exclude them from OPPS.
We are therefore revising regulations at Sec. 419.21(d)(3) to
remove the words ``influenza'' and ``pneumococcal pneumonia.'' As a
result of this change, hospitals, HHAs and hospices which were paid for
these vaccines under OPPS will be paid reasonable cost for these
vaccines. We will issue further instructions regarding how CORFs will
be paid for these vaccines in 2003 and will issue implementation
instructions for hospitals, HHAs and hospices.
Higher Cost Drugs
While our preferred policy is to package the cost of drugs and
other items into the cost of the procedures with which they are
associated, we are concerned that beneficiary access to care may be
affected by packaging certain higher cost drugs. For this reason, we
proposed to allow payment under separate APCs for high cost drugs for
an additional year while we further study various payment options.
Specifically, we proposed to pay separately for drugs for which the
median cost per line (cost per unit multiplied by the number of units
billed on the claim) exceeded $150, as we briefly describe below. We
provide more detail in the proposed rule regarding the methodology we
used to determine this threshold (67 FR 52124-52125).
To establish a reasonable threshold for determining which drugs we
would pay under separate APCs rather than through packaging, we
calculated the median cost per unit using 2001 claims data for each of
the drugs for which transitional pass-through payment ceases January 1,
2003 and for those additional drugs that we have paid separately
(status indicator ``K'') since the outset of OPPS.
We excluded from these calculations the orphan drugs, vaccines, and
blood and blood products discussed above. Because many drugs are used
and billed in multiple unit doses, we then multiplied the median cost
per unit for the drug by the average number of units that were billed
per line. Once we calculated an approximate median cost per line for
the drug, we then arrayed the median cost per line in ascending order
and examined the distribution. A natural break occurs at $150 per line,
the midpoint of a $10 span between the drug immediately above and below
the $150 point. Within the array, approximately 61 percent of the drugs
fall below the $150 point and 39 percent of the array are above the
point. Among the drugs that we proposed to package are some
radiopharmaceuticals, vaccines, anesthetics, and anticancer agents.
After including the costs of packaged drugs in the services with which
they were provided, we noted that the median costs of those services
increased. We solicited comments that address specific alternative
protocols we might use when several packaged drugs whose total cost
significantly exceeds the applicable APC payment amount may be
administered to a patient on the same day (for example, multiple agent
cancer chemotherapy).
We requested comments on the factors we considered in determining
which drugs to package in 2003. We were particularly interested in
comments for the exclusion of high cost drugs from packaging. We added
that we would continue to analyze the effect
[[Page 66775]]
of our drug-packaging proposal to assess whether the $150 threshold
should be adjusted to avoid significant overpayments or underpayments
for the base APCs relative to the median costs of the individual drugs
packaged into the APCs. Depending on this analysis, we stated that we
may revise our threshold or criteria for packaging in the final rule
for 2003. We expect to further consider each of these exclusions for
packaging when we develop our proposals for the 2004 OPPS.
Although we expect to expand packaging of drugs to package payment
for more drugs into the APC for the services with which they are
billed, we nonetheless, requested comments on alternatives to
packaging. One example of an alternative approach is to use different
criteria from those we propose in this proposed rule to identify the
drugs to package into procedure APCs and the drugs to pay separately.
Another alternative approach would be to create APCs for groups of
drugs based on their costs. Still another approach would be to create
separate APCs for each drug. We emphasized in the proposed rule that we
welcomed a full discussion of the alternatives as we determine the best
way to ensure that hospitals are paid appropriately for the drugs they
administer to the Medicare beneficiaries whom they treat in their
outpatient departments.
Drugs that we pay for separately in 2003 are designated in Addendum
B by status indicator ``K'' or ``G.''
A summary of the comments we received on this proposal and our
responses to them are summarized below.
Comment: Numerous national trade associations, drug manufacturers,
consultants, and other commenters opposed our proposal to package
sunsetting drugs and biologicals that fell below a threshold of $150
median cost per line into procedure APCs. These commenters urged us to
continue to pay separately for drugs and biologicals that were paid
separately in 2002, including those for which pass-through status has
expired. Some recommended that we maintain the 2002 payment levels
until more accurate data could be obtained.
In contrast, one national hospital organization recommended that we
adopt a much higher threshold of $1,000 for a drug to warrant separate
payment and package all other drugs that fall below the threshold.
Furthermore, another national hospital association encouraged us to
expeditiously incorporate into APCs both low and high cost drugs that
will lose their eligibility for transitional pass-through payments,
while limiting separate APC payment only to orphan drugs, blood and
blood products, certain vaccines and extremely costly drugs. The
commenter also stated that integrating payments for packaged services
will be less burdensome for hospitals and will eliminate incentives for
higher costs that might be created by special additional reimbursement.
As noted in section XI, the Medicare Payment Advisory Committee also
urged CMS to incorporate more drugs into the base APCs.
Response: We appreciate all of the comments regarding the various
aspects we should consider in making our decision to package lower-cost
drugs and biologicals into procedure APCs. After carefully considering
all recommendations submitted by the commenters regarding how we should
treat these drugs and biologicals, we concluded that the packaging
methodology we proposed is appropriate. We believe that we have
sufficient data on drugs and biologicals to allow us to make a
reasonable decision on whether to package individual items. We further
believe that our decision to package these costs is consistent with the
concept of a prospective payment system and we expect to continue
incorporating additional drugs into the base APCs in future years.
Comment: Several commenters stated that the $150 threshold
established for separate APC payment is arbitrary and such a packaging
rule would create confusion among hospitals. One national hospital
association was concerned that the policy would create incentives for
pharmaceutical companies to increase their prices so their drugs will
receive separate payment, and, potentially, for physicians to choose
one drug over a clinically appropriate substitute.
Response: We acknowledge the concerns for using a median cost per
line threshold level when the cost of a particular drug may fluctuate
over time. However, we must set the rates prospectively. We will
consider these issues further as we determine our policy for the
criteria for packaging as we develop our proposed rule for the 2004
update.
Comment: Several commenters supported our decision to pay
separately for higher-cost drugs, clotting factors, and orphan drugs in
2003, but recommended that we delay packaging higher-cost drugs until
more accurate data is available. Other commenters suggested that we
collect at least 2 more years of data on all drugs and biologicals
before contemplating bundling them with other APCs. They stated that
once a drug or biological is bundled, hospitals will have no incentive
to code for it, and there will be no means of collecting data on the
product in the future. Thus, by not packaging, we would be able to
determine appropriate payment rates that reflect variations in hospital
expenses for these products and continue to collect product-specific
information.
Response: We agree with the commenters who stated that we should
not package higher cost drugs until we have more data on those
products; however, we disagree with the other commenters who suggested
that we should not consider packaging any drugs and biologicals until
we have collected data for two more years. We believe that at this time
we have sufficient data to determine which drugs and biologicals should
be packaged and which products we will pay separately for in 2003.
While some hospitals may fail to separately report codes that represent
packaged items, we have repeatedly instructed hospitals to submit all
charges related to covered outpatient services, including those for
packaged items. The total charges submitted by hospitals for each
service will be used to set future rates. For that reason, and because
of the possible impact on their ability to receive outlier payments for
which they might qualify, it is extremely important that hospitals
report all appropriate charges for their covered outpatient services.
Comment: Several commenters suggested that, at minimum, we should
continue to pay separately for drugs and biologicals that typically
cost more than $150 per administration, regardless of whether the
median cost per line exceeds $150 using the 2001 claims data. In
addition, a trade association suggested that we reflect the common
practice of combining radiopharmaceuticals and others drugs used in
performing nuclear medicine procedures by qualifying for separate
payment those drug combinations which exceed the agency's $150
threshold.
Response: We appreciate the commenters' suggestions regarding
methodologies that would refine the $150 threshold level used in making
packaging determinations for 2003. We believe our proposed policy
strikes a reasonable balance of simplicity, administrability, and
responsiveness. We intend to review and refine our methodology in the
future, and the proposals submitted by commenters will be taken into
consideration at that time.
[[Page 66776]]
Comment: Several commenters claimed that our proposal to package
many of the non-pass-through, lower cost drugs and biologicals with
HCPCS codes for therapeutic administration is a violation of the ``two-
times'' rule. Therefore, they recommended that we continue to pay for
all drugs and biologicals separately or by revising the APCs in which
the drugs are packaged.
Response: We do not agree with the commenters' assertion that
packaging of drugs and biologicals results in violations of the two-
times rule, stated in section 1833(t)(2) of the Act. We understand the
commenters' confusion and attempt to provide a clarification on how we
apply the ``two-times'' rule to determine APC structures. Most APC's
consist of one or more services, which we refer to as ``procedures''
and code with CPT or HCPCS G codes, that are similar clinically and in
terms of resource use. Many individual items (for example, sterile
supplies or pharmaceuticals such as anesthetic agents) or ancillary
services (for example, nursing or recovery room services) are integral
to the procedure, and thus we have packaged them with the procedure. In
some instances, such as APCs for transitional pass-through drugs and
devices, the APC includes no procedure, and the APC is used only to pay
for a specific item.
The ``two times'' rule requires that the highest median cost of a
within an APC cannot be more than two times greater than the lowest
median cost of a procedure within that APC. We apply the ``two-times''
rule to the total cost of each procedure (which includes items and
services that are packaged within that procedure). In the case of APCs
containing only items, we apply the rule to the cost of each item that
is grouped in the APC. We do not apply the two times rule to the
variation in cost of individual items or ancillary services we
attribute to a single HCPCS code.
If we were to attempt to apply the rule to all items and ancillary
services within the various procedures, accounting for the variation in
cost of supplies such as bandages, reusable instruments, and other
medical supplies would be a practical impossibility. It would lead to a
highly fragmented set of payment cells and a greatly more complex
payment system that would reduce the incentives for effective
management by hospitals. We do not believe Congress would have intended
such a result.
Consistent with the principles of prospective payment, we package
the cost of as many items and ancillary services as possible into the
median cost of a procedure. Therefore, our payment methodology for
2003, includes packaging the costs of drugs and biologicals with median
costs below $150 per line into the costs of the procedures with which
they were billed. We reviewed the median cost of the procedures used
for administration of drugs and biologicals, before and after we
packaged the costs of drugs and biologicals. Our review indicates that
the final median cost appropriately accounts for the administration
procedure and the cost of the administered drug and/or biologic.
Comment: A commenter requested that we include a statement in the
final rule that was included in the preamble of the September 8, 1998
proposed rule (63 FR 47563-47564) that stated ``We propose to allow
hospitals to provide drugs to patients without requiring that the
hospital bill the patient, and without Medicare paying the hospital.
Normally, hospitals are not allowed to waive such billing, since not
charging a patient could be seen as an inducement to the patient to use
other services at the hospital, for which the hospital would be paid.
However, if the benefit is not advertised, we believe that provision of
the self-administered drugs at no charge to the beneficiary need not
constitute an inducement in violation of the anti-kickback rules. The
hospital may not advertise this to the public or in any other way
induce patients to use the hospital's service in return for forgoing
payment.''
Response: We are not making final the proposal in the September 8,
1998 rule (63 FR 47563-64) that the commenter quotes. Medicare policy
affecting how payment is made under the OPPS has evolved considerably
since that rule. In the intervening years, CMS, providers, contractors,
and beneficiaries all have acquired considerable experience under the
OPPS that has added perspective and substance to a broad range of
policy issues, including what is and is not payable under the OPPS. The
following points summarize our current policy related to the issue
posed by the commenter:
[sbull] In accordance with the in section 1861(s)(2)(B) of the Act
and related Medicare regulations and program issuances, drugs and
biologicals that are not usually self-administered by the patient are
payable under the OPPS. As we explain elsewhere in this final rule,
Medicare makes separate payment for certain drugs and biologicals and
packages payment for others into the procedure with which they are
billed.
[sbull] The fact that a drug has a HCPCS code and a payment rate
under the OPPS does not imply that the drug is covered by the Medicare
program, but only indicates how the drug may be paid if it is covered
by the program.
[sbull] A code and payment amount does not represent a
determination that the Medicare program covers a drug. Contractors must
determine whether the drug meets all program requirements for coverage;
for example, that the drug is reasonable and necessary to treat the
beneficiary's condition and whether it is excluded from payment because
it is usually self-administered.
[sbull] Certain drugs are so integral to a treatment or procedure
that the treatment or procedure could not be performed without them.
Because such drugs are so clearly an integral component part of the
procedure or treatment, they are packaged as supplies under the OPPS
into the APC for the procedure or treatment. Consequently, payment for
them is included in the APC payment for the procedure or treatment of
which they are an integral part.
[sbull] Under the OPPS, hospitals may not separately bill
beneficiaries for items whose costs are packaged into the APC payment
for the procedure with which they are used (except for the copayment
that applies to the APC).
In short, neither the OPPS nor other Medicare reimbursement rules
regulate the provision or billing by hospitals of non-covered drugs to
Medicare beneficiaries. Accordingly, it would be inappropriate to
include the statement in the 1998 rule. However, in some circumstances,
such practices potentially implicate other statutory and regulatory
provisions, including the prohibition on inducements to beneficiaries,
section 1128A(a)(5) of the Act, or the anti-kickback statute, section
1128B(b) of the Act.
E. Expiration of Transitional Pass-Through Payments in Calendar Year
2003 for Brachytherapy
Section 1833(t)(6) of the Act requires us to establish transitional
pass-through payments for devices of brachytherapy. As of August 1,
2000, we established item-specific device codes including codes for
brachytherapy seeds, needles, and catheters. Effective April 1, 2001,
we established category codes for brachytherapy seeds on a per seed
basis (one for each isotope), brachytherapy needles on a per needle
basis, and brachytherapy catheters on a per catheter basis. Because
initial payment was made for a device in each of these categories in
August 2000, we proposed that these categories (and the transitional
pass-through payments) will be discontinued as of January 1, 2003.
Furthermore, as discussed above, we
[[Page 66777]]
proposed that there will be no grace period for billing these category
codes.
We received comments, both in writing and at the April 2002 Town
Hall meeting, recommending that we continue to make separate payment
for brachytherapy seeds. The basis for this recommendation is that the
number of brachytherapy seeds implanted per procedure is variable.
These commenters stated that the number and type of seeds implanted in
a given patient depends on the type of tumor, its size, extent, and
biology, and the amount of radioactivity contained in each seed. To
further complicate the matter, the HCPCS codes used to report
implantation of brachytherapy seeds are not tumor-specific. Instead,
they are defined based on the number of sources, that is, the number of
seeds or ribbons used in the procedure. This means that the treatment
of many different tumors requiring implantation of widely varying
numbers of seeds is described by a single HCPCS code. Therefore, it has
been argued that given the costs of seeds and the variety of treatments
described by a single HCPCS code, the cost of brachytherapy billed
under a single HCPCS code could vary by as much as $3,000.
In determining whether to package seeds into their associated
procedures, we considered all these factors as well as our claims data.
Consistent with our proposed policy for other device costs and the cost
of many drugs, as well as with the principles of a prospective payment
system, our preferred policy is to package the cost of brachytherapy
devices into their associated procedures. For 2003, in the case of
remote afterloading high intensity brachytherapy and prostate
brachytherapy, which we discuss below, weproposed to package the costs
into payment for the procedures with which they are billed.
For other uses of brachytherapy, we proposed to defer packaging of
brachytherapy seeds for at least 1 year. In those cases, when paying
separately in 2003 for brachytherapy seeds, we proposed to continue
payment on a per seed basis. The payment amount would be based on the
median cost of brachytherapy seeds, per seed, as determined from our
claims data.
We solicited comments on methodologies we might use to package all
brachytherapy seeds beginning in CY 2004. For example, creation of
tumor-specific brachytherapy HCPCS codes would reduce the variability
in seed implantation costs associated with the current HCPCS codes used
for seed implantation.
As stated above, beginning January 1, 2003, we proposed to package
payment for brachytherapy seeds into the payment for the following two
types of brachytherapy services:
Remote Afterloading High Intensity Brachytherapy
Participants in the April 5, 2002 Town Hall meeting expressed
concern about packaging single use brachytherapy seeds into payment for
procedures.
Remote afterloading high intensity brachytherapy treatment does not
involve implantation of seeds. Instead, it utilizes a single
radioactive ``source'' of high dose iridium with a 90-day life span.
This single source is purchased and used multiple times in multiple
patients over its life. One or more temporary catheters are inserted
into the area requiring treatment, and the radioactive source is
briefly inserted into each catheter and then removed. Because the
source never comes in direct contact with the patient, it may be used
for multiple patients. We note that the cost of the radioactive source,
per procedure, is the same irrespective of how many catheters are
inserted into the patient. We believe that the costs of this type of
source should be amortized over the life of the source. Therefore, each
hospital administering this type of therapy should include its own
charge for the radiation source in the charge for the procedure.
Therefore, we proposed to package the costs associated with high dose
iridium into the HCPCS codes used to describe this procedure. Those
codes are: 77781, 77782, 77783, and 77784.
Prostate Brachytherapy
The preponderance of brachytherapy claims under OPPS to date is for
prostate brachytherapy. Brachytherapy is administered in several other
organ systems, but the claims volume for non-prostate brachytherapy is
very small, and hence our base of information on which to make payment
decisions is slim. Furthermore, prostate brachytherapy uses only two
isotopes, which are similar in cost, while brachytherapy on other
organs involves a variety of isotopes with greater variation in cost.
Consequently, we believe it would be prudent to wait for further
experience to develop before proceeding to package non-prostate
brachytherapy seeds.
A number of commenters at the April 5, 2002, Town Hall Meeting and
elsewhere have stressed to us their views that brachytherapy seeds
should remain unpackaged. The principle argument put forth in favor of
this approach is that the number of seeds used is highly variable
across patients. We do not find this argument compelling. Payments in
the OPPS, as in other prospective payment systems, are based on
averages. We believe the service volume at hospitals providing prostate
brachytherapy is likely to be large enough for a payment reflecting
average use of seeds to be appropriate.
Additionally, appropriate payment for prostate brachytherapy has
been of concern to many commenters since implementation of the OPPS
because facilities must use multiple HCPCS codes on a single claim to
accurately describe the entire procedure. Because we determine APC
relative weights using single procedure claims, commenters have argued
that payments for prostate brachytherapy are, in part, based on error
claims, resulting in underpayment for this important service. We agree
that basing the relative weights for APCs reported for prostate
brachytherapy services on only the small number of claims related to
this service that are single procedure claims may be problematic. To
increase the number of claims we could use to develop the proposed 2003
relative payment weights for prostate brachytherapy, we began by
identifying all claims billed in 2001 for prostate brachytherapy.
Unfortunately, closer analysis of these claims revealed that hospitals
do not report prostate brachytherapy using a uniform combination of
codes. Of the more than 12,000 claims for prostate brachytherapy that
we identified in the 2001 claims data, no single combination of HCPCS
codes occurred more than 25 times.
Therefore, in order to facilitate tracking of this service, we
proposed to establish a G code for hospital use only that will
specifically identify prostate brachytherapy. We proposed as the
descriptor for this G code the following: ``Prostate brachytherapy,
including transperineal placement of needles or catheters into the
prostate, cystoscopy, and interstitial radiation source application.''
This G code would be used by hospitals instead of HCPCS codes 55859 and
77778 to bill for prostate brachytherapy. Hospitals would continue to
use HCPCS codes 55859 and 77778 when reporting services other than
prostate brachytherapy. We would also instruct hospitals to continue to
report separately other services provided in conjunction with prostate
brachytherapy, such as dosimetry and ultrasound guidance. These
additional services would be paid according to the APC payment rate
established by our usual methodology.
[[Page 66778]]
This G code will allow us to package brachytherapy seeds into the
procedures for administering prostate brachytherapy while permitting us
to pay separately for brachytherapy seeds which are administered for
other procedures. Therefore, we proposed to package the costs of the
brachytherapy seeds, catheters, and needles into the payment for the
prostate brachytherapy G code. In order to develop a payment amount for
this G code, we used all claims where both HCPCS codes 55859 and 77778
appeared. We packaged all revenue centers and appropriate HCPCS codes,
that is, HCPCS with status indicator ``N.'' We then determined median
costs of the line items for HCPCS codes 55859 and 77778 and added the
two. Next, we packaged the costs of all C codes, whether an item-
specific or a device category code, into the payment amount. We
proposed to assign APC 0684 with status indicator ``T.'' We believe the
payment rate proposed for this G code appropriately reflects the costs
of the procedures, the brachytherapy seeds, and any other devices
associated with these procedures. We solicited comments on this
proposal.
Packaging of Other Device Costs Associated With Brachytherapy
We proposed to package the costs of brachytherapy needles and
catheters with whichever procedures they are reported, similar to our
proposal for packaging the costs of other devices that will no longer
be eligible for a transitional pass-through payment in 2003. Because
the HCPCS code descriptors for brachytherapy are based on the number of
catheters or needles used, we believe the costs of these devices would
be appropriately reflected within the costs of the associated
procedure.
Brachytherapy
Comment: One commenter believed that assigning CPT Code 77799 to
APC 313 was inappropriate because it was the highest paying
brachytherapy APC and it violated the two times rule.
Response: We thank the commenter for bringing this to our
attention. The CPT code 77799 should be assigned to APC 312, the lowest
paying brachytherapy APC, which is consistent with our policy of
assigning unspecified codes to the lowest paying similar APC because we
do not know what procedures are being performed. However, we do not
apply the two times rule to unspecified codes like 77799 for that same
reason. We are assigning 77799 to APC 312.
Comment: Several commenters were concerned that the proposed
payment rates for APCs 1718, for iodine seeds, and 1720, for palladium
seeds were significantly lower than the 2002 payment rates for these
brachytherapy sources. The commenters stated that the new rates do not
reflect hospital acquisition costs and recommended that we continue
pass-through status for these seeds in 2003 or refine the claims data
used to set payment rates.
Response: Our payment rates for 1718 and 1720 are based on the
median costs for these seeds in our 2001 claims data. We are confident
that these data reflect actual hospital acquisition costs. By statutory
mandate, the OPPS system, in aggregate, does not pay hospitals full
costs for services. Therefore, it should not be expected that payment
rates (which involve turning median costs into relative weights and
applying scaling factors) will always reflect 100 percent of hospital
acquisition cost.
Comment: Several commenters urged us to identify all sources
currently used in brachytherapy and cover those sources on an interim
basis. They suggested we retain a C code for ``unlisted'' brachytherapy
sources to allow hospitals to bill for sources not on the current pass
through list.
Response: We only create C codes for items based on formal
applications for a specific device. We do not create C codes for
unlisted devices. Interested parties may submit an application for a
pass through device using the process described in the April 7, 2000
final rule (65 FR 18481-18482).
Comment: A commenter suggested continuing the pass-through
categories for brachytherapy seeds, needles, and catheters for one year
in order to collect more data.
Response: Statutory provisions preclude us from continuing these
categories for an additional year.
Comment: One commenter asked us to refer to brachytherapy
``sources'' instead of brachytherapy ``seeds.''
Response: We agree and will do so.
Comment: One commenter responded to our solicitation of comments
regarding the advisability of creating tumor specific brachytherapy
HCPCS codes in the future. The commenter did not favor this idea
because of the variability in number and type of brachytherapy devices
used to treat a single disease. Additionally, it would create an overly
complex coding system.
Response: We thank the commenter and are continuing to review this
issue.
Comment: Several commenters were concerned about the proposed
payment reduction for APC 313 (High Dose Afterloading Brachytherapy).
The commenters stated that hospitals were coding incorrectly for these
services because many claims did not use C codes for the sources or
catheters. Therefore, our data did not reflect actual hospital costs.
The commenters recommended that we increase the payment rate, use only
claims that were correctly coded, or continue to pay separately for the
sources.
Response: As described elsewhere in this rule, we have taken steps
to mitigate the severe payment decreases that were proposed for several
APCs including APC 313. Therefore the final payment rate for APC 313
will be higher than the proposed payment rate. We will continue to
review the issues raised by the commenters. It is unclear how we should
address the issue of coding for APC 313 because high dose brachytherapy
sources are reusable whose costs must be amortized per use over a 90
day period. Furthermore, hospitals have been using these sources for
many years; therefore, we would expect their charges would reflect this
amortized cost even in the absence of using a C code. Additionally, it
is likely we over estimated device costs for this APC because of the
methodology we used for folding in device costs insetting 2002 payment
rates. Lastly, we are unable to continue pass-through payments for
devices used in APC 313 and do not think it is appropriate to pay
separately for high dose brachytherapy sources for the reasons
discussed.
Comment: Several commenters were concerned about the ``N'' status
indicator assigned to Yttrium-90 brachytherapy sources. They stated
that it is an implantable seed used in treating liver cancer. They also
claimed that its median cost was much higher than the cost reflected in
our claims data.
Response: We will place Yttrium-90 in an APC. Assigning status
indicator ``N'' was an error. We will use our claims data to set the
payment rate. We will continue to review our claims data and external
data sources as we update the payment rate in 2004.
Comment: Several commenters suggested that we create HCPCS codes
and APCs for high dose implantable brachytherapy sources. They
explained that sources such as iodine-125 and palladium-103 may be
``high'' intensity or `low'' intensity (that is, emit different amounts
of radiation) and that our payment for these sources account for the
cost variation associated with sources of different intensities.
Another commenter requested that we create three levels of APCs for
brachytherapy needles and catheters to account for cost variation of
those devices. Lastly, another commenter suggested we create
[[Page 66779]]
three APCs to reflect levels of seed utilization (for example, simple
for less than 85 seeds, intermediate for 85-99 seeds and complex for
more than 100 seeds).
Response: We disagree. Our median cost data should reflect the cost
variation among seeds of different intensity. For example if low
intensity seeds cost $40 and are used 80 percent of the time, and high
intensity seeds cost $50 and are used 20 percent of the time, then our
cost data should reflect a cost of $42 per seed. Insofar as no hospital
specializes in administering high intensity seeds, on average,
hospitals should be paid appropriately for both types of seeds.
Furthermore it would be administratively burdensome and make accurate
coding very difficult, if we created APCs for every variation in seeds.
We believe devices other than seeds should be packaged into procedure
APCs, as we have done with all other devices. Because we pay for
sources on a ``per seed'' basis there is no reason to create APCs for
simple, intermediate, and complex seed utilization.
Comment: One commenter requested that we set up a system to account
for the variability in use of brachytherapy devices. Another commenter
said that brachytherapy codes were not well understood so all supplies
and sources should be paid separately.
Response: We disagree and are finalizing our proposal to package
all devices except for seeds in cases of non-prostate cancer
brachytherapy. Doing what the commenters requested would create an
extremely burdensome system with no discernable benefit.
Comment: Many commenters disagreed with our proposal to create a G
code describing prostate brachytherapy with packaged implantable
sources, needles, and catheters. They cited the following as reasons:
[sbull] The high variability in the number of sources used per
treatment.
[sbull] The difference in cost between iodine and palladium seeds.
[sbull] Packaging of seeds violates the two times rule.
[sbull] Some hospitals specialize in complex cases requiring high
numbers of seeds and would always be underpaid.
[sbull] A single payment rate would provide incentives to use
cheaper (iodine) seeds when more expensive seeds (palladium) were
clinically appropriate.
[sbull] A single payment rate would provide an incentive to use
fewer, higher activity seeds even if use of more lower activity seeds
was clinically appropriate.
[sbull] Underpayment for prostate brachytherapy will create an
incentive to use more invasive, riskier, and costly treatments for
prostate cancer.
[sbull] The proposed payment rate is too low as a result of using
improperly coded claims.
[sbull] Creating a new G code is administratively burdensome.
Most commenters recommended that we continue to pay separately for
brachytherapy sources used for prostate cancer, as we proposed to do
for other forms of cancer. Some commenters requested that we withdraw
our proposal for the G code describing brachytherapy and continue to
recognize CPT codes 55859 and 77778 while other commenters agreed with
our proposal to create the G code with packaged needles and catheters
but asked that we not package brachytherapy sources into it. Some
commenters requested that, if we finalize our G code, that it be paid
as least as much as combined payment rate for the APCs containing CPT
codes 55859 and 77778.
A few commenters agreed with our proposed G code approach but asked
that we create 2 G codes, one for prostate brachytherapy using iodine
seeds and another for prostate brachytherapy using palladium seeds.
They also suggested that if CMS finalizes one or more G codes, coding
edits should be developed to ensure proper coding of these procedures.
Response: We thank all the commenters. After review of all the
comments we have decided to create 2 G codes describing prostate
brachytherapy. G0256, Prostate brachytherapy using permanently
implanted palladium seeds, including transperitoneal placement of
needles or catheters into the prostate, cystoscopy and application of
permanent interstitial radiation source, and G0261, Prostate
brachytherapy using permanently implanted iodine seeds, including
transperitoneal placement of needles or catheters into the prostate,
cystoscopy and application of permanent interstitial radiation source.
These codes package the costs of needles, catheters, and sources. In
developing payment rates for these codes we used only correctly coded
claims. For example, for G0256 we used only claims that included CPT
codes 55859, 77778, and a C code for palladium sources. We did not use
any claims where there was no C code for a brachytherapy source or a
claim where there were C codes for more than one source (for example,
palladium and iodine sources). Analysis of the claims we used in
setting payment rates revealed that the median number of seeds packaged
into both codes is 85. We believe that the median costs of these codes
reflect the resources required to perform these procedures.
We believe that implementation of these G codes should address the
clinical concerns of the commenters. We do not believe these codes will
create an incentive to use one type of source rather than another.
Additionally, because of the number of seeds packaged we do not believe
there will be an incentive to use fewer seeds inappropriately.
Furthermore, we believe the number of packaged seeds addresses the
concerns about seed variability as we are not aware of facilities that
specialize in using more palladium or iodine than are packaged in these
codes. Finally, we do not have evidence that implementation of these G
codes and their payment rates will create an incentive to treat
prostate cancer with more invasive, more costly treatments.
For non-clinical concerns, we think that implementation of the G
codes will actually decrease administrative burden as it will now be
easier for hospitals to properly code for prostate brachytherapy
procedures, and we believe that the methodology we used to develop
median costs addresses the concerns about underpayment.
When performing prostate brachytherapy hospitals should use G0256
and G0261 and should not report CPT codes 55859 and 77778. Furthermore
hospitals should not report the APCs for iodine and palladium
brachytherapy sources. CMS will create edits to prevent billing of
these items and services with prostate brachytherapy. However, other
services provided during the provision of prostate brachytherapy such
as intraoperative ultrasound, dosimetry, etc., are separately payable
and should be reported on the claim if performed.
F. Payment for Transitional Pass-Through Drugs and Biologicals for
Calendar Year 2003
As discussed in the November 13, 2000 interim final rule (65 FR
67809) and the November 30, 2001 final rule (66 FR 59895), we update
the payment rates for pass-through drugs on an annual basis. Therefore,
as we have done for prior updates, we proposed to update the APC rates
for drugs that are eligible for pass-through payments in 2003 using the
most recent version of the Red Book, the July 2002 version in this
case. The updated rates effective January 1, 2003 would remain in
effect until we implement the next annual
[[Page 66780]]
update in 2004, when we would again update the AWPs for any pass-
through drugs based on the latest quarterly version of the Red Book.
This retains the update of pass-through drug prices on the same
calendar year schedule as the other annual OPPS updates.
As described in our final rule of November 30, 2001 (66 FR 59894),
in order to establish the applicable beneficiary copayment amount and
the pass-through payment amount, we must determine the cost of the
pass-through eligible drug or biological that would have been included
in the payment rate for its associated APC had the drug or biological
been packaged. We used hospital acquisition costs as a proxy for the
amount that would have been packaged, based on data from an external
survey of hospital drug costs (see the April 7, 2000 final rule (65 FR
18481)). That survey concluded that--
[sbull] For drugs available through only one source drugs, the
ratio of acquisition cost to AWP equals 0.68;
[sbull] For multisource drugs, the ratio of acquisition cost to AWP
equals 0.61;
[sbull] For drugs with generic competitors, the ratio is 0.43.
As we stated in our final rule of November 30, 2001 (66 FR 59896),
we considered the use of the study-derived ratios of drug costs to AWP
to be an interim measure until we could obtain data on hospital costs
from claims. We stated that we anticipated having this data to use in
setting payment rates for 2003.
As described elsewhere in this preamble, we used 2001 claims data
to calculate a median cost per unit of drug for each drug for which we
are currently paying separately. We compared the median per unit cost
of each drug to the AWP to determine a ratio of acquisition cost to
AWP. Using the total units billed for each drug, we then calculated a
weighted average for each of the above three categories of drugs. These
calculations resulted in the following weighted average ratios:
[sbull] For sole-source drugs, the ratio of cost to AWP equals 71.0
percent.
[sbull] For multisource drugs, the ratio of cost to AWP equals 68.0
percent.
[sbull] For drugs with generic competitors, the ratio of cost to
AWP equals 46.0 percent.
We proposed to use these percentages for determining the applicable
beneficiary copayment amount and the pass-through payment amount for
most drugs eligible for pass-through payment in 2003. However some
drugs may fall into two other classes. The first class includes a drug
that is new and for which no cost is yet included in an associated APC.
For such a drug, because there is no cost for the drug yet included in
an associated APC, the pass-through amount will be 95 percent of the
AWP and there would be no copayment. The second class includes a drug
that is new and is a substitute for only one drug that is recognized in
the OPPS through an unpackaged APC. For drugs in this second class, the
pass-through amount would be the difference between 95 percent of the
AWP for the pass-through drug and the payment rate for the comparable
dose of the associated drug's APC. The copayment would be based on the
payment rate of its associated APC. We believe that using this
methodology will yield a more accurate payment rate.
We have received questions for our definition of multisource drugs.
In determining whether a drug is available from multiple sources, we
consider repackagers to be among the sources. This is consistent with
the findings of the survey cited above which indicated a lower ratio of
acquisition cost to AWP from multiple sources including repackagers.
We note that determining that a drug is eligible for a pass-through
payment or assigning a status indicator ``K'' to a drug or biological
(indicating that the drugs or biologicals is paid based on a separate
APC rate) indicates only the method by which the drug or biological is
paid if it is covered by the Medicare program. It does not represent a
determination that the drug is covered by the Medicare program. For
example, Medicare contractors must determine whether the drug or
biological is: (1) Reasonable and necessary to treat the beneficiary's
conditions; and (2) excluded from payment because it is usually self-
administered by the patient.
We received several comments on this proposal, which are summarized
below.
Comment: A commenter stated that the payments for pass-through
drugs were too generous compared to those for the devices.
Response: We calculated payments for pass-through drugs and devices
in accordance with the statute in sections 1833(t)(6)(D)(i) and (ii) of
the Act.
Comment: Numerous commenters were concerned with the time required
to incorporate new drugs and biologicals into the APC system. Some
commenters indicated that we frequently depart from our own timeframe
of 4 to 7 months from the date of submission of an application to the
potential effective data for pass-through status. Thus, they urged us
to follow one of the following recommendations: Expedite the processing
of pass-through applications and the creation of C codes; develop C
codes for products pending FDA approval, or permit retroactive dates
for new codes to allow for retroactive reimbursement for hospitals.
Another commenter suggested that we create a centralized on-line
listing of all current pass-through drugs, biologicals, and devices
along with all of the new applications under review.
Response: We understand the commenters' concerns, and we would like
to clarify the operation of our quarterly deadlines. We establish
deadlines for submission of transitional pass-through applications that
are 4 months in advance of the next quarterly update to the claims-
payment system in order to accommodate time for review and decision and
for revisions to the claims-payment systems. Thus an applicant
submitting by the deadline can be assured we will consider the
application for possible inclusion in the next quarterly update.
However, we cannot guarantee that we will be able to make a decision
regarding the application within that period of time. Incomplete
applications or the need to answer technical questions that arise
during review may extend the period of review.
We have instructed hospitals through our fiscal intermediaries that
hospitals may bill for new drugs following FDA approval using an
unspecified HCPCS code until a permanent HCPCS is established for the
drug and/or we have approved pass-through payment for the drug. Payment
for a new drug, if determined by the fiscal intermediary to be a
covered drug, would be packaged. However inclusion of the drug charges
for the procedure will be considered in determining outlier payments
and will be used in future rate setting for the procedure and/or the
drug once its pass-through status expires. Hospitals should note that
we have lowered the threshold for outlier payments for 2003, and this
new threshold requirement is described in section IX of the preamble.
We intend to minimize the delays in the review process as much as
possible so that we can facilitate access to new products and services
for our beneficiaries, which is why we review new pass-through
applications on a quarterly basis. We disagree with the commenters who
suggested that we allow retroactive reimbursement for hospitals to the
date of FDA approval. Moving to such a policy would greatly increase
the burden on our and hospitals' computer systems in programming,
testing, and implementing updates to the payment system. We do not
provide for retroactive changes in reimbursement because this is a
prospectively
[[Page 66781]]
determined payment system and because retroactive payment rate changes
are administratively burdensome and confusing for beneficiaries and
providers.
We appreciate the suggestion to create an on-line listing of all
transitional pass-through items and applications that are under review,
and will consider it for the future.
Comment: Several national trade associations and drug companies
were concerned with our proposal to consider drugs and biologicals that
were subject to repackaging as multisource drugs. They indicated that
repackagers do not manufacture the products; instead, they purchase the
products from the manufacturers, package them differently, and then
sell the products. The manufacturer of the product continues to be the
sole source of the product; therefore, we should regard repackaged
products as sole source drugs. Also, they recommended that we utilize
the ``Orange Book'' to determine whether a drug should considered
single source, multisource, or generic for OPPS purposes.
Response: We acknowledge that we treat certain drugs that have only
one manufacturer as a multisource drug. Our rationale behind regarding
a repackaged drug as a multisource product is that, even though there
may be only one manufacturer of a repackaged drug, there is more than
one party selling the repackaged drug in the market. Therefore, a
repackager may charge a different price to hospitals for the same
product sold by its manufacturer. Our intention in the payment system
is to account for the economic relationship between market prices for
repackagers, multisource drugs, and sole source drugs. From our
analysis, we judged the drugs sold by repackagers to be similar to
drugs available from more than one manufacturer in terms of price
differentials and estimated hospital acquisition costs. We also note
that if we were to recategorize these drugs as single source, we would
have to recalculate the average values for acquisition costs for the
three categories of drugs.
Comment: Several commenters suggested that we use the October 2002
Red Book information to set the final pass-through payment rates for
2003. Also, the commenters urged us to update the pass-through payment
rates quarterly since there will be significantly fewer pass-through
drugs in 2003.
Response: Upon considering the commenters' suggestions in using the
October 2002 Red Book to set the pass-through payment rates for drugs
and biologicals, we decided to continue using the July 2002 Red Book as
we proposed since it is most consistent with our publication schedule.
In the future, for all of our final rules that must be published by
November, we will continue to use the July edition of the Red Book for
that year.
We carefully considered the proposal to update the pass-through
payments on a quarterly basis and decided to continue with only annual
updates of the rates. From previous experience, we know that doing a
quarterly update of the prices for all the pass-through drugs and
biologicals would be burdensome on our contractors and disruptive to
both our computer systems and pricing software. Although we make other
updates on a quarterly basis, we do not include revision of rates in
these updates unless an error was made in the calculation of the rate.
We see no compelling reason to update the transitional pass-through
drug prices under the OPPS more frequently than the other payment rates
in the outpatient system.
Comment: Several commenters indicated that in the proposed rule we
appeared intent on estimating pass-through expenditures that will
exceed the statutory cap and trigger a pro-rata reduction of pass-
through payments in 2003.
Response: Frankly, we find it puzzling that commenters would
believe we would manipulate the estimates of pass-through spending with
the intention of ensuring that a pro-rata reduction would be imposed.
Our estimate of transitional pass-through spending indicates that no
pro-rata reduction will be necessary in 2003.
Comment: A commenter urged us to develop a process for
acknowledgement and payment adjustment when it is determined that the
rates published in the Red Book are incorrect.
Response: As stated elsewhere in this final rule, we update payment
rates for pass-through drugs and biologicals only on an annual basis
using the information published in the July edition of the Red Book. We
rely on information supplied by manufacturers to the Red Book to be
accurate.
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V. Criteria for New Device Categories As Implemented in the November 2,
2001 Interim Final Rule With Comment
The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999 (BBRA), Public Law 106-113, amended section 1833(t) of the Act to
make major changes that affected the new PPS for hospital outpatient
services. Section 1833(t)(6) of the Act, which was added by section
201(b) of the BBRA, provided for temporary additional payments,
referred to as ``transitional pass-through payments,'' for certain
drugs, biologicals, and devices. Section 1833(t)(b) of the Act provided
for payment of new medical devices, as well as 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. Section 402 of BIPA, which amends section 1833(t)(6) of the
Act, requires us to use categories in determining the eligibility of
devices for transitional pass-through payments effective April 1, 2001.
Section 1833(t)(6)(B)(ii)(IV) of the Act, as added by section 402(a) of
BIPA, requires us to establish a new category for a medical device
when--
[sbull] The cost of the device is not insignificant in relation to
the OPPS payment amount;
[sbull] No existing or previously existing device category is
appropriate for the device; and
[sbull] Payment was not being made for the device as an outpatient
hospital service as of December 31, 1996. However, section
1833(t)(6)(B)(iv) of the Act, also added by section 402(a) of BIPA,
provides that a medical device shall be treated as meeting the first
and third requirements if either--
[sbull] The device is described by one of the initial categories
established and in effect or
[sbull] The device is described by one of the additional categories
we established and in effect, and--
--An application under section 515 of the Federal Food, Drug, and
Cosmetic Act has been approved; or
--The device has been cleared for market under section 510(k) of the
Federal Food, Drug, and Cosmetic Act; or
--The device is exempt from the requirements of section 510(k) of the
Federal Food, Drug, and Cosmetic Act under section 510(l) or section
510(m) of that Act.
Thus, otherwise covered devices that are described by a currently
existing category may be eligible for transitional pass-through
payments even if they were paid as part of an outpatient service as of
December 31, 1996. At the same time, no categories will be created on
the basis of devices that were paid on or before December 31, 1996.
Section 1833(t)(6)(B)(i)(I) of the Act, as amended by BIPA,
required us to establish, by April 1, 2001, an initial set of
categories based on device by type in such a way that specific devices
eligible
[[Page 66782]]
for transitional pass-through payments under sections 1833(t)(A)(ii)
and (iv) of the Act as of January 1, 2001 would be included in a
category. We developed this initial set of categories in consultation
with groups representing hospitals, manufacturers of medical devices,
and other affected parties, as required by section 1833(t)(6)(B)(i)(II)
of the Act. We issued the list of initial categories on March 22, 2001,
in Program Memorandum (PM) No. A-01-41. Subsequently, an additional two
categories and clarifications of some of the categories' long
descriptors were made. The latest PM that lists all the existing device
categories (including three additional categories that became effective
July 1, 2002) is Transmittal No. A-02-050, issued June 17, 2002, which
can be accessed on our Web site, http://cms.hhs.gov.
Section 1833(t)(6)(B)(ii)(III) of the Act, as amended by BIPA,
requires us to establish criteria by July 1, 2001 that will be used to
create additional categories. Section 1833(t)(6)(B)(ii)(II) of the Act
requires that no medical device is described by more than one category.
In addition, the criteria must include a test of whether the average
cost of devices that would be included in a category is ``not
insignificant'' in relation to the APC payment amount for the
associated service.
On November 2, 2001, we set forth in an interim final rule (66 FR
55850) the criteria for establishing new (that is, additional)
categories of medical devices eligible for transitional pass-through
payments under the OPPS as required by section 1833(t)(6)(B)(ii) of the
Act. We received five comments regarding our criteria published in the
November 2, 2001 interim final rule with comment period. We summarize
and respond to these comments below.
A. Criteria for Eligibility for Pass-Through Payment of a Medical
Device
As noted above, in our April 7, 2000 final rule with comment period
(65 FR 18480), we defined new or innovative devices using eight
criteria, three of which were revised in our August 3, 2000 interim
final rule with comment period (65 FR 47673 through 47674). These
criteria were set forth in regulations at Sec. 419.43(e)(4). For the
most part, these criteria remained applicable when defining a new
category for devices. That is, devices to be included in a category
must meet all previously established applicable criteria for a device
eligible for transitional pass-through payments. The definition of an
eligible device, however, needed to change to conform to the
requirements of the amended section 1833(t)(6)(B)(ii) of the Act, that
is, the requirement to establish additional categories, which we
accomplished in our November 2, 2001 interim final rule.
In addition, we clarified our criterion that states that a device
must be approved or cleared by the FDA. The approval or clearance
criterion applies only if FDA approval or clearance is required for the
device as specified at new Sec. 419.66(b)(1). For example, a device
that has received an FDA investigational device exemption (IDE) and has
been classified as a Category B device by the FDA in accordance with
Sec. 405.203 through Sec. 405.207 and Sec. 405.211 through Sec.
405.215 is exempt from this requirement. A device that has received an
FDA IDE and is classified by the FDA as a Category B device is eligible
for a transitional pass-through payment if all other requirements are
met.
B. Criteria for Establishing Additional Device Categories
As described above, in determining the criteria for establishing
additional categories, section 1833(t)(6)(B)(ii) of the Act mandates
that new categories must be established for devices that were not being
paid for as an outpatient hospital service as of December 31, 1996, and
for which no category in effect (or previously in effect) is
appropriate in such a way that no device is described by more than one
category and the average cost of devices to be included in a category
is not insignificant in relation to the APC payment amount for the
associated service. Based on these requirements, we announced in the
November 2, 2001 interim final rule that we will use the following
criteria to establish a category of devices:
[sbull] Substantial clinical improvement. The category describes
devices that demonstrate a substantial improvement in medical benefits
for Medicare beneficiaries compared to the benefits obtained by devices
in previously established (that is, existing or previously existing)
categories or other available treatments, as described in regulations
at new Sec. 419.66(c)(1).
We stated our belief that this criterion ensures that no existing
or previously existing category contains devices that are substantially
similar to the devices to be included in the new category. This
criterion is consistent with the statutory mandate that no device is
described by more than one category.
In addition, we said that this criterion limits the number of new
categories, and consequently transitional pass-through payments, to
those categories containing devices that offer the prospect of
substantial clinical improvement in the care of Medicare beneficiaries.
Section 1833(t)(6)(E)(iii) of the Act, requires that, if the Secretary
estimates before the beginning of the year that the total estimated
amount of pass-through payments would exceed a specified percentage of
total program payments (2.5 percent before 2004 and no more than 2
percent thereafter), we must uniformly reduce (prospectively) each
pass-through payment in that year by an amount adequate to ensure that
the limit is not exceeded.
We established this criterion because it is important for hospitals
to receive pass-through payments for devices that offer substantial
clinical improvement in the treatment of Medicare beneficiaries to
facilitate access by beneficiaries to the advantages of the new
technology. Conversely, the need for additional payments for devices
that offer little or no clinical improvement over a previously existing
device is less apparent. These devices can still be used by hospitals,
and hospitals will be paid for them through the appropriate APC
payment. To the extent these devices are used, the hospitals' charges
for the associated procedures will reflect their use. We will use data
on hospital charges to update the APC payment rates as part of the
annual update cycle. Thus, the payment process will provide an avenue
to reflect appropriate payments for devices that are not substantial
improvements.
We are currently evaluating requests for a new category of devices
against the following criteria in order to determine if it meets the
substantial clinical improvement requirement:
[sbull] The device offers a treatment option for a patient
population unresponsive to, or ineligible for, currently available
treatments.
[sbull] The device offers the ability to diagnose a medical
condition in a patient population where that medical condition is
currently undetectable or offers the ability to diagnose a medical
condition earlier in a patient population than allowed by currently
available methods. There must also be evidence that use of the device
to make a diagnosis affects the management of the patient.
[sbull] Use of the device significantly improves clinical outcomes
for a patient population as compared to currently available treatments.
Some examples of outcomes that are frequently evaluated in studies of
medical devices are the following:
--Reduced mortality rate with use of the device.
--Reduced rate of device-related complications.
[[Page 66783]]
--Decreased rate of subsequent diagnostic or therapeutic interventions
(for example, due to reduced rate of recurrence of the disease
process).
--Decreased number of future hospitalizations or physician visits.
--More rapid beneficial resolution of the disease process treated
because of the use of the device.
--Decreased pain, bleeding, or other quantifiable symptom.
--Reduced recovery time.
As part of the application process (described in section V.B.1 of
this final rule), we require the requesting party to submit evidence
that the category of devices meets one or more of these criteria. We
noted that the requirements set forth above will be used only for
determining whether a device is eligible for a new category under
section 1833(t)(6)(B) of the Act, which authorizes transitional pass-
through payments for categories of devices. These criteria are not
intended for use in making coverage decisions under section
1862(a)(1)(A) of the Act. We noted that adoption of these criteria is
consistent with the recommendation of the Medicare Payment Advisory
Commission, in its March 2001 Report to Congress, that pass-through
payments for specific technologies be made only when a technology is
new or substantially improved.
We stated that we determine which devices represent a substantial
clinical improvement over existing devices by using a panel of Federal
clinical and other experts, supplemented if appropriate by individual
consultation with outside experts. These decisions are, in general,
based on information submitted by the requester about the clinical
benefit of the devices as described in the above criteria, including,
where available, evidence from clinical trials or other clinical
investigations. A panel of clinical experts from CMS has thus far made
all of our decisions on eligibility for an additional device category.
As indicated in the November 2, 2001 interim final rule, we believe
that almost all substantial clinical improvements in technology that
are appropriately paid for under the transitional pass-through
provisions result in measurable improvements in care from the
perspective of the beneficiary. Nevertheless, there may be some
improvements in the medical technology itself that are so significant
that we may wish to recognize them for separate payment (as opposed to
packaged payments) even though they do not directly result in
substantial clinical improvements. For example, improvements in such
factors as the strength of materials, increased battery life,
miniaturization, might so improve convenience, durability, ease of
operation, etc., that such an improvement in medical technology might
be considered as a separate factor from ``substantial clinical
improvement'' in beneficiary care.
We invited public comment on this issue and particularly asked for
examples of medical technologies for which pass-through payments might
be appropriate even though they would not also pass a test based on
substantial improvement in beneficiary outcomes. Although we received a
number of comments on this criterion, only one attempted to provide an
example of new medical technology that might not also pass a test based
on substantial improvement in beneficiary outcomes. This example is
described in our summary of comments and responses below.
As we noted in the November 2, 2001 interim final rule, we will
continue to evaluate these criteria as we gain experience in applying
them, and we will consider revisions and refinements to them over time
as appropriate.
Comment: Most commenters expressed concerns regarding our criterion
that new device categories demonstrate substantial clinical improvement
to be eligible for pass-through payment. Device manufacturers and
representatives felt that eviden 
