Federal Register: November 7, 2003 (Volume 68, Number 216)

[Federal Register: November 7, 2003 (Volume 68, Number 216)]
[Rules and Regulations]
[Page 63397-63446]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07no03-15]

[[Page 63397]]

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Part III

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 410 and 419

Medicare Program; Changes to the Hospital Outpatient Prospective
Payment System and Calendar Year 2004 Payment Rates; Final Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410 and 419

[CMS-1471-FC]
RIN 0938-AL19

Medicare Program; Changes to the Hospital Outpatient Prospective
Payment System and Calendar Year 2004 Payment Rates

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period revises the Medicare
hospital outpatient prospective payment system to implement applicable
statutory requirements and changes arising from our continuing
experience with this system. In addition, it describes changes to the
amounts and factors used to determine the payment rates for Medicare
hospital outpatient services paid under the prospective payment system.
These changes are applicable to services furnished on or after January
1, 2004. Finally, this rule responds to public comments received on the
August 12, 2003 proposed rule for revisions to the hospital outpatient
prospective payment system and payment rates (68 FR 47966).

DATES: Effective date: This final rule is effective January 1, 2004.
Comment date: We will consider comments on the ambulatory payment
classification assignments of Healthcare Common Procedure Coding System
codes identified in Addendum B with new interim (NI) condition codes,
if we receive them at the appropriate address, as provided below, no
later than 5 p.m. on January 6, 2004.

ADDRESSES: In commenting, please refer to file code CMS-1471-FC.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission or e-mail.
Mail written comments (one original and two copies) to the
following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1471-FC, P.O.
Box 8018, Baltimore, MD 21244-8018.
Please allow sufficient time for mailed comments to be timely
received in the event of delivery delays.
If you prefer, you may deliver (by hand or courier) your written
comments (one original and two copies) to one of the following
addresses: Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201, or Room C5-14-03, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and could be considered late.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Dana Burley, (410) 786-0378--
outpatient prospective payment issues; Suzanne Asplen, (410) 786-4558
or Jana Petze, (410) 786-9374--partial hospitalization and community
mental health centers issues.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: Comments received timely will be
available for public inspection as they are received, generally
beginning approximately 3 weeks after publication of a document, at the
headquarters of the Centers for Medicare & Medicaid Services, 7500
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view
public comments, call (410) 786-7195.

Availability of Copies and Electronic Access

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Government Printing Office. The web site address is: http://www.gpoaccess.gov/nara/index.html

.
To assist readers in referencing sections contained in this
document, we are providing the following table of contents.

Outline of Contents

I. Background
A. Authority for the Outpatient Prospective Payment System
B. Summary of Rulemaking for the Outpatient Prospective Payment
System
C. Summary of Changes in the August 12, 2003 Proposed Rule
1. Changes Required by Statute
2. Additional Changes to OPPS
D. Public Comments and Responses to the August 12, 2003 Proposed
Rule
II. Changes to the Ambulatory Payment Classification (APC) Groups
and Relative Weights
A. Recommendations of the Advisory Panel on APC Groups
1. Establishment of the Advisory Panel on APC Groups
2. August 2003 Meeting
3. Recommendations of the Advisory Panel and Our Responses
B. Other Changes Affecting the APCs
1. Limit on Variation of Costs of Services Classified Within an
APC Group
2. Procedures Moved From New Technology APCs to Clinically
Appropriate APCs
3. Revision of Cost Bands and Payment Amounts for New Technology
APCs
4. Creation of APCs for Combinations of Device Procedures
III. Recalibration of APC Weights for CY 2004
A. Data Issues
1. Period of Claims Data Used
2. Treatment of ``Multiple Procedure'' Claims
B. Description of Our Calculation of Weights for CY 2004
C. Discussion of Relative Weights for Specific Procedural APCs
IV. Transitional Pass-Through and Related Payment Issues
A. Background
B. Discussion of Pro Rata Reduction
V. Payment for Devices
A. Pass-Through Devices
B. Expiration of Transitional Pass-Through Payments in CY 2004
C. Reinstitution of C Codes for Expired Device Categories
D. Other Policy Issues Relating to Pass-Through Device
Categories
1. Reducing Transitional Pass-Through Device Categories To
Offset Costs Packaged Into APC Groups
2. Multiple Procedure Reduction for Devices
VI. Payment for Drugs, Biologicals, Radiopharmaceutical Agents,
Blood, and Blood Products
A. Pass-Through Drugs and Biologicals

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B. Drugs, Biologicals, and Radiopharmaceuticals Without Pass-
Through Status
1. Background
2. Criteria for Packaging Payment for Drugs, Biologicals, and
Radiopharmaceuticals
3. Payment for Drugs, Biologicals, and Radiopharmaceuticals That
Are Not Packaged
4. Payment for Drug Administration
5. Generic Drugs and Radiopharmaceuticals
6. Orphan Drugs
7. Vaccines
8. Blood and Blood Products
9. Intravenous Immune Globulin
10. Payment for Split Unit of Blood
11. Other Issues
VII. Wage Index Changes for CY 2004
VIII. Copayment for CY 2004
IX. Conversion Factor Update for CY 2004
X. Outlier Policy and Elimination of Transitional Corridor Payments
for CY 2004
A. Outlier Policy for CY 2004
B. Elimination of Transitional Corridor Payments for CY 2004
XI. Other Policy Decisions and Changes
A. Hospital Coding for Evaluation and Management (E/M) Services
B. Status Indicators and Issues Related to OCE Editing
C. Observation Services
D. Procedures That Will Be Paid Only As Inpatient Procedures
E. Partial Hospitalization Payment Methodology
1. Background
2. PHP APC Update for CY 2004
3. Outlier Payments to CMHCs
XII. General Data, Billing, and Coding Issues
XIII. Provisions of the Final Rule With Comment Period for 2004
A. Changes Required by Statute
B. Additional Changes
C. Major Changes From the Proposed Rule
XIV. Collection of Information Requirements
XV. Response to Public Comments
XVI. Regulatory Impact Analysis
A. General
B. Changes in This Final Rule
C. Limitations of Our Analysis
D. Estimated Impacts of This Final Rule on Hospitals
E. Projected Distribution of Outlier Payments
F. Estimated Impacts of This Final Rule on Beneficiaries

Addenda

Addendum A--List of Ambulatory Payment Classifications (APCs) with
Status Indicators, Relative Weights, Payment Rates, and Copayment
Amounts
Addendum B--Payment Status by HCPCS Code, and Related Information
Addendum C--Hospital Outpatient Payment for Procedures by APC:
Displayed on Web Site Only
Addendum D--Payment Status Indicators for the Hospital Outpatient
Prospective Payment System
Addendum E--CPT Codes That Would Be Paid Only As Inpatient
Procedures
Addendum H--Wage Index for Urban Areas
Addendum I--Wage Index for Rural Areas
Addendum J--Wage Index for Hospitals That Are Reclassified
Addendum L--Packaged Nonchemotherapy Infusion Drugs
Addendum M--Separately Paid Nonchemotherapy Infusion Drugs
Addendum N--Packaged Chemotherapy Drugs Other Than Infusion
Addendum O--Separately Paid Chemotherapy Drugs Other Than Infusion
Addendum P--Packaged Chemotherapy Drugs Infusion Only
Addendum Q--Separately Paid Chemotherapy Drugs Infusion Only

Alphabetical List of Acronyms Appearing in This Final Rule With
Comment Period

ACEP American College of Emergency Physicians
AHA American Hospital Association
AHIMA American Health Information Management Association
AMA American Medical Association
APC Ambulatory payment classification
ASC Ambulatory surgical center
AWP Average wholesale price
BBA Balanced Budget Act of 1997
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999
CAH Critical access hospital
CCR Cost center specific cost-to-charge ratio
CMHC Community mental health center
CMS Centers for Medicare & Medicaid Services (Formerly known as the
Health Care Financing Administration)
CPT [Physicians'] Current Procedural Terminology, Fourth Edition,
2002, copyrighted by the American Medical Association
CY Calendar year
DMEPOS Durable medical equipment, prosthetics, orthotics, and
supplies
DRG Diagnosis-related group
DSH Disproportionate Share Hospital
EACH Essential Access Community Hospital
E/M Evaluation and management
ESRD End-stage renal disease
FACA Federal Advisory Committee Act
FDA Food and Drug Administration
FI Fiscal intermediary
FSS Federal Supply Schedule
FY Federal fiscal year
HCPCS Healthcare Common Procedure Coding System
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act of 1996
ICD-9-CM International Classification of Diseases, Ninth Edition,
Clinical Modification
IME Indirect Medical Education
IPPS (Hospital) inpatient prospective payment system
IVIG Intravenous Immune Globulin
LTC Long Term Care
MedPAC Medicare Payment Advisory Commission
MDH Medicare Dependent Hospital
MSA Metropolitan statistical area
NECMA New England County Metropolitan Area
OCE Outpatient code editor
OMB Office of Management and Budget
OPD (Hospital) outpatient department
OPPS (Hospital) outpatient prospective payment system
PHP Partial hospitalization program
PM Program memorandum
PPS Prospective payment system
PPV Pneumococcal pneumonia (virus)
PRA Paperwork Reduction Act
RFA Regulatory Flexibility Act
RRC Rural Referral Center
SBA Small Business Administration
SCH Sole Community Hospital
SDP Single drug pricer
SI Status Indicator
TEFRA Tax Equity and Fiscal Responsibility Act
TOPS Transitional outpatient payments
USPDI United States Pharmacopoeia Drug Information

I. Background

A. Authority for the Outpatient Prospective Payment System

When the Medicare statute was originally enacted, Medicare payment
for hospital outpatient services was based on hospital-specific costs.
In an effort to ensure that Medicare and its beneficiaries pay
appropriately for services and to encourage more efficient delivery of
care, the Congress mandated replacement of the cost-based payment
methodology with a prospective payment system (PPS). The Balanced
Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997,
added section 1833(t) to the Social Security Act (the Act) authorizing
implementation of a PPS for hospital outpatient services. The Balanced
Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), enacted on
November 29, 1999, made major changes that affected the hospital
outpatient PPS (OPPS). The Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554),
enacted on December 21, 2000, made further changes in the OPPS. The
OPPS was first implemented for services furnished on or after August 1,
2000.

B. Summary of Rulemaking for the Outpatient Prospective Payment System

[sbull] On September 8, 1998, we published a proposed rule (63 FR
47552) to establish in regulations a PPS for hospital outpatient
services, to eliminate the formula-driven overpayment for certain
hospital outpatient services, and to extend reductions in payment for
costs of hospital outpatient services.
[sbull] On April 7, 2000, we published a final rule with comment
period (65 FR

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18434) that addressed the provisions of the PPS for hospital outpatient
services scheduled to be effective for services furnished on or after
July 1, 2000. Under this system, Medicare payment for hospital
outpatient services included in the PPS is made at a predetermined,
specific rate. These outpatient services are classified according to a
list of ambulatory payment classifications (APCs). The April 7, 2000
final rule with comment period also established requirements for
provider departments and provider-based entities and prohibited

Medicare payment for nonphysician services furnished to a hospital
outpatient by a provider or supplier other than a hospital unless the
services are furnished under arrangement. In addition, this rule
extended reductions in payment for costs of hospital outpatient
services as required by the BBA and amended by the BBRA. Medicare
regulations governing the hospital OPPS are set forth at 42 CFR part
419. Subsequently, we announced a delay in implementation of the OPPS
from July 1, 2000 to August 1, 2000.
[sbull] On August 3, 2000, we published an interim final rule with
comment period (65 FR 47670) that modified criteria that we use to
determine which medical devices are eligible for transitional pass-
through payments. The rule also corrected and clarified certain
provider-based provisions included in the April 7, 2000 rule.
[sbull] On November 13, 2000, we published an interim final rule
with comment period (65 FR 67798) to provide the annual update to the
amounts and factors for OPPS payment rates effective for services
furnished on or after January 1, 2001. We implemented the 2001 OPPS on
January 1, 2001. We also responded to public comments on those portions
of the April 7, 2000 final rule that implemented related provisions of
the BBRA and public comments on the August 3, 2000 rule.
[sbull] On November 2, 2001, we published a final rule (66 FR
55857) that announced the Medicare OPPS conversion factor for calendar
year (CY) 2002. It also described the Secretary s estimate of the total
amount of the transitional pass-through payments for CY 2002 and the
implementation of a uniform reduction in each of the pass-through
payments for that year.
[sbull] On November 2, 2001, we also published an interim final
rule with comment period (66 FR 55850) that set forth the criteria the
Secretary will use to establish new categories of medical devices
eligible for transitional pass-through payments under Medicare's OPPS.
[sbull] On November 30, 2001, we published a final rule (66 FR
59856) that revised the Medicare OPPS to implement applicable statutory
requirements, including relevant provisions of BIPA, and changes
resulting from continuing experience with this system. In addition, it
described the CY 2002 payment rates for Medicare hospital outpatient
services paid under the PPS. This final rule also announced a uniform
reduction of 68.9 percent to be applied to each of the transitional
pass-through payments for certain categories of medical devices and
drugs and biologicals.
[sbull] On December 31, 2001, we published a final rule (66 FR
67494) that delayed, until no later than April 1, 2002, the effective
date of CY 2002 payment rates and the uniform reduction of transitional
pass-through payments that were announced in the November 30, 2001
final rule. In addition, this final rule indefinitely delayed certain
related regulatory provisions.
[sbull] On March 1, 2002, we published a final rule (67 FR 9556)
that corrected technical errors that affected the amounts and factors
used to determine the payment rates for services paid under the

Medicare OPPS and corrected the uniform reduction to be applied to
transitional pass-through payments for CY 2002 as published in the
November 30, 2001 final rule. These corrections and the regulatory
provisions that had been delayed became effective on April 1, 2002.
[sbull] On November 1, 2002, we published a final rule (67 FR
66718) that revised the Medicare OPPS to update the payment weights and
conversion factor for services payable under the 2003 OPPS on the basis
of data from claims for services furnished from April 1, 2001 through
March 31, 2002. The rule also removed from pass-through status most
drugs and devices that had been paid under pass-through provisions in
2002 as required by the applicable provisions of law governing the
duration of pass-through payment.
[sbull] On August 12, 2003, we published a proposed rule (68 FR
47966) that proposed the Medicare OPPS conversion factor for CY 2004.
In addition, it described proposed changes to the amounts and factors
used to determine the payment rates for Medicare hospital outpatient
services paid under the prospective payment system.

C. Summary of Changes in the August 12, 2003 Proposed Rule

On August 12, 2003, we published a proposed rule (68 FR 47966) that
proposed changes to the Medicare hospital OPPS and CY 2004 payment
rates including proposed changes used to determine these payment rates.
The following is a summary of the major changes that we proposed and
the issues we addressed in the August 12, 2003 proposed rule.
1. Changes Required by Statute
We proposed the following changes to implement statutory
requirements:
[sbull] Add APCs, delete APCs, and modify the composition of some
existing APCs.
[sbull] Recalibrate the relative payment weights of the APCs.
[sbull] Update the conversion factor and the wage index.
[sbull] Revise the APC payment amounts to reflect the APC
reclassifications, the recalibration of payment weights, and the other
required updates and adjustments.
[sbull] Cease transitional pass-through payments for drugs and
biologicals and devices that will have been paid under the transitional
pass-through methodology for at least 2 years by January 1, 2004.
[sbull] Cease transitional outpatient payments (TOPS payments) for
all hospitals paid under OPPS except for cancer hospitals and children
s hospitals.
2. Additional Changes to OPPS
We proposed the following additional changes to the OPPS:
[sbull] Adjust payment to moderate the effects of decreased median
costs for non-pass-through drugs, biologicals, and
radiopharmaceuticals.
[sbull] Implement a new method for paying for drug administration.
[sbull] Create new evaluation and management service codes for
outpatient clinic and emergency department encounters.
[sbull] Change status indicators for Healthcare Common Procedure
Coding System (HCPCS) codes.
[sbull] List midyear and proposed HCPCS codes that are paid under
OPPS.
[sbull] Allocate a portion of the outlier percentage target amount
to community mental health centers (CMHCs) and create a separate
threshold for outlier payments for partial hospitalization services.
[sbull] Create methodology and payment rates for separately payable
drugs and radiopharmaceuticals for 2004.
[sbull] Make several changes in our current payment policy with
regard to payment

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for Q0081, Q0083, Q0084, and Q0085 to facilitate accurate payments for
drugs and drug administration.
[sbull] Change the status indicator and payment amount for P9010 by
assigning it to APC 0957 (Platelet concentrate) with a payment rate of
$37.30.
[sbull] Establish new payment bands for new technology APCs.

D. Public Comments and Responses to the August 12, 2003 Proposed Rule

We received approximately 876 timely items of correspondence
containing multiple comments on the August 12, 2003 proposed rule.
Summaries of the public comments and our responses to those comments
are set forth below under the appropriate section heading of this final
rule with comment period.
We received comments from various sources including but not limited
to health care facilities, physicians, drug and device manufacturers,
and beneficiaries. Hospital associations and the Medicare Payment
Advisory Commission (MedPAC) generally supported our proposed approach
to revising the relative weights for APCs. Pharmaceutical and medical
device manufacturers and some individual hospitals that furnish
particular devices or drugs were concerned with the proposed reductions
in payment for medical devices and drugs. We received many thoughtful
comments from a wide range of commenters with regard to methodological
issues in OPPS. In addition, several comments provided external data to
support their assertions. The following are the major issues addressed
by the commenters:
[sbull] The proposal to use $150 as the packaging threshold for
separate payment of drugs.
[sbull] The proposal to pay for orphan drugs within the OPPS,
basing payment on claims data.
[sbull] The proposal to pay for generic drugs at 43 percent of
average wholesale prices (AWP) beginning with the time of the generic
drug's Food and Drug Administration (FDA) approval.
[sbull] The proposed payments for blood and blood products under
OPPS.
[sbull] The proposal to establish a separate outlier pool for
community mental health centers(CMHCs).The proposal to apply an
adjustment to increase payment to small rural hospitals' clinic and
emergency room (ER) visit rates to ameliorate the effect of the
sunsetting of the transitional corridor payments.
[sbull] The proposal to reinstitute drug and device coding
requirements.
[sbull] Propose APC assignments and status indicators for numerous
services.
In addition to comments regarding the policy proposals in the
August 12, 2003 proposed rule, we received comments about the
publication date of the proposed rule and the comment period.
Comment: Some commenters objected to the use of the date on which
the August 12, 2003 proposed rule was made public by web posting and by
public display at the Office of the Federal Register as the beginning
of the comment period. They indicated that we should start the comment
period only on the publication of the proposed rule in the Federal
Register because that is where subscribers look for it. They objected
to what they view as a 55-day comment period if it were to start on the
date of Federal Register publication (August 12, 2003). Some commenters
objected to the publication of the proposed rule so late in the year.
They indicated that our publication on August 9 resulted in the comment
period ending so close to the publication deadline for the final rule
that they believed that their comments could not be fully analyzed and
used and would not be as effective as if the proposed rule were
published in June or early July. They urged us to publish the proposed
rule in late spring. Some commenters objected to the scheduling of the
APC Panel meeting so soon after the issuance of the proposed rule
because they felt that it gave them inadequate time to prepare their
presentations for the Panel.
Response: The comment period on a proposed rule begins on the day
that the proposed rule is available for public comment. We believe that
putting the document on display at the Office of the Federal Register
and also making it available on the CMS Web site meets the test of
being publicly available and that, therefore, is the start of the
comment period. The publication of the proposed rule on the internet
makes it available to many more people than routinely access the
Federal Register or can visit the Office of the Federal Register where
the display copy is located. The public had 60 days to comment on the
proposed rule. This is the standard amount of time generally allowed
for comment on notices of proposed rulemaking. Therefore, we do not
believe the public was at a disadvantage or limited in the amount of
time available to make public comments.
Our review of the public comments is extensive, with the comments
being read and considered carefully, often by many staff. We agree that
it is preferable, when possible, to issue the proposed rule as early as
possible. However, the important issue is whether we have sufficient
time to carefully and thoughtfully consider all comments in development
of the final rule, rather than the amount of time between the end of
the comment period and the publication of the final rule.

II. Changes to the Ambulatory Payment Classification (APC) Groups and
Relative Weights

Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the APC group to which the
service is assigned. Each APC weight represents the median hospital
cost of the services included in that APC relative to the median
hospital cost of the services included in APC 0601, Mid-Level Clinic
Visits. The APC weights are scaled to APC 0601 because a mid-level
clinic visit is one of the most frequently performed services in the
outpatient setting.
Section 1833(t)(9)(A) of the Act requires the Secretary to review
the components of the OPPS not less often than annually and to revise
the groups, relative payment weights, and other adjustments to take
into account changes in medical practice, changes in technology, and
the addition of new services, new cost data, and other relevant
information and factors. Section 1833(t)(9)(A) of the Act requires the
Secretary, beginning in 2001, to consult with an outside panel of
experts to review the APC groups and the relative payment weights.
Finally, section 1833(t)(2) of the Act provides that, subject to
certain exceptions, the items and services within an APC group cannot
be considered comparable with respect to the use of resources if the
highest median (or mean cost, if elected by the Secretary) for an item
or service in the group is more than 2 times greater than the lowest
median cost for an item or service within the same group (referred to
as the ``2 times rule'').
We use the median cost of the item or service in implementing this
provision. The statute authorizes the Secretary to make exceptions to
the 2 times rule ``in unusual cases, such as low volume items and
services.''
For purposes of the proposed rule and this final rule we analyzed
the APC groups within this statutory framework.

A. Recommendations of the Advisory Panel on APC Groups

1. Establishment of the Advisory Panel on APC Groups
Section 1833(t)(9)(A) of the Social Security Act (the Act) requires
that we consult with an outside panel of experts, the Panel, to review
the clinical integrity of the APC groups and their

[[Page 63402]]

weights. The Act specifies that the Panel will act in an advisory
capacity. This expert panel, which is to be composed of representatives
of providers subject to the OPPS (currently employed full-time, in
their respective areas of expertise), reviews and advises us about the
clinical integrity of the APC groups and their weights. The Panel is
not restricted to using our data and may use data collected or
developed by organizations outside the Department in conducting its
review.
On November 21, 2000, the Secretary signed the charter establishing
an ``Advisory Panel on APC Groups.'' The Panel is technical in nature
and is governed by the provisions of the Federal Advisory Committee Act
(FACA) as amended (Pub. L. 92-463).
On November 1, 2002, the Secretary renewed the charter. The new
charter indicates that the Panel continues to be technical in nature,
is governed by the provisions of the FACA, may convene ``up to three
meetings per year,'' and is chaired by a Federal official.
To establish the Panel, we solicited members in a notice published
in the Federal Register on December 5, 2000 (65 FR 75943). We received
applications from more than 115 individuals nominating either a
colleague or themselves. After carefully reviewing the applications, we
chose 15 highly qualified individuals to serve on the Panel.
Because of the loss of 6 Panel members in March 2003 due to the
expiration of terms of office, retirement, and a career change, a
Federal Register notice was published on February 28, 2003 (68 FR
9671), requesting nominations of Panel members. From the 40 nominations
we received, 6 new members have been chosen and have been identified on
the CMS web site.
We received one comment regarding our selection of Panel members.
Comment: One commenter stated that Community Mental Health Centers
(CMHCs) have not been represented on the APC Panel even though the
names of qualified nominees have been submitted. The commenter went on
to say that the Federal Register (February 28, 2003, at 68 FR 9671
through 9672) specifically states, ``Qualified nominees will meet those
requirements necessary to be a Panel member. Panel members must be
representatives of Medicare providers (including Community Mental
Health Centers) subject to the OPPS * * * [therefore,] I feel that it
is imperative to have a freestanding CMHC representative on the
Panel.''
Response: The Federal Register notice on the APC Panel to which the
commenter referred, states in section II, Criteria for Nominees, the
following: ``The Panel shall consist of up to 15 members selected by
the Secretary, or designee, from among representatives of Medicare

providers (including Community Mental Health Centers) subject to the
OPPS.'' The language does not mandate that a CMHC representative will
be on the Panel. In the regulation, we simply identified
representatives from CMHCs--or any other organizations--as possible
nominees.
This year, when we requested nominations for the APC Panel, the
list of nominees was long, prestigious, and included representatives
from all aspects of the health care industry: Doctors, nurses, hospital
administrators, coders, etc. Therefore, our choices were difficult;
however, since there are definite Federal guidelines governing our
selections, and specific Panel and Agency needs to address, given the
clinical range of services paid under the OPPS, we were able to
identify the most qualified individuals. Since the needs of the Agency
and the Panel change due to members leaving, we invite all concerned
Medicare providers to continue to nominate qualified individuals when
the need arises.
The Panel's biannual meetings are forums to discuss APCs and
representatives from the CMCHs--and other organizations--are invited to
attend Panel meetings and to make presentations to the Panel on
relevant agenda items.
Comment: The commenter also stated that the APC Panel sets the
payment rates for the outpatient services.
Response: While the Panel is an advisory committee mandated by law
to review the APC groups, and their associated weights, and to advise
the Secretary of Health and Human Services and the Administrator of the
Centers for Medicare & Medicaid Services concerning the clinical
integrity of the APC groups and their weights, the APC Panel does not
set payment rates for outpatient services. The advice provided by the
Panel is considered by us in our development of the annual rulemaking
to update the hospital OPPS. The APC Panel's activities most often
address whether or not the HCPCS codes within the APCs are comparable
clinically and with respect to resource use, assigning new codes to new
or existing APCs, reassigning codes to different APCs, and the
configuring of existing APCs into new APCs.
2. August 2003 Meeting
The APC Panel met on August 22, 2003 to discuss issues presented in
the proposed rule of August 12. We announced the meeting in the Federal
Register on July 25 and invited the public to make presentations to the
Panel on issues discussed in the proposed rule. In this section, we
summarize the issues discussed by the Panel, their recommendations on
those issues, and our decisions with respect to their recommendations.

a. Blood and Blood Products

The Panel heard testimony by suppliers of blood and blood products
and their representatives who expressed significant concerns about the
proposed payment rates, particularly in light of new safety and testing
requirements. These presenters to the Panel recommended that we exclude
blood and blood products from the OPPS and pay for them at reasonable
cost. After listening to the testimony, reviewing the median costs and
proposed payments rate from our hospital claims data, and deliberating
the issue, the Panel recommended that we continue to pay for blood and
blood products within the OPPS. However, the Panel further recommended
that we freeze the payment rates for blood and blood products at 2003
levels for 2004 and 2005 while we undertake further analysis of the
cost data. The Panel also recommended that hospitals be educated on the
proper billing for blood and blood products.
As discussed elsewhere in this final rule, we will accept the
Panel's recommendation with respect to 2004. We will freeze the payment
rates for blood and blood products at the 2003 payment levels. However,
we are not making a decision with respect to 2005 at this time. Any
proposals regarding our 2005 payment rates or policies for these items
will be discussed in our proposed rule for the CY 2005 update. The
Panel also recommended that the APCs for blood and blood products be on
the agenda for the winter 2004 meeting in time for consideration of the
2005 payment rates. We agree to place this item on the agenda for the
next APC Panel meeting.

b. Nuclear Medicine, Brachytherapy, and Radiosurgery Services

(1) Nuclear Medicine APCs and Radiopharmaceuticals
The Panel heard testimony on and considered the proposed
restructuring of the nuclear medicine APCs discussed in the August 12,
2003 proposed rule. The Panel recommended that we move forward with the
categorization system in the proposed OPPS 2004 rule absent strong,
reasoned opposition from provider groups. If strong opposition was
revealed in the public comments,

[[Page 63403]]

the Panel recommended that we maintain the classification system that
is in place for 2003. The Panel also recommended that we change the
HCPCS code descriptors for radiopharmaceuticals to be on a ``per-dose''
basis--not on a ``per-unit'' basis.
We have accepted the Panel's recommendation that we move forward
with the proposed restructuring, after considering public comments on
this issue. As discussed in section II.A.3 of this final rule, we will
implement the restructuring with certain changes to the proposed
reclassification based on our review of the public comments. For
reasons discussed in section VI.B.3 of this final rule, we are not
accepting the Panel's recommendation to change the HCPCS code
descriptors at this time.
The Panel further recommended that APCs for radiopharmaceuticals be
on the agenda for the January 2004 meeting. In preparation for that
meeting, the Panel recommended that our staff analyze the claims for
the nuclear medicine APCs and do the following: Itemize the costs,
determine what proportion of the median cost can be attributed to
radiopharmaceuticals, and present the data at the Panel's January 2004
meeting. The Panel recommended that the issue of packaging the costs of
radiopharmaceuticals under the 2003 threshold of $150 be placed on the
agenda for the Panel's winter 2004 meeting.
We will consider this topic for placement on the agenda for the
Panel's 2004 meeting. As discussed in section VI.B.3 of this rule,
however, we are revising our threshold for packaging
radiopharmaceuticals from $150 to $50.
(2) Brachytherapy Services
The Panel recommended that we review whether the codes for needles
and catheters were included in the payment rate proposed for APC 0313.
The Panel also recommended that we consider outside data presented by
commenters in establishing payment rates for APCs 312 and 651 to arrive
at an appropriate payment rate. See our discussion, below, regarding
APCs 312, 313, and 651 and our considerations concerning the claims
used to set the relative weights for these APCs.
The Panel further recommended that we discontinue use of G codes
for prostate brachytherapy and use appropriate Current Procedural
Terminology (CPT) codes paid in clinical APCs when making payment for
these services. The Panel recommended we pay separately for
brachytherapy sources for the treatment of prostate cancer in the same
manner by which we are paying separately for the brachytherapy sources
for the treatment of other types of cancer. We have accepted the
Panel's recommendation. As discussed in section II.B.4 of this final
rule, we will discontinue use of the special G codes for prostate
brachytherapy and allow separate payment for the sources used in these
treatments.
(3) Radiation Therapy and Radiosurgery APC Issues
The APC Panel heard testimony concerning radiation treatment
delivery codes CPT 77412 through 77416, which we proposed to assign to

APC 0301 and CPT 77417, assigned to APC 0260. The presenter stated that
many hospital billing departments had not updated their charge masters
since the inception of OPPS to reflect the costs of newer technology,
specifically with respect to the use of x-ray guidance during external
beam radiation treatment delivery. The APC Panel recommended that we
review whether the use of x-ray guidance (as opposed to CT or
ultrasound guidance) for radiation therapy is being properly reported
and included in the payment rates for the radiation treatment delivery
codes. We agree that we should review these issues further and will do
so in preparation for the 2005 update. However, we did not receive
sufficient or convincing information upon which to base a change for
2004. Therefore, we encourage interested parties to submit any
additional information on the use of these codes and cost of providing
these services in the outpatient hospital setting in response to this
final rule with comment period.
The APC Panel also heard testimony concerning the proposed payment
rate for CPT 77418, assigned to APC 0412 (IMRT treatment delivery). The
presenter stated that the proposed amount was too low. However, the APC
Panel supported the proposal in the absence of compelling evidence that
the rate derived from the claims data is wrong. We concur with the APC
Panel's recommendation and will retain CPT 77418 in APC 0412. We used
approximately 113,000 claims to set the weight for this procedure,
which we believe is a sufficiently robust set of data.
During this section of the APC Panel's August 22 meeting, the Panel
members also heard testimony concerning HCPCS codes G0251 and G0173
used to report stereotactic radiosurgery. The APC Panel supported the
proposed payment rates for these codes until more data become
available. The APC Panel also asked to review this issue further at its
winter 2004 meeting. We discuss stereotactic radiosurgery in further
detail below. We have decided to make certain changes to the payment
for these procedures. However, the APC assignment for these codes for
2004 is interim final. We solicit comments on the 2004 assignments, and
we will also include this on the APC Panel's agenda for its winter 2004
meeting.
The final topic in this section of the APC Panel's August 22
meeting pertained to HCPCS codes G0242 and G0243 (multi source photon
stereotactic planning). The APC Panel was requested to recommend that
we combine the coding for these procedures under one code, with the
payment for the new code derived by adding the payment for G0242 and
G0243 together. The information presented to the APC Panel stated that
the services represented by the two G codes represent one continuous
procedure, that it is a surgical procedure, and the cost center mapping
should be to a surgical cost center. The APC Panel will review this
request at its winter 2004 meeting. The APC Panel is interested in
receiving comments on this topic from professional societies
representing neurosurgeons, radiation oncologists and others concerning
this proposal.

c. Payment and Coding for Drug Administration and for Certain Drugs,
Biologicals, and Radiopharmaceuticals

The APC Panel heard testimony and discussed the proposals described
in the August 12, 2003 proposed rule on payment for drug administration
and the packaging of the costs of drugs, biologicals, and
radiopharmaceuticals. The APC Panel recommended that:
[sbull] We continue to use the current ``Q'' codes for drug
administration and not institute new ``G'' codes to represent the
administration of either packaged or separately paid drugs.
[sbull] We allow billing of Q0081 on a per-visit basis, rather than
on a per-day basis as proposed.
[sbull] We delete Q0085 and allow hospitals to use both Q0083 and
Q0084 when billing for chemotherapy administered by both infusion and
other techniques in a given visit.
[sbull] That we consider adopting the final option among the three
new methods of paying for drug administration that we proposed, as
options to the current policy, in the August 12, 2003 proposed rule.
[sbull] That we look further at hospital pharmacies' costs for
preparing drugs and radiopharmaceuticals and this issue be examined
more closely by the Panel during its winter 2004 meeting.
The APC Panel also expressed serious concern about the dollar
threshold for

[[Page 63404]]

the packaging of drugs and the adequacy of payment for separately paid
drugs. However, in the absence of alternative proposals by us, the APC
Panel did not make further recommendations on that issue. The APC Panel
requested that we present alternative options during the winter 2004
meeting, including a new APC structure for drugs and
radiopharmaceuticals. As for specific drug issues, after hearing
testimony concerning the codes for Baclofin refill kits, the APC Panel
recommended that we delete code C9010 and retain the other codes for
this product used in the treatment of Parkinson's disease and
spasticity.
We have carefully considered each of the APC Panel's
recommendations along with comments on the subject of drug
administration and payment for drugs, biologicals, and
radiopharmaceuticals. For the reasons discussed more fully elsewhere in
this final rule, we have decided to accept the APC Panel's
recommendations that we continue using Q0081 through Q0084 in 2004;
that we continue to define these codes on a per-visit, rather than per-
day basis; that we delete code Q0085; and that we delete code C9010. We
have decided to continue paying for the drug administration ``Q'' codes
according to our current rules and discuss that decision further in
section VI.B.4 of this final rule. We will consider the Panel's
recommendation that we investigate other approaches for paying for
drugs and radiopharmaceuticals. However, for 2004, we have determined
that we will pay separately under their own APCs for drugs, biologicals
and radiopharmaceuticals for which the median per day costs are in
excess of $50.
(4) Device-Related Procedures
The APC Panel heard testimony from the device manufacturing
community and others concerning payment for procedures that involve the
implantation of devices. The presenters discussed concerns that
affected such procedures in general, such as the absence of a proposal
to limit payment reductions for such procedures between 2003 and 2004
and issues related to the hospital claims for these procedures.
Presentations to the APC Panel also discussed inadequacies in the
claims data or our methodology for using the claims data to set
relative weights for specific device-related APCs (APCs 0046, 0107,
0108, 0222, 0225, 0385, and 0386. Presenters urged that the APC Panel
advise us to use the best external data possible, including proprietary
data that would be held confidential. Presentations to the APC Panel
also addressed the multiple surgical reduction with respect to device-
related APCs.
The APC Panel recommended:
[sbull] That we use credible external data that can be made
publicly available for establishing the median costs for APCs 0107 and
0386.
[sbull] That we change the status indicator for CPT 61885 so that
it is not subject to the multiple procedure discounting.
[sbull] That we assign the new CPT codes for central venous access
devices into appropriate APCs, either clinical APCs or new technology
APCs.
[sbull] That the APC assignments of the new central venous access
devices be reviewed by the APC Panel at its next meeting.
[sbull] That we provide the APC Panel with median cost data for all
APCs in spreadsheet format for its consideration in advance of and
during its next meeting.
[sbull] That we review the presenter's suggestions with respect to
APC 0046 and make recommendations for any changes to this APC to the
APC Panel at its next meeting.
[sbull] That we change the status indicator for CPT 93571 and 93572

from ``N'' (packaged status) to an appropriate indicator that allows
separate payment under the APC.
We considered the final set of recommendations from the APC Panel's
August 2003 meeting and have accepted several of them. Specifically, we
decided to use external data in setting the median cost for 2004 for
APC 0107. We have not used external data for APC 0386. Each of these
decisions is discussed in greater detail elsewhere in this final rule.
We accepted the Panel's recommendation to change the status indicator
for CPT 61885. In order to do so, we moved this code into its own APC,
0039, Implant neurostim, one array. We have assigned the new CPT codes
for central venous access devices to New Technology APCs as displayed
in Addendum B. The range of new CPT codes is 36555 through 36597, and
the new APC assignments include APCs 0032, 0115, 0109, 0187, and 1541.
The assignment of these codes is subject to public comment and will
be placed on the APC Panel's agenda for its next meeting. During that
meeting, we will also provide the APC Panel with spreadsheet data on
the median costs of all APCs. With respect to APC 0046, we are
sympathetic to the presenter's concerns. However, we were not provided
with data that we considered sufficient to assess whether a new coding
structure with increased payment rates is warranted for the treatment
of bone fractures with external fixation devices. However, we would
support the specialty societies' efforts to request changes to the
existing CPT coding structure. For reasons discussed elsewhere, we have
not accepted the Panel's recommendation with respect to CPT codes 93571
and 93572.
Comment: An association voiced concern that the Panel meeting on
August 22, 2003 came too soon after the publication of the August 12,
2003 proposed rule for its members to prepare adequately for
presentation to the Panel.
Response: The agency must schedule the Panel meetings sufficiently
in advance of the meeting in order to provide ample notice to the
public of the meeting and to allow sufficient time for the Panel
members to arrange their schedules. We attempted to balance those needs
with the goal of conducting the first mid-year meeting of the Panel
during the comment period so that issues discussed in the August 12,
2003 proposed rule could be topics for the Panel's consideration and
interested parties' testimony before the Panel. The July 25, 2003
Federal Register notice (68 FR 44089) announced the second 2003 meeting
of the APC Panel, which we believe provided sufficient advance notice
of the meeting.
While it is true that the proposed rule was placed on display on
August 6, published on August 12, and the meeting was held on August
22, 2003, many interested parties attended the meeting and presented
thoughtful comments on most issues discussed in the proposed rule.
Nevertheless, we will take this comment into consideration for future
planning of APC Panel meetings.
Comment: Several commenters expressed concern about the length of
the meeting and time allotted on the agenda to particular issues. One
commenter stated that scheduling only [1] day for Panel deliberations
was inadequate. A commenter was concerned that device-related issues
were relegated to the last hour, that presenters were given only 2
minutes, and that there was little time for Panel discussion and
consideration of the issues presented.
Response: We appreciate the commenter's interest in ensuring that
adequate time be allowed for the public to present issues for the
Panel's consideration and for the Panel to have sufficient time for
their discussion and deliberation.
Although the device issues were scheduled for the last hour of the
meeting, the Panel members received the written presentations
beforehand, and had an opportunity to review them

[[Page 63405]]

before the meeting. Placing a limit on presentations is a prerogative
of the Panel Chair and must at times be done in order to allow all
interested parties to make presentations on agenda items. However, we
will take all of the concerns into consideration when scheduling future
meetings.
3. Recommendations of the Advisory Panel and Our Responses

January 2003 Meeting

In this section, we consider the Panel's recommendations affecting
specific APCs. The Panel based its recommendations on claims data for
the period April 1, 2002 through September 30, 2002. This data set
comprises a portion of the data that will be used to set 2004 payment
rates. APC titles in this discussion are those that existed when the
APC Panel met in January 2003. In a few cases, APC titles have been
changed for this final rule, and, therefore, some APCs do not have the
same title in Addendum A as they have in this section.
The Panel's agenda included APCs that our staff believed violated
the 2 times rule as well as APCs for which comments were submitted. As
discussed below, the Panel sometimes declined to recommend a change in
an APC even though the APC appeared to violate the 2 times rule. In
section II.B of the August 12, 2003 proposed rule, we discuss our
proposals regarding the 2 times rule based on the April 1 through
December 31, 2002 data that we used to determine the final 2004 APC
relative weights. Section II.B (68 FR 47977) of the August 12, 2003
proposed rule also details the criteria we used when deciding to
propose exceptions to the 2 times rule.
Unless otherwise specified in each of the following discussions of
the APC Panel's recommendations, our proposed actions are finalized in
this final rule.

a. Debridement and Destruction

APC 0012: Level I Debridement & Destruction
APC 0013: Level II Debridement & Destruction
We expressed concern to the Panel that APCs 0012 and 0013 appear to
violate the 2 times rule. In order to remedy these violations, we asked
the Panel to consider the following changes:
(1) Move the following codes from APC 0013 to APC 0012:

------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
11001..................................... Debride infected skin add-
on.
11302..................................... Shave skin lesion.
15786..................................... Abrasion, lesion, single.
15793..................................... Chemical peel, nonfacial.
15851..................................... Removal of sutures.
16000..................................... Initial treatment of
burn(s).
16025..................................... Treatment of burn(s).
------------------------------------------------------------------------

(2) Move code 11057 (Trim skin lesions, over 4) from APC 0012 to
APC 0013.
The Panel agreed with our staff and recommended that we make these
changes. We proposed to accept the Panel's recommendation.
However, we received comments from a group of hospitals concerning
the proposed change for CPT code 15851, removal of sutures under
anesthesia (other than local), same surgeon. In their comments, the
hospitals noted that the descriptor for CPT codes 15851 and 15850
(removal of sutures under anesthesia (other than local), other surgeon,
were virtually identical with the exception of which surgeon performs
the suture removal. The commenters did not believe that the identity of
the surgeon could result in a significant difference in resource costs
to the hospital. Our clinical staff agree and believe that the
difference in hospital median costs derived from our claims data may be
due to a misunderstanding about the coding. For 2004, we have decided
that we will place both CPT codes for suture remove under anesthesia in
APC 0016.

b. Excision/Biopsy

APC 0019: Level I Excision/Biopsy
APC 0020: Level II Excision/Biopsy
APC 0021: Level III Excision/Biopsy
We expressed concern to the Panel that APCs 0019 and 0020 appear to
violate the 2 times rule. In order to remedy these violations, we asked
the Panel to consider the following changes:
(1) Move the following HCPCS codes from APC 0019 to a new APC:

------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
11755..................................... Biopsy, nail unit.
11976..................................... Removal of contraceptive
cap.
24200..................................... Removal of arm foreign body.
28190..................................... Removal of foot foreign
body.
56605..................................... Biopsy of vulva/perineum.
56606..................................... Biopsy of vulva/perineum.
69100..................................... Biopsy of external ear.
------------------------------------------------------------------------

The APC Panel recommended that we make these changes, and we
proposed to do so in our August 12, 2003 proposed rule.
(2) Move the following HCPCS codes from APC 0020 to APC 0021:

The Panel recommended that we not change the structure of APCs
0019, 0020, and 0021 at this time in the interest of preserving
clinical homogeneity. In August, we proposed to accept the Panel's
recommendation that we make no changes to the structure of these APCs
for 2004. However, following our review of the median costs developed
for the final rule, using a more complete set of claims for services
from April through December 2002, we determined that CPT codes 11404
and 11623 should be moved to APC 0021. We plan to place these APCs on
the Panel's agenda for the 2005 update.

c. Thoracentesis/Lavage Procedures and Endoscopies

APC 0071: Level I Endoscopy Upper Airway
APC 0072: Level II Endoscopy Upper Airway
APC 0073: Level III Endoscopy Upper Airway
We expressed concern to the Panel that APCs 0071 and 0072 appear to
violate the 2 times rule. In order to remedy these violations, we asked
the Panel to consider the changes below.
Move the following HCPCS codes as described below:

Table 1.--HCPCS Codes Final to be Redistributed From APCs 0071 and 0072
to APCs 0071, 0072, and 0073
------------------------------------------------------------------------
2003 2004
HCPCS Description APC APC
------------------------------------------------------------------------
31505............................. Diagnostic 0072 0071
laryngoscopy.
31575............................. Diagnostic 0071 0072
laryngoscopy.
31720............................. Clearance of airways 0072 0073
------------------------------------------------------------------------

The Panel recommended that we make the above changes. We proposed
to accept the Panel's recommendation, with the exception of CPT code
31720. After reviewing an additional quarter of claims data that were
not available at the time the Panel convened, placement of CPT code
31720 into APC 0072 better reflects its resource consumption.
Therefore, we proposed to keep CPT code 31720 in APC 0072.

[[Page 63406]]

d. Cardiac and Ambulatory Blood Pressure Monitoring

APC 0097: Cardiac and Ambulatory Blood Pressure Monitoring
We expressed concern to the Panel that APC 0097 appears to violate
the 2 times rule. We asked the Panel to recommend options for resolving
this violation and suggested splitting APC 0097 into two APCs. The
Panel recommended that the structure of APC 0097 should not be changed
at this time based on clinical homogeneity considerations. We proposed
to accept the Panel's recommendation that we make no changes to APC
0097 for 2004. We received no comments disagreeing with this proposal,
and we will adopt it for 2004. We also plan to place this APC on the
Panel's agenda for the 2005 update.

e. Electrocardiograms

APC 0099: Electrocardiograms
APC 0340: Minor Ancillary Procedures
We expressed concern to the Panel that APC 0099 appears to violate
the 2 times rule. We asked the Panel to recommend options for resolving
this violation, and suggested moving CPT code 93701 (Bioimpedance,
thoracic) from APC 0099 to APC 0340. The Panel believed, however, that
the structure of APC 0099 should not be changed at this time based on
clinical homogeneity considerations. We proposed to accept the Panel's
recommendation that we make no changes to APC 0099 for 2004. We plan to
place this APC on the Panel's agenda for the 2005 update.

f. Cardiac Stress Tests

APC 0100: Cardiac Stress Tests
A presenter to the Panel, who represented a device manufacturer,
requested that we move CPT code 93025 (Microvolt t-wave assessment) out
of APC 0100. The presenter believes that the actual cost for this
procedure is significantly higher than for other procedures in the same
APC. Since this technology is often billed in conjunction with other
procedures (for example, stress tests, CPT code 93017), few single-APC
claims were available to evaluate the presenter's contention.
The Panel believed the data presented are insufficient to merit
moving the code and recommended that CPT code 93025 remain in APC 0100
until more data are available for review. We proposed to accept the
Panel's recommendation that CPT code 93025 remain in APC 0100 until
more claims data become available for review. We will adopt this
proposal for 2004.

g. Revision/Removal of Pacemakers or Automatic Implantable Cardioverter
Defibrillators

APC 0105: Revision/Removal of Pacemakers, AICD, or Vascular
We asked the Panel to review the codes within APC 0105 for an
apparent violation of the 2 times rule, stating that we believe the
apparent violation is a result of incorrectly coded claims. The Panel
agreed and recommended no changes to APC 0105 at this time. We proposed
to accept the Panel's recommendation that we make no changes to APC
0105 until more accurate claims data become available and support the
need for a change. We will adopt this proposal for 2004.

h. Sigmoidoscopy

APC 0146: Level I Sigmoidoscopy
APC 0147: Level II Sigmoidoscopy
We expressed concern to the Panel that relatively simple procedures
such as anoscopy and rigid sigmoidoscopy have higher median costs than
more complex procedures such as flexible sigmoidoscopy. Panel members
suggested the high costs may be due to the need to perform an otherwise
minor office procedure in a hospital setting (for example, due to the
clinical condition of the patient). Panel members also suggested that
claims may be incorrectly coded because coding instructions do not
clearly state how to code when the procedure performed is not as
extensive as the procedure planned (for example, when a colonoscopy is
planned but only a sigmoidoscopy is performed). In these cases, coding
instructions are unclear as to whether the planned procedure should be
reported with a modifier for reduced services or with the code for the
actual procedure performed.
The Panel recommended that we make no changes to APCs 0146 and 0147
at this time. We proposed to accept the Panel's recommendation that we
make no changes to APCs 0146 and 0147. We will adopt this proposal for
2004. However, we plan to place this APC on the Panel's agenda for the
2005 update.
i. Anal/Rectal Procedures
APC 0148: Level I Anal/Rectal Procedure
APC 0149: Level III Anal/Rectal Procedure
APC 0155: Level II Anal/Rectal Procedure
We expressed concern to the Panel that APCs 0148 and 0149 appear to
violate the 2 times rule. We asked the Panel to recommend options for
resolving these violations, and suggested rearranging some of the CPT
codes within APCs 0148, 0149, and 0155. The Panel recommended that we
move CPT code 46040 (Incision of rectal abscess) from APC 0155 to APC
0149. We proposed to accept the Panel's recommendation, and we will
adopt it for 2004.

j. Insertion of Penile Prosthesis

APC 0179: Urinary Incontinence Procedures
APC 0182: Insertion of Penile Prosthesis
A presenter to the Panel representing manufacturers and providers
requested that APC 0182 be split into two APCs, based on whether the
procedure used inflatable or non-inflatable penile prostheses. The
presenter stated that the complexity of the procedure, the cost of the
devices, and related resources were all significantly higher with
inflatable prostheses.
The Panel recommended that we eliminate APCs 0179 and 0182 and
create two new APCs, 0385 and 0386, that contain the following CPT
codes:

APC 0385
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
52282..................................... Cystoscopy, implant stent.
53440..................................... Correct bladder function.
53444..................................... Insert tandem cuff.
54400..................................... Insert semi-rigid
prosthesis.
54416..................................... Remv/repl penis contain
prosthesis.
------------------------------------------------------------------------

APC 0386
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
53445..................................... Insert uro/ves nck
sphincter.
53447..................................... Remove/replace ur sphincter.
54401..................................... Insert self-contained
prosthesis.
54405..................................... Insert multi-comp penis
prosthesis.
54410..................................... Remove/replace penis
prosthesis.
------------------------------------------------------------------------

We proposed to accept the Panel's recommendation to eliminate APCs
0179 and 0182 and create two new APCs, 0385 and 0386, containing the
above CPT code configurations.

k. Surgical Hysteroscopy

APC 0190: Surgical Hysteroscopy
A presenter to the Panel, who represented a device manufacturer,
requested that we move CPT code 58563 (Hysteroscopy, ablation) from APC
0190 to a higher paying APC. The presenter noted that endometrial
cryoablation is included in a new technology APC, while a thermal
ablation system is included with older, less costly

[[Page 63407]]

techniques. The presenter expressed concern that cryoablation may be
reimbursed at a higher rate than the thermal ablation system, giving
its manufacturers an unfair competitive advantage.
Panel members agreed that new, more expensive technologies that
prove to be more effective merit review for a higher payment rate.
Without substantial evidence of greater effectiveness, however, the
Panel was reluctant to create APCs that provide an incentive to use a
more expensive device. In its discussion of whether or not to recommend
moving CPT code 58563 to a higher paying APC, the Panel recommended
that we take into account different methods of endometrial ablation
associated with hysteroscopy, adequately reflect the resources used for
the various procedures, avoid creating a competitive advantage or
disadvantage, and collect data needed to track costs on the type of
technologies used for this procedure.
After consulting with experts in the field, we proposed to split
APC 0190 (Surgical Hysteroscopy) into two APCs that are more clinically
homogeneous. We proposed to change the description for APC 0190 from
``Surgical Hysteroscopy'' to ``Level I Hysteroscopy'' and keep the
following HCPCS codes in APC 0190:

We also proposed to move the following HCPCS codes from APC 0190 to
newly created APC 0387 titled ``Level II Hysteroscopy'':

In addition, we proposed to move the following HCPCS codes as
described below:

Table 2.--HCPCS Codes to be Redistributed to APCs 0130, 0195, and 0190
------------------------------------------------------------------------
2003 2004
HCPCS Description APC APC
------------------------------------------------------------------------
58578............................. Laparoscopic 0190 0130
procedure, uterus.
58353............................. Endometrial ablate, 0193 0195
thermal.
58555............................. Hysteroscopy, 0194 0190
diagnostic, sep.
procedure.
------------------------------------------------------------------------

We believe these final changes take into account the different
technologies used to perform these procedures while maintaining the
clinical comparability of these APCs as well as improving their
homogeneity in terms of resource consumption.
1. Female Reproductive Procedures
APC 0195: Level VII Female Reproductive Proc
APC 0202: Level VIII Female Reproductive Proc
A commenter requested that we place CPT code 57288 (Repair bladder
defect) in its own APC because it requires the use of a device. Our
staff suggested that CPT codes 57288 and 57287 remain in APC 0202,
while the remaining codes in APC 0202 be moved to APC 0195:

The Panel agreed with our staff, and we proposed to accept the
Panel's recommendation to move CPT codes 57109, 58920, and 58925 from
APC 0202 to APC 0195. We will adopt the Panel's recommendation for
2004.

m. Nerve Injections

APC 0203: Level IV Nerve Injections
APC 0204: Level I Nerve Injections
APC 0206: Level II Nerve Injections
APC 0207: Level III Nerve Injections
Several commenters suggested changes in the configuration of APCs
0203, 0204, 0206, and 0207 because of concerns that the current
classifications result in payment rates that are too low relative to
the resource costs associated with certain procedures in these APCs.
Several of these APCs include procedures associated with drugs or
devices for which pass-through payments are scheduled to expire in
2003.
We requested the Panel's input regarding whether or not these APCs
should be restructured. The Panel stated that the current configuration
of APCs 0203, 0204, 0206, and 0207 is more clinically cohesive than the
previous year's configuration and that more data should be collected
before making any changes. We proposed to accept the Panel's
recommendation that we make no changes to the structure of these APCs
until more data become available for review. We will adopt the Panel's
recommendation for 2004.

n. Laminotomies and Laminectomies; Implantation of Pain Management
Device

APC 0208: Laminotomies and Laminectomies
APC 0223: Implantation of Pain Management Device
A presenter to the Panel, who represented a device manufacturer,
requested that we move CPT code 62351 (Implant spinal canal catheter)
from APC 0208 to APC 0223 to better capture the device cost that may be
involved with the procedure. The Panel believed the data were
insufficient to merit moving the code and recommended that CPT code
62351 remain in APC 0208 until more data are available for review. We
proposed to accept the Panel's recommendation that CPT code 62351
remain in APC 0208 until more claims data become available for review.
We will adopt the Panel's recommendation for 2004.

o. Extended EEG Studies and Sleep Studies; Electroencephalogram

APC 0209: Extended EEG Studies and Sleep Studies, Level II
APC 0213: Extended EEG Studies and Sleep Studies, Level I
APC 0214: Electroencephalogram
We expressed concern to the Panel that APC 0213 appears to
minimally violate the 2 times rule. In order to remedy this violation,
we asked the Panel to consider a commenter's suggestion that we move
CPT code 95955 (EEG during surgery) from APC 0214 to APC 0213. The
Panel agreed with the commenter's suggestion. We proposed to accept the
Panel's recommendation to move CPT code 95955 from APC 0214 to APC
0213.

p. Nerve and Muscle Tests

APC 0215: Level I Nerve and Muscle Tests
APC 0216: Level III Nerve and Muscle Tests APC 0218:
Level II Nerve and Muscle Tests
We expressed concern to the Panel that APC 0218 appears to violate
the 2 times rule. In order to remedy this violation, one commenter
requested that we move CPT codes 95921 (Autonomic nerve function test)
and 95922 (Autonomic nerve function test) from APC 0218 to APC 0216,
while another

[[Page 63408]]

commenter requested that we move CPT code 95904 (Sensory nerve
conduction test) from APC 0215 to APC 0218. Alternatively, our staff
suggested to the Panel that the following CPT codes be moved from APC
0218 to APC 0215.

------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
95858..................................... Tensilon test & myogram.
95870..................................... Muscle test, nonparaspinal.
95900..................................... Motor nerve conduction test.
95903..................................... Motor nerve conduction test.
------------------------------------------------------------------------

After considering all of the above proposals, the Panel recommended
that we move CPT codes 95858, 95870, 95900, and 95903 from APC 0218 to
APC 0215. We proposed to accept the Panel's recommendation.

q. Implantation of Drug Infusion Device

APC 0227: Implantation of Drug Infusion Device
APC 0227 contains only two CPT codes: Implantation of programmable
spine infusion pumps, 62362, and Implantation of non-programmable spine
infusion pumps, 62361. A commenter requested that we split APC 0227
into two APCs to recognize the cost difference between CPT code 62361
and CPT code 62362. However, since our cost data do not show a
significant cost difference between the two devices and APC 0227 does
not violate the 2 times rule, the Panel recommended that CPT codes
62361 and 62362 remain in APC 0227. We proposed to accept the Panel's
recommendation, which we will adopt for 2004.

r. Ophthalmologic APCs

APC 0230: Level I Eye Tests & Treatments
APC 0235: Level I Posterior Segment Eye Procedures
APC 0236: Level II Posterior Segment Eye Procedures
APC 0698: Level II Eye Tests & Treatments
We advised the Panel that APCs 0230 and 0235 violate the 2 times
rule but that the current configuration of these APCs reflects the
Panel's previous recommendations. A presenter to the Panel, who
represented a device manufacturer, expressed concern that the pass-
through device category ``New Technology: Intraocular Lens'' was
discontinued and these devices are now packaged. The presenter asked
the Panel to recommend that future new intraocular lens devices be
considered for a new pass-through category.
To remedy the violations to the 2 times rule, we asked the Panel to
consider moving CPT code 67820 (Revise eyelashes) from APC 0230 to APC
0698 and CPT code 67110 (Repair detached retina) from APC 0235 to APC
0236. The Panel recommended that we make these changes. We proposed to
accept the Panel's recommendation and monitor the data for APC 0235 for
possible review next year. We will adopt this recommendation for 2004.
The Panel also acknowledged that making recommendations concerning
pass-through categories is beyond their purview.

s. Skin Tests and Miscellaneous Red Blood Cell Tests; Transfusion
Laboratory Procedures

APC 0341: Skin Tests and Miscellaneous Red Blood Cell Tests
APC 0345: Level I Transfusion Laboratory Procedures We advised the
Panel that APCs 0341 and 0345 minimally violate the 2 times rule and
suggested moving several CPT codes within these APCs into a new APC
because a commenter expressed concern over the combination of skin
tests and miscellaneous red blood cell tests in APC 0341, asserting
that services within this APC cannot be considered comparable with
respect to resource usage.
In order to remedy these violations to the 2 times rule, we
suggested moving CPT code 86901 (Blood typing, Rh (D)) from APC 0345 to
a new APC along with the following CPT codes from APC 0341:

------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
86880..................................... Coombs test, direct.
86885..................................... Coombs test, indirect,
qualitative.
86886..................................... Coombs test, indirect,
titer.
86900..................................... Blood typing, ABO.
------------------------------------------------------------------------

The Panel recommended that we make the above changes. We proposed
to accept the Panel's recommendation to move HCPCS codes 86880, 86885,
86886, and 86900 from APC 0341 to new APC 0409 and to move CPT code
86901 (Blood typing, Rh (D)) from APC 0345 to new APC 0409. We will
adopt the Panel's recommendation for 2004.

t. Otorhinolaryngologic Function Tests

APC 0363: Level I Otorhinolaryngologic Function Tests
APC 0660: Level II Otorhinolaryngologic Function Tests
We expressed concern to the Panel that APC 0660 appears to violate
the 2 times rule and suggested moving CPT codes 92543 (Caloric
vestibular test) and 92588 (Evoked auditory test) from APC 0660 to APC
0363. The Panel recommended that we make these CPT code changes. We
proposed to accept the Panel's recommendation to move CPT codes 92543
and 92588 from APC 0660 to APC 0363, and we will adopt the proposal for
2004.

u. Tube Changes and Repositioning

APC 0121: Level I Tube changes and Repositioning
APC 0122: Level II Tube changes and Repositioning
We expressed concern to the Panel that APC 0121 appears to violate
the 2 times rule. In order to remedy this violation, we suggested
moving the following CPT codes from APC 0121 to APC 0122:

------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
47530..................................... Revise/reinsert bile tube.
50688..................................... Change of ureter tube.
51710..................................... Change of bladder tube.
62225..................................... Replace/irrigate catheter.
------------------------------------------------------------------------

The Panel recommended that we make these CPT code changes. We
proposed to accept the Panel's recommendation to move CPT codes 47530,
50688, 51710, and 62225 from APC 0121 to APC 0122. We will adopt the
proposal for 2004.

v. Myelography

APC 0274: Myelography
We advised the Panel that APC 0274 minimally violates the 2 times
rule and suggested moving CPT codes 72285 (X-ray c/t spine disk) and
72295 (X-ray c/t spine disk) from APC 0274 to a new APC. A presenter,
from an organization representing radiologists, agreed with our
proposal. The Panel recommended that we make these CPT code changes. We
proposed to accept the Panel's recommendation to move CPT codes 72285
and 72295 from APC 0274 to new APC 0388. We will adopt the
recommendation for 2004.

w. Therapeutic Radiologic Procedures

APC 0296: Level I Therapeutic Radiologic Procedures
APC 0297: Level II Therapeutic Radiologic Procedures
We advised the Panel that APCs 0296 and 0297 appear to minimally
violate the 2 times rule as a result of changes recommended by the
Panel and adopted by us last year. The Panel recommended that no
changes be made to APCs 0296 and 0297 in the interest of preserving the
clinical homogeneity of these APCs. We proposed to accept the Panel's
recommendation that we make no CPT code changes to APCs 0296 and 0297,
and we are adopting the proposal for 2004.

x. Vascular Procedures; Cannula/Access Device Procedures

APC 0103: Miscellaneous Vascular Procedures

[[Page 63409]]

APC 0115: Cannula/Access Device Procedures
A commenter requested that we move CPT code 36860 (External cannula
declotting) from APC 0103 to APC 0115, asserting that this procedure is
more similar to other procedures in APC 0115 and does not fit well in
its current miscellaneous APC. The Panel found that the claims data
were insufficient to support moving CPT code 36860 from APC 0103 to the
higher paying APC 0115 and recommended that CPT code 36860 remain in
APC 0103 until more data are available for review. We proposed to
accept the Panel's recommendation that CPT code 36860 remain in APC
0103 until more claims data become available for review. We will adopt
this proposal for 2004.

y. Angiography and Venography Except Extremity

APC 0279: Level II Angiography and Venography except Extremity
APC 0280: Level III Angiography and Venography except Extremity
APC 0668: Level I Angiography and Venography except Extremity
A commenter requested that we move CPT code 75978 (Repair venous
blockage) from APC 0668 to APC 0280 and that we move CPT code 75774
(Artery x-ray, each vessel) from APC 0668 to APC 0279. A presenter to
the Panel testified that CPT code 75978 is commonly used for dialysis
patients and often requires multiple intraoperative attempts to
succeed; thus, it should be paid under APC 0280. The Panel believed
that APCs 0279, 0280, and 0668 were clinically homogenous and
recommended that we only make changes after consulting with experts in
the field. We proposed to accept the Panel's recommendation to make no
changes to APCs 0279, 0280, and 0668 until we have consulted with
experts in the field. We plan to place these APCs on the Panel's agenda
for the 2005 update.

z. Computed Tomography (CT), Magnetic Resonance (MR), and Ultrasound
Guidance Procedures Currently Packaged

APC 0332: Computerized Axial Tomography and Computerized
Angiography without Contrast Material
APC 0335: Magnetic Resonance Imaging, Miscellaneous
APC 0268: Ultrasound Guidance Procedures
A presenter to the Panel expressed concern that the packaging of
guidance procedures for tissue ablation does not recognize the
significant difference in cost and time required to perform each
procedure (for example, MRI vs. CT). This presenter believed that
hospitals needed more education on the appropriate application of these
codes. Another commenter requested that CPT codes 76362, 76394, and
76490 be changed from a status indicator of N to a status indicator of
S and be included in an appropriate clinical or new technology APC.
The Panel agreed with the above comments and stated that the
packaging of these three procedures made it difficult for hospitals to
track their use for the purpose of allocating funds. The Panel
recommended changing the following CPT codes from a packaged status (N
status indicator) to a separately payable status (S status indicator)
within the indicated APCs:

Table 3.--HCPCS Codes To Be Designated as Separately Payable
------------------------------------------------------------------------
2004 2004
HCPCS Description 2003 SI SI APC
------------------------------------------------------------------------
76362........................ CT scan for N...... S..... 0332
tissue ablation.
76394........................ MRI for tissue N...... S..... 0335
ablation.
76490........................ US for tissue N...... S..... 0268
ablation.
------------------------------------------------------------------------

We proposed to accept the Panel's recommendation to change HCPCS
codes 76362, 76394, and 76490 from a packaged status to a separately
payable status as indicated above. HCPCS 76490 has been deleted for
2004. However, we will pay for it under APC 0268 during the grace
period from January through March 2004.

aa. Magnetic Resonance Imaging and Magnetic Resonance Angiography
Without Contrast

APC 0336: Magnetic Resonance Imaging and Magnetic Resonance
Angiography without Contrast
A commenter requested that we change CPT code 76393 (MR guidance
for needle placement) from a packaged status to a separately payable
status within APC 0336. Based on clinical homogeneity considerations,
the Panel agreed with the commenter and recommended that CPT code 76393
be changed from a status indicator of N to a status indicator of S and
placed in APC 0335. We proposed to accept the Panel's recommendation.

bb. Plain Film Except Teeth; Plain Film Except Teeth Including Bone
Density Measurement

APC 0260: Level I Plain Film Except Teeth
APC 0261: Level II Plain Film Except Teeth Including Bone Density
Measurement
APC 0272: Level I Fluoroscopy
A commenter requested that we move CPT codes 76120 (Cine/video x-
rays) and 76125 (Cine/video x-rays add-on) from APC 0260 to APC 0261.
However, a presenter to the Panel argued that these CPT codes are
fluoroscopic procedures that should not be grouped with Level I
radiography procedures. The Panel recommended that we move CPT code
76120 from APC 0260 to APC 0272 and that CPT code 76125 remain in APC
0260. This change makes the APCs more clinically coherent. We proposed
to accept the Panel's recommendation, and we will adopt the proposal
for 2004.

cc. Chemotherapy Administration by Other Technique Except Infusion

APC 0116: Chemotherapy Administration by Other Technique Except
Infusion
A presenter to the Panel requested that we split APC 0116 into
three APCs according to the method of administration: (a) Subcutaneous
or intramuscular administration (CPT code 96400); (b) ``push''
administration (CPT code 96408); and (c) central nervous system
administration (CPT code 96450). The presenter also requested that
existing CPT codes should replace the more nonspecific Q codes for
administration of chemotherapy because the CPT codes will provide more
detailed data on methods of chemotherapy administration, which could be
used for future payment policy decisions. Another presenter agreed with
this request and stated that CPT codes are preferable to Q codes
because other payers require CPT codes.
The Panel agreed with the above suggestions to split APC 0116 into
3 APCs according to the method of

[[Page 63410]]

administration. The Panel recommended that we require hospitals to use
the existing CPT codes (for example, 96400, 96408, and 96450) for
administration of chemotherapy and map them to APCs 0116, 0117, and
0118, as appropriate. The Panel also recommended that payment rates be
based on current Q code cost data until cost data for the CPT codes are
available. These cost data will be used to determine whether to change
the APC structure for chemotherapy administration.
We proposed not to accept the Panel's recommendations to split APC
0116 into three APCs and to use CPT codes for administration of
chemotherapy. We will consider such a split in the future but would
like to first address the administration of drugs issue. Based on the
comments we received on our proposed drug administration coding, we
believe that making a change in APC 0116 will be too complicated and
burdensome for hospitals at this time. (See a full discussion of this
in section VI.B.4 of this final rule.)
We will consider such a split for APC 0116 for CY 2005. We also
believe the use of CPT codes will be burdensome to hospitals, will
require extensive education, and will result in a significant amount of
miscoding. The CPT codes for infusion therapy are based on the service
furnished per hour. We do not believe that all hospitals routinely
record the start and stop time for infusion therapy and that doing so
in order to be able to bill the proper number of hours of infusion
therapy could be very burdensome for them. Moreover, the historic cost
data on which we base the payment for the service are reported on a per
visit basis (much easier to cull from the record than the number of
hours of service) and if we changed to CPT codes for these services, we
will be unable to convert the charge/cost data now on a per visit basis
to a per hour basis (as required by the CPT code) for budget neutrality
purposes. See section VI of this final rule for further discussion on
payments for drugs and drug administration.

dd. Capturing the Costs of Drugs, Biologicals and Radiopharmaceuticals
Packaged Into APCs

APC 0290: Level I Diagnostic Nuclear Medicine Excluding Myocardial
Scans
APC 0291: Level II Diagnostic Nuclear Medicine Excluding Myocardial
Scans
APC 0292: Level III Diagnostic Nuclear Medicine Excluding
Myocardial Scans
APC 0294: Level II Therapeutic Nuclear Medicine
APC 0666: Myocardial Add-on Scans
At the January 2003 meeting, we told the Panel that APCs 0290 and
0291 appear to violate the 2 times rule. Several presenters to the
Panel expressed concern that our cost data are inadequate because of
confusion over coding due to changes in codes and coding instructions
for these procedures, poor hospital reporting of radiopharmaceutical
use, and the use of single (not multiple) claims in determining costs.
One presenter claimed that the current cost data used for CPT code
78122 (Whole blood volume determination) underestimated real costs
because of confusion about whether to code radiopharmaceuticals on a
``per dose'' basis or ``per millicurie'' basis. This presenter
requested that we move CPT code 78122 from APC 0290 to the higher
paying APC 0292.
Other presenters agreed with these concerns and stated they were
applicable to payments for all drugs, not just radiopharmaceuticals.
These commenters were also concerned about the loss of drug-specific
data due to packaging because hospitals will have no incentive to code,
and thereby identify, packaged drugs.
Pass-through payments for 236 drugs, biologicals, and
radiopharmaceuticals expired as of 2003, were then paid either
separately or packaged with the procedures with which they are
associated. Drugs and radiopharmaceuticals with median costs for
administration of $150 or less were packaged. Beginning in 2003, claims
data do not provide specific cost information for packaged items. We
requested input from the Panel on methods for determining drug costs in
the future.
Panel members were concerned that packaging the costs of
radiopharmaceuticals into procedures would result in underpayments for
the service because we lack adequate data on the cost of
radiopharmaceuticals. They were also concerned about creating
incentives to use radiopharmaceuticals based on cost rather than
clinical efficacy. The Panel recommended that we consider grouping
drugs and radiopharmaceuticals into new APCs taking into account both
their cost and clinical use. The Panel further recommended that, if new
APCs for radionuclides are created, the descriptors should be as simple
as possible and use of confusing units of measure should be limited.
Due to the packaging of radiopharmaceuticals into the APC payments
for nuclear medicine procedures, we, along with commenters have
expressed concern to the Panel regarding whether the current nuclear
medicine APC structure is homogeneous in terms of resource consumption.
We have reviewed information about the use and cost of various
radiopharmaceuticals and believe that restructuring the APCs for
nuclear medicine will result in greater clinical and resource
homogeneity. Therefore, we proposed to eliminate APCs 0286, 0290, 0291,
0292, 0294, and 0666 and create 20 new APCs for nuclear medicine.
Comment: We received many comments about the proposed nuclear
medicine APCs. Generally, commenters supported our proposal for the new
APCs but had suggestions for modifications to improve clinical and
resource use homogeneity. The suggested modifications are:
[sbull] Split APC 0398 into three levels to account for differences
in the number of sessions provided and type and amount of
radiopharmaceutical used with these procedures.
[sbull] Split APC 0401 into two levels to account for the different
number of sessions, type and amount of radiopharmaceuticals used, and
whether or not ventilation imaging and perfusion imaging are part of
the procedure.
[sbull] Delete codes G0273 and G0274 and use the newly created CPT
codes 78804 and 79403. They recommended that we assign 78804 to a new
APC 0406T, Tumor/Infection Imaging Level II and that we assign 79403 to
the new APC for Radionucliide Therapy APC, created by combining
proposed APCs 0407 and 0408.
[sbull] Move codes 78015, 78016, and 78018 from APC 0390 to APC
0406 because they are for metastatic tumor imaging rather than for one
organ system.
[sbull] Move all of the nuclear medicine ``add-on'' codes into one
APC to be named ``Nuclear Medicine Add-On Imaging.'' Three of the
codes, 78478, Heart wall motion add-on, 78480 Heart function add-on,
and 78496, Heart function first pass add-on, are assigned to proposed
APC 0399. They recommended moving the remaining add-on code, 78020,
Thyroid carcinoma metastases uptake, to proposed APC 0399 with the
other three add-on codes, to create an APC comprised of add-on codes
with a status indicator ``X.''
[sbull] Move each of the codes in the series of codes, 78X99 into
the appropriate APCs based on the organ system to be consistent with
the proposed APC structure.
[sbull] Reassign codes 78270, 78271, and 78272 to APC 0389 because
they are

[[Page 63411]]

non-imaging nuclear medicine procedures with resource use more similar
to the procedures in APC 0389.
[sbull] Combine APCs 0390, 0391, and 0392 to create two new APCs
composed of thyroid, parathyroid, and adrenal systems. They suggest
that the codes should be reassigned to two levels of endocrine imaging
based on the number of sessions and radiopharmaceuticals used in the
procedure. The titles suggested for the new APCs are ``Endocrine Level
I'' and ``Endocrine Level II.''
[sbull] Combine proposed APCs 0407 and 0408 into one APC because
hospital claims data do not reflect any logical division between the
two proposed APCs. Further, they request that all of the nuclear
medicine therapy codes in the new APC should be paid separately since
they know of no nuclear medicine therapeutic radiopharmaceutical that
has costs below the proposed $150 threshold for packaging.
[sbull] Collapse and redistribute code assignments in APCs 0404 and
0405 to create two new APCs for Level I and Level II Renal and
Genitourinary Studies. They recommended assigning only one code, 78709,
Kidney imaging, multiple studies, with and without pharmaceutical
intervention, to the Level II APC.
Response: After careful review of the recommendations, with one
exception, we concur with the commenters that their recommended
modifications to the proposed APC classifications improve clinical
homogeneity and payment equity. The shifts in median cost that result
from the adjustments are minor in most cases and overall, the increased
cost is not significant.
The one exception to our agreement with the commenters'
recommendation is regarding the assignment of 78708, Kidney imaging
with vascular flow and function, single study. Commenters recommended
that it be assigned to APC 0404. We believe that it is more
appropriately assigned to APC 0405 based on both clinical and resource
use considerations.
Although we do not disagree with the commenters' suggestions, we
also will not assign the new code 78804, pre-treatment planning, non-
Hodgkins to the APC suggested by the commenters. Instead, we will
assign it to new technology APC 1508. A detailed discussion of this
assignment and other issues related to Zevalin is below in section
VI.B.
Thus, we will finalize the nuclear medicine APCs as shown below.

APC 0376: Cardiac Imaging Level II
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78473..................................... Gated heart, multiple.
78483..................................... Heart first pass, multiple.
------------------------------------------------------------------------

APC 0377: Cardiac Imaging Level III
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78461..................................... Heart muscle blood,
multiple.
78465..................................... Heart image (3D), multiple.
------------------------------------------------------------------------

APC 0378: Pulmonary Imaging Level II
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78584..................................... Lung V/Q image gas, single
breath.
78585..................................... Lung V/Q imaging gas.
78588..................................... Lung V/Q imaging aerosol.
78596..................................... Lung differential function.
------------------------------------------------------------------------

APC 0389: Non-Imaging Nuclear Medicine
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78000..................................... Thyroid, single uptake.
78001..................................... Thyroid, multiple uptakes.
78003..................................... Thyroid suppress/stimuli.
78190..................................... Platelet survival, kinetics.
78191..................................... Platelet survival.
78270..................................... Vitamin B-12 absorption
exam.
78271..................................... Vitamin B-12 absorp. exam,
intrin. Fac.
78272..................................... Vitamin B-12 absorp,
combined.
78725..................................... Kidney function study.
------------------------------------------------------------------------

APC 0390: Endocrine Level I
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78006..................................... Thyroid imaging with uptake.
78010..................................... Thyroid imaging.
78011..................................... Thyroid imaging with flow.
78099..................................... Endocrine nuclear procedure.
------------------------------------------------------------------------

APC 0391: Endocrine Level II
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78007..................................... Thyroid image, mult uptakes.
78070..................................... Parathyroid nuclear imaging.
78075..................................... Adrenal nuclear imaging.
------------------------------------------------------------------------

APC 0393: Red Cell/Plasma Studies
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78110..................................... Plasma volume, single.
78111..................................... Plasma volume, multiple.
78120..................................... Red cell mass, single.
78121..................................... Red cell mass, multiple.
78122..................................... Blood volume.
78130..................................... Red cell survival study.
78135..................................... Red cell survival kinetics.
78140..................................... Red cell sequestration.

78160..................................... Plasma iron turnover.
78162..................................... Radioiron absorption exam.
78170..................................... Red cell iron utilization.
78172..................................... Total body iron estimation.
------------------------------------------------------------------------

APC 0394: Hepatobiliary Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78201..................................... Liver imaging.
78202..................................... Liver imaging with flow.
78205..................................... Liver imaging (3D).
78206..................................... Liver image (3D) with flow.
78215..................................... Liver and spleen imaging.
78216..................................... Liver & spleen image/flow.
78220..................................... Liver function study.
78223..................................... Hepatobiliary imaging.
------------------------------------------------------------------------

APC 0395: Gastrointestinal Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78230..................................... Salivary gland imaging.
78231..................................... Serial salivary imaging.
78232..................................... Salivary gland function
exam.
78258..................................... Esophageal motility study.
78261..................................... Gastric mucosa imaging.
78262..................................... Gastroesophageal reflux
exam.
78264..................................... Gastric emptying study.
78278..................................... Acute GI blood loss imaging.
78282..................................... GI protein loss exam.
78290..................................... Meckel's divert exam.
78291..................................... Leveen/shunt patency exam.
78299..................................... GI nuclear procedure.
------------------------------------------------------------------------

APC 0396: Bone Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78300..................................... Bone imaging, limited area.
78305..................................... Bone imaging, multiple
areas.
78306..................................... Bone imaging, whole body.
78315..................................... Bone imaging, 3 phase.
78320..................................... Bone imaging (3D).
78399..................................... Musculoskeletal nuclear
exam.
------------------------------------------------------------------------

APC 0397: Vascular Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78445..................................... Venous thrombosis study.
78455..................................... Venous thrombosis study.

[[Page 63412]]

78456..................................... Acute venous thrombus image.
78457..................................... Venous thrombosis imaging.
78458..................................... Ven thrombosis images,
bilat.
------------------------------------------------------------------------

APC 0398: Cardiac Imaging Level I
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78414..................................... Non-imaging heart function.
78428..................................... Cardiac shunt imaging.
78460..................................... Heart muscle blood, single.
78464..................................... Heart image (3D), single.
78466..................................... Heart infarct image.
78468..................................... Heart infarct image (ef).
78469..................................... Heart infarct image (3D).
78472..................................... Gated heart, planar, single.
78481..................................... Heart first pass, single.
78494..................................... Heart image, spect.
78499..................................... Unlisted cardiovascular.
------------------------------------------------------------------------

APC 0399: Nuclear Medicine Add-On Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78020..................................... Thyroid met uptake.
78478..................................... Heart wall motion add-on.
78480..................................... Heart function add-on.
78496..................................... Heart first pass add-on.
------------------------------------------------------------------------

APC 0400: Hematopoietic Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78102..................................... Bone marrow imaging, ltd.
78103..................................... Bone marrow imaging, mult.
78104..................................... Bone marrow imaging, body.
78185..................................... Spleen imaging.
78195..................................... Lymph system imaging.
78199..................................... Blood/lymph nuclear exam.
------------------------------------------------------------------------

APC 0401: Pulmonary Imaging, Level 1
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78580..................................... Lung perfusion imaging.
78586..................................... Aerosol lung image, single.
78587..................................... Aerosol lung image,
multiple.
78591..................................... Vent image, 1 breath, 1
proj.
78593..................................... Vent image, 1 proj, gas.
78594..................................... Vent image, mult proj, gas.
78599..................................... Respiratory Nuclear Exam.
------------------------------------------------------------------------

APC 0402: Brain Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78600..................................... Brain imaging, ltd static.
78601..................................... Brain imaging, ltd w/flow.
78605..................................... Brain imaging, complete.
78606..................................... Brain imaging, compl w/flow.
78607..................................... Brain imaging (3D).
78610..................................... Brain flow imaging only.
78615..................................... Cerebral vascular flow
image.
78699..................................... Nervous system nuclear exam.
------------------------------------------------------------------------

APC 0403: CSF Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78630..................................... Cerebrospinal fluid scan.
78635..................................... CSF ventriculography.
78645..................................... CSF shunt evaluation.
78647..................................... Cerebrospinal fluid scan.
78650..................................... CSF leakage imaging.
78660..................................... Nuclear exam of tear flow.
------------------------------------------------------------------------

APC 0404: Renal & Genitourinary Studies Level I
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78700..................................... Kidney imaging, static.
78701..................................... Kidney imaging with flow.
78704..................................... Imaging renogram.
78707..................................... Kidney flow/function image.
78710..................................... Kidney imaging (3D).
78715..................................... Renal vascular flow exam.
------------------------------------------------------------------------

APC 0405: Renal & Genitourinary Studies Level II
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78708..................................... Kidney flow/function image.
78709..................................... Kidney flow/function image.
------------------------------------------------------------------------

APC 0406: Tumor/Infection Imaging
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78015..................................... Thyroid metastases imaging.
78016..................................... Thyroid metastases imaging/
studies.
78018..................................... Thyroid metastases imaging/
body.
78800..................................... Tumor imaging, limited area.
78801..................................... Tumor imaging, mult areas.
78802..................................... Tumor imaging, whole body.
78803..................................... Tumor imaging, whole body.
78805..................................... Abscess imaging, ltd area.
78806..................................... Abscess imaging, whole body.
78807..................................... Nuclear localization/
abscess.
------------------------------------------------------------------------

APC 0407: Radionucliide Therapy
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
79000..................................... Init hyperthyroid therapy.
79001..................................... Repeat hyperthyroid therapy.
79020..................................... Thyroid ablation.
79030..................................... Thyroid ablation, carcinoma.
79035..................................... Thyroid metastatic therapy.
79100..................................... Hematopoetic nuclear
therapy.
79200..................................... Intracavitary nuclear
treatment.
79300..................................... Interstitial nuclear
therapy.
79400..................................... Nonhemato nuclear therapy.
79420..................................... Intravascular nuclear
therapy.
79440..................................... Nuclear joint therapy.
79999..................................... Nuclear medicine therapy.
------------------------------------------------------------------------

APC 1507: New Technology Level VII ($500-$600)
------------------------------------------------------------------------

------------------------------------------------------------------------
79403..................................... Hematopoetic nuclear
therapy.
------------------------------------------------------------------------

APC 1508: Tumor/Infection Imaging Level II
------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
78804..................................... Pre-tx planning, non-
Hodgkins.
------------------------------------------------------------------------

We believe that the final APC structure, which takes into account
the organ(s) being examined (or treated) as well as the type and
complexity of the procedure, is more homogeneous both clinically and in
terms of resource consumption than the current APC structure.

ee. Endoscopy Lower Airway

APC 0076: Endoscopy Lower Airway
A presenter to the Panel expressed concern that APC 0076 apparently
violates the 2 times rule and requested that we move CPT code 31631
(bronchoscopy with tracheal stent placement) from APC 0076 and into a
new APC.
The Panel suggested that a new APC comprised of the four most
costly procedures in APC 0076 will result in a more homogenous
grouping, and recommended that we move the following CPT codes from APC
0076 and into newly created APC 0415.

------------------------------------------------------------------------
HCPCS Description
------------------------------------------------------------------------
31630........................ Bronchoscopy dilate/fracture reduction.
31631........................ Bronchoscopy, dilate w/stent.
31640........................ Bronchoscopy w/tumor excise.
31641........................ Bronchoscopy, treat blockage.
------------------------------------------------------------------------

We proposed to accept the Panel's recommendation that we move CPT
codes 31630, 31631, 31640, and 31641 from APC 0076 to new APC 0415. We

[[Page 63413]]

received no comments disagreeing with this proposal and will adopt this
recommendation for 2004.

ff. Gastrointestinal Endoscopic Stenting Procedures

APC 0141: Upper GI Procedures
APC 0142: Small Intestine Endoscopy
APC 0143: Lower GI Endoscopy
APC 0147: Level II Sigmoidoscopy

A commenter requested that we create a new APC that will be
comprised of all the gastrointestinal endoscopic stent codes. The Panel
agreed with the commenter's suggestion because the resource
requirements for all gastrointestinal endoscopic stents appear to be
similar. The Panel recommended that we move the following CPT codes
from their 2003 APCs to newly created APC 0384 for 2004:

Table 4.--HCPCS Codes to be Moved Into New APC 0384
----------------------------------------------------------------------------------------------------------------
HCPCS Description 2003 APC 2004 APC
----------------------------------------------------------------------------------------------------------------
43219............................... Esophagus endoscopy............................. 0141 0384
43256............................... Upper GI endoscopy w/stent...................... 0141 0384
44370............................... Small bowel endoscopy w/stent................... 0142 0384
44379............................... Small bowel endoscopy w/stent................... 0142 0384
44383............................... Small bowel endoscopy........................... 0142 0384
44397............................... Colonoscopy w/stent............................. 0143 0384
45387............................... Colonoscopy w/stent............................. 0143 0384
45327............................... Proctosigmoidoscopy w/stent..................... 0147 0384
45345............................... Sigmoidoscopy w/stent........................... 0147 0384
----------------------------------------------------------------------------------------------------------------

We proposed to accept the Panel's recommendation to move the
following gastrointestinal endoscopic stent CPT codes into newly
created APC 0384: 43219, 43256 (from APC 0141); 44370, 44379, 44383
(from APC 0142); 44397, 45387 (from APC 0143); 45327, 45345 (from APC
0147). We received no comments disagreeing with this proposal, and we
will adopt it for 2004.

gg. Capturing the Costs of Devices That Are Packaged Into APCs

APC 0081: Non-Coronary Angioplasty or Atherectomy
APC 0083: Coronary Angioplasty and Percutaneous Valvuloplasty
APC 0104: Transcatheter Placement of Intracoronary Stents
APC 0222: Implantation of Neurological Device
APC 0223: Implantation of Pain Management Device
APC 0227: Implantation of Drug Infusion Device
APC 0229: Transcatheter Placement of Intravascular Shunts

Several commenters requested that the status indicators for the
above APCs (all of which include high-cost devices) be changed from T
(multiple-procedure discount applies) to S (multiple-procedure discount
does not apply). Two presenters to the Panel stated that hospitals do
not pay less for devices when they are used in the context of a
multiple-procedure claim and suggested that we apply the multiple-
procedure reduction to the non-device portion of the claim only.
Alternatively, these presenters recommended that we apply the discount
policy only when the device cost is below a predetermined proportion of
the APC cost. Another presenter to the Panel requested that APCs 0222,
0223, and 0227 be exempt from the multiple-procedure discount policy
because the cost of the devices used in these procedures makes up more
than 50 percent of the APC cost.
We sought the Panel's input as to whether there are situations in
which we should not apply our multiple procedure discount policy. The
Panel recommended no changes to the status indicators for any of the
device-related APCs discussed because they were concerned that
exemptions from the discount policy could result in incentives to use
more devices than necessary. However, the Panel asked that we analyze
our data to determine if we may be underpaying for devices when the
multiple procedure discounting policy is applied and recommended that
we develop some methodology to track device costs. In section II.B of
this preamble, we discuss the issue of device costs and multiple
procedure reductions and our progress to date in developing
``combination APCs'' to address the Panel's concern.

hh. Discussion of Ways To Increase the Use of Multiple Claims To Set
APC Payment Rates

A presenter to the Panel suggested that we use dates of service on
multiple procedure claims to increase the number of claims we use to
set payment rates. Another presenter suggested that we could further
increase the number of multiple procedure claims that could be used to
set payment rates by ignoring codes with status indicator K. Other
suggestions were to exclude from consideration those APCs with small
dollar values and to create a new code or APC specifically for the
insertion and removal of devices.
The Panel recommended that our staff explore ways to increase the
number of claims used to set payment rates, including the following
methodologies: sort multiple claims by date of service; exclude codes
with K status indicator from evaluation; exclude those APCs with
nominal costs (the definition of ``nominal'' can be determined by
modeling a variety of possible dollar amounts). In addition, the Panel
recommended that we not create G codes as part of the effort to use
multiple procedure claims for developing relative weights. If new codes
are needed, the Panel suggested that our staff work with the American
Medical Association's CPT Board to identify possible new codes.

B. Other Changes Affecting the APCs

1. Limit on Variation of Costs of Services Classified Within an APC
Group
Section 1833(t)(2) of the Act provides that the items and services
within an APC group cannot be considered comparable with respect to the
use of resources if the highest cost item or service within an APC
group is more than 2 times greater than the lowest cost item or service
within the same group. However, the statute authorizes the Secretary to
make exceptions to this limit on the variation of costs within each APC
group in unusual cases such as low volume items and services. No
exception may be made in the case of a drug or biological that has been
designated as an orphan drug under section 526 of the Federal Food,
Drug, and Cosmetic Act.
Taking into account the proposed APC changes discussed in relation
to the APC Panel recommendations in section II.A.4 of this preamble and
the use of 2002 claims data to calculate the

[[Page 63414]]

median cost of procedures classified to APCs, we reviewed all the APCs
to determine which of them would not meet the 2 times limit. We use the
following criteria when deciding whether to make exceptions to the 2
times rule for affected APCs:
[sbull] Resource homogeneity.
[sbull] Clinical homogeneity.
[sbull] Hospital concentration.
[sbull] Frequency of service (volume).
[sbull] Opportunity for upcoding and code fragmentation. For a
detailed discussion of these criteria, refer to the April 7, 2000 final
rule (65 FR 18457).
The following table contains the final list of APCs that we exempt
from the 2 times rule based on the criteria cited above. In cases in
which a recommendation of the APC Panel appeared to result in or allow
a violation of the 2 times rule, we generally accepted the Panel
recommendation because Panel recommendations were based on explicit
consideration of resource use, clinical homogeneity, hospital
specialization, and the quality of the data used to determine payment
rates.
The median cost for hospital outpatient services for these and all
other APCs can be found at Web site: http://www.cms.hhs.gov.

Table 5.--APCS Exempted From 2 Times Rule
----------------------------------------------------------------------------------------------------------------
Final Rule APC Description
----------------------------------------------------------------------------------------------------------------
0006........................................ Level I Incision & Drainage.
0012........................................ Level I Debridement & Destruction.
0018........................................ Biopsy of Skin/Puncture of Lesion.
0019........................................ Level I Excision/Biopsy.
0020........................................ Level II Excision/Biopsy.
0043........................................ Closed Treatment Fracture Finger/Toe/Trunk.
0046........................................ Open/Percutaneous Treatment Fracture or Dislocation.
0058........................................ Level I Strapping and Cast Application.
0060........................................ Manipulation Therapy.
0071........................................ Level I Endoscopy Upper Airway.
0074........................................ Level IV Endoscopy Upper Airway.
0084........................................ Level I Electrophysiologic Evaluation.
0093........................................ Vascular Reconstruction/Fistula Repair without Device.
0097........................................ Cardiac and Ambulatory Blood Pressure Monitoring.
0099........................................ Electrocardiograms.
0103........................................ Miscellaneous Vascular Procedures.
0105........................................ Revision/Removal of Pacemakers, AICD, or Vascular.
0109........................................ Removal of Implanted Devices.
0130........................................ Level I Laparoscopy.
0147........................................ Level II Sigmoidoscopy.
0148........................................ Level I Anal/Rectal Procedure.
0155........................................ Level II Anal/Rectal Procedure.
0165........................................ Level III Urinary and Anal Procedures.
0192........................................ Level IV Female Reproductive Proc.
0203........................................ Level IV Nerve Injections.
0204........................................ Level I Nerve Injections.
0207........................................ Level III Nerve Injections.
0213........................................ Extended EEG Studies and Sleep Studies, Level I.
0214........................................ Electroencephalogram.
0218........................................ Level II Nerve and Muscle Tests.
0231........................................ Level III Eye Tests & Treatments.
0233........................................ Level II Anterior Segment Eye Procedures.
0235........................................ Level I Posterior Segment Eye Procedures.
0239........................................ Level II Repair and Plastic Eye Procedures.
0245........................................ Level I Cataract Procedures without IOL Insert.
0252........................................ Level II ENT Procedures.
0262........................................ Plain Film of Teeth.
0266........................................ Level II Diagnostic Ultrasound Except Vascular.
0274........................................ Myelography.
0279........................................ Level II Angiography and Venography except Extremity.
0297........................................ Level II Therapeutic Radiologic Procedures.
0303........................................ Treatment Device Construction.
0314........................................ Hyperthermic Therapies.
0323........................................ Extended Individual Psychotherapy.
0340........................................ Minor Ancillary Procedures.
0341........................................ Skin Tests.
0344........................................ Level III Pathology.
0355........................................ Level III Immunizations.
0356........................................ Level IV Immunizations.
0363........................................ Level I Otorhinolaryngologic Function Tests.
0364........................................ Level I Audiometry.
0367........................................ Level I Pulmonary Test.
0368........................................ Level II Pulmonary Tests.
0370........................................ Allergy Tests.
0373........................................ Neuropsychological Testing.
0397........................................ Vascular Imaging.
0398........................................ Level I Cardiac Imaging.
0402........................................ Brain Imaging.
0404........................................ Renal and Genitourinary Studies Level I.

[[Page 63415]]

0407........................................ Radionuclide Therapy.
0409........................................ Red Blood Cell Tests.
0688........................................ Revision/Removal of Neurostimulator Pulse Generator Receiver.
0692........................................ Electronic Analysis of Neurostimulator Pulse Generators.
0698........................................ Level II Eye Tests & Treatments.
0699........................................ Level IV Eye Tests & Treatments.
1528........................................ New Technology--Level XXVIII ($5000-$5500).
----------------------------------------------------------------------------------------------------------------

2. Procedures Moved From New Technology APCs to Clinically Appropriate
APCs
In the November 30, 2001 final rule (66 FR 59903), we made final
our proposal to change the period of time during which a service may be
paid under a new technology APC. Beginning in 2002, the policy is to
retain a service within a new technology APC group until we have
acquired adequate data that allow us to assign the service to a
clinically appropriate APC. This policy allows us to move a service
from a new technology APC in less than 2 years if sufficient data are
available, and it also allows us to retain a service in a new
technology APC for more than 3 years if sufficient data upon which to
base a decision for reassignment have not been collected.
In the context of new technology procedures, we create HCPCS codes
for services only. We do not create HCPCS codes for equipment that is
used in the course of providing an item or service (except in the case
of ``C'' codes for devices that meet the criteria for transitional
pass-through payments). Equipment that is used to provide an item or
service is not separately coded because it is a resource required to
furnish the service. Like other resources that are required to furnish
a service (for example, cost of a room, cost of staff, cost of
supplies), the hospital should show charges either as part of its
charge for the procedure or with a revenue code.
As described below, we proposed to delete four HCPCS codes that are
currently paid in new technology APCs. We believed that these four
HCPCS codes do not conform to our current policy to not create HCPCS
codes for equipment used to provide a service. In addition, we stated
that there soon would exist, CPT codes to describe all of the services
being furnished, including any equipment that is needed to perform
them, so we believe it is appropriate at this time to delete the HCPCS
codes. The HCPCS codes which we proposed to delete effective January 1,
2004 were:

C1088; Laser Optic Treatment System, Indigo Laseroptic Treatment System
C9701; Stretta System
C9703; Bard Endoscopic Suturing System, and C9711; H.E.L.P. Apheresis
System.

A full description of these HCPCS is available in the proposed rule
(67 FR 47978).
We received no comments in response to this proposal. However, we
have determined that our proposal to delete codes C9701 and C9703 was
in error. Upon further review of this issue, we have determined that
these codes were in fact established to represent complete procedures.
Therefore, we will retain codes C9701 and C9703.
Comment: A provider of treatment planning software submitted
several comments regarding this service. In their first set of comments
on the 2003 OPPS final rule with comment, the commenter agreed with our
decision to create a new G-code, G0288, for their product, Preview, and
other similar treatment planning software and to assign this service to
new technology APC 0975. G0288 was created and assigned to new
technology APC 0975 for the 2003 final rule and was subject to comment
after its publication. In their comments in response to the 2003 final
rule with comment, they indicated that the $625 payment rate associated
with new technology APC 0975 appropriately reflected the costs of
Preview to providers. However, this party recommended that we pay for
G0288 under certain circumstances. These included payment only for
treatment planning imaging services that are FDA approved; that is, to
follow FDA's determinations concerning which imaging software programs
are sufficiently comprehensive and accurate. Further, the commenter
recommended that we pay for both pre-surgical and post-surgical
imaging, claiming optimum effectiveness of the related endovascular
repair procedures only occurs when imaging studies are performed both
before and after surgery. Third, this party recommended that we use
G0288 in the OPPS but not in other Medicare payment systems until cost
data were more complete. The commenter believed that we should
encourage use of the CPT process to develop codes that describe a wide
range of applications for the treatment planning imaging that may
develop.
The commenter also commented on our August 12, 2003 proposed rule,
in which we proposed assigning G0288 to new APC 0414, with a payment
rate of $260.65. This commenter stated that the proposed payment is
inadequate and based on flawed, imputed cost data. It also asserted
that the descriptors for APC 0414 and G0288 do not restrict the use of
this code to services that meet the ``recognized standards and
specifications'' for three-dimensional computer-aided measurement
planning simulation (``3D-CAMPS'') services and recommended that we
revise the proposed payment for APC 0414 based on hospital acquisition
cost data that they provided. The commenter also recommended that we
create a revenue code specifically for APC 0414 to enable more rational
charge determination for the service and that we revise the descriptors
for APC 0414 and G0288 to ensure that the codes only are used for the
3D-CAMPS systems, and to clarify that the service may be applied pre-
or post-surgically. The recommended descriptor is: ``Three-dimensional
computer-aided measurement simulation (3D-CAMPS) services for pre-
surgical and post-surgical imaging.''
Response: We proposed to move G0288 from new technology APC 0975 to
APC 0414 because we believe that we had sufficient 2002 claims data for
our analysis. The predecessor C-code for Preview, C9708, was reported
approximately 1,300 times in 2002, with a median cost of $272.48.
However, we have reviewed the hospital cost data that the commenting
party provided, and believe that there may be some claims in our data
that understate the cost of the treatment planning software. We have
decided to give equal weight to the median cost based on our claims
data and the median cost of $625 provided by the commenter, based on
its analysis. Therefore, we are establishing the appropriate cost

[[Page 63416]]

amount as $448.74. As a result, we are assigning G0288 to new
technology service APC 1506, for a payment rate of $450.00. We are
continuing the assignment of G0288 to a new technology APC because this
is still a relatively new procedure and we still have concerns
regarding our cost data.
We agree that this can be used for treatment planning prior to
surgery and for post-surgical monitoring and have revised the code
descriptor to clarify this point. The descriptor for this code is
revised as follows: G0288 Reconstruction, computed tomographic
angiography of aorta for preoperative planning and evaluation post
vascular surgery. We assume that hospitals providing this service will
abide by the FDA labeling requirements for equipment used in providing
this service.
3. Revision of Cost Bands and Payment Amounts for New Technology APCs
We proposed to implement a comprehensive restructuring of all the
new technology APCs. First, the cost intervals in the current new
technology APCs are inconsistent, ranging from $50 to $1,500. Secondly,
as the number of procedures assigned to new technology APCs increases,
we believe that narrower cost bands are required to avoid inaccurate
payment for new technology services. The increased number of new
technology APCs that would result from narrowing the cost bands cannot
be accommodated within the current sequence of available APC numbers.
Therefore, we proposed to dedicate two new series of APC numbers to the
restructured new technology APCs, which would allow us to narrow the
cost bands and also afford us flexibility in creating additional bands
as future needs may dictate.
We proposed to establish cost bands from $0 to $100 in increments
of $50, from $100 through $2,000 in intervals of $100, and from $2,000
through $6,000 in intervals of $500. We believe that these intervals
would allow us to price new technology services more appropriately and
consistently. We also propose to retain two parallel sets of new
technology APCs, one with status indicator ``S'' and the other with
status indicator ``T.'' We solicited comments on the hierarchy of cost
levels of the restructured new technology APCs.
The final list of restructured new technology APCs is in Addendum
A.
We received a number of comments in support of this proposal to
restructure the new technology APC bands. Therefore, we will finalize
our proposal.
4. Creation of APCs for Combinations of Device Procedures
In the August 12, 2003 proposed rule, we discussed data development
that we had undertaken to create median costs for combinations of HCPCS
codes in different APCs that we believed were frequently performed on
the same day. We focused our work on pairs of APCs, one of which
contained a service that required an expensive device. See 68 FR 47979
for a complete description of the data development. We undertook this
activity to see if creating larger classification groups of this type
might increase the number of multiple procedure claims that we could
use to set payment rates for these services. We also thought that the
analysis might yield useful information regarding the appropriateness
of the multiple procedure reduction for combinations of services that
include at least one APC with an expensive device, that are commonly
performed on the same date. In many cases, we found that the
combination APC medians closely approximated the median that results
under the current policy (that is, the sum of single medians for each
APC, reducing the median for the lower cost procedure by 50 percent).
In other cases, the data revealed combination APC median costs that
were considerably higher or lower than under our current policy.
We concluded in the proposed rule that the results of the study
provided no compelling reason to change our payment policy. We asked
for comment on all aspects of the methodology, analysis, and payment
options. We also asked for discussion of how we could use more multiple
procedure claims were we not to create combination APCs and for an
explanation of why external data should be used in lieu of our single
or multiple procedure claims data to set median costs for APCs with
large device costs. However, we did not propose to create combination
APCs or to make payment based on the combination APC medians for 2004.
We received only a few comments on the combination APC methodology
and these were in the context of why we should not apply multiple
procedure reductions to specific combinations of APCs. See the
discussion of multiple procedure reduction in V.D.2 for a summary of
these comments and our responses.

III. Recalibration of APC Weights for CY 2004

Section 1833(t)(9)(A) of the Act requires that the Secretary review
and revise the relative payment weights for APCs at least annually,
beginning in 2001. In the April 7, 2000 final rule (65 FR 18482), we
explained in detail how we calculated the relative payment weights that
were implemented on August 1, 2000 for each APC group. Except for some
reweighting due to APC changes, these relative weights continued to be
in effect for CY 2001. (See the November 13, 2000 interim final rule
(65 FR 67824 to 67827)).
To recalibrate the relative APC weights for services furnished on
or after January 1, 2004 and before January 1, 2005, we used the same
basic methodology that we described in the April 7, 2000 final rule.
That is, we recalibrated the weights based on claims and cost report
data for outpatient services. We used the most recent available data to
construct the database for calculating APC group weights. For the
purpose of recalibrating APC relative weights for CY 2004, the most
recent available claims data are the approximately 127 million final
action claims for hospital outpatient department services furnished on
or after April 1, 2002 and before January 1, 2003. We eliminated 2.6
million claims for bill types other than OPPS bill types and claims for
services furnished in Maryland, Guam, and the Virgin Islands. We
matched the remaining claims that were paid under the OPPS to the most
recent cost report filed by the individual hospitals represented in our
claims data. We were left with about 75 million claims for which we
could identify cost report data. The APC relative weights continue to
be based on the median hospital costs for services in the APC groups.

A. Data Issues

1. Period of Claims Data Used
We used claims for the period beginning April 1, 2002 through and
including December 31, 2002 as the basis for the CY 2004 OPPS. The
statute requires that we take into account new cost data and other
relevant information and factors in reviewing and revising the weights,
and we believe that this period will give us the most recent costs. We
chose not to include the claims for the period beginning on January 1,
2002 through March 31, 2002 because they were used to set the payment
rates for the 2003 OPPS and we believe that the most recent 9 months of
claims data will result in payment rates that are most representative
of the current relative costs of hospital outpatient services.
Comment: Some commenters supported our use of claims for this 9-
month period for setting the weights for

[[Page 63417]]

the 2004 OPPS. Other commenters wanted us to use external data in lieu
of claims data for specified APCs because they believed that the
payments that result from the median costs developed using claims data
were inadequate. Other commenters objected to the use of 2002 claims
data because they stated that 2002 costs would not be an appropriate
proxy for the relative costs of drugs, biologicals, and
radiopharmaceuticals in 2004 and they urged us to use hospital
acquisition costs instead of claims data.
Response: We used 2002 claims data for services furnished from
April 1, 2002 through December 31, 2002 as the basis for the relative
weights used to create payment amounts for the 2004 OPPS. Our
established policy is to use the most recent claims data available. For
the August 12, 2003 proposed rule and this final rule, those data are
for services in the last 3 quarters of 2002. These data are used to
calculate median costs upon which to base our relative weights. The
OPPS seeks and uses relative costs to create weights that are used to
distribute a fixed amount of Medicare payment for OPPS services
appropriately among hospitals. Therefore, the accuracy of the
relativity is more important than whether the median costs derived from
the claims data accurately reflect the costs of the services. See
section III.B for our discussion of the use of external data.
2. Treatment of ``Multiple Procedure'' Claims
Since the inception of the OPPS, we have received many requests
asking that we ensure that the data from claims that contain charges
for multiple procedures are included in the data from which we
calculate the OPPS relative payment weights. Those making the requests
believe that relying solely on single-procedure claims to recalibrate
APC weights fails to take into account data for many frequently
performed and complex procedures, particularly those commonly performed
in combination with other procedures.
We agree that it is desirable to use the data from as many claims
as possible to recalibrate the relative payment weights, including
those with multiple procedures. For CY 2003, we identified a number of
multiple-procedure claims that could be treated as single-procedure
claims, enabling us to greatly increase the number of claims used to
develop the APC payment weights. However, there remain several inherent
features of multiple procedure claims that prevent us from using all of
them to recalibrate the payment weights. We discussed these obstacles
in detail in the August 9, 2002 proposed rule (67 FR 52092, 52108
through 52111), and the November 1, 2002 final rule (67 FR 66718, 66743
through 66746).
To enable us to use more claims in the creation of median costs
upon which our payment weights and rates are based, we proposed several
changes to how we use claims data for the CY 2004 OPPS. Specifically,
we proposed to expand the number of HCPCS codes that we ``ignore'' for
the purpose of creating pseudo single claims from claims that contain
other separately payable HCPCS codes. We also looked at dates of
service on packaged HCPCS codes and packaged revenue centers, and
proposed where possible, to attribute the charges to major, separately
payable HCPCS codes based on the codes' dates of service. We also
considered creating combination APCs for procedures that have a
significant device component. Our complete discussion of the use of
data to set the weights for CY 2004 OPPS follows in section III.B of
this preamble.

Expansion of the List of Codes To Be Ignored in Creation of Single
Claims

For CY 2003 OPPS, we ignored the presence of HCPCS codes 93005,
71010, and 71020 to create pseudo-single claims where there was only
one remaining separately paid, major HCPCS code on the claim. Ignoring
these codes enabled us to attribute the costs of packaged HCPCS codes
and packaged revenue centers to the remaining separately paid, major
HCPCS codes and, thereby, create a useable psuedo single claim. We did
this because we believed that the charges found in the packaged HCPCS
or packaged revenue centers would be appropriately associated with the
only other separately payable HCPCS that remained on the claim once the
ignored codes were bypassed.
For CY 2004 OPPS, we proposed to expand the list of HCPCS codes to
be ignored for purposes of creating pseudo-single claims. On claims
that contain other separately payable HCPCS, we proposed to bypass the
HCPCS codes in the APCs identified in Table 6. As with the previously
ignored HCPCS codes 93005, 71010, and 71020, we believe that there are
additional codes that are highly unlikely to have charges that are
found in packaged HCPCS or in packaged revenue centers. Therefore, we
believe that they also can be ignored for the purpose of creating
pseudo-single claims from the remaining charges on the claim. We
solicited comments on the proposed methodology to create pseudo-single
claims, on the list of codes that we proposed to ignore (Table 6), and
whether there are other low-cost services that we could ignore using
this methodology. We also requested comments on whether we should use
the charges for the codes in the APCs in Table 6 to create pseudo
singles for these codes from these claims.

Use of Dates of Service To Create Single Claims

For CY 2004, we used dates of service on HCPCS codes and on
packaged revenue centers to attribute charges to a major payable HCPCS
code where the dates of service match. We could only use this approach
where there are different dates of service for the separately payable
major HCPCS codes. Where there are multiple major payable HCPCS codes
on a claim with the same date, we could not use this approach because
there was no way to tell to which major payable HCPCS code the charges
from the packaged HCPCS or packaged revenue center belonged. Moreover,
where the hospital did not provide dates for all packaged revenue
centers, we could not attribute charges based on the date of service.

Use of Single Procedure Claims

Comment: Some commenters objected to the use of single procedure
claims as the basis for setting weights for all APCs. The commenters
are concerned that even with the changes we made to use more claims for
2004 OPPS, some of the APCs had medians based on less than 10 percent
of their true claims volume. They believe that this methodology results
in the use of claims only for simple, low-cost cases from small,
relatively non-busy centers with low levels of technological complexity
and inappropriately low costs and charges. They urged us to use
external data, whether proprietary or not, in place of the claims-
derived medians when the medians would otherwise be based on a small
number of claims.
Some commenters urged us to ignore codes for procedures performed
on the same day as procedures of interest to them and to package all
revenue center charges and charges for packaged HCPCS codes into the
code for which they were seeking a median. Some commenters gave us
relatively elaborate strategies for creating pseduo-single claims out
of multiple procedure claims for particular services or groups of
services that were of interest to them. Some of these related to
special packaging for chemotherapy services and nuclear medicine
services. The commenters urged us to model our data for the 2005 OPPS
according to the specifications they provided.

[[Page 63418]]

Response: We would certainly prefer to use all claims in the
setting of weights for APCs, if it were possible to do so validly.
However, we continue to be plagued by our inability to allocate revenue
center charges when there are multiple major procedure codes for
services performed on the same day. We are unable to determine how to
accurately split some costs (for example, recovery room time) among the
major procedures. We have received no comments that offer alternatives
that would enable us to do so with confidence.
We did not accept the service-specific strategies for acquiring
more single claims that were submitted in comments because none of them
could be generalized to the entire claims population in such a way that
we could be sure that they would not distort the relativity of all
services. We set weights for hundreds of APCs in this system and we
think it is important that the same rules governing creation of pseudo
single claims from multiple procedure claims be applied across all
services so that packaging occurs uniformly and the relativity of
services is maintained. It is a practical impossibility to have
different strategies for creating pseudo singles for each category of
services.
We did not use the line items that were ignored in the calculation
of medians for the APC into which they would fall because we lacked
confidence that they would accurately represent the full cost of the
service. We asked for comments on this in the proposed rule. Based on
the comments that indicate that the data for these line items should be
used in median setting, we expect to use these line items for median
setting for the 2005 proposed rule.

APCs to be Ignored To Create More Single Claims

Comment: Commenters supported the expansion of the list of APCs
that we ignored to create single procedure claims from multiple
procedure claims to enable us to use more claims data in weight
setting. A commenter asked that we confirm that the line items that
were ignored to create pseudo-single claims (See Table 6) are used in
the weight setting process. A commenter asked that we implement the
combination APC approach as a way of using more claims data for
multiple procedure claims. One commenter asked that we add evaluation
and management codes to the list of codes ignored for purposes of
creating pseudo-singles. Other commenters provided lists of additional
codes that could be ignored to create more pseudo-single claims.
Commenters also supported the use of dates of service on lines with
revenue code charges where they could be used to attribute charges to
HCPCS codes for weight setting. Some commenters advised that we should
use the date of service aggregation at the beginning of the pseudo-
single claim creation to achieve the best effects. Some commenters
asked that we require all hospitals to use dates of service on all
lines (but not before July 1, 2004), even where only revenue codes are
on the lines, so that more claims could be used in future years.
Several commenters asked that we eliminate the requirement for
series bills for certain services if we require a date of service for
each line because the claim will grow in size as charges for multiple
dates of service that are now combined on a single line with no date of
service will now have to be split into multiple lines to show the date
of service. The commenters fear that the increase in the lines on the
claim may result in errors on the claim and there may be cashflow
problems if more claims are returned to the provider. The commenters
indicated that delays in payment for series bills covering 30 days of
service are significant.
Response: For the 2004 OPPS, we did make progress in using more
claims by looking to the dates on revenue center charges, where they
exist, to assign them to a single major procedure on the same date. We
applied the date of service criteria before we ignored APCs to create
single claims. Moreover, we were able to create more single procedure
claims by ignoring procedures for which we thought no revenue center
charges or packaged HCPCS charges would be appropriately assigned. We
appreciate the information provided in comments and hope that the
public will continue to furnish us with an expanded list of codes that
they believe can be considered ``stand alone'' codes, which we could
properly ignore in creating pseudo single claims from claims containing
multiple major procedures. We did not add evaluation and management
service codes to the list because we believe that drugs and supplies
are often used during such services and that it would not be correct to
assume that all of the supply and drug charges on the claim were for
items and services used with the procedure that also is billed also on
the same claim. We would like to further explore the issue of which
claims to ignore for pseudo single creation with the APC Panel in its
winter meeting and to seek the Panel's views on the specific code to be
added to the list of codes to be ignored for this purpose.
While we did not apply the combination APC approach, we expect to
continue to explore whether this would, upon further refinement, have
value in establishing correct weights for procedures performed in
combination with one another. We hope to improve both of these
processes next year and to develop other methods of using multiple
procedure claims.
We did not use the line items for the HCPCS codes we ignored in the
calculation of medians for those HCPCS codes. We asked for public
comment on the issue. In view of the public comments supporting the
concept of ignoring certain codes for creation of pseudo singles and
supporting the validity of using these line items in the median setting
for these codes, we will propose to use them for median setting for the
2005 proposed rule.
Our requirement for series bills creates efficiencies in claims
processing that enable us to provide better provider service. In view
of the decision to not implement the drug administration option, which
would have required coding of all drugs, and seemed to be the impetus
for the comment, we do not expect to revise our series bill policy.

B. Description of Our Calculation of Weights for CY 2004

The methodology we followed to calculate the APC relative payment
weights proposed for CY 2004 is as follows:
[sbull] We excluded from the data claims for those bill and claim
types that would not be paid under the OPPS (for example, bill type 72X
for dialysis services for patients with end-stage renal disease
(ESRD)).
[sbull] We eliminated claims from hospitals located in Maryland,
Guam, and the U.S. Virgin Islands.
[sbull] Using the most recent available cost report from each
hospital, we converted billed charges to costs and aggregated them to
the procedure or visit level first by identifying the cost-to-charge
ratio specific to each hospital's cost centers (``cost center specific
cost-to-charge ratios'' or CCRs) and then by matching the CCRs to
revenue centers used on the hospital's CY 2001 outpatient bills. The
CCRs include operating and capital costs but exclude items paid on a
reasonable cost basis.
[sbull] We eliminated from the hospital CCR data 287 hospitals that
we identified as having reported charges on their cost reports that
were not actual charges (for example, a uniform charge applied to all
services). Of these, 206 hospitals had claims data.
[sbull] We eliminated from our data claims for critical access
hospitals that are not

[[Page 63419]]

paid under OPPS and whose claims are therefore not suitable for use in
setting weights for services paid under OPPS.
[sbull] We calculated the geometric mean of the total operating
CCRs of hospitals remaining in the CCR data. We removed from the CCR
data 56 hospitals whose total operating CCR deviated from the geometric
mean by more than three standard deviations.
[sbull] We excluded from our data approximately 3.11 million claims
submitted by the hospitals that we removed or trimmed from the hospital
CCR data.
[sbull] We matched revenue centers from the remaining universe of
claims to hospital CCRs.
[sbull] We separated the remaining claims that we had matched with
a cost report into the following three distinct groups: (1) Single-
procedure claims; (2) multiple-procedure claims; and (3) claims on
which we could not identify at least one OPPS covered service. Single-
procedure claims are those that include only one HCPCS code (other than
laboratory and incidentals such as packaged drugs and venipuncture)
that could be grouped to an APC. Multiple-procedure claims include more
than one HCPCS code that could be mapped to an APC. Dividing the claims
yielded approximately 24.43 million single-procedure claims and 16.86
million multiple-procedure claims.
We converted 9.833 million multiple-procedure claims to single-
procedure claims using the following criteria: (1) If a multiple-
procedure claim contained lines with a HCPCS code in the pathology
series (that is, CPT 80000 series of codes), we treated each of those
lines as a single claim. (2) For multiple-procedure claims with a
packaged HCPCS code (status indicator ``N'') on the claim, we ignored
line items for preoperative procedures and for those services in the
APCs identified in Table 6. These are services with payment amounts
below $50 (under the CY 2003 OPPS) for which we believe the charge
represents the totality of the charges associated with the service
(that is, that there are no packaged HCPCS or packaged revenue centers
attributable to the service). If only one procedure (other than HCPCS
codes in Table 6) existed on the claim, we treated it as a single-
procedure claim. (3) If the claim had no packaged HCPCS codes and if
there were no packaged revenue centers on the claim, we treated each
line with a procedure as a single-procedure claim if billed with single
units. (4) If the claim had no packaged HCPCS codes but had packaged
revenue centers for the procedure, we ignored the line item for codes
in the APCs identified in Table 6. If only one HCPCS code remained, we
treated the claim as a single-procedure claim.

Table 6.--APCS That Were Ignored To Create Pseudo Single Procedure Claims
--------------------------------------------------------------------------------------------------------------------------------------------------------
APC APC Description Status indicator
--------------------------------------------------------------------------------------------------------------------------------------------------------
0001............................... Level I Photochemotherapy....................................................... S
0060............................... Manipulation Therapy............................................................ S
0077............................... Level I Pulmonary Treatment..................................................... S
0099............................... Electrocardiograms.............................................................. S
0215............................... Level I Nerve and Muscle Tests.................................................. S
0215............................... Level I Nerve and Muscle Tests.................................................. S
0230............................... Level I Eye Tests & Treatments.................................................. S
0260............................... Level I Plain Film Except Teeth................................................. X
0262............................... Plain Film of Teeth............................................................. X
0271............................... Mammography..................................................................... S
0341............................... Skin Tests and Miscellaneous Red Blood Cell Tests............................... X
0342............................... Level I Pathology............................................................... X
0343............................... Level II Pathology.............................................................. X
0344............................... Level III Pathology............................................................. X
0345............................... Level I Transfusion Laboratory Procedures....................................... X
0364............................... Level I Audiometry.............................................................. X
0367............................... Level I Pulmonary Test.......................................................... X
0669............................... Digital Mammography............................................................. S
0690............................... Electronic Analysis of Pacemakers and other Cardiac Devices..................... S
0706............................... New Technology--Level I ($0-$50)................................................ S
--------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, we assessed the dates of service for HCPCS codes and
packaged revenue centers on each claim that contained more than one
major code. Where it was possible to attribute charges for packaged
HCPCS and packaged revenue centers to HCPCS codes for major procedures
by matching unique dates of service, we did this and created single
claims by packaging charges into the charge for the major service on
the same date. We were only able to do this if the multiple major
procedures had different dates of service and if there were dates of
service on all of the packaged revenue centers. Dates of service on
revenue centers are not required and, therefore, only claims from
hospitals that submitted dates of service on revenue centers in CY 2002
could be used in this process for maximizing the number of single-
procedure claims to be used for weight setting.
[sbull] To calculate median costs for services within an APC, we
used only single-procedure bills and those multiple-procedure bills
that we converted into single claims. If a claim had a single code with
a zero charge (that would have been considered a single-procedure
claim), we did not use it. As we discussed in section III.A.2 of this
final rule, we did not use multiple-procedure claims that billed more
than one separately payable HCPCS code with charges for packaged items
and services such as anesthesia, recovery room, or supplies that could
not be reliably allocated or apportioned among the primary HCPCS codes
on the claim. We have not yet developed what we regard as an acceptable
method of using multiple procedure bills to recalibrate APC weights
that minimizes the risk of improperly assigning charges to the wrong
procedure or visit.
For APCs in Table 7, we required that there be a C code on the
claim for the claim to be used. These APCs require the use of a device
in the provision of the service. Moreover, in 2002, hospitals were
required to bill the C code in order for the device to receive pass-
through

[[Page 63420]]

payment for the device. Therefore, if no C code was billed on the
claim, we presumed that the claim was incorrectly coded, and we did not
use it. For some of these APCs, we further required that specific
devices be on the claim.

Table 7.--APCS for Which a HCPCS for a Device Was Required To Be on a Claim Used for Weight Setting
----------------------------------------------------------------------------------------------------------------
APC APC Description Status
----------------------------------------------------------------------------------------------------------------
0032................................. Insertion of Central Venous/Arterial Catheter....... T
0039................................. Implant Neurostim, One Array........................ S
0048................................. Arthroplasty with Prosthesis........................ T
0080................................. Diagnostic Cardiac Catheterization.................. T
0081................................. Non-Coronary Angioplasty or Atherectomy............. T
0082................................. Coronary Atherectomy................................ T
0083................................. Coronary Angioplasty and Percutaneous Valvuloplasty. T
0085................................. Level II Electrophysiologic Evaluation.............. T
0086................................. Ablate Heart Dysrhythm Focus........................ T
0087................................. Cardiac Electrophysiologic Recording/Mapping........ T
0089................................. Insertion/Replacement of Permanent Pacemaker and T
Electrodes.
0090................................. Insertion/Replacement of Pacemaker Pulse Generator.. T
0104................................. Transcatheter Placement of Intracoronary Stents..... T
0106................................. Insertion/Replacement/Repair of Pacemaker and/or T
Electrodes.
0107................................. Insertion of Cardioverter-Defibrillator............. T
0108................................. Insertion/Replacement/Repair of Cardioverter- T
Defibrillator Leads.
0115................................. Cannula/Access Device Procedures.................... T
0119................................. Implantation of Devices............................. T
0122................................. Level II Tube Changes and Repositioning............. T
0167................................. Level III Urethral Procedures....................... T
0202................................. Level VIII Female Reproductive Proc................. T
0222................................. Implantation of Neurological Device................. T
0225................................. Implantation of Neurostimulator Electrodes.......... S
0226................................. Implantation of Drug Infusion Reservoir............. T
0227................................. Implantation of Drug Infusion Device................ T
0229................................. Transcatheter Placement of Intravascular Shunts..... T
0259................................. Level VI ENT Procedures............................. T
0313................................. Brachytherapy....................................... S
0384................................. GI Procedures with Stents........................... T
0385................................. Level I Prosthetic Urological Procedures............ T
0386................................. Level II Prosthetic Urological Procedures........... T
0648................................. Breast Reconstruction with Prosthesis............... T
0652................................. Insertion of Intraperitoneal Catheters.............. T
0653................................. Vascular Reconstruction/Fistula Repair with Device.. T
0654................................. Insertion/Replacement of a Permanent Dual Chamber T
Pacemaker.
0655................................. Insertion/Replacement/Conversion of a Permanent Dual T
Chamber Pacemaker.
0670................................. Intravenous and Intracardiac Ultrasound............. S
0674................................. Prostate Cryoablation............................... T
0680................................. Insertion of Patient Activated Event Recorders...... S
0681................................. Knee Arthroplasty................................... T
----------------------------------------------------------------------------------------------------------------

[sbull] For each single-procedure claim, we calculated a cost for
every billed line item charge by multiplying each revenue center charge
by the appropriate hospital-specific CCR. We used the most recent
settled or submitted cost reports. Using the most recent ``submitted to
settled ratio,'' we adjusted CCRs for the submitted cost reports but
not the settled ones. If an appropriate cost center did not exist for a
given hospital, we crosswalked the revenue center to a secondary cost
center when possible, or used the hospital's overall CCR for outpatient
department services. We excluded from this calculation all charges
associated with HCPCS codes previously defined as not paid under the
OPPS (for example, laboratory, ambulance, and therapy services). We
included all charges associated with HCPCS codes that are designated as
packaged services (that is, HCPCS codes with the status indicator of
``N'').
[sbull] To calculate per-service costs, we used the charges shown
in revenue centers that contained items integral to performing
services. Table 8 contains a list of the revenue centers that we
packaged into major HCPCS codes when they appeared on the same claim.
This is a change to the packaging of revenue centers by category of
service that had been done since the inception of the OPPS in the April
7, 2000 final rule (65 FR 18457). In all prior years of the OPPS, we
had specific subsets of revenue centers that we packaged into major
HCPCS codes based on the type of service we assigned to the HCPCS code
for this purpose. For example, we had a set of revenue centers that
could be packaged into visit codes and a different, but overlapping,
set of revenue centers that could be packaged into surgery codes. For
2004 OPPS, we converted these categories to a single set of revenue
codes (see Table 8) that would be packaged into the major HCPCS code
with which it appears on a claim. We believe that this will increase
the likelihood that the total charge for the major HCPCS code will
capture all of the costs attributed to the services furnished. Table 8
lists packaged services by revenue center that we are proposing to use
to calculate per-service costs for outpatient services furnished in CY
2004.

TABLE 8.--Packaged Services by Revenue Code
------------------------------------------------------------------------
Revenue code Description
------------------------------------------------------------------------
250....................................... Pharmacy.
251....................................... Generic.
252....................................... Nongeneric.

[[Page 63421]]

254....................................... Pharmacy Incident to Other
Diagnostic.
255....................................... Pharmacy Incident to
Radiology.
257....................................... Nonprescription Drugs.
258....................................... IV Solutions.
259....................................... Other Pharmacy.
260....................................... IV Therapy, General Class.
262....................................... IV Therapy/Pharmacy
Services.
263....................................... Supply/Delivery.
264....................................... IV Therapy/Supplies.
269....................................... Other IV Therapy.
270....................................... M&S Supplies.
271....................................... Nonsterile Supplies.
272....................................... Sterile Supplies.
274....................................... Prosthetic/Orthotic Devices.
275....................................... Pacemaker Drug.
276....................................... Intraocular Lens Source
Drug.
278....................................... Other Implants.
279....................................... Other M&S Supplies.
280....................................... Oncology.
289....................................... Other Oncology.
290....................................... Durable Medical Equipment.
370....................................... Anesthesia.
371....................................... Anesthesia Incident to
Radiology.
372....................................... Anesthesia Incident to Other
Diagnostic.
379....................................... Other Anesthesia.
390....................................... Blood Storage and
Processing.
399....................................... Other Blood Storage and
Processing.
560....................................... Medical Social Services.
569....................................... Other Medical Social
Services.
621....................................... Supplies Incident to
Radiology.
622....................................... Supplies Incident to Other
Diagnostic.
624....................................... Investigational Device
(IDE).
630....................................... Drugs Requiring Specific
Identification, General
Class.
631....................................... Single Source.
632....................................... Multiple.
633....................................... Restrictive Prescription.
637....................................... Self-Administered Drug
(Insulin Admin. in
Emergency Diabetic. COMA) .
700....................................... Cast Room.
709....................................... Other Cast Room.
710....................................... Recovery Room.
719....................................... Other Recovery Room.
720....................................... Labor Room.
721....................................... Labor.
762....................................... Observation Room.
810....................................... Organ Acquisition.
819....................................... Other Organ Acquisition.
942....................................... Education/Training.
------------------------------------------------------------------------

[sbull] We standardized costs for geographic wage variation by
dividing the labor-related portion of the operating and capital costs
for each billed item by the proposed FY 2004 hospital inpatient
prospective payment system (IPPS) wage index published in the Federal
Register on May 9, 2002 (67 FR 31602). We used 60 percent to represent
our estimate of that portion of costs attributable, on average, to
labor. We have used this estimate since the inception of the OPPS and
continue to believe that it is appropriate. (See the April 7, 2000
final rule (65 FR 18496) for a complete description of how we derived
this percentage).
[sbull] We summed the standardized labor-related cost and the
nonlabor-related cost component for each billed item to derive the
total standardized cost for each procedure or medical visit.
[sbull] We removed extremely unusual costs that appeared to be
errors in the data using a trimming methodology analogous to what we
use in calculating the diagnosis-related group (DRG) weights for the
hospital IPPS. That is, we eliminated any bills with costs outside of
three standard deviations from the geometric mean.
[sbull] After trimming the procedure and visit level costs, we
mapped each procedure or visit cost to its assigned APC, including, to
the extent possible, the proposed APC changes.
[sbull] We calculated the median cost for each APC.
To develop the median cost for observation (APC 339, HCPCS code
G0244), we selected claims containing HCPCS code G0244 (Observation
care provided by a facility to a patient with CHF, chest pain, or
asthma, minimum eight hours, maximum forty-eight hours) that also
showed one or more of the ICD-9 (International Classification of
Diseases, Ninth Edition) diagnosis codes required for payment of APC
339. We ignored other separately payable codes so that the claims with
G0244 would not be excluded for having multiple major procedures on a
single claim. We packaged the costs of allowable revenue centers and
HCPCS codes with status indicator ``N'' into the cost of G0244, and
trimmed as was done for the calculation of the median costs for other
APCs.
[sbull] Using the median APC costs, we calculated the relative
payment weights for each APC. As in prior years, we scaled all the
relative payment weights to APC 0601, Mid-level clinic visit, because
it is one of the most frequently performed services in the hospital
outpatient setting. We assigned APC 0601 a relative payment weight of
1.00 and divided the median cost for each APC by the median cost for
APC 0601 to derive the relative payment weight for each APC. Using 2002
data, the median cost for APC 0601 is $58.78.
Section 1833(t)(9)(B) of the Act requires that APC revisions,
relative payment weight revisions, and wage index and other adjustments
be made in a manner that ensures that estimated aggregate payments
under the OPPS for 2004 are neither greater than nor less than the
estimated aggregate payments that would have been made without the
changes. To comply with this requirement concerning the APC changes, we
compared aggregate payments using the CY 2003 relative weights to
aggregate payments using the CY 2004 proposed weights. Based on this
comparison, we made an adjustment of 0.981635942 to the weights. The
weights that we developed for 2004 OPPS, which incorporate the
recalibration adjustments explained in this section, are listed in
Addendum A and Addendum B.

Impact of Allocation of Equipment and Capital Costs

Comment: Several commenters indicated that the weight setting
methodology may have a disproportionately adverse effect on procedures
performed in departments with higher medical equipment and capital
costs such as radiology and nuclear medicine. The commenters indicated
that the capital costs incurred by these departments are generally
spread among all hospital departments on a square foot or other basis,
rather than being specifically allocated to the departments that incur
the costs involved. This would distort the cost to charge ratios for
these departments, resulting in under-weighting of the APCs for the
services they furnish. Commenters indicated that we recognized this in
the preamble to the 2000 OPPS rule (65 FR 18485, April 7, 2002) but
indicated that it did not have the data necessary to make the
appropriate adjustment due to hospital reporting processes. The
commenter indicated that it would be appropriate for us to re-evaluate
mechanisms that could be used to ameliorate the distortion.

[[Page 63422]]

Response: We recognize that the allocation of capital and equipment
costs to revenue centers that do not use the equipment could distort
cost to charge ratios for the revenue centers that use the equipment
(and presumably whose charges reflect those costs). It is not clear how
cost to charge ratios could be adjusted for such allocations. However,
for the 2005 OPPS, we hope to explore the effect and impact of basing
relative weights on relative hospital charges, rather than costs. If
weights are based on relative charges, then presumably, the charges for
services with high cost equipment and capital expenses would reflect
those costs relative to other services without such costs.

Dates of Service on Revenue Code Lines

Comment: Commenters supported requiring dates of service on lines
with revenue code charges but asked that the requirement not be
enforced until June 2004 to enable hospitals to have sufficient time to
adjust their systems to provide this information.
Response: Subsequent to the proposed rule, we learned that the X
12N 837 standard transaction with which covered entities had to be in
compliance on October 16, 2003, requires a date of service on each line
item containing a charge.

Single Revenue Code List for Packaging

Comment: One commenter supported the use of a single revenue code
list for packaging costs into separately paid HCPCS codes. The
commenter indicated that this change would result in more accurately
attributing costs to services. Another commenter objected to our
proposed changes for packaging revenue centers. This commenter is
concerned that the use of a single set of revenue codes for packaging
into the major procedure on a claim may inappropriately allocate
charges not associated with the major service on the claim. For
example, the commenter stated that revenue code 254 and revenue code
255 should continue to map to a radiological APC, and charges in these
revenue centers should not be assigned to a major non-radiological
procedure.
Response: We proposed to combine the multiple lists of revenue
codes into one because there was significant overlap in them and our
physicians believed that the risk of not picking up appropriate charges
was greater than the risk of picking up charges that were not
appropriate. In the case cited by the commenter, we are depending on
hospital billing and our reliance on single procedure claims to
preclude us from packaging a charge for a radiological service into a
HCPCS code for a non-radiological service. We have never had a
complaint that we have packaged more costs than were appropriate into a
HCPCS code, although we frequently are told that we neglected to pick
up all related charges. For the final rule, we retained the single set
of revenue codes for packaging into separately payable major HCPCS
codes.

Need for Stability in Relative Weights

Comment: Commenters stated that significant changes in weights for
services from year to year are difficult for hospitals because not all
hospitals provide all services and if the APC rates fall for the
particular service mix the hospital furnishes, this can mean
significant shifts in total payment for outpatient services from

Medicare from year to year. Commenters indicated that we should adjust
medians derived from claims data to limit the amount of change that
occurs from year to year. Commenters indicated that hospitals are
limiting availability of services based on declining Medicare OPPS
revenues and that once a service is curtailed or eliminated, it is not
likely to be reintroduced again because the hospital will cease
monitoring the costs of the device and equipment needed to offer the
service once it is no longer provided in the hospital and, therefore,
even if it would be cost effective to reintroduce the service, it is
not likely to occur. Commenters indicated that the pattern of revenue
changes is a factor in hospital decisions regarding whether to acquire
state-of-the-art equipment. Therefore, reductions in payments for
equipment-intense services discourage hospitals from acquiring the
equipment necessary to provide state-of-the-art services to Medicare
beneficiaries. Commenters also indicated that the cumulative effects of
the reductions from 2002 payment rates, particularly for procedures to
implant medical devices, have resulted in significant payment cuts for
many of these procedures and will discourage acquisition of the items
necessary to provide the highest quality care.
A commenter stated that we should stabilize the APC rate when a
device comes off of pass-through status. Several commenters stated that
the proposed rates reverse the progress that was made in 2002 by using
the manufacturer prices in the setting of medians for 2002. Commenters
indicated that we should adjust the medians from claims data to ensure
that no APC's median falls more than 5 percent compared to the medians
used for payment in 2003. A commenter suggested that we adjust the
medians whenever there is more than a 20 percent reduction from one
year to the next. Another commenter indicated that all APCs that
decline more than 10 percent compared to 2003 adjusted medians should
be adjusted in the same way that we proposed to adjust medians for
drugs, biologicals and radiopharmaceuticals and that these adjustments
also should apply to brachytherapy sources.
Another commenter asked that we let no median cost used in weight
setting fall more than half the difference between the loss and 15
percent because this methodology offers a buffer for hospitals to
minimize annual changes. Another commenter indicated that we should
freeze the 2003 payment rates, particularly for brachytherapy services
and should educate providers to show all of the charges for all of the
ancillary services on the claim so that they will be included in the
development of relative weights for future years.
Response: We are sympathetic with the concerns of hospitals that
the OPPS should be sufficiently stable that hospitals would have the
capacity to plan and budget for future years. We recognize that the
early years of a payment system may result in shifts in payment across
services. However, a prospective payment system is a system of
averaging in which the payment to the hospital becomes an overall
amount that the hospital has at its disposal to use in the way it finds
to be most efficient and effective. The payments for individual
services are the means by which the amount of money to be spent on OPPS
is distributed among hospitals but the hospitals have the right to use
that payment as they choose across all services they choose to furnish.
The OPPS is a system that attempts to calibrate payments for a service
or procedure to best approximate the costs that an efficient provider
would incur in providing the service or procedure in order to give
providers incentives for efficient procurement and service delivery.
As we indicated in the proposed rule, for 2004, some of the same
services had significant declines in median costs compared to the 2003
adjusted median but not compared to the 2003 median before adjustment.
We did not propose to adjust the 2004 medians for procedural APCs
compared to the 2003 adjusted median. Instead, we indicated that we
would consider using external data that could be made publicly
available if we were convinced that the medians for 2004 would result
in payment rates that were grossly aberrant in the context of the
service.

[[Page 63423]]

After reviewing the comments, and our final claims data for 2004,
we decided that we would not adjust the medians for procedural APCs but
that we would adjust medians for certain APCs for which we were given
external data that could be made public because we were convinced that
the medians from our claims data resulted in median costs that were
grossly variant. We adjusted the medians for the following APCs using
external data: APC 0107 (insertion of cardioverter-defibrilator), APC
0108 (Insertion/replacement/repair of cardioverter defibrillator leads
and insertion of pulse generator), APC 0222 (implantation of
neurostimulator), APC 0039 (which was broken out of APC 0222) and APC
0674 (prostate cryoablation). For each of these APCs we calculated an
adjusted device portion of the median by taking one part of the device
cost from our data and one part of the device cost supplied by external
data. We added the adjusted device median to the nondevice median from
our data to acquire the adjusted median. In the case of APC 0108, we
used the external device cost data that was used to set the median for
the 2003 OPPS because we received no outside data for the 2004 OPPS for
this APC and because the proposed median of $28,685.30 set forth in the
proposed rule was considerably higher than the final rule data median
of $23,944.80, which resulted when additional claims were used to
calculate the median cost. In other cases, we found that corrections in
the APC assignment or splitting an APC into two APCs resulted in more
accurate median costs.
For 2004, we will adjust median costs for drugs, biologicals and
radiopharmaceuticals as proposed for reasons discussed in section
VI.B.3. We will freeze payments for blood and blood products at the
2003 rates for reasons discussed in section VI.B.8. We will pay single
indication orphan drugs at 88 percent AWP for reasons discussed in
section VI.B.6.

Comparison of Procedural APC Medians for the 2004 OPPS to Adjusted
Medians for 2003 OPPS

Using the data available to us at the time we developed the
proposed rule, we identified APCs that showed decreases in median cost
of more than 10 percent compared to the adjusted medians on which their
payments were based for 2003. We discussed specific APC medians to the
extent that we understood the reason for the decreases or were
particularly puzzled by the change. We requested comments on the
medians and provided a set of criteria for external data that could be
used to supplement the median costs derived from our claims data. The
criteria we provided regarding the use of external data included a
stipulation that the data must not be confidential because any data we
use must be available to the public. We also provided a list of
preferred (but not required) criteria that addressed our preferences
for characteristics of the data. We indicated that to be of optimal
use, the external data should represent a divergent group of hospitals
by location and type, identify the number of devices billed to Medicare
as well as rebates or reductions for bulk purchases, identify the HCPCS
codes with which the devices would be used, identify the source of the
data and include both charges and costs for each hospital by quarter
for the last 3 quarters of 2002 (68 FR 47987). We did not propose to
adjust the medians for procedural APCs in the manner that they were
adjusted for the 2003 OPPS. For 2004 we did not apply a systematic
adjustment to all medians that declined more than a specified
percentage in comparison with the medians for 2003. Instead, as
discussed previously, we adjusted the medians of 5 APCs based on
external data where we thought it was necessary and we have split some
APCs where we thought doing so would result in more accurate relative
weights.

Use of External Data

Comment: Some commenters opposed the use of external data on the
basis that they believe that they will result in unfair imbalances in
payment. They recognized that the application of cost-to-charge ratios
will not result in amounts that are equal to full acquisition costs but
they believe that as long as the same standard methodology is used
across all services, the relative payments will be correct. They
indicated that in a system of averaging, it is not necessary or even
expected that each item and service will be paid at acquisition cost.
They encouraged us to remain faithful to the averaging process inherent
in a prospective payment system and not to rely on external data. Some
commenters opposed use of external data and supported the requirement
that they be publicly disclosable. Other commenters stated that we
should use our claims data to set weights because they accurately
reflect the relative hospital costs of providing outpatient services.
However, these commenters were concerned with how different rates for
some services in the 2004 proposed rule are from the rates for the same
services in 2003.
Some commenters said that we should use external data that are
proprietary and maintain the confidentiality of such data. Several
commenters indicated that the prices for medical devices are often
covered by agreements that preclude the parties from disclosing the
price of the device and that we should use the data to set prices,
notwithstanding that they cannot be made available for inspection by
the parties whose payments may be reduced by their use. Several
commenters stated that we used external data that were proprietary for
setting of 2002 weights, and for some 2003 weights and that we should
do so again because data from manufacturer price lists and invoices
more accurately reflect the costs attained by applying the cost-to-
charge ratios for hospital departments to the charges for the devices
to get costs to package into the APC medians. These commenters stated
that external data should be used more widely than data based on the
criteria that were used for the 2003 OPPS for the use of external data
(that is, that the device-cost portion of the APC exceeded 80 percent
of the total APC cost for external data to be used). These commenters
stated that external data should be used for all APCs that show
significant reductions since the 2002 OPPS. In particular, they cited
the APC Panel recommendation that outside data be used to set the
median cost for APC 107.
Some commenters had specific comments on the criteria we provided
for use of external data. One commenter stated that its members did not
have and could not easily acquire the data that would ensure that the
data represent a diverse group of hospitals by location and type nor
could they identify specific hospitals that used their devices. The
commenter also stated that its members could not provide the
information on discounts and rebates against their price lists that we
requested. The commenter indicated that its members did not want to
provide the HCPCS codes in which their products were used but instead,
wanted us to require the typical applications that they feel are most
appropriate. The commenters agreed that they could provide the source
of the data. The commenters stated that its members could not provide
data that corresponded with the same period of time being used to set
the relative weights for all APCs.
Response: In the proposed rule, we indicated that external data
should cover services furnished during the last 3 quarters of 2002 (68
FR 47987). We appreciate that manufacturers and wholesalers would not
want to disclose negotiated prices for 2003 or 2004 for competitive
reasons. However, we fail to

[[Page 63424]]

understand how they could be harmed by publicly disclosing prices that
were applicable in 2002 but have now been obsolete for a year.
Moreover, since upward adjustment of any median cost results in
reduction of payments for all other items and services, we believe
that, in a governmental payment program, the parties whose payments are
reduced by the use of external data should be able to examine all
elements of the payment system.
We do not believe that widespread use of external data to set
median costs for selected APCs is appropriate in a system that relies
on relativity to establish payment amounts. We are sympathetic with the
concerns of some commenters that widespread use of external data will
result in payment inequities rather than appropriate payments to
hospitals based on the relative weights of the services they furnish.
However, we are also concerned about circumstances in which we are
convinced that the payment amounts that would result from the medians
from our data will discourage hospitals to provide access to needed
care. Therefore, in the case of several APCs as discussed elsewhere, we
used external data to adjust the medians. In general, however, we
continue to have confidence in the integrity of our claims data with
respect to the procedural APCs. For the future, we prefer to seek ways
to refine the methodologies that we apply to our own data, such as the
use of a greater percentage of claims to set the weights for certain
APCs.
Comment: Several commenters stated that we should work with them to
set the methodology for the 2005 medians in view of the absence of
device codes in the 2003 data and should pursue a study of the
acquisition costs of devices in particular, so that there will be valid
device related data for setting the 2005 OPPS.
Response: We are always interested in hearing the proposals of
outside parties with regard to our methodology for setting OPPS
weights. We recognize the concern that the absence of device codes for
2003 claims may lead to median costs that fail to fully incorporate the
costs of the devices used in the applicable APCs and we are interested
in all ideas for preventing this problem. Our proposed methodology will
be presented in the proposed rule for the 2005 OPPS and will be open to
public comment.

General Comments About Payment

Comment: A commenter asked that we base the relative weights on the
geometric mean that we use for trimming the data. The commenter
indicated that the use of the geometric mean is the industry standard
for both trimming aberrant data, as we use it, and also for calculating
relative weights when costs are not distributed symmetrically. The
commenter stated that the use of the geometric mean is particularly
useful in circumstances that mirror those of OPPS: the first years of a
new system and with low-volume high-cost services. The commenter noted
that we agreed to move forward with analyses to look at the use of a
mean versus median cost for weight setting in the November 1, 2002
final rule published in the Federal Register, but believes that not
much analysis is needed since the use of the geometric mean is an
industry standard for setting relative weights.
Response: We appreciate the thoughtful comments on this issue and
other suggestions on how we might improve our rate setting methodology.
We will continue to explore these options in 2004. Our efforts in 2003
were limited to creating unscaled weights from the means used for the
2003 OPPS and comparing them to the unscaled weights for medians for
2003 OPPS. Our preliminary comparison revealed that there would be many
swings in payments. Hence, for the 2004 OPPS, we continued our use of
the median cost.
In preparation for 2005 OPPS, we hope to calculate OPPS amounts
using the mean costs, and also mean and median charges (to circumvent
the effects of cost-to-charge ratios), and the 2004 OPPS conversion
factor. This should give us a more complete view of the impact of
revising our methodology in this way.

Charge Compression and Cost Finding

Comment: A commenter indicated that the use of cost to charge
ratios is consistent with the concept of averaging that underpins a
prospective payment system and that the system should not seek to
micro-cost individual items or services but rather should rely upon the
hospital charging patterns irrespective of Medicare policy to base
relativity. The commenter indicated that while some items have
different markups than others, the use of a standardized methodology to
establish relative weights for all services should result in
appropriate relative payments. The commenter strongly objected to any
additional burdens that would be imposed in order to fine tune the
pass-through payment system or weights at the expense of all other APC
payments. The commenter specifically objected to CMS overriding the
claims data to alter the ratio for new technology devices because the
commenter believes that such adjustments will make the OPPS unduly
administratively complex and create unfair imbalances in payment.
Other commenters opposed the use of cost-to-charge ratios applied
to charges to acquire cost data. They indicated that in many cases, we
had to use overall hospital cost-to-charge ratios that had no relevance
to the costs of the services being determined and therefore resulted in
invalid representations of median costs. They also indicated that both
the departmental and the hospital specific cost-to-charge ratios were
derived in part from costs that are commingled between inpatient and
outpatient services and therefore are not necessarily representative of
a ratio that could be applied to outpatient services alone, as we do.
Some commenters indicated that we ignore studies that demonstrate that
charges are compressed, with low-cost services being marked up more
than high-cost services, thus resulting in systematic underpayment of
high-cost items and diminishing beneficiary access to high-cost
services. A commenter suggested that, for drugs, biologicals and
radiopharmaceuticals, we set a minimum payment based on the Federal
Supply Schedule price plus a percentage markup to ensure that payment
for drugs, biologicals, and radiopharmaceuticals was sufficient to make
them available to Medicare beneficiaries who need them.
Several commenters indicated that the application of hospital
specific cost-to-charge ratios at the department level where available,
otherwise at the hospital level will always result in incorrect costs
because hospitals do not have a consistent markup for all items and
services within a department. They indicated that hospitals markup low-
cost items more than high-cost items and that therefore, the
application of a cost-to-charge ratio, even at the department level,
will never result in the hospital acquisition cost for an item. They
indicated that there is no easy adjustment to correct for charge
compression and they urge us to explore using external data, developing
surveys or doing studies to acquire hospital cost data that can be used
in place of the median costs acquired from claims data.
Response: We recognize that the application of cost-to-charge
ratios to charges for individual items as needed to develop median
costs for APCs is imperfect. However, the only means at our disposal
for determining costs from the charges on the claims was to calculate a
cost-to-charge ratio using the cost report data that we believe is

[[Page 63425]]

applicable to the OPD (for example, excluding room and board). We
acknowledge that this system for determining relative values is
imperfect, but we believe that it continues to be preferable to total
reliance for particular items on external data which could
inappropriately inflate Medicare payments for those items to the
detriment of general hospital services. As indicated above, we hope to
explore use of mean costs, and mean and median charges in preparation
for the 2005 OPPS to determine if such a change would result in better
relative weights and less instability in OPPS payments for particular
services from year to year. However for 2004, we based relative weights
on median costs derived through the application of a cost-to-charge
ratio to the charges for the services.

General Concerns About Decreases

Comment: We received many comments objecting to proposed decreases
in the proposed payment rates for specific services. These commenters
indicated that the service has become more expensive rather than less
expensive over the year, or indicated that the payment for the service
declined for 2003 and should not decline for 2004. In some cases, the
comments indicated that the payment should remain at the 2003 rate so
that hospitals will not consider discontinuing the service.
Response: The OPPS is a relative payment system based upon the
relative median costs of services. We calculate the costs of services
by applying a cost to charge ratio to the charges for the services and
then packaging the costs together for major HCPCS codes. We then
calculate the median of the array of costs across all claims for HCPCS
codes in an APC. There are many factors that can affect whether the
cost of services rises or falls from one year to the next. In general,
for the 2004 OPPS, about half the APC median costs increased and about
half decreased compared to the 2003 median costs. In most cases, the
changes were modest and such changes from year to year are to be
expected as hospitals find ways to reduce costs for some services and
incur higher costs for others. Because we do not expect the mix of
services furnished in hospitals to vary hugely from year to year across
the universe of hospitals, we do not expect that the changes in
relative costs to create enormous impacts either.

Disparity in Payments for Overhead Costs for the Same Service

Comment: A commenter indicated that OPPS provides disparate payment
for the overhead costs associated with services that are furnished both
in physician offices and in hospital outpatient departments. As an
example, the commenter indicated that CMS attributes $25.36 in
physician practice expense to CPT code 99213 (office or outpatient mid
level evaluation and management service for an established patient) but
pays a hospital $54.46 (the amount set forth in the proposed rule) for
the overhead for the same service and indicated that for other services
the OPPS payment is as much as 4 times the amount paid to physicians
for practice expense for the same service. The commenter asked that CMS
establish payment equity for the same service furnished in these
respective settings.
Response: The method for calculating payment for physicians'
practice expenses under the Medicare physician fee schedule is
established by law, as is the method we use for the outpatient setting.
The application of the different methodologies results in different
payment amounts in the two settings.
Comments and responses on payment amounts for specific APCs are
included in section II.B.

Source of Data for Weight Setting

Comment: One commenter stated that we should conduct a study to
establish a source for cost data other than claims data on which to
base APC weights. Another commenter strongly objected to use of survey
data because the commenter did not believe that it could ever fully
capture all hospital costs for services and that therefore, the survey
data would be used only for items and would have to be integrated with
claims data for services. The commenter did not believe that the two
could be integrated in a way that would properly reflect the relative
costs.
Response: We believe that relative weights should generally be
based on claims data because, notwithstanding the weaknesses, claims
data are the most complete and accurate source of information about all
services furnished by all providers paid under OPPS. We believe that it
would be unreasonably expensive to acquire survey data that would be
representative of the entire population of Medicare hospitals and all
OPPS services furnished in them. We do not support the idea of using
only selected hospitals and/or selected services because we think data
from a limited survey would not be representative of the whole
population of Medicare hospitals and services and would not be accurate
to reflect relative costs of all services.

Incomplete Hospital Bills

Comment: Commenters indicated that when OPPS was implemented,
hospitals no longer had a payment incentive to ensure that all charges
were shown on the claim because there was no longer a direct
relationship between the amount of charges on the claim and the interim
payment they would receive for services. Therefore they ceased to
complete the claim as fully as when the charges were directly related
to the Medicare interim payment. Several commenters indicated that in
some cases, hospitals went as far as to remove items from the
chargemaster so that a charge was no longer created when an item or
service was used, particularly if the item or service were from a
department other than the department billing the CPT code. A commenter
said that in many cases, hospitals ceased to bill all charges for
services if the completion of the claim with all charges would delay
the submission of the claim to Medicare and therefore delay the

Medicare payment to the hospital. Commenters indicated that hospitals
did this particularly for services like brachytherapy in which the
services were furnished from multiple departments of the hospital and
the claim could be delayed significantly to accumulate all charges.
Commenters indicated that the absence of all charges for services could
result in poor data and instability in median costs from year to year,
particularly when we use only single procedure claims.
Response: We encourage hospitals to report all charges for all
services on claims for Medicare payment so that the data on which
relative weights are set will fully reflect the relative costs of all
services. However, where all charges are not included on the claim but
the costs exist in the cost centers, the cost-to-charge ratios would
increase and, to some extent, offset the effect of the absence of
charges. Hence, while we would prefer that hospitals bill all charges
for the services they furnish, where they do not do so, it does not
necessarily mean that the costs derived from applying the hospital's
cost-to-charge ratio to charges would result in improper relative
weights for the services.

C. Discussion of Relative Weights for Specific Procedural APCs

New APC for Antepartum Care
We proposed rule to split APC 0199, Obstetrical Care Service, into
two APCs.

[[Page 63426]]

For this final rule, new APC 0700, Antepartum Care Service, was created
and 59412 (external cephalic version) was assigned to it. The two
remaining HCPCS code 59409 (vaginal delivery only) and 59612 (vaginal
delivery only, after previous cesarean delivery) will remain in APC
0199, Obstetrical Care Service. We received no comments about this APC
and will finalize our proposal.

Implantation of Neurostimulators and Implantation of Neurostimulator
Leads (APCs 0222 and 225)

Comment: Commenters encouraged us to use a ``dampening'' approach
to increase the median costs for these APCs and to use external data to
set the payment weights for APCs 0222 and 0225. Commenters indicated
that the proposed payment amounts do not cover the cost of the device,
much less the hospital services to furnish it. Commenters indicated
that our policy of calculating median weights based on single claims or
pseudo single claims disadvantages these services by resulting in the
use of only the simplest and lowest cost services. A commenter
indicated that these services have had relative weights that were too
low since the inception of OPPS and that the cumulative effect of
multiple years of payment reductions will cause hospitals to cease to
provide these services to Medicare beneficiaries. A commenter suggested
that we split these APCs to reflect the different resources used in
implanting one device versus another device in the same APC. A
commenter also asked that we establish a separate APC for the
NeuroCybernetic Prosthesis System.
Response: We also are concerned that the median costs for these
APCs appear to be so low relative to other OPPS median costs. Both of
these APCs are ones for which we require that selected C codes be on
the claims that are used in calculation of the median to increase the
likelihood that we are using correctly coded claims for these services.
We recognize that the need to use single procedure claims and the need
to further select claims that appear to be correctly coded reduce the
number of claims used in median calculation. However, if we did not
require that selected C codes were on the claims used, the median costs
would be even lower than those calculated. Hence, using more single
procedure claims would, in this case, result in even lower median
costs.
For 2004, we have made changes to both of these APCs. In the case
of APC 0222, we removed HCPCS code 61885 from APC 0222 and we placed it
in its own APC 0039 because the APC Panel recommended that its status
indicator be changed from a ``T'' to an ``S'' in order to not apply the
multiple procedure reduction when two devices are implanted, as is
often the case. Moreover, for both APC 0222 and APC 0039, we accepted
external data for the device cost and used one part external data and
one part claims data for the device portion of the APC's median cost to
which we added the nondevice portion of the median cost. This increased
the median cost for APC 0222 from a final data median of $11,050.90 to
an adjusted median cost of $13,383.79. This increased the median cost
for APC 0039 from a final data median cost of $10,741.66 to an adjusted
median cost of $13,555.80. We believe that this more accurately
reflects the relative cost of these services to other OPPS services.
In the case of APC 0225, we split the APC into two APCs, (APC 0225)
and (APC 0040). APC 0225 contains CPT codes 63655, 64553, 64573, 64580
and 64577 and for this final rule, has a median cost of $11,873.72. APC
0040 contains CPT codes 64560, 64555, 63650, 64561, 64575, 64581, and
64565 and, for this final rule, has a median cost of $3,002.98. Both
APCs have a status indicator ``S'' (to which multiple procedure
discounts do not apply).
We believe that these changes will result in more appropriate
relative weights for these services in relation to other OPPS services.
Brachytherapy Issues

High Dose Rate Brachytherapy (APC 0313)

Comment: Commenters objected to the proposed payment amounts for
this APC and indicated that the costs of the procedure could not be
fully included in it. Commenters indicated that they did not believe
that hospitals were billing for both the needles and the catheters.
These commenters recommended that we use only claims that contain the
primary procedure code, the HDR Iridium source code, and codes for
catheters and needles. A commenter indicated that the direct costs for
the practice expense in physician offices for the codes in this APC
average $1,130.16 and that it is inconceivable to the commenter that
hospital costs could be any less. The commenter believes that the
faulty data are attributable to hospital billing errors and urged us to
educate hospitals regarding how to bill the service properly. A
commenter asked us to issue a program instruction requiring hospitals
to report both the cost of the HDR source and the needles or catheters
needed to administer the treatment by date of service to facilitate
setting of a correct median cost. The commenter is concerned that the
actual cost of brachytherapy needles and catheters has not been
captured and is not incorporated into any of the related APCs.
Commenters also indicated that the discussion of the APC in the August
12, 2003 proposed rule was confusing and did not fit the services
furnished in this APC.
Response: Upon receipt of comments and after listening to the
concerns of outside groups during the comment period, we explored the
circumstances surrounding the development of the median cost for the
APC that resulted in the weights and payments in the August 12, 2003
proposed rule. We found that, while the APC was on the list of APCs for
which claims were required to contain C codes and although the criteria
required that there be both a brachytherapy source (C1717) and either
needles (C1715) or catheters (C1728), no claims that met all of those
criteria were found among the single procedure claims for that APC.
Therefore, the system defaulted to using all single procedure claims,
for which there were no sources or needles/catheters on the claim.
Hence, APC 0313 was erroneously included in Table 7 as an APC for which
C codes were required. Moreover, our discussion of the median for the
APC was in error to say that there had been sources packaged into the
payment for 2002 and that this accounted for the reduction in proposed
payment for 2003.
For the final rule, we acquired more single procedure claims but
again, none of the single procedure claims contained both sources and
needles or catheters. We then revised our criteria to require only that
the claims must contain sources (C1717). This gave us 27 single
procedure claims that we used to acquire a median cost of $936.52, a
significant increase over the median for all claims of $795.83.
In the course of discussions regarding this APC, some parties
suggested that we ignore other procedure codes, such as dosimetry
codes, that are typically found on claims for these services because
the commenters believe that no charges billed under packaged revenue
codes or packaged HCPCS should be allocated to those other procedures.
We plan to explore the expansion of the codes we ignore for selection
of single procedure claims for the 2005 OPPS. However, we did not
believe we had sufficient information or data to make such a change for
the final rule for 2004. We again note that it is important for

[[Page 63427]]

hospitals to include charges for all services they furnish on the claim
so that we can better ensure that the relative weights are based on the
most accurate data possible.

Low Dose Rate Brachytherapy (APCs 312 and 651)

Comment: We received several comments regarding payment for low
dose, non-prostate brachytherapy (APCs 312 and 651). Commenters cited
the proposed reduction in payment for APC 0312 and expressed concern
that our methodology that excludes a number of multiple procedure bills
results in our use of data from atypical encounters such as those in
small centers with minimal technological complexity and inappropriate
costs and charges. Commenters indicated that typically other services
would be furnished on the same day and that the presence of these
services on the claim would likely result in the claim not being used.
Commenters indicated that the resources used for the services in these
APCs are highly variable depending on the part of the body being
treated and the nature of the equipment involved. They indicated that
some hospitals ceased billing charges for all of the services furnished
when OPPS was implemented because showing the charges on the claim
would no longer result in more payment but showing all charges on the
claim was costly, burdensome, and slowed billing. Commenters indicated
that we should educate providers in the correct way to bill for the
catheters, needles, and sources used for this service and that in the
absence of acceptable median costs, we should adjust the medians to
result in reasonable payments for the service. Commenters indicated
that we should select only claims that contain device costs and ignore
claims that do not contain such costs, setting the median cost on the
subset of selected claims.
Response: We used the medians from our final data to set the
relative weights on which the payments will be based for 2004. We were
not convinced by comments that the data did not reflect a median cost
that was appropriate relative to the costs of other OPPS services. We
recognize that our methodology excludes a large number of claims
because there were multiple procedures on the claim and as we indicated
in the discussion of multiple procedure claims, we are continuing to
work on ways to use more claims data. We will closely examine expanding
the list of CPT and HCPCS codes that could be ignored to create pseudo
single claims for use in calculating median costs to set relative
weights. For future years, we will consider whether to impose criteria
for correctly coded claims, such as requiring that the claims contain
either any C code or specified C codes for brachytherapy sources and
needles or catheters that are necessary to insert the sources. We were
not able to do this for the 2004 OPPS. For the 2005 OPPS, we will use
the claims data from 2003, for which there is no coding of
brachytherapy needles or catheters, although there is coding of sources
that can be used to select correctly coded claims.
As we previously indicated, for the 2004 OPPS, we will pay for
prostate brachytherapy using the CPT codes and the HCPCS codes for
brachytherapy sources used. We expect that the majority of the CPT
codes billed will be 77778 (APC 0651) and 55859 (APC 0163) and that the
HCPCS codes billed will be C1718 (brachytherapy source, iodine 125) or
C1720 (brachy source, palladium 103). When we calculate the total
median cost on which the payment to the hospital for the services
involved in prostate brachytherapy will be based, we determine that
paying under APC 0651 and APC 0163 with separate payment for the
sources (APC 1718 or APC 1720) will result in more payment than would
be the case under the packaged payment we proposed. For example, if we
assume that 100 sources are implanted during a prostate brachytherapy
procedure, we would expect the hospital to bill 77778, 55859, and 100
units of either C1718 or C1720. The sum of the applicable medians will
be $6,486.54 if using iodine sources and $7,261.54 if using palladium
sources. This is a considerable increase over the payments in 2003,
which were $5,154.34 with iodine sources and $5,998.24 with palladium
sources. We believe that this circumstance will be the predominant use
of APC 0651 and that the total median for the service will result in
appropriate relative weights on which to set the payments.
APC 0312 was billed just over 850 times for the 9 months of data
used in the final rule. Of the five CPT codes in this APC, four have
median costs for the CPT code of less than $400 and one code, 77776,
Interstitial radiation source application, simple has a median of
$2,218.18. However, that code does not meet the test of being
significant, which we define as having a frequency greater than 1,000
or a frequency lower than 99 and a percentage of larger than or equal
to 2 percent. Therefore, we have not moved it from the APC.

Separate Payment for All Brachytherapy Sources

Comment: Commenters indicated that we should provide separate
payment for all brachytherapy sources but that the current payment
structure and amounts are inadequate. Commenters indicated that we
should create two new permanent separate brachytherapy source APCs for
high activity iodine 125 and high activity palladium 103 sources that
should be paid on a per source, per patient basis in addition to the
procedure code. Commenters indicated that the proposed rates for iodine
125 and palladium 103 sources do not capture the costs of loose low
dose seeds, much less the costs of high activity sources, which
typically cost in excess of $150 per source.
Response: For 2004, we will pay separately for implantable
brachytherapy sources based on the median costs from our claims data.
We were not convinced by comments that the relative weights that will
result from these median costs are inappropriate.

Prostate Brachytherapy

Comment: Commenters indicated that the creation of the new G codes
(G0256 and G0261) for prostate brachytherapy imposes an unneeded burden
on hospitals and that it conflict with the reporting of the service by
other payers. Additionally, commenters stated that the use of the codes
will preclude us from capturing the costs of the service in the future.
The commenters encouraged us to eliminate the G codes and pay using the
CPT codes for the procedures and the HCPCS codes for the sources on a
per source, per case basis. They indicated that this would allow us to
capture the true costs of the procedures to set rates in the future and
that this approach is consistent with the APC Panel recommendation to
us. A commenter requested that we eliminate APC 0649 (Prostate
Brachytherapy Palladium Seeds) and APC 0684 (Prostate Brachytherapy
Iodine Seeds) and reinstate the previous policy that allowed hospitals
to bill the prostate brachytherapy procedures with two separate APCs;
one for urology CPT code 55859 and one for the radiation oncology CPT
code 77778. The commenter stated that this elimination would be
consistent with our decision to pay for the sources on an individual
basis. The commenter believed that creation of the G codes has caused
unnecessary confusion for hospitals. The procedure is now described
with a single G code; however, only one revenue center can be selected,
causing confusion since these APCs have both a

[[Page 63428]]

urology CPT code as well as a radiation oncology CPT code. The
commenter requested that we eliminate these two APC groups and
institute a system that would allow the two procedures to be reported
in separate APC groups.
Response: We agree and have deleted the alphanumeric HCPCS codes
for packaged prostate brachytherapy and will pay using CPT codes for
the procedures and the HCPCS codes for the sources. We have deleted the
G codes (G0256 and G0261) and APCs 0649 and 0684; and for 2004, we will
pay prostate brachytherapy procedures under APCs 0163 and 0651.
Brachytherapy sources used for prostate brachytherapy will be paid on a
per source basis using APCs 1718 (iodine) and 1720 (palladium).

Cryoablation of the Prostate (APC 0674)

Comment: Commenters indicated that the proposed payment was too low
to pay for both the hospital services and the cost of the probes used
in the procedure. They indicated that 92 percent of the procedures use
6 or more probes (64 percent use 6 probes and 28 percent use more than
6 probes). They indicated that a kit of 6 probes costs $5,000 and asked
that we set a payment amount no less than the minimum cost a hospital
incurs to provide the service, which they stated is $6,750. Commenters
indicated that charges for this new technology were not properly
reported by hospitals and that therefore the data do not properly
reflect the costs of the service.
Response: We recognize that with the device being paid as a pass-
through for the first time effective April 1, 2001, it is likely that
there are irregularities in the claims data regarding the number of
units of the device that have probably led to a median cost that is not
representative of the relative cost of the procedure with the device
packaged. Therefore, for 2004, we used one part of the acquisition cost
of 6 probes ($5,000 for 6 probes which are used in 64 percent of the
procedures) and one part of the device cost from our claims data to
create an adjusted device cost median to which we added the nondevice
cost from our claims data to acquire an adjusted median of $6,915.08 on
which we based the relative weight for the 2004 OPPS. This compares
favorably to the median of $5,925.41 on which the August 12, 2003
proposed rule was based and also compares favorably to the final rule
data median of $6,283.49 on which the payment weights would have been
based had we not used external data to adjust the device portion of the
median.

Payment for Cesium-131

A new brachytherapy source, Cesium-131, came to our attention
during the latter part of this year, through the pass-through device
application process. We reached a decision on this application after
publication of the August 12, 2003 proposed rule. We determined that
this source did not meet our criteria for creation of a new pass-
through category for devices. However, we believe that separate payment
for a substantially equivalent new brachytherapy source is warranted,
since we pay separately for other sources. The indications presented to
us for Cesium-131 were substantially the same as those for Palladium-
103 and Iodine-125. As such, the reasons for separate payment of
brachytherapy sources, for example, variation in the number of seeds or
other source forms make packaging into a clinical APC an undesirable
option. Therefore, we have decided to create a separate APC so that the
costs of this new source may be tracked like those of other
brachytherapy sources. The payment rate for this source is $44.67 per
seed. This payment rate is close to the reported price of the Cesium-
131 seed and equal to our payment rate based on claims for Palladium-
103, a source that is used for similar clinical indications.

Cardiopulmonary Resuscitation

Comment: A commenter indicated that a 28 percent drop in payment
for this service is unwarranted because of the number of people and the
level of training needed when this service is furnished.
Response: We were not convinced that the relative weight that would
result from the use of the median cost for this APC would be
inappropriate in relation to other OPPS services. Therefore, we will
use the median cost from the final rule data to set the weight for this
APC.

Computer Aided Detection for Diagnostic Mammography

Comment: A commenter expressed concern about our proposal to
reassign Computer-Aided Detection for Diagnostic Mammography from a New
Technology APC to APC 0410. The commenter stated that the proposed
reassignment is premature and would result in a reduced payment rate
that would be approximately half of the payment rate for the technical
component of procedures performed in other settings. The commenter
recommended that we retain this procedure in New Technology APC 1501
until we have greater claims experience.
Response: The alphanumeric HCPCS code for this service (G0236) is
being replaced by a CPT code for the same service for 2004 (CPT code
76082). We found over 43,000 claims for this service in the 2002 data
on which we are basing the 2004 relative weights. We believe that this
volume of services is sufficient to justify setting a relative weight
based on cost information rather than keeping the service in a new
technology APC. Moreover, the practice expense portion of payment for
this service is not relevant to the setting of relative weights for
OPPS services, in which the relativity is established within the
context of services paid under OPPS and not with regard to the practice
expense for services under the Medicare physician fee schedule.

Orthopedic Fracture Fixation Procedures

Comment: Commenters stated that APCs 0043, 0046, 0047, 0048, 0049,
and 0050 are not clinically similar and they violate the 2 times rule.
They asked that we separate out the more costly procedures that involve
fracture fixation devices because they involve additional time,
resources, and significant costs of fixation devices. They recommended
that we either create two new APCs with corresponding HCPCS codes for
upper (at a payment of approximately $2,000) and lower fracture
fixation devices (at a payment of approximately $3,000) or create two
code modifiers (for upper and lower fixation devices) and multiple new
APCs.
Response: For the 2004 OPPS, services that require an external
fixation device will continue to be paid in APCs that also provide
payment for fractures that do not require external fixation devices.
While we are sympathetic to the commenters' concerns, we are not able
to identify CPT codes that always require use of an external fixation
device or the extent to which such devices are required for other
codes. Nor did the information we received from the commenters provide
a convincing breakdown of the differences in costs for procedures using
external fixation devices. To create new APCs or new APC relative
weights to provide additional payment for external fixation devices
where such APCs would also contain procedures that do not routinely
require use of an external fixation device, would result in overpayment
of those procedures. Moreover, since most services in these APCs do not
require an external fixation device, it may be appropriate to continue
to pay for them in these APCs to encourage hospitals to use them only
when required. Furthermore, we would be reluctant to

[[Page 63429]]

impose an additional burden on hospitals by establishing ``G'' codes or
modifiers to use in reporting procedures with or without external
fixation devices. However, as we state elsewhere, we would support
interested specialty societies' decisions to request the CPT to
consider this coding issue.

APC 0680 Reveal ILR

Comment: A commenter indicated that the proposed payment rate is
about 95 percent of the hospital acquisition cost of the device,
leaving the hospital at an immediate loss if it implants this device.
The commenter indicated that it is the only manufacturer of the device
and therefore the only source of acquisition cost for the device. They
indicated that in 2002, the cost was $3,495 and recommended that we re-
evaluate and re-price the APC to provide sufficient payment that
beneficiaries will have access to the device when needed. They
indicated that the predominant site of service is in the hospital
outpatient department and that if payment is below hospital cost,
beneficiary access will eventually be limited.
Response: The final rule data for APC 0680 reveals a median cost of
$3,691.15 for this APC, on which the relative weights for 2004 are
based. We were not convinced by comments that this median cost would
result in a relative weight that would be inappropriate relative to the
payments for other services under OPPS.

Fractional Flow Reserve (FFR)

Comment: A commenter indicated that fractional flow reserve (CPT
codes 93571, Intravascular doppler velocity and/or pressure derived
coronary flow reserve measurement * * * during coronary angiography,
initial vessel and 93572, each additional vessel) should be paid
separately in addition to the procedure with which they are performed,
rather than being packaged into the payment for the primary procedure.
The commenter indicated that FFR should be paid separately because it
is an expensive service with higher device and equipment costs and
takes more time and staff than if it is not used. They also indicated
that we pay separately for Intravascular ultrasound (IVUS) which is
also deployed via guidewires. They stated that the principal difference
is that IVUS describes the anatomy of the vessels while FFR describes
the blood flow through the vessels. They indicated that it is
inequitable to treat them differently. Payment for IVUS but not FFR
creates inappropriate financial incentives for hospitals in determining
which procedures to provide.
Response: Currently, where FFR is provided, the costs for it are
packaged with the principal service to which FFR is an addition, which
we expect to be coronary angiography. If we were to pay separately for
this service, we would need to remove the costs for this service from
the cost for services with which it was packaged (that is, coronary
arteriography), which would reduce the medians on which the payments
for those services are based. This would reduce the median and
therefore the payment for coronary angiography. We are concerned with
the circumstances under which this service would be appropriately paid
under Medicare and will consider development of a national coverage
decision regarding when it is medically necessary to treat illness or
injury. After such a coverage decision is made, we will reconsider
whether it is appropriate to pay separately for the service.

Cataract Surgery With IOL Implantation (APC 0246)

Comment: A manufacturer of intraocular lenses was concerned that on
claims for the procedures in APC 246, the median charge of claims for
which no charge is reported using revenue code 276 (Intraocular lens)
is one-third lower than the median charge of claims where a charge is
reported using revenue code 276. The commenter believes that when
charges are not listed in revenue center 0276, they are omitted from
the claim altogether, rather than being placed in a different revenue
center. The commenter recommended that we adopt a policy of using only
claims for APC 0246 that report charges for revenue code 276, which
would be consistent with our proposal to calculate relative weights for
certain device-related APCs using only claims that included a separate
and correctly coded charge for a device.
Response: For the 2004 OPPS, payment for cataract surgery with IOL
insertion is based on the median cost for the procedure from the final
data. A review of the 2002 claims for procedures in APC 246, which
includes CPT code 66984, one of the highest volume outpatient surgical
procedures paid under the OPPS, indicates that the vast majority are
billed with revenue code 276. Long-standing instructions require
hospitals to report the IOL charge under revenue code 276 when billing
for a procedure in APC 246.
In our implementing instructions for the 2004 OPPS update, we will
remind hospitals and the contractors who process OPPS claims that, in
order to receive payment for a procedure in APC 246, hospitals are
required to report the associated IOL charge under revenue code 276. We
will also consider for the 2005 OPPS update the commenter's
recommendation that we use only claims with revenue code 276 to
recalibrate the relative payment weight for APC 246. Our data are
extremely robust for this APC (with a frequency of nearly 520,000), and
they indicate that the preponderance of the claims used to establish
the 2004 median does include revenue code 276.

Transcatheter Placement of Intracoronary Drug-Eluting Stent Procedures
(APC 0656)

Comment: One commenter supported our recognition of the new drug-
eluting stent technology through the creation of two ``G'' codes (G0290
and G0291) and their placement in new APC 0656. However, the commenter
questioned how we calculated the proposed payment rate for 2004. The
commenter stated that some patients classically considered at higher
risk for percutaneous interventions, including diabetics and patients
with multi-vessel disease, are being referred for drug-eluting stent
procedures. The commenter stated that the clinical disposition of these
patients makes them more complex and more resource-intensive than the
average patient. The commenter further noted that, while the reporting
of a second main coronary vessel procedure would result in a second,
reduced APC payment, that our payment for the single vessel should be
based on an average of 1.7 stents per vessel. Finally, the commenter
recommended that we add APC 0656 to the list of APCs for which a device
was required to be on the claim for weight setting.
Response: For the 2004 OPPS, we will continue to base the payment
for transcatheter placement of intracoronary drug eluting stents on the
median for APC 0104, transcatheter placement of intracoronary stents.
We increased the median for APC 0104 ($4,765.05) by $1,200 to acquire
the median we used for APC 0656. We are using the same adjustment
amount used for a single stent in the inpatient prospective payment
system. We received no comments that are sufficiently compelling to
convince us that more than one stent per vessel typically will be used
when this service is furnished in the outpatient department or that the
adjustment amount of $1,200 per stent is inappropriate. We will
consider including this on the agenda for the next APC Panel meeting.

[[Page 63430]]

With respect to the comment that we should add APC 0656 to the list
of APCs for which a device was required to be on the claim for weight
setting, we believe it would be inappropriate to do so for the 2004
OPPS. This is because the drug-eluting stent was not approved by the
FDA until 2003, and, therefore, it did not appear in the 2002 data.
Moreover, since there are no device codes for coronary stents for use
on claims in 2003, the 2003 data will not contain the device codes that
would be needed to create a subset of stent device claims to use for
the 2005 OPPS. However, in view of the reinstitution of device coding
for 2004, we will consider this comment in our work to develop the 2006
OPPS. Moreover, as we indicated above, we based the payment for APC
0656 on the median for APC 0104, which was calculated from claims that
contained C codes for stents.

Cardioverter Defibrillator (APC 0107)

Comment: Commenters indicated that the proposed payment for this
APC was too low to pay for the device, much less the cost of the
services to implant it. They indicated that the cost of the device in
2002 varied between $19,160 and $21,410 among major group purchasers,
considerably more than the proposed payment of $15,773.28. They asked
that we use the external data to set the device portion of the hospital
cost.
Response: We reviewed the data for this APC and considered the
comments of the APC Panel at its August 2003 meeting on the August 12,
2003 proposed rule. We were convinced that the median for this device
is too low to be appropriate relative to other median costs. We used
external data that had been presented to the APC Panel to calculate a
mean external acquisition cost and used one part external cost to one
part median cost from our claims data to acquire an adjusted cost for
the device. We then added the nondevice median from our claims data to
the adjusted device acquisition cost to acquire an adjusted median that
we used to set the relative weight for this APC. Effective for October
1, 2003, we established codes to be used for reporting the services
assigned to APCs 107 and 108. Specifically, CPT code 33240 (Insertion
of cardioverter defibrillator) is no longer recognized as a valid code
for OPPS. Instead, hospitals now report either G0297 (Insertion of
single chamber pacing cardioverter defibrillator pulse generator) or
G0298 (Insertion of dual chamber pacing cardioverter defibrillator
pulse generator). Also effective for October 1, 2003, CPT code 33249
(Insertion/replacement/repair of cardioverter defibrillator and
insertion of pulse generator) is no longer recognized as a valid code
for OPPS. Instead, hospitals will report either G0299 (Insertion or
repositioning of electrode lead for single chamber pacing cardioverter
defibrillator and insertion of pulse generator) or G0300 (Insertion or
repositioning of electrode lead for dual chamber pacing cardioverter
defibrillator and insertion of pulse generator). These codes were
created to capture differential costs related to single and dual
chamber cardioverter defibrillators. Claims containing the CPT codes we
no longer recognize for OPPS (CPT codes 33240 and 33249) are being
returned to providers to be coded correctly and resubmitted.

Insertion of Pacemaker Dual Chamber (APC 0655) and Insertion of
Pacemaker Single Chamber (APC 0089)

Comment: A commenter indicated that the proposed payment rates for
these APCs are only slightly more than the lowest median hospital
acquisition cost of the device leaving a hospital little or no payment
for the services to implant it. They asked that we re-evaluate and
price these APCs at a level that pays the full cost of the device and
services.
Response: We carefully reviewed the data for these APCs. We were
not convinced that there was a need to adjust the median for either of
these APCs. The median cost for APC 0655 is about 12 percent higher
than the adjusted median on which the 2003 payment weights were based
(2003 adjusted median of $7,298.52 versus the final rule median of
$8,225.23). The median cost for APC 0089 is slightly higher than the
adjusted median on which the 2003 weights were based (2003 adjusted
median of $6,686.16 versus the final rule median of $6,754.63). The
comment was not convincing that these median costs were inappropriate
in relation to the other median costs that will be used to set the
relative weights. Moreover, since median costs for both APCs rose above
the amounts achieved by upward adjustments for these APCs in 2003, we
believe that the medians are appropriately relative to the costs for
other services that will be used to set the relative weights.

Insertion of Pacemaker, Dual Chamber Generator Only (APC 0654)

Comment: A commenter indicated that the proposed payment rate is
about 95 percent of the hospital acquisition cost of the device,
leaving the hospital at an immediate loss if it implants this device.
They asked that we re-evaluate and price these APCs at a level that
pays the full cost of the device and services.
Response: The median cost for this APC is about 19 percent higher
than the adjusted median on which the 2003 payment weight was based
(2003 adjusted median of $5,456.63 versus the final rule median of
$6,495.61). We saw no reason to further adjust the median on which the
relative weights for 2004 are based. The comment was not convincing
that these median costs were inappropriate in relation to the other
median costs that will be used to set the relative weights. Moreover,
since the median cost for the APC rose above the amounts achieved by
upward adjustments for the APC in 2003, we believe that the median is
appropriately relative to the costs for other services that will be
used to set the relative weights.

INTEGRA Wound Products and Other Wound Products

Comment: We received a comment concerning INTEGRA Dermal
Regeneration Template and INTEGRA Bilayer Wound Matrix in which the
commenter stated that there is a payment disparity between the INTEGRA
products and APLIGRAF, DERMAGRAFT and TRANSCYTE, which are eligible for
separate payment as biologicals. The commenter noted that hospitals
that use APLIGRAF, DERMAGRAFT, and TRANSCYTE receive an extra payment
in the form of a pass-through or other separately paid APC payment in
addition to the APC payment for the skin repair procedures (APC 0025),
while users of the aforementioned INTEGRA products receive only the
regular payment associated with skin repair CPT codes. The commenter
stated that this payment differentiation provides a financial incentive
to hospitals to use the other skin replacement products, and places
INTEGRA at a competitive disadvantage. The commenter recommended that
we create a product-specific APC for INTEGRA to provide comparable
payment for ``this class of products.'' Alternatively, the commenter
recommended that we establish a single APC that includes the cost of
all or most skin replacement technologies. The manufacturer noted that
hospitals using INTEGRA would receive only $340.41 under our proposed
rate for APC 0025, while total payments for APC 0025 plus the product-
specific codes for APLIGRAF, DERMAGRAFT, and TRANSCYTE would be between
$770.86 and $1,072.86.
Response: TRANSCYTE was approved for transitional pass-through

[[Page 63431]]

payment as a biological as of July 1, 2003; DERMAGRAFT continues in
pass-through status through 2004; and APLIGRAF is a former pass-through
biological proposed to be paid separately as non-pass-through
biological, that is, status indicator ``K.'' Since no party has yet
applied for transitional pass-through payment for INTEGRA along with
relevant documentation in order to evaluate Integra as a biological for
pass-through payment, we have not been able to evaluate pass-through
payment status as a biological for this product. We are sympathetic to
the commenter's concern, and we find merit in the recommendation to
group a class of skin replacement products into the same APC. However,
we do not believe that we have sufficient information at present upon
which to determine the appropriate payment rate for such an APC.
Furthermore, we would want to allow the public an opportunity to
provide input on such a proposal. Therefore, we will consider the
recommendation of a common APC for skin repair using new skin
replacement technologies for 2005. We will also consider referring this
issue for consideration by the APC Panel at its next meeting.
Meanwhile, we invite public comment on the concept of grouping payment
for skin repair procedures using new skin repair technologies such as
INTEGRA, DERMAGRAFT, and APLIGRAF into a common APC.

Stereotactic Radiosurgery

Comment: A commenter urged that we continue to consider
stereotactic radiosurgery (SRS) to be a radiation procedure and that we
not reopen the revenue code of surgery for SRS, stating that a
radiation oncologist is a critical component to the delivery of SRS.
The commenter expressed concern for unintended consequences that may
result from unbundling of services associated with this procedure.
Response: We appreciate the commenter's concern for accurately
capturing the costs of stereotactic radiosurgery. As a matter of
policy, however, we do not generally mandate the reporting of services
under specific revenue centers but leave that decision up to the
hospitals.
Comment: We received several comments regarding stereotactic
radiosurgery (SRS). Commenters were concerned that the current G code
descriptors do not appropriately recognize the differences among the
various forms of SRS. Commenters explained that there are two basic
methods in which SRS can be delivered to patients, linear accelerator-
based treatment (often referred to as ``Linac'') and multi-source
photon-based treatment (often referred to as Cobalt 60). Advances in
technology have further distinguished these treatment modalities.
Linear accelerator-based treatment can be performed using various types
of SRS systems, two of which include gantry-based systems and image-
guided robotic SRS systems. Commenters stated that the existing G codes
do not accurately describe the unique differences among these services
and therefore do not accurately capture the costs involved in providing
these services.
For example, several commenters expressed concern regarding the
limitation imposed by the code descriptor for HCPCS code G0242, which
restricts its use to planning for Cobalt 60-based treatment. While some
commenters stated that planning costs for linear accelerator-based
treatment and Cobalt 60-based treatment are identical, other commenters
asserted that planning costs for these services differ significantly.
Commenters recommended the following options to resolve the issue:
(1) Create another G code to distinguish between linear
accelerator-based SRS and Cobalt 60-based SRS, which would be
consistent with the two G codes (G0173 for linear accelerator-based and
G0243 for Cobalt 60-based) for SRS treatment delivery; or
(2) Modify the descriptor for HCPCS code G0242 to describe
treatment planning for both linear accelerator-based and Cobalt 60-
based SRS treatments. For clarification purposes, the current G codes
for SRS treatment delivery services are as follows:
G codes for linear accelerator-based SRS treatment delivery:
HCPCS code G0173--Stereotactic radiosurgery, complete course of
therapy in one session.
HCPCS code G0251--Linear accelerator-based stereotactic
radiosurgery, delivery including collimator changes and custom
plugging, fractionated treatment, all lesions, per session, maximum 5
sessions per course of treatment.
G code for Cobalt 60-based SRS treatment delivery:
HCPCS code G0243--Multi-source photon stereotactic radiosurgery,
delivery including collimator changes and custom plugging, complete
course of treatment, all lesions. The current G code for Cobalt 60-
based SRS treatment planning is as follows:
HCPCS code G0242--Multi-source photon stereotactic radiosurgery
(Cobalt 60 multi-source converging beams) plan, including dose volume
histograms for target and critical structure tolerances, plan
optimization performed for highly conformal distributions, plan
positional accuracy and dose verification, all lesions treated, per
course of treatment.
Response: We agree with commenters that the current description for
HCPCS code G0242 is limited to the planning of Cobalt 60-based SRS
treatment and does not account for the planning of linear accelerator-
based SRS treatment. To be consistent with the two G codes we created
for treatment delivery, we will create a new G code (G0338) to
distinguish linear accelerator-based SRS treatment planning from Cobalt
60-based SRS treatment planning. We will place G0338 in APC 1516 at a
payment rate of $1,450. The new G code for linear accelerator-based SRS
treatment planning will be as follows:
HCPCS code G0338--Linear-accelerator-based stereotactic
radiosurgery plan, including dose volume histograms for target and
critical structure tolerances, plan optimization performed for highly
conformal distributions, plan positional accuracy and dose
verification, all lesions treated, per course of treatment.
Comment: Several commenters expressed concern that our current code
descriptors for HCPCS codes G0173 and G0251 do not distinguish between
the various types of linear accelerator-based SRS treatment. Currently,
image-guided robotic linear accelerator-based SRS systems are grouped
with other forms of linear accelerator-based SRS systems using HCPCS
codes G0173 and G0251. Commenters requested that we modify the code
descriptors to distinguish image-guided robotic systems from other
forms of linear accelerator-based SRS systems to account for the wide
cost variation in delivering these services.
Response: We agree with commenters that the descriptors for HCPCS
codes G0173 and G0251 do not distinguish image-guided robotic SRS
systems from other forms of linear accelerator-based SRS systems to
account for the cost variation of delivering these services. To more
accurately capture the true costs of these services, we will create two
new G codes (G0339 and G0340) to describe complete and fractionated
image-guided robotic linear accelerator-based SRS treatment. Please see
response to below comment for code descriptors.
Comment: Commenters urged that we modify the code descriptor for
the delivery of image-guided robotic SRS to include both complete and
fractionated courses of therapy in one code, resulting in the same
payment amount for both types of therapy. Commenters explained

[[Page 63432]]

that the per-session costs of delivering image-guided robotic linear
accelerator-based SRS are the same, regardless of whether the patient's
disease requires one treatment or multiple treatments.
Response: Our claims data do not support the assertion that the
per-session costs of delivering image-guided robotic linear
accelerator-based SRS is equal to the costs of delivering a complete
course of image-guided robotic linear accelerator-based SRS treatment.
However, we acknowledge the possibility that claims data for G0173 and
G0251 may include both image-guided robotic linear accelerator-based
SRS treatments as well as other forms of linear accelerator-based SRS
treatments and, as a result, the median cost may not accurately reflect
the true costs of delivering image-guided robotic linear accelerator-
based SRS therapy. As stated in our response to the above comment, we
will create two new G codes (G0339 and G0340) to distinguish complete
and fractionated image-guided robotic linear accelerator-based SRS
treatment from other forms of complete and fractionated linear
accelerator-based SRS treatment. We will place HCPCS code G0339
(complete session) in APC 1528 at a payment rate of $5250. The APC
placement of HCPCS code G0340 is discussed below.
While we recognize the costs to provide multi-session image-guided
robotic SRS therapy may be greater than the current payment rate for
HCPCS code G0251, we received no convincing cost data supporting
commenters' claims that the costs of performing each additional session
subsequent to the first session of a fractionated treatment is
equivalent to the costs of performing a complete session. Rather, we
believe that certain economies of scale are realized when performing
each additional session subsequent to the first session of a
fractionated treatment. That is, based on our understanding of the
therapy, we do not believe that the same exact amount of hospital
resources would be utilized for each subsequent session.
Statements provided by various interested parties indicate that the
costs of providing each session of a fractionated treatment range from
$2700 to $9000. However, we received no convincing data to substantiate
these statements. We have estimated that approximately 75 percent of
the costs of a complete session would be required to provide each
additional session subsequent to the first session of a fractionated
treatment. Therefore, we will place HCPCS code G0340 in new technology
APC 1525, which covers procedures ranging from $3500 to $4000 in
payment and which pays $3750. This new technology APC range pays
approximately seventy-five percent of the payment for HCPCS code G0339.
We will modify the descriptor for HCPCS code 0340 to describe
additional sessions (second through fifth sessions) subsequent to the
first session of a fractionated treatment. In addition, we will expand
the descriptor for a complete session (HCPCS code G0339) to include the
first session of a multi-session treatment. To further clarify, when
providers perform multi-session image-guided robotic SRS therapy, they
should bill using HCPCS code G0339 for the first session. For each
additional session subsequent to the first session, providers should
bill using only HCPCS code G0340 up to a maximum of five sessions.
Although we received no clinical data to substantiate the use of a
single session versus multiple fractionations up to five sessions, a
few commenters stated that a maximum of five sessions may be utilized
to treat certain conditions; therefore, we will continue to pay for the
delivery of multi-session therapy (HCPCS code G0340) up to a maximum of
five sessions per course of treatment. When additional data is
submitted, we may reconsider this payment decision.
As described above, we will create the following new G codes to
identify image-guided robotic linear accelerator-based SRS treatment
delivery:
HCPCS code G0339--Image-guided robotic linear accelerator-based
stereotactic radiosurgery, complete course of therapy in one session,
or first session of fractionated treatment.
HCPCS code G0340--Image-guided robotic linear accelerator-based
stereotactic radiosurgery, delivery including collimator changes and
custom plugging, fractionated treatment, all lesions, per session,
second through fifth sessions, maximum five sessions per course of
treatment.

SIRTeX Medical (RE: SIR-Spheres Brachytherapy Source)

Comment: The manufacturer of a brachytherapy source to treat liver
cancer commented that our proposed payment of $8,870.88 for APC 2616
was inadequate to pay for its product, which it reported costs $14,000
per treatment dose. This commenter stated that there are only two
products that would fit this APC, which is for Yttrium-90 brachytherapy
source. Moreover, this party claimed that there were significant
clinical differences between its product and another Yttrium-90 source,
and that these differences necessitated the price differential between
the two products. The commenter requested establishment of a separate
alpha-numeric HCPCS code for its product, in order to account for the
cost differences between the two Yttrium-90 products and to set more
equitable payment rates for the two products.
Response: We appreciate the concerns of the commenter. We would
first note that payment to APC 2616 has increased to $9,615.50 per dose
compared to the 2003 payment of $6,485.37. The information provided in
the comment did not convince us that the payment rate resulting from
the 2002 claims data is inadequate to pay hospitals for the Yttrium-90
products. We are uncertain whether or not there are other Yttrium-90
sources in addition to the two discussed in this comment that would
need to be considered in any analysis of the relative costs of the
products. Therefore, until we have additional data, we believe that
code C2616 and APC 2616 adequately describes and pays for Yttrium-90
brachytherapy sources.

Low Osmolar Contrast Media

Comment: A radiology specialty society expressed disappointment
because we did not address payment for low osmolar contrast media
(LOCM) in the proposed rule. The commenter believes that the
variability in usage and Medicare's restricted coverage of LOCM warrant
payment in a separate APC in the 2004 final rule. The commenter
recommends that we increase the relative weights of APCs that include
codes that involve the use of LOCM agents to reflect the additional
costs of these agents if we do not establish a separate APC to pay for
LOCM.
Response: We issued a program memorandum on November 22, 2002
(Transmittal A-02-120, Change Request 2185) in which we removed all
requirements differentiating payment between high osmolar contrast
material and LOCM as well as restrictions that would limit payment for
LOCM only to patients with specific diagnoses. In that program
memorandum, we instructed our contractors to discontinue any edits that
would prohibit payment for LOCM if specific diagnoses were not
reflected on the claim, effective for services furnished on or after
January 1, 2003. We further directed contractors to instruct hospitals
to include charges for LOCM in the charge for the diagnostic procedure
or, if LOCM is billed as a separate charge, to use revenue code 254 or
255 as appropriate. These instructions applied only to hospitals
subject to the OPPS.
We disagree with the commenter's recommendation that a separate APC

[[Page 63433]]

should be established to bill for LOCM for several reasons. Prior to
issuance of Transmittal A-02-120, covered LOCM costs would have been
reflected either in an appropriate revenue code or within the
hospital's charge for a diagnostic procedure or in a charge with an
appropriate HCPCS code (A4644, A4645, or A4646). To the extent that
hospitals submitted covered charges for LOCM in 2002, those costs are
packaged into the cost of the procedure with which the LOCM was used.
We expect that claims for services involving the use of LOCM furnished
during CY 2003 will reflect even more fully costs associated with LOCM
in light of the instructions that were issued in Transmittal A-02-120.
These costs will be reflected in the 2005 update of the OPPS. Finally,
without verifiable information that demonstrates the actual market-
based price that a broadly based national sample of hospitals are
routinely required to pay in order to procure LOCM, we have no data
upon which to base a determination that a separate APC for LOCM would
be appropriate.

Prosthetic Urology

Comment: Several commenters supported the proposed restructuring of
the prosthetic urology procedures into APCs 385 and 386. However, the
commenters urged us to consider further refinements to increase the
payment rates for these APCs. The commenters expressed concern about
the use of a single departmental cost-to-charge ratio for devices and
recommended for calendar year 2005 that we implement edits in our
development of median costs to benchmark cost data for device
procedures so that charges for expensive devices are not reduced below
a designated point. The commenters also stated that hospitals charged
for only one component of a prosthetic urology device for multi-
component prosthetic urology devices. The commenters believe this
resulted in under-reporting of charges for the entire procedure. The
commenters recommended that we use external data to adjust the level of
payment for multi-component devices and exclude claims with device
costs less than $5,000 from the rate-setting database. Commenters
stated that hospitals in the States of California, Colorado, Florida,
Illinois, North Dakota, New York, and Oklahoma have closed their
prosthetic urology programs because Medicare OPPS payments are too low.
Response: APCs 385 and 386 were created by splitting APC 0182 into
two APCs for higher cost and lower cost devices (penile prostheses and
urinary sphincters). The payment for these procedures in 2003 is
$4,975.96. As a result of splitting former APC 0182 into two APCs, the
payment amount for 2004 is $3,663.93 for APC 0385 and $6,342.07 for APC
0386. This is a relatively small reduction for APC 0385 with the lower
cost devices and a very significant increase for APC 0386, with the
higher cost devices. Moreover, as discussed in more detail elsewhere,
we decided to change the status indicator for these APCs from ``T'' to
an ``S'' so that the multiple procedure reduction will not apply to
them (or other procedures with a ``T'' status indicator) on the same
day. These changes together result in significantly more payment for
these services in 2004 than in 2003. Therefore, we did not use external
data to further adjust the median cost on which the payment was based.

Intensity Modulation Radiation Therapy

Comment: Commenters urged that we withdraw our proposal to move
intensity modulation radiation therapy (IMRT) treatment planning (CPT
code 77301) from new technology APC 1510 (previously APC 0712 in 2003)
to APC 0413 and IMRT treatment delivery (CPT code 77418) from new
technology APC 1506 (previously APC 0710 in 2003) to APC 0412.
Commenters indicated that the payments proposed for APCs 0412 and 0413
are too low to adequately compensate hospitals for the costs of the
services. One commenter further explained that part of the problem
behind the low median cost may be that, according to CMS PM A-02-26,
hospitals are precluded from billing for all of the services involved
in this treatment. The commenter indicated that hospitals should be
able to bill and be paid for the simulations (CPT codes 77280-77295),
dosimetry calculations (CPT code 77300), an isodose plan (CPT codes
77305-77315), special teletherapy port plan (CPT code 77321),
continuing medical physics (CPT code 77336) and special medical physics
(CPT code 77370). Commenters requested that CPT codes 77301 and 77418
be retained in their current new technology APCs (APCs 1510 and 1506,
respectively) for another year to provide additional time for provider
education about the proper coding of these services and to enable the
data to mature.
Response: We agree with commenters that the payment rate for APC
0413 does not adequately cover the costs of providing IMRT treatment
planning (CPT code 77301). As noted by one commenter, PM A-02-26
instructs that services identified by CPT codes 77280 through 77295,
77300, and 77305 through 77321, 77336, and 77370 are included in the
APC payment for IMRT and SR planning. The low median for CPT code 77301
appears to be a result of miscoding. Therefore, we will retain CPT code
77301 in new technology APC 1510 to allow additional time for provider
education and to enable the data to mature. We believe, however, that
the significant volume of single claims (93 percent of total claims)
used to set the payment rate for IMRT treatment delivery (CPT code
77418) accurately reflects the costs hospitals are reporting for this
service. Based on this robust claims data, we will move CPT 77418 from
new technology APC 1506 (previously APC 0710 in 2003) to APC 0412 (IMRT
Treatment Delivery).
Comment: One commenter requested that we allow the use of existing
IMRT CPT codes 77301 and 77418 for compensator-based IMRT technology in
the hospital outpatient setting. The commenter states that Medicare

beneficiaries may be denied access to compensator-based IMRT as a
result of inadequate payment for this service.
Response: We do not prohibit the use of existing IMRT CPT codes
77301 and 77418 to be billed for compensator-based IMRT technology in
the hospital outpatient setting. Rather, we believe the confusion may
pertain to billing instructions for CPT codes 77301 and 77334 billed on
the same day. CMS PM A-02-26 instructs that ``payment for IMRT and SR
planning does not include payment for services described by CPT codes
77332 through 77334. When provided, these services should be billed in
addition to the IMRT and SR planning codes 77301 and G0242.'' Providers
billing for both CPT codes 77301 (IMRT treatment planning) and 77334
(design and construction of complex treatment devices) on the same day
should append a 59 modifier to receive accurate payment.
Proton Beam Therapy
Comment: Several commenters indicated that proton beam therapy,
intermediate and complex should be moved from APC 0650 to a new
technology APC (as it appears in Addendum B). However, commenters
stated that these two codes should not be placed in the same APC due to
a significant difference in resource utilization. We received several
other comments supporting our proposal to maintain simple proton beam
therapy (CPT codes 77520 and 77522) in APC 0664 and intermediate and
complex proton beam therapies (CPT codes 77523 and 77525, respectively)
in APC 1511 (previously APC 0712 in 2003).
Response: We agree with commenters that codes for simple proton
beam

[[Page 63434]]

radiation therapy (CPT codes 77520 and 77522) should be placed in a
different APC than codes for intermediary (CPT code 77523) and complex
(CPT code 77525) radiation therapy. As we stated in the correction
notice of February 10, 2003 (68 FR 6636), we also agree with commenters
that it would be inappropriate to return codes for simple proton beam
therapy to a new technology APC due to having sufficient claims data to
integrate these codes into the OPPS. We continue to believe that the
placement of these codes in APC 0664 is appropriate based on having
used 98 percent of total claims for simple proton beam therapy to set
the 2004 median for APC 0664. Therefore, CPT codes 77520 and 77522 will
remain in APC 0664.
The placement of intermediate (CPT code 77523) and complex (CPT
code 77525) proton beam therapies in APC 650 in the November 1, 2002
final rule (67 FR 66718) for the 2003 OPPS was an error that was
corrected in the correction notice of February 10, 2003 (68 FR 6636).
We clarified in the correction notice that these CPT codes were placed
in new technology APC 0712 for CY 2003 because they lacked sufficient
cost data to confidently move these codes out of a new technology APC.
We continue to lack sufficient cost data to move these codes into a
clinical APC; therefore, we will crosswalk CPT codes 77523 and 77525
from new technology APC 0712 to the corresponding new technology APC
1511 for CY 2004. Once sufficient data is available, we will be able to
determine whether intermediate and complex proton beam therapies should
be placed in the same APC.

FDG PET Procedures

Comment: Several commenters commended us for our proposed rates for
FDG PET procedures. They were pleased that the proposed 2004 rates for
the FDG PET procedure and the radiopharmaceutical when combined are
nearly identical to the rates for the combined procedure and
radiopharmaceutical for 2003. Commenters stated that the retention of
FDG PET procedures in a new technology APC will allow providers an
additional year to improve their reporting practices, while providing
us with another year of more accurate claims data.
Response: We agree with commenters that the retention of FDG PET
procedures in a new technology APC for an additional year will allow
providers a reasonable amount of time to improve their reporting
practices, while providing us with another year of claims experience.
Therefore, we will retain FDG PET procedures in new technology APC
1516.
Comment: One commenter expressed concern that HCPCS code G0296 did
not appear in Addendum B of the August 12, 2003 proposed rule. The
commenter urged us to place this new code in APC 1516 with other FDG
PET procedures.
Response: We thank the commenter for bringing to our attention the
absence of HCPCS code G0296 from addendum B of the proposed rule. We
agree with the commenter's recommendation to place this code in the
same APC as other FDG PET procedures. Therefore, we will place HCPCS
code G0296 in new technology APC 1516.
Comment: One commenter recommended the establishment of a revenue
code dedicated solely to PET procedures.
Response: Revenue codes exist for hospital accounting purposes and,
in general we do not require that particular services be billed with
particular revenue codes. We are not convinced that adding specific
requirements for revenue coding or expanding the revenue codes to
acquire more specific information will result in better data or that
the end result would be cost effective in terms of its potential effect
on hospital operations.

IV. Transitional Pass-Through and Related Payment Issues

A. Background

Section 1833(t)(6) of the Act provides for temporary additional
payments or ``transitional pass-through payments'' for certain medical
devices, drugs, and biological agents. As originally enacted by the
BBRA, this provision required the Secretary to make additional payments
to hospitals for current orphan drugs, as designated under section 526
of the Federal Food, Drug, and Cosmetic Act, Pub. L. 107-186; current
drugs, biological agents, and brachytherapy devices used for the
treatment of cancer; and current drugs and biological products.
For those drugs, biological agents, and devices referred to as
``current,'' the transitional pass-through payment began on the first
date the hospital OPPS was implemented (before enactment of the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
(BIPA), Pub. L. 106-554, enacted December 21, 2000).
Transitional pass-through payments are also required for certain
``new'' medical devices, drugs, and biological agents that were not
being paid for as a hospital outpatient service as of December 31, 1996
and whose cost is ``not insignificant'' in relation to the OPPS payment
for the procedures or services associated with the new device, drug, or
biological. Under the statute, transitional pass-through payments can
be made for at least 2 years but not more than 3 years.
Section 1833(t)(6)(B)(i) of the Act required that we establish by
April 1, 2001, initial categories to be used for purposes of
determining which medical devices are eligible for transitional pass-
through payments. Section 1833(t)(6)(B)(i)(II) of the Act explicitly
authorized us to establish initial categories by program memorandum
(PM). On March 22, 2001, we issued two PMs, Transmittals A-01-40 and A-
01-41 that established the initial categories. We posted them on our
Web site at: http://www.hcfa.gov/pubforms/transmit/A0140.pdf and http://www
.hcfa.gov/pubforms/transmit/A0141.pdf, respectively.
Transmittal A-01-41 includes a list of the initial device
categories, a crosswalk of all the item-specific codes for individual
devices that were approved for transitional pass-through payments, and
the initial category code by which the cross-walked individual device
was to be billed beginning April 1, 2001. Items eligible for
transitional pass-through payments are generally coded using a Level II
HCPCS code with an alpha prefix of ``C.'' Pass-through device
categories are identified by status indicator ``H'' and pass-through
drugs and biological agents are identified by status indicator ``G.''
Subsequently, we added a number of additional categories, retired 95
categories effective January 1, 2003, and made clarifications to some
of the categories' long descriptors found in various program
transmittals. A list of current device category codes can be found
below, in Table 10.
Section 1833(t)(6)(B)(ii) of the Act also requires us to establish,
through rulemaking, criteria that will be used to create additional
device categories for transitional pass-through payment. The criteria
for new categories were the subject of a separate interim final rule
with comment period published in the Federal Register on November 2,
2001 (66 FR 55850) and made final in the November 1, 2002 Federal
Register (67 FR 66781) announcing the 2003 update to the OPPS.
Transitional pass-through categories are for devices only; they do
not apply to drugs or biological agents. The regulations at Sec.
419.64 governing transitional pass-through payments for eligible drugs
and biological agents are unaffected by the creation of categories.

[[Page 63435]]

The process to apply for transitional pass-through payment for
eligible drugs and biological agents or for additional device
categories can be found on respective pages on our Web site at http://www.cms.gov.
If we revise the application instructions in any way, we
will post the revisions on our Web site and submit the changes for
approval by the Office of Management and Budget (OMB) as required under
the Paperwork Reduction Act (PRA). Notification of new drug,
biological, or device category application processes is generally
posted on the OPPS Web site at http://www.cms.gov.

B. Discussion of Pro Rata Reduction

Section 1833(t)(6)(E) of the Act limits the total projected amount
of transitional pass-through payments for a given year to an
``applicable percentage'' of projected total Medicare and beneficiary
payments under the hospital OPPS. For a year before 2004, the
applicable percentage is 2.5 percent; for 2004 and subsequent years, we
specify the applicable percentage up to 2.0 percent. We proposed to set
the percentage at 2.0 percent for the 2004 OPPS.
If we estimate before the beginning of the calendar year that the
total amount of pass-through payments in that year would exceed the
applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a
prospective uniform reduction in the amount of each of the transitional
pass-through payments made in that year to ensure that the limit is not
exceeded. We make an estimate of pass-through spending to determine not
only whether payment exceeds the applicable percentage but also to
determine the appropriate reduction to the conversion factor.
In the August 12, 2003 proposed rule, we described in the detail
the methodology we used to make an estimate of pass-through spending in
2004 (68 FR 47992). In general, we specified that after using the
respective methodologies described in the proposed rule, to determine
projected 2004 pass-through spending for the groups of devices, drugs,
and biological agents, we would calculate total projected 2004 pass-
through spending as a percentage of the total projected payments
(Medicare and beneficiary payments) under OPPS to determine if the pro
rata reduction would be required.
Table 9 shows our current estimate of 2004 pass-through spending
for known pass-through drugs, biologicals, and devices based on
information available at the time this table was developed. We
specified in the proposed rule that we were uncertain whether estimated
pass-through spending in 2004 would exceed $456 million (2.0 percent of
total estimated OPPS spending) because we had not yet completed the
estimate of pass-through spending for a number of drugs and devices. In
particular, we did not have estimates for those drugs still under
agency review for additional pass-through payments beginning October
2003 or the changes in pass-through spending that could result from
quarterly rather than annual updates of AWP for pass-through drugs.
Finally, we would incorporate an estimate of pass-through spending for
items for which pass-through payment becomes effective later in 2004
(that is, April 1, 2004; July 1, 2004; and October 1, 2004) based on
estimates of items that become eligible for pass-through payment on
October 1, 2003 and January 1, 2004. Specifically, we would assume a
proportionate amount of spending for items that become eligible later
in the year while making an adjustment to account for the fact that
items made eligible later in the year will not receive pass-through
payments for the entire year. We invited comments on the methodology we
proposed and the estimates for utilization that appeared in Table 12 of
the August 12, 2003 proposed rule. We received several comments on this
proposal, which are summarized below along with our responses.

Table 9.--Estimate of Pass-Through Spending in 2004
----------------------------------------------------------------------------------------------------------------
2004 pass- 2004
through 2004 estimated anticipated
HCPC APC Drug biological payment utilization pass-through
portion payments
----------------------------------------------------------------------------------------------------------------
Existing Pass-through
Drugs/biologicals
J0583................ 9111 Injectin Bivalrudin, per $0.40 $5,278,000 $2,111,200
1 mg.
C9112................ 9112 Injection, Perflutren 37.44 67,000 2,508,480
lipid microsphere, per
2 ml.
C9113................ 9113 Injection, Pantoprazole 6.34 20,000 126,800
sodium, per vial.
J1335................ 9116 Injection, Ertapenum 6.00 14,400 86,400
sodium, per 500 mg.
J2505................ 9119 Injection, 708.00 110,344 78,123,329
Pegfilgrastim, per 6 mg
single dose vial.
J9395................ 9120 Injection, Fluvestrant, 22.13 274,156 6,067,072
per 25 mg.
C9121................ 9121 Injection, Argatroban, 4.13 50,000 206,500
per 5 mg.
C9200................ 9200 Orcel, per 36 cm2....... 286.80 1,000 286,800
C9123................ 9123 Transcyte, per 247 sq cm 194.76 100 19,476
C9203................ 9203 Injection Perflexane 36.00 82,400 2,966,400
lipid microspheres, per
10 ml vial.
J2324................ 9114 Injection, Nesiritide, 38.30 60,000 2,298,000
per 0.5 mg vial.
J3315................ 9122 Injection, Triptorelin 100.70 307,440 30,959,208
pamoate, per 3.75 mg.
J3487................ 9115 Injection, Zoledronic 54.93 539,000 29,607,270
acid, per 1 mg.
J3486................ 9204 Injectionm Ziprasidone 5.25 234,286 1,230,000
mesylate, per 10 mg.
C9205................ 9205 Injection, Oxaliplatin, 23.86 280,756 6,698,845
per 5 mg.
C9208................ 9208 Injection, IV, 31.27 194,533 6,083,040
Agalsidase beta, per 1
mg.
C9201................ 9201 Dermagraft, per 37.5 145.92 9,264 1,351,803
square centimeters.
C9209................ 9209 Injection, IV, 162.72 2,612 425,092
Laronidase, per 2.9 mg.
Pass-through Drugs/
Biologicals Effective
January 2004
C9207................ 9207 Injection, IV, 262.66 102,680 26,970,000
Bortezomib, per 3.5 mg.
C9210................ 9210 Injection, IV, 77.76 37,500 2,916,000
Palonosetron HCI, per
0.25 mg (250
micrograms).
C9211................ 9211 Injection, alefacept, 168.00 13,775 2,314,200
for intravenous use,
per 7.5 mg.
C9212................ 9212 Injection, alefacept, 119.40 27,550 3,289,470
for intramuscular use,
per 7.5 mg.
Existing Pass-through
Devices
C1783................ 1783 Ocular implant, aqueous .............. 324 160,250
drainage assist device.
C1814................ 1814 Retinal tamponade .............. 35,173 13,675,262
device, silicone oil.
C1884................ 1884 Embolization Protective .............. 25,000 38,601,544
System.
C1888................ 1888 Catheter, ablation, non- .............. 215 129,731
cardiac, endovascular
(implantable).

[[Page 63436]]

C1900................ 1900 Lead, left ventricular .............. 2,095 2,819,912
coronary venous system.
C2614................ 2614 Probe, percutaneous .............. 901 1,752,445
lumbar discectomy.
C2632................ 2632 Brachytherapy solution, .............. 225 1,890,000
iodine--125, per mCi.
C1818................ 1818 Integrated .............. 4 27,800
keratoprosthesis.
Pass-through Devices
Effective January 2004
C1819................ 1819 Tissue localization- .............. 9,858 1,823,730
excision dev.
Other Items Expected To .............. ..............
Be Determined Eligible
for 2004
Spending for future .............. .............. 22,466,959
approved drugs.
Spending for future .............. .............. 12,791,197
approved devices.
Total Spending for Pass- .............. .............. 302,784,216
through Drugs/
biologicals, and
devices 2004.
----------------------------------------------------------------------------------------------------------------

Comment: Several commenters objected to the methods used to project
pass-through drug spending, especially those techniques used to
estimate future products that are first eligible for pass-through
payments beginning in April 2004 or later in the year. They are
concerned that pass-through expenditures in 2004 will exceed the
statutory cap and cause us to impose a pro rata reduction. Several
hospital associations propose that we limit the funds allocated for the
pass-through pool to one percent and use the remaining 1.0 percent to
fund all other APCs. They suggest that we over-estimate pass-through
spending, which results in the reduction of payment rates for other
critical care services.
Response: Section 1833(t)(6)(E)(i) of the Act requires that the
Secretary estimate the total pass-through payments to be made for the
forthcoming year (which allows us to determine the amount of the
conversion factor for the forthcoming year) and to the extent the
estimate exceeds the statutory limit, reduce the amount of each pass-
through payment. For 2004, the statutory limit is 2.0 percent of total
estimated program payments. In the August 12, 2003 proposed rule, we
provided our best estimate at that time of pass-through payments for
the drugs and devices for which we expected to make pass-through
payments in 2004, and we explained our methodology for determining the
estimate for the final rule. We provided a list of the devices and
drugs we either knew would be paid under pass-through next year or
which we believed may be paid as pass-through items in 2004.
We finalized our estimate of 2004 pass-through spending and, for
the reasons discussed below, we have determined that no pro rata
reduction will be required in 2004. As discussed below the estimate
falls under the statutory limit of 2.0 percent. Therefore, the
conversion factor has been increased correspondingly from the proposed
rule by 0.7 percent.

Pass-Through Devices Effective January 2004

Comment: One commenter recommended that we not impose a pro rata
reduction on pass-through devices if the estimated pass-through
expenditures increase appreciably. A device manufacturers' association
was concerned that new drugs will take an increasing share of the pass-
through pool. They suggested that the shift to more pass-through
spending on drugs will increase under the easier qualifications for
drug pass-through payments and encouraged us to reconsider the issue to
determine how to ensure that devices maintain an ``adequate'' share of
the pass-through pool.
Response: Section 1833(t)(6)(E)(iii) of the Act requires a
prospective uniform reduction (pro rata) of the amount of each of the
transitional pass-through payments made in that year, if it is expected
that pass-through payments will exceed the cap set for OPPS pass-
through expenditures. Therefore, if any pro rata reduction applies, we
are required to apply it to pass-through devices as well as drugs and
biological agents. For 2004, we do not expect the total payments for
pass-through drugs and devices to exceed the statutory limit.
Therefore, as discussed elsewhere, we will not impose a pro rata
adjustment on any pass-through items in 2004.

V. Payment for Devices

A. Pass-Through Devices

Section 1833(t)(6)(B)(iii) of the Act requires that a category of
devices be eligible for transitional pass-through payments for at least
2, but not more than 3, years. This period begins with the first date
on which a transitional pass-through payment is made for any medical
device that is described by the category. We proposed that two device
categories currently in effect would expire effective January 1, 2004.
Our proposed payment methodology for devices that have been paid by
means of pass-through categories, and for which pass-through status
would expire effective January 1, 2004, is discussed in the section
below.
Although the device category codes became effective April 1, 2001,
most of the item-specific ``C'' codes for pass-through devices that
were crosswalked to the new category codes were approved for pass-
through payment in CY 2000 and as of January 1, 2001. (The crosswalk
for item-specific ``C'' codes to category codes was issued in
Transmittals A-01-41 and A-01-97). We based the expiration dates for
the category codes listed in Table 10, on when a category was first
created, or when the item-specific devices that are described by, and
included in, the initial categories were first paid as pass-through
devices, before the implementation of device categories. The device
category expiration dates are listed in Table 10. We proposed to base
the expiration date for a device category on the earliest effective
date of pass-through payment status of the devices that populate that
category. There are two categories for devices that will have been
eligible for pass-through payments for more than 2\1/2\ years as of
December 31, 2003, and we proposed that they would not be eligible for
pass-through payments effective January 1, 2004. The two categories we
proposed for expiration are C1765 and C2618, as indicated in Table 10.
Each category includes devices for which pass-through payment was first
made under OPPS in 2000 or 2001.
A comprehensive list of all currently effective pass-through device
categories is displayed in Table 10. Also displayed

[[Page 63437]]

are the dates the devices described by the category were populated and
their respective expiration dates. For devices continuing on pass-
through status after 2003, expiration dates were set forth in the
August 12, proposed rule and are finalized here. Newly added code C1819
is first announced in this final rule and is given a December 31, 2005
expiration date.
The methodology used to base expiration of a device category is the
same as that used to determine the 95 initial categories that expired
as of January 1, 2003. A list including those 95 categories that
expired as of January 1, 2003 (as well as 5 categories that continued
to be paid in 2003) is found in the November 1, 2002 final rule (67 FR
66761 through 66763).

Table 10.--List of Current Pass--Through Device Categories With
Expiration Dates
------------------------------------------------------------------------
Category long Expiration
HCPCS codes descriptor Date(s) populated date
------------------------------------------------------------------------
C1765........... Adhesion Barrier.... 10/1/00-3/31/01; 7/1/ 12/31/03
01.
C2618........... Probe, cryoblation.. 4/1/01.............. 12/31/03
C1888........... Catheter, ablation, 7/1/02.............. 12/31/04
non-cardiac,
endovascular
(implantable).
C1900........... Lead, left 7/1/02.............. 12/31/04
ventricular
coronary venous
system.
C1783........... Ocular implant, 7/1/02.............. 12/31/04
aqueous drainage
assist device.
C1884........... Embolization 1/1/03.............. 12/31/04
protective system.
C2614........... Probe, percutaneous 1/1/03.............. 12/31/04
lumbar discectomy.
C2632........... Brachytherapy 1/1/03.............. 12/31/04
solution, iodine-
125, per mCi.
C1814........... Retinal tamponade 4/1/03.............. 12/31/05
device, silicone
oil.
C1818........... Integrated 7/1/03.............. 12/31/05
keratoprosthesis.
C1819........... Tissue localization 1/1/04.............. 12/31/05
excision device.
------------------------------------------------------------------------

We received several comments on this proposal, which are summarized
below along with our responses.
Comment: A few parties provided comments on our criteria for
eligibility for a new device category for pass-through payment as
published in the November 1, 2002 Federal Register (67 FR 66781).
Response: We made no proposal to modify our criteria for
establishment of a new category for transitional pass-through payment,
so the criteria were not subject to comment in this rulemaking period.
However, we will take note of these comments as considerations in our
ongoing evaluation of the new device category process.

New Technology Treatment for New Devices for Brachytherapy Catheters
and Needles

Comment: A commenter asked that we consider pass-through payment or
new technology payment for new devices of brachytherapy catheters and
needles when they are approved by FDA for new indications and treatment
protocols.
Response: We have a process for applying for pass-through new
technology APC status. See http://www.cms.hhs.gov for instructions. If
a provider or other party believes that an item or service meets the
criteria for pass-through or new technology status, the interested
party should submit an application, and we will then make a judgement
based on the individual circumstances described in the application.

B. Expiration of Transitional Pass-Through Payments in CY 2004

In the November 1, 2002 final rule, we established a policy for
payment of devices included in pass-through categories that are due to
expire (67 FR 66763). We stated that we would package the costs of the
devices no longer eligible for pass-through payments in 2003 into the
costs of the clinical APCs with which the devices were billed in 2001.
There were very few exceptions to the policy (for example,
brachytherapy sources for other than prostate brachytherapy), and we
proposed to make no changes. Therefore, we proposed that payment for
the devices that populate C1765 and C2618, which we proposed would
cease to be eligible for pass-through payment on January 1, 2004, would
be made as part of the payment for the APCs with which they are billed.
The methodology that we proposed to use to package expiring pass-
through device costs is consistent with the packaging methodology that
we describe in section II.B.5. For the codes in APCs displayed in Table
10 of the proposed rule, we proposed to use only those claims on which
the hospital included the ``C'' code and to discard the claims on which
no ``C'' code is billed. We proposed to limit our analysis to the
claims with ``C'' codes because we are not confident that the claims
for the relevant APCs include the charges for the devices unless the
``C'' codes are specifically billed.
To calculate the total cost for a service on a per-service basis,
we included all charges billed with the service in a revenue center in
addition to packaged HCPCS codes with status indicator ``N.'' We also
packaged the costs of devices that we proposed would no longer be
eligible for pass-through payment in 2004 into the HCPCS codes with
which the devices were billed.
We received several comments on this proposal, which are summarized
below along with our responses.
Comment: A commenter supported packaging the cost of expiring pass-
through codes C2618 and CC1765 into the payment for the procedure in
which they are used because they believe that packaging minimizes
payment incentive to use these devices over other appropriate devices.
The commenter urged CMS to release the crosswalk it will use to assign
pass-through device costs to specific APCs so that they can confirm the
appropriateness of the assignment.
Response: There is no such crosswalk. Devices and packaged drugs
(that is, those with a per day median cost of $50 or less) are packaged
into the HCPCS code on the single procedure claim (natural single or
pseudo single) with which they are billed. The packaging is controlled
solely by what the hospital bills on the claim. To determine what drugs
and devices were packaged into an APC, one would need to undertake an
extensive analysis of all single and pseudo single claims used in
weight setting. The only time that judgment was used to attribute a
device to an APC was not for purposes of packaging charges into APCs
but rather was in the setting of median costs for 5 APCs in which
external data on acquisition costs was used in a one to one proportion

[[Page 63438]]

with claims data to set the device cost for an APC as discussed above.

C. Reinstitution of C Codes for Expired Device Categories

Comment: Some commenters strongly objected to reinstatement of the
C codes for devices because of the burden that it would impose on
hospitals without a corresponding benefit in immediate payment. They
indicated that charges for devices are included in the revenue code
charges for the services furnished and that using C codes will increase
administrative costs significantly without any benefit to patient care
or hospital revenues. They indicated that hospital staffs would not be
able to differentiate between devices that should be reported and those
that should not. One commenter said that widespread confusion over what
device to code and what device to not code is the reason that the
claims for services that require pass-through devices often do not show
codes for the devices. The commenter indicates that most hospitals
could not comply with this requirement by January 1, 2004 in any case
because of extensive changes to chargemasters that would be needed.
Moreover, given that many hospitals did not comply even when the use of
the code would have resulted in separate payment is a strong indication
that they would be unlikely to comply when no additional payment will
result from coding devices. Commenters indicated that reintroducing C
codes for devices will result in continuation of improper coding and
will lead to a false sense of confidence in the data for procedures
that require devices. A commenter said that if CMS decided to
reintroduce C codes for devices, CMS should reinstate the same C codes
that were used for device coding in 2002 because it would minimize
confusion.
Other commenters said that CMS should reinstate the C codes for
reporting of devices so that CMS and others can ensure that only
correctly coded claims are used to set medians for APCs into which
device costs are packaged. They said that coding for devices is needed
so that CMS can be assured that the costs of the devices are packaged
into the costs for the procedure when the medians for the procedure are
set. They urged us to continue to use the presence of an appropriate
device code as a criterion for claims used to set medians for devices.
Response: For 2004, we are reactivating the C codes for device
categories as they existed on December 31, 2002. The use of the code is
not required and will not be enforced. However, hospitals should
understand that providing complete and accurate information on the
claims about the services that were furnished and the charges for those
services is fundamental to our establishment of relative weights on
which the payment for their services is based.
Comment: Commenters that supported the reinstitution of C codes for
devices said that CMS should continue to restrict the claims used for
APCs with a device to claims that contain the charges for the devices
used in the APC. In particular, a commenter said that the median for
APC 0246 (Cataract removal with intraocular lens) should be based only
on claims that contain charges under revenue center 0276 and that
claims for APC 0246 that do not contain charges in revenue center 0276
should not be used to set the median. In the case of this APC, the
commenter asked that we adopt the 2004 proposed payment at a minimum.
Other commenters opposed the reinstitution of C codes for devices,
which would preclude us from restricting claims used to set weights for
device APCs to claims containing such codes.
Response: We restricted the claims used to set the medians for the
APCs contained in Table 7 to claims for which there was a line item
containing a device category code that was in use for services
furnished on April 1, 2002 through and including December 31, 2002. We
believed that restricting the claims used to set median costs to those
that met this criterion resulted in median costs that more accurately
reflected relative costs of these services. Moreover, for the APCs in
Table 7 we required that the claim not only contain a device code that
was valid during the period specified but we also required that the
claim must have a particular device code or combination of device
codes.
For APC 0313 (high dose rate brachytherapy), we attempted to
require both brachytherapy sources HDR Iridium 192 (C1717) and either a
catheter (C1728) or needle (C1715) but we found that no single
procedure claims met those criteria. Hence, the median for APC 0313
that appeared in the 2003 OPPS final rule was the median for claims
that did not meet the specified criteria and it was mistakenly included
in Table 10 in the NPRM. For this final rule, we again began by
applying the criteria including source and needle or catheter codes,
but still no claims met the criteria. Therefore, we sought only single
procedure claims that contained brachytherapy sources. We found 27
single procedure claims that met the revised criteria and we used the
median cost of $936.52 that resulted from those claims.

D. Other Policy Issues Relating to Pass-Through Device Categories

1. Reducing Transitional Pass-Through Payments To Offset Costs Packaged
Into APC Groups
In the November 30, 2001 final rule, we explained the methodology
we used to estimate the portion of each APC rate that could reasonably
be attributed to the cost of associated devices that are eligible for
pass-through payments (66 FR 59904). Beginning with the implementation
of the 2002 OPPS update (April 1, 2002), we deduct from the pass-
through payments for the identified devices an amount that offsets the
portion of the APC payment amount that we determine is associated with
the device, as required by section 1833(t)(6)(D)(ii) of the Act. In the
November 1, 2002 final rule, we published the applicable offset amounts
for 2003 (67 FR 66801).
For the 2002 and 2003 OPPS updates, we estimated the portion of
each APC rate that could reasonably be attributed to the cost of an
associated pass-through device that is eligible for pass-through
payment using claims data from the period used for recalibration of the
APC rates. Using these claims, we calculated a median cost for every
APC without packaging the costs of associated C codes for device
categories that were billed with the APC. We then calculated a median
cost for every APC with the costs of associated device category C codes
that were billed with the APC packaged into the median. Comparing the
median APC cost minus device packaging to the median APC cost including
device packaging enables us to determine the percentage of the median
APC cost that is attributable to associated pass-through devices. By
applying these percentages to final APC rates, we determined the
applicable offset amount. We included any APC on the offset list for
which the device cost was at least 1 percent of the APC's cost.
As we discussed in our November 1, 2002 final rule (67 FR 66801),
the listed offsets are those that may potentially be used because we do
not know which procedures would be billed with newly created
categories.
After publication of the November 1, 2002 final rule, we received a
comment indicating that in some cases it may be inappropriate to apply
an offset to a new device category because the device category is not
replacing any device whose costs have been packaged into the APC. We
agree with this comment

[[Page 63439]]

and proposed to modify our policy for applying offsets. Specifically,
we proposed to apply an offset to a new device category only when we
can determine that an APC contains costs associated with the device. We
specified in the proposed rule that we would continue our existing
methodology for determining the offset amount, described above.
However, we solicited comments for alternative methodologies for
determining the offset amounts that potentially could be applied to the
payment amounts for new device categories.
We added that we could use this methodology to establish the device
offset amounts for the 2004 OPPS because we are using 2002 claims on
which device codes are reported. However, for the 2005 update to OPPS,
we proposed to use 2003 claims that would not include device coding.
Thus, for 2005, we are considering whether or not to use the charges
from lines on the claim having no HCPCS code but have charges under
revenue codes 272, 275, 276, 278, 279, 280, 289, and 624 as proxies for
the device charges that would have been billed with HCPCS codes for
these devices in previous years. We are also considering the
reinstitution of the C codes for expired device categories and
requiring hospitals to use one or more newly created C codes for
identification of devices and costs on claims. See section VI.B of this
final rule for further discussion.
We proposed to review each new device category on a case-by-case
basis to determine whether device costs associated with the new
category are packaged into the existing APC structure.
We reviewed the device categories eligible for continuing pass-
through payment in 2004 to determine whether the costs associated with
the device categories are packaged into the existing APCs. For the
categories existing as of publication of the proposed rule, we
determined that there are no close or identifiable costs associated
with the devices in our data related to the respective APCs that are
normally billed with those devices. Therefore, for these categories we
proposed to set the offset to $0 for 2004.
If we create a new device category and determine that our data
contain identifiable costs associated with the devices in any APC, we
would apply an offset. We proposed, if any offsets apply, for new
categories, to announce the offsets in a transmittal that announces the
information regarding the new category.
We received several comments on the proposal, which are summarized
below along with our responses.
Comment: Device manufacturers and associations generally supported
our proposal to modify our policy in applying offsets to only those
device categories where we can determine that an APC contains costs
associated with the device category. One commenter also recommended
that we not apply offsets to those categories that do not replace
current devices found in the APC costs.
Response: We will apply an offset to a new device category only
when we are able to determine that an APC contains costs associated
with the new device. We will also continue our existing methodology for
determining any offset amount, if we find that device costs associated
with a new device category are packaged into the APCs. We will include
information about any applicable offset in the transmittal we issue to
announce information regarding the new category.
We also will publish the device percentages related to APCs on our
web site. We believe this information is useful to the public even if
we do not use the information to apply any particular offset to new
device categories, because we use this information to apply the tests
of ``not insignificant cost'' to a proposed new device category
application. A transitional pass-through device category must have an
average cost that is not insignificant in relation to the OPD fee
schedule amount, according to section 1833(t)(6)(A)(iv)(II) of the Act.
2. Multiple Procedure Reduction for Devices
In our discussion in the proposed rule of recommendations of the
Advisory Panel, we noted that the Panel asked us to analyze our data to
determine if we may be underpaying for devices when the multiple
procedure policy is applied (68 FR 47976). We made no proposal to
change our policy regarding the multiple procedure reduction for
device-related APCs, but we did receive a number of comments on the
topic.
Comment: Commenters stated that we should change the status
indicator (SI) from ``T'' to ``S'' for APCs with packaged device costs
so that the multiple procedure discount will not adversely affect the
payment for APCs that contain high cost devices. One commenter
indicated that no APC for which the device percentage is 50 percent or
more should be subjected to a multiple procedure reduction because any
such reduction would reduce the Medicare payment below the hospital's
cost for the device. The commenter offered to work with us to develop a
list of device percentages of APC payments that would not be subject to
the multiple procedure reduction. Another commenter suggested that we
create a modifier that could be used to override the multiple procedure
reduction for certain codes with SI ``T''. Some commenters said that
any code that is not subject to the multiple procedure modifier under
the Medicare physician fee schedule should be subjected to a multiple
procedure modifier under OPPS.
Response: We are concerned that the application of the multiple
procedure reduction has been a recurring theme among commenters with
regard to APCs that contain significant device costs. We continue to
believe that for most cases, including many cases with devices, the
payment reductions for the second and subsequent payments are
appropriate. This is particularly true given that there must be two
procedures with SI=T for the reduction to occur. Hence, if a device
procedure is performed with a non-device procedure, the non-device
procedure will not be reduced if the device procedure has an SI=S, even
if the non-device procedure is less costly because it was done at the
same time as the device intense procedure. We are reluctant to change
the SIs for device procedures because of the increase that will occur
for non-device procedures. The shift in median costs will be picked up
in the scaling of relative weights for budget neutrality and will
result in some reduction for all services, shifting payment to
procedures and away from other services types (for example, E&M,
diagnostic tests).
Decisions regarding the application of the multiple procedure SIs
are made independently for the Medicare physician fee schedule and the
OPPS. The physician fee schedule decision is heavily dependent upon the
work performed by the physician and the OPPS decision is made only with
regard to the resources the hospital supplies for the service to be
performed. There is no reason to believe that a decision to reduce or
not reduce for multiple procedures in one system would necessarily
justify that same decision in the other system.
For 2004 OPPS we have not changed the policy. However, as we did
for 2003 OPPS, we have changed the SI for certain APCs for which we
were convinced that the application of the multiple procedure reduction
would result in inappropriate payment. For 2005, we hope to analyze the
effects of a more systematic approach to determining when we should
apply the

[[Page 63440]]

multiple procedure reduction to APCs with high device costs. We hope to
develop these possible approaches and discuss them with the APC Panel
at its winter meeting.

Prosthetic Urology (APCs 0385 and 0386)

Comment: Commenters said that APCs 0385 and 0386 should be changed
from SI=S to SI=T and that the APC Panel agreed and recommended these
changes in its August 22, 2003 meeting. The commenters indicated that
when a penile prosthesis and a urinary sphincter are both implanted at
the same time, while there is some cost efficiency (for example, OR
time, recovery room time, drugs, supplies), the cost of the prostheses
are such a large part of the cost of the APC that the reduction of the
second APC by 50 percent results in less than cost being paid.
Response: For the 2004 OPPS, we have changed the SI for these APCs
from T to S, so that when both the prosthesis and sphincter are
implanted on the same date, the multiple procedure reduction will not
apply to the second device. These APCs each contain a combination of
penile prostheses and sphincters. Our data analysis shows that it is
not a rare occurrence for both to be implanted on the same day and that
each APC has a device percentage in excess of 60 percent. For these
reasons, we have changed the SI for these APCs to ``S'' for 2004.

Electrophysiology APCs (APCs 0085, 0086 and 0087)

Comment: Commenters said that APCs 0085, 0086, and 0087 should not
be subject to the multiple procedure reduction because the devices used
in these procedures are not less costly when the second procedure is
done on the same day. Commenters said that these procedures have become
so advanced that they now are commonly done on the same day and that
the multiple procedure reduction significantly reduces the payments
below what they were paid when they were done on subsequent days. A
commenter suggested that we should create a combination APC for APCs
0085, 0086 and 0087 or for APCs 0085 and 0086 since these are often
performed on the same day and the commenter believes that the multiple
procedure reduction improperly reduces payment for them.
Response: We have not changed the SI for these APCs because we do
not believe that such a change is warranted. Although devices are
integral to these APCs, the device portion of the median is not very
significant. Each has a device percent lower than 35 percent (APC 0085
= 25.61 percent, APC 0086=34.77 percent, APC 0087= 30 percent).
Moreover, we believe that there is efficiency in performing these
procedures on the same day in the outpatient setting, which is why
hospital practice has changed. Therefore, we are retaining these
procedures as SI=T for 2004.

Implantation or Revision of Pain Management Catheter; Implantation of
Drug Infusion Device (APCs 0223 and 0227)

Comment: A commenter indicated that the same rationale that applies
to implantation of neurostimulators (discussed immediately preceding)
applies to APCs 0223 and 0227 and that therefore, the multiple
procedure reduction should not apply.
Response: We are not convinced by the comment that it would be
appropriate to change the SI for APCs 0223 and 0227 from ``T'' to
``S''. We believe that there are economies of scale that cause these
procedures to allow for appropriate payment when they are performed
with other procedures.

Left Ventricular Leads (APCs 0105, 1547 and 1550)

Comment: A commenter indicated that placement of a Left ventricular
lead (CPT code 33224, 33225, and 33226, APCs 0105, 1547 and 1550
respectively) should not be subjected to the multiple procedure
reduction.
Response: We have reviewed the codes contained in these APCs and we
are not convinced that it would be appropriate to change the SI for
these APCs.

VI. Payment for Drugs, Biologicals, Radiopharmaceutical Agents, Blood,
and Blood Products

A. Pass-Through Drugs and Biologicals

In the proposed rule, we expressed concern about the extent to
which Medicare pays more for pass-through drugs than other payers and
more than the market-based price of drugs. To address this problem of
how to pay appropriately for drugs that are priced using the AWP, we
are developing regulations that would revise the current payment
methodology for Part B covered drugs paid under section 1842(o) of the
Act. We proposed to adopt and apply the provisions of the final AWP
rule to establish the AWP of pass-through drugs payable under the OPPS.
If implementation of the AWP final rule necessitates mid-year changes
in the 2004 OPPS payment rates for pass-through drugs, we proposed to
make those changes on a prospective payment basis through our regular
OPPS Transmittal process and PRICER quarterly updates. We further
proposed to issue instructions by program memorandum regarding
implementation of the provisions of the AWP final rule to set payment
rates for pass-through drugs under the OPPS.
We stated that if the AWP final rule is not issued in time to
permit us to apply its provisions to price pass-through drugs furnished
on or after January 1, 2004, we proposed to use 95 percent of the AWP
listed in the most recent quarterly update of the Single Drug Pricer
(SDP). If a drug with pass-through status is not included in the SDP,
we proposed to forward to the SDP contractor the AWP information
submitted as part of the pass-through application for calculation of an
allowed payment amount.
Because the January SDP would not be available in time, we proposed
to announce the January 1, 2004 prices for pass-through drugs in our
January 2004 OPPS implementing instructions to fiscal intermediaries
and in the January 2004 OPPS PRICER rather than in the 2004 final rule,
which is to be published in the Federal Register by November 1, 2003.
We further proposed to update the AWP for pass-through drugs paid under
the OPPS on a quarterly basis in accordance with the quarterly updates
of the SDP. The updated rates for pass-through drugs and biologicals
would also be issued through our quarterly OPPS program memoranda and
PRICER updates.
Comment: A national hospital association supported our proposal to
use the SDP to determine the payment amount for pass-through drugs and
biologicals. However, the same commenter expressed concern about not
having accurate 2004 information on AWP until after the 2004 OPPS is
implemented, which would make it impossible to predict pass-through
spending and not give hospitals enough time to update their billing
systems. The commenter also opposed our proposal to update the AWP for
pass-through drugs on a quarterly basis because it would result in
increased confusion and burden on hospitals to make quarterly price
changes and could result in CMS having to make quarterly adjustments to
the pass-through pool to recalculate the relative payment weights for
all APCs.
A provider expressed reservations about the impact of the AWP rule,
which could precipitate a shift in care from physicians' offices to
hospitals. This commenter recommended that we determine pass-through
payment

[[Page 63441]]

amounts using market applications by drug manufacturers and acquisition
data solicited from the hospital industry through group purchasing
organizations and individual hospitals and systems. The same commenter
encouraged us to delay changes in pass-through payments pending an
assessment of the impact of the AWP rule on physician practices.
Response: We wish to clarify how our use of the SDP to price pass-
through drugs will affect the OPPS in 2004. The payment rates for pass-
through drugs and biologicals that are shown in Addendum B are based on
the April 1, 2003 SDP, which was the update that was available when we
recalibrated the relative payment weights for this final rule. We also
used these payment rates as the basis for estimating pass-through
spending in 2004, which is discussed in section IV of this preamble.
We have carefully considered the commenter's concern about the
confusion that could result if we were to revise the payment amounts
for pass-through drugs and biologicals by installing prices from the
January 2004 update of the SDP in the OPPS PRICER for implementation
beginning January 1, 2004. We agree with the commenter that, because of
the timing, this proposal could create operational problems both for
providers and for our claims processing systems. Therefore, we will
retain the payment amounts published in this final rule as the payment
amounts for pass-through drugs effective January 1, 2004.
Further, to keep quarterly changes to a minimum, we have decided
not to implement at this time our proposal to update the AWP for pass-
through drugs paid under the OPPS on a quarterly basis in accordance
with quarterly SDP updates.
At this time, we are not implementing the AWP rule. Therefore, we
are not making final the OPPS changes we proposed that would have
resulted from the AWP rule.
Comment: Several commenters were concerned about the delay in
processing pass-through applications and assigning c-codes for new
drugs and biologicals. Commenters believed that the lack of immediate
payment under OPPS for new FDA-approved drugs and biologicals may drive
hospitals to discontinue providing innovative life-saving therapies to

Medicare beneficiaries until pass-through payments are established.
Another commenter suggested that CMS create and regularly update a
central on-line listing of all current codes for pass-through drugs,
biologicals, and devices. The Web site should also list all pass-
through drug and device applications under review, and their status in
the review process.
Response: We understand the concerns expressed by commenters about
the impact of the time gap from FDA approval to our c-code assignment
and payment for new pass-through items; however, our position on this
issue remains the same as that described in the November 1, 2002 final
rule (67 FR 66780-81).

B. Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through
Status

1. Background
Under the OPPS, we currently pay for radiopharmaceuticals, drugs,
and biologicals including blood, and blood products, which do not have
pass-through status, in one of three ways: packaged payment, separate
payment (individual APCs), and reasonable cost. As we explained in the
April 7, 2000 final rule (65 FR 18450), we generally package the cost
of drugs and radiopharmaceuticals into the APC payment rate for the
procedure or treatment with which the products are usually furnished.
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). As
we explained in the November 1, 2002 final rule (67 FR 66757), we do
not classify diagnostic and therapeutic radiopharmaceutical agents as
drugs or biologicals as described in section 1861(t) of the Act.
Comment: Several trade associations and manufacturers urged CMS to
revise its policy that radiopharmaceuticals are not drugs. They
emphasized that radiopharmaceuticals go through the same FDA approval
process as drugs, are approved for inclusion in the United States
Pharmacopoeia Drug Indication, and have historically been considered
drugs under OPPS. They indicated that Congress is considering a
legislative clarification that under OPPS radiopharmaceuticals will
continue to be treated and paid as drugs.
Response: We appreciate the comments on this issue. We do not
intend, by our designation of radiopharmaceuticals for purposes of
determining which items are eligible for pass-through status, to imply
that radiopharmaceuticals are not considered drugs under the Food,
Drug, and Cosmetic Act or that they are not subject to the same FDA
approval process as those items that we have designated as drugs.
However, we will continue to consider radiopharmaceuticals as neither a
drug nor biological. Our reasons were set forth in the November 1, 2002
final rule (67 FR 66757). In that rule, we stated that a careful
reading of the statutory language in section 1861(t)(1) convinces us
that inclusion of an item in, for example, the USPDI, does not
necessarily mean that the item is a drug or biological. Inclusion in
such a reference (or approval by a hospital committee) is a necessary
condition for us to call a product a drug or biological, but it is not
enough. CMS must make its own determination that a product is a drug or
biological for OPPS purposes under its governing statutes, and this
determination is different from and does not affect FDA's determination
that a product is a drug or biological under the Food, Drug, and
Cosmetic Act.
While we have determined that radiopharmaceuticals are not drugs
under the OPPS, we have chosen to establish separate payment for
radiopharmaceuticals under the same packaging threshold policy that we
apply to drugs and biologicals. We have also determined that we will
apply the same adjustments to the median costs for radiopharmaceuticals
that will apply to non-pass-through, separately paid drugs and
biologicals.

Payment for New Radionucliide Therapy for Certain Forms of Non-Hodgkins
Lymphoma

Currently, payment for the radiopharmaceutical Zevalin (Ibritumomab
Tiuxetan) is packaged into the payment for HCPCS codes G0273 (Pretx
planning, non-Hodgkins) and G0274 (Radiopharm tx, non-Hodgkins). To
ensure consistency with our payment policy for other
radiopharmaceuticals (that is, making separate payment for
radiopharmaceuticals whose costs are greater than $150 per episode of
care), we proposed to make payment for Zevalin (ibritumomab tiuxetan)
separately from payment for the procedures with which Zevalin
(ibritumomab tiuxetan) is used.
We proposed to use HCPCS A9522 (Indium 111 ibritumomab tiuxetan) to
report the use of In-111 Zevalin (In-111 Ibritumomab Tiuxetan) and
HCPCS A9523 (Yttrium 90 ibritumomab tiuxetan) to report the use of Y90
Zevalin (Y90 Ibritumomab Tiuxetan). We proposed to place HCPCS A9522 in

[[Page 63442]]

APC 9118 with a payment amount of $2,084.55 and HCPCS A9523 in APC 9117
with a payment amount of $18,066.09. We note that payment rates for
radiopharmaceuticals are not subject to wage index adjustments because
no portion of the payment is attributed to labor-related costs.
Because we proposed that payment for G0273 and G0274 no longer
include payment for Zevalin, we also proposed to place G0273 into newly
created APC 0406 and G0274 into newly created APC 0408. These APCs
include procedures that are similar clinically and in terms of resource
consumption to G0274 and G0273, respectively.
Zevalin (ibritumomab tiuxetan) is a radioimmunotherapy that is used
to treat patients with certain forms of non-Hodgkin's lymphoma (NHL).
Medicare began payment under the OPPS for Zevalin services furnished on
or after October 1, 2002.
On June 27, 2003, the FDA approved the manufacture and sale of
Bexxar (tositumomab and Iodine I 131 tositumomab), which is another
radioimmunotherapy used to treat patients with certain forms of non-
Hodgkin's lymphoma. Both Zevalin and Bexxar are therapeutic regimens
administered in two separate steps: The first step is diagnostic to
determine radiopharmaceutical biodistribution of radiolabeled
antibodies; the second step is the therapeutic administration of
targeted radiolabeled antibodies.
On September 8, 2003, we issued a One Time Notification
(Transmittal 1, Change Request 2914) to implement payment for Bexxar
effective for services furnished on or after July 1, 2003. We
instructed hospitals to bill for Bexxar using HCPCS codes G0273 (Pretx
planning, non-Hodgkins), G0274 (Radiopharm tx, non-Hodgkins), and G3001
(Administration and supply of tositumomab, 450mg). Publication
deadlines precluded our being able to address payment for Bexxar in the
August 12, 2003 proposed rule.
Comment: A major hospital association, a nuclear medicine specialty
organization, several providers that treat cancer patients, and two
radiopharmaceutical manufacturers submitted comments regarding the
changes we proposed to the coding and payment for Zevalin (ibritumomab
tiuxetan) under the 2004 OPPS. The commenters agree with our proposal
to separate payment for Zevalin from the payment for the procedure and
to pay for Zevalin using HCPCS codes A9522 and A9523, which would not
be subject to a wage index adjustment. One commenter noted that the
HCPCS descriptors for A9522 and A9523 define the unit of service as
``per millicurie,'' but that the payment we proposed for these two
codes appeared to be a total payment amount rather than a per
millicurie rate. Several commenters recommended that the code
descriptors for A9522 and A9523 be revised to read ``per dose'' rather
than ``per millicurie.''
Response: We appreciate the commenters'' support of our proposal to
pay for Zevalin separately from its administration. We also agree with
the commenter who suggested that the payment rate proposed for A9522
and A9523 was incorrectly shown as a total payment amount rather than a
per millicure rate, and we have made certain that the final payment
amounts implemented in the 2004 update are consistent with the code
descriptor for the service. We further agree with the recommendation of
commenters that the HCPCS descriptors for Indium 111 ibritumomab
tiuxetan and Yttrium 90 ibritumomab tiuxetan would be less confusing if
expressed in terms of dose rather than millicuries. However, the
descriptors for A9522 and A9523 were established by the HCPCS National
Panel through the process described on our Web site at http://www.cms.hhs.gov/medicare/hcpcs/
, and such a descriptor change could not
be applied for in time for January 1, 2004 implementation of the OPPS.
Therefore, we are establishing two temporary C-codes for hospitals to
use to bill under the OPPS for Indium 111 ibritumomab tiuxetan and
Yttrium 90 ibritumomab tiuxetan, for services furnished beginning
January 1, 2004, as follows:
C1082, Supply of radiopharmaceutical diagnostic imaging agent,
indium-111 ibritumomab tiuxetan, per dose
C1083, Supply of radiopharmaceutical therapeutic imaging agent,
Yttrium 90 ibritumomab tiuxetan, per dose
Comment: One commenter recommended that we create separate codes
that parallel A9522 and A9523 to bill for Bexxar (tositumomab and I-131
tositumomab).
Response: We are establishing two temporary C-codes for hospitals
to use to bill under the OPPS for I-131 tositumomab for services
furnished beginning January 1, 2004, as follows:
C1080, Supply of radiopharmaceutical diagnostic imaging agent, I-
131 tositumomab, per dose
C1081, Supply of radiopharmaceutical therapeutic imaging agent, I-
131 tositumomab, per dose
Comment: Several commenters recommended that we discontinue use of
HCPCS codes G0273 and G0274 to describe the administration of Zevalin
and that, instead, we instruct hospitals to report new CPT code 78804,
Radiopharmaceutical localization of tumor or distribution of
radiopharmaceutical agent(s); whole body, requiring two or more days
imaging, and new CPT code 79403, Radiopharmaceutical therapy,
radiolabeled monoclonal antibody by intravenous infusion. One commenter
expressed concern about our proposal to assign G0273 for pre-treatment
planning and administration of the diagnostic dose to APC 0406, Tumor/
Infection Imaging because the payment rate proposed for APC 0406
($258.10) is inadequate to pay for the cost of the scans required to
measure the distribution of the radiopharmaceutical agent. The same
commenter agreed with our proposal to assign G0274 for administration
of the therapeutic dose to APC 0408, with a proposed payment rate of
$217.16.
Response: We agree with the commenters' recommendations that we
replace HCPCS codes G0273 and G0274 with CPT codes 78804 and 79403,
respectively. We will direct our contractors to instruct hospitals to
use CPT code 78804 to report administration of the diagnostic dose of
ibritumomab tiuxetan and I-131 tositumomab and to report CPT code 79403
to report administration of the therapeutic dose of ibritumomab
tiuxetan and I-131 tositumomab. We also agree with the concern of
commenters that the payment amount for APC 0406 in the final rule is
insufficient for administration of the diagnostic radiolabeled
antibodies plus the imaging required to determine radiopharmaceutical
localization of tumor(s) and distribution of the radiopharmaceutical
agent. Therefore, we are assigning CPT code 78804 to New Technology APC
1508, which has a payment rate of $650. After we have had an
opportunity to collect claims data that indicate hospital costs for
this procedure, we will re-evaluate its APC assignment. Further, there
are several additional expenses associated with these innovative
radioimmunotherapies used to treat patients with certain forms of non-
Hodgkin's lymphoma, which we discuss below. We are therefore assigning
CPT code 70403 to New Technology APC 1507, until we have collected
sufficient data to confirm the appropriate clinical APC for this
service.
Comment: Several commenters expressed concern that our proposed
payment for Zevalin ($2,084.55 for the diagnostic dose of indium and
$18,066.09 for the therapeutic dose of

[[Page 63443]]

yttrium) would be approximately $2,000 less than what it costs a
hospital to purchase Zevalin from a nuclear pharmacy, thereby
jeopardizing beneficiary access to this therapy. One commenter
submitted information from a nuclear pharmacy attesting that it has
dispensed 2,068 patient-specific doses of Zevalin nationwide (1,071
Indium doses and 997 Yttrium doses) and that its current charges are
$2,260 per dose of Indium-111 Zevalin and $19,565 per dose of Yttrium-
90 Zevalin. The commenter stated that this represents nearly 80 percent
of all Zevalin doses dispensed between product launch in April 2002
through June 30, 2003.
Another commenter expressed concern about the adverse impact that
the proposed reduction in payments for Zevalin could have on payment
for Bexxar in 2004. The commenter urged us not to base payment for
Bexxar on what we proposed for Zevalin but, rather, on hospital
acquisition costs for Bexxar, which approximate the wholesale
acquisition cost (WAC) of $2,250 for the diagnostic dose and $19,500
for the therapeutic dose.
Response: Although we established a code to enable hospitals to
bill for and receive separate payment for Zevalin effective October 1,
2002, hospitals could only report this code through December 31, 2002.
(Effective January 1, 2003, we combined payment for Zevalin with its
administration, using HCPCS codes G0273 and G0274.) Our 2002 claims
data are insufficient to allow us to calculate a median cost for
Zevalin. Because Bexxar was approved by the FDA in June 2003, it was
not billed at all in 2002. Therefore, we cannot determine payment rates
for either radiopharmaceutical based on the standard methodology that
we use to calculate the other APC relative payment weights and rates.
In instances where we lack adequate data upon which to base a payment
rate, we have relied wholly or in part on external data as the basis
for rate setting. For example, in the absence of claims data, we use
data submitted in applications for new technology status to enable us
to assign a service to an appropriate new technology APC. Elsewhere in
this final rule, we discuss how we are using external data to set 2004
payment rates for certain other services and procedures.
We received information consistent with our request for verifiable
data (68 FR 47998) that indicates the payment amounts we proposed for
A9522 and A9523 in the proposed rule do not reflect the price for
Zevalin that is widely available to the hospital market.
Therefore, we are making final the following payments, effective
for services furnished on or after January 1, 2004:
For HCPCS code C1080 (APC 1080) the payment is $2,260;
For HCPCS code C1081 (APC 1081) the payment is $19,565; For HCPCS
code C1082 (APC 9118) the payment is $2,260;
For HCPCS code C1083 (APC 9117) the payment is $19,565.
Comment: One commenter expressed concern about the inadequacy of
the 2003 payment rate ($2,159) that we established for HCPCS code
G3001, Administration and supply of tositumomab, 450mg. The commenter
noted that the WAC for unlabeled tositumomab is $2,125, and that a
payment amount of $2,159 is not sufficient to pay hospitals for both
the acquisition of unlabeled tositumomab and its administration. The
commenter was also concerned that packaging the unlabeled antibody
tositumomab with its administration and assigning it to an APC that is
subject to wage adjustment would result in large payment differences
across the country. The commenter noted that the unlabeled antibody
rituximab, which is used with Zevalin therapy, is a separately payable
drug and therefore not subject to wage index adjustments. The commenter
recommended that we either increase the payment rate for G3001 and
exempt it from wage adjustment or that we create a new code for
unlabeled tositumomab, assign a payment rate that reflects its
acquisition cost, and pay separately for its administration using HCPCS
code Q0084.
Response: After carefully reviewing the commenter's concerns, we
have assigned HCPCS code G3001 to New Technology APC 1522, which has a
payment rate of $2,250. Unlabeled tositumomab is not approved as either
a drug or a radiopharmaceutical, but is a supply that is required as
part of the Bexxar treatment regimen. Therefore, we do not agree with
the commenter's recommendation that we assign a separate new code to
unlabeled tositumomab. Moreover, administration of unlabeled
tositumomab is a complete service that qualifies it for assignment to a
New Technology APC. We believe that the increased payment resulting
from assignment of G3001 to New Technology APC 1522 will be sufficient
to enable hospitals to acquire and administer unlabeled tositumomab,
notwithstanding application of a wage adjustment.
Comment: One commenter recommended that we modify the payment
amounts for the existing codes used to bill for Bexxar or that we
establish new codes to recognize the costs of patient evaluation,
education, and clearance for radiation safety purposes as well as the
costs of compounding Bexxar by radiopharmacies. The same commenter
suggested that, as an alternative to establishing a new code for the
costs associated with the procedures required for patient safety and
education when Bexxar is used, we allow hospitals to report an
appropriate Evaluation and Management code for patient evaluation,
education, and clearance when receiving diagnostic or therapeutic
services involving radioisotopes.
Response: We disagree with the commenter's recommendation that an
additional code is needed to pay for radiopharmacy compounding costs or
that an allowance of $1,000 should be added to the payment for the both
diagnostic and therapeutic doses of Bexxar to offset these costs. We
believe that the rates we are implementing in this final rule, as
discussed above, provide sufficient payment for radiopharmacy
compounding or delivery costs that hospitals may incur when using
Bexxar or Zevalin. We have carefully considered the commenter's
recommendation that hospitals be allowed to bill an appropriate
evaluation and management code for patient evaluation, education, and
clearance following procedures involving radioisotopes. We recognize
that special requirements may have to be met before releasing a patient
following exposure to a high dose of radiation. We would expect the
patient's physician to provide, and bill for separately with
appropriate documentation, a significant portion of the preparation and
education needed by a patient being treated with Zevalin or Bexxar.
However, to the extent that qualified hospital staff are required to
provide additional face-to-face patient education and instructions
before the patient's release following radioimmunotherapy, the hospital
may bill an appropriate evaluation and management code as long as the
medical record documents that the services are medically necessary and
that they constitute a distinct, separately identifiable evaluation and
management service that is consistent with the hospital's criteria for
that service.

Drugs and Biologicals for Which Pass-Through Status Will Expire in 2004

Section 1833(t)(6)(C)(i) of the Act specifies that the duration of
transitional pass-through payments for drugs and biologicals must be no
less

[[Page 63444]]

than 2 years nor any longer than 3 years. The drugs and biologicals
that are due to expire on December 31, 2003 meet that criterion. Table
11 lists the drugs and biologicals for which pass-through status will
expire on December 31, 2003.

Table 11.--List of Drugs and Biologicals for Which Pass-Through Status Expires CY 2004
----------------------------------------------------------------------------------------------------------------
Pass-through
HCPCS APC Long descriptor Trade name expiration
date
----------------------------------------------------------------------------------------------------------------
C9202............ 9202 Injection, suspension of microspheres of human Optison (single 12-31-03
serum albumin with octafluoropropane, per 3ml. source).
J0587............ 9018 Injection, Botulinum toxin, type B, per 100 Myobloc (single 12-31-03
units. source).
J0637............ 9019 Injection, Caspofungin acetate, 5 mg.......... Cancidas (single 12-31-03
source).
J7517............ 9015 Mycophenolate mofetil, oral per 250 mg........ CellCept (single 12-31-03
source).
J9010............ 9110 Injection, Alemtuzumab, per 10 mg............. Campath (single 12-31-03
source).
J9017............ 9012 Injection, Arsenic trioxide, per 1 mg......... Trisenox (single 12-31-03
source).
J9219............ 7051 Implant, Leuprolide acetate, per 65 mg implant Viadur (single 12-31-03
source).
----------------------------------------------------------------------------------------------------------------

Comment: A commenter requested that we maintain transitional pass-
through status for this biological through calendar year 2004. The
commenter indicated that Dermagraft was approved as a pass-through
device effective October 1, 2000 through March 31, 2001, by which time
CMS had concluded that Dermagraft should be classified as a biological
for payment purposes. Dermagraft later re-qualified for pass-through
status as a biological effective April 1, 2002. The commenter stated
that CMS should not count the time Dermagraft was on the pass-through
list as a device to determine whether this product received a minimum
of 2 years under pass-through status.
Response: We agree with the commenter and will retain Dermagraft in
pass-through status through December 2004.
Comment: The manufacturer of an ultrasound contrast agent, Optison
(APC 9202, C9202), expressed concern about our decision to retire their
product from pass-through status on December 31, 2003. The manufacturer
indicated that two of Optison's competitors, Definity (C9112) and
Imagent (C9203) will remain pass-throughs in 2004 and receive higher
payments, while payment for Optison will be based on median cost
calculated from hospital claims data. The commenter was concerned about
differential OPPS payments to hospitals for clinically similar products
and recommended that we should either allow all of these agents to
remain on pass-through status until December 31, 2004, or remove them
and use claims data to establish a uniform payment rate for 2004.
Response: As stated above, section 1833(t)(6)(C)(i) of the Act
specifies that transitional pass-through payments for drugs and
biologicals must be made for at least for 2 years but not more than 3
years. Pass-through payment for Optison was established on April 1,
2001, while Definity and Imagent received pass-through status on April
1, 2002 and April 1, 2003, respectively. Since hospitals have been
billing for and receiving pass-through payments for Optison for at
least 2 years, we have the statutory authority to remove this item from
pass-through status. Since pass-through payments for Definity and
Imagent have not exceeded the minimum 2-year period yet, these products
will retain their special status in 2004. In the absence of verifiable
external data, the 2004 payment rate for Optison was calculated using
hospital claims data from April through December 2002 and was eligible
for dampening.
2. Criteria for Packaging Payment for Drugs, Biologicals, and
Radiopharmaceuticals
To the maximum extent possible, our intention is to package into
the APC payment the costs of any items and supplies that are furnished
with an outpatient procedure. For 2004, we proposed to continue with
our policy of paying separately for drugs and radiopharmaceuticals
whose median cost per day exceeds $150 and packaging the cost of drugs
and radiopharmaceuticals with median cost per day of less than $150
into the procedures with which they are billed. In the proposed rule,
we set forth the methodology we used to calculate the median cost per
day for drugs, biologicals, and radiopharmaceuticals (68 FR 47996-
47997).
We proposed to provide an exception in 2004 to the packaging rule
for drugs and radiopharmaceuticals whose payment status would change as
a result of using newer data. For 2004, we proposed that:
[sbull] Currently packaged drugs and radiopharmaceuticals with
median costs per day at or above $150 would receive separate payment in
2004.
[sbull] Currently separately payable drugs and radiopharmaceuticals
with median costs per day under $150 would continue to receive separate
payment in CY 2004.
[sbull] Drugs whose pass-through status would expire on December
31, 2003, and whose median costs per day are under $150 would receive
separate payment in 2004.
[sbull] Currently packaged drugs and radiopharmaceuticals with
median costs per day below $150 would remain packaged in 2004.
We requested comments on the methodology we used to determine the
median cost per day, on the threshold we proposed to use for packaging
drugs and radiopharmaceuticals, and on the proposal to pay separately
for drugs and radiopharmaceuticals whose payment status would change
based on use of recent claims data and our proposed methodology. We
also requested comments on alternatives to packaging.
We received many comments on our proposals, which are summarized
below along with our responses.
Comment: We received many comments from patient advocates,
individual clinicians, physician and nursing professional associations,
individual hospitals, and manufacturers and their representatives that
expressed significant concerns over our proposal to continue the 2003
policy under which we package the cost of most drugs, biologicals and
radiopharmaceuticals that cost $150 or less. We also received several
comments from major provider groups in support of the packaging
proposal and recommending a higher threshold. One such organization
recommends that we study this issue further to develop a more
appropriate long-term solution.
Commenters who disagreed with the proposal to package drugs,
biologicals and radiopharmaceuticals costing $150 or less believe that
the proposed rates for the drug administration codes do not adequately
address the costs of hospitals to administer these drugs. Several
commenters conducted their own analyses of this issue in conjunction

[[Page 63445]]

with the proposals for drug administration discussed elsewhere in this
final rule. For many of these commenters, the issues of packaging, drug
payment rates and our discussion of drug administration in the proposed
rule were intertwined. Some commenters that disagreed with our $150
packaging threshold asserted that most visits involve delivery of drugs
that had been designated as packaged and that overpayment for visits
with no packaged drugs is small compared to the overall underpayment of
both packaged and separately payable drugs. Particular concern was
expressed about the packaging of cancer chemotherapy drugs. One
commenter stated that the dosages may vary significantly, and where
given in high doses the cost for a single drug alone may exceed the
total packaged payment. Also, commenters stated that several packaged
drugs are often administered during a single infusion, and where the
cost of a single packaged drug may be less than $150 the cost of
multiple packaged drugs is often greater than $150.
Several commenters indicated that the methodology and cost data we
used to calculate the median cost per day for drugs and
radiopharmaceuticals were based on incorrectly coded claims where the
wrong number of units were reported and a very limited number of single
claims were captured which failed to portray the hospitals' charges
appropriately. Therefore, certain high cost items fell below the $150
threshold.
Commenters expressed concern about patient access to effective but
lower cost drugs and the disincentive we may create by paying
separately for those over $150 per day. One organization stated that
cancer centers have reported that they have taken or are considering
steps to restrict patient access to those drugs that we have packaged.
One hospital estimated that it would lose approximately $490 per visit
for a patient receiving chemotherapy due to the $150 packaging rule and
the proposed reductions in payments for certain drugs. While some
commenters expressed general concerns about packaging the costs of any
drugs, biologicals or radiopharmaceuticals, other commenters
recommended that we apply a $50 threshold in lieu of the proposed $150
threshold in determining which items to pay for separately. Some of the
commenters recommending a $50 threshold cited statutory changes under
consideration by Congress that would mandate a $50 threshold.
Response: For 2004, we have established a $50 median cost per day
threshold in determining whether drugs, biologicals and
radiopharmaceuticals will be packaged. Those items that fall below the
threshold will be packaged into the costs of the service or procedure
with which they are billed; those items with median costs above the
threshold will be paid for separately in 2004.
We analyzed our data in determining our final drug administration
coding and payment policy, as discussed elsewhere in this final rule,
and reviewed the median costs of all APCs under both a $150 and a $50
packaging rule. We concluded that there was not a sufficient difference
in the median costs under those two scenarios, resulting in inadequate
payment when drugs, biologicals and radiopharmaceuticals costing
between $50 and $150 would be used by the hospital. Therefore, we agree
with the majority of commenters that, for 2004, the appropriate
threshold should be $50.
We also recognize, as several commenters did, that packaging
creates incentives for hospital efficiencies and will continue to apply
that concept to devices, most supplies and equipment associated with a
procedural APC, and low cost drugs. However, we are convinced that
under our current methodology for establishing relative weights, that
packaging drugs, biologicals and radiopharmaceuticals costing in excess
of the $50 threshold per patient per day would not provide adequate
payment in 2004 and could adversely affect beneficiary access to
important therapies. Nevertheless, our final decision for 2004 does not
mean that a change in our methodology for establishing relative weights
in the future could not cause us to revisit our packaging policy in the
future. Since we have lowered the packaging threshold from $150 to $50,
we will not adopt the proposal to provide an exception to the packaging
rule for drugs and radiopharmaceuticals whose payment status would
change from 2003 to 2004 as a result of using newer 2002 data.
However, we note several exceptions to our policy of packaging
drugs, biologicals and radiopharmaceuticals for which the median per
day cost is less than the $50 threshold. As discussed elsewhere in this
final rule, we will allow separate payment under the OPPS for all blood
and blood products and for single indication orphan drugs. We will also
allow separate payment for hepatitis B vaccine under the OPPS. While
the median per day costs for several hepatitis B vaccine codes fell
below the $50 threshold using the final rule data, we believe that
continued separate payment for these codes is warranted given the
special, separate benefit category established by Congress. Separate
payment for influenza and pneumococcal vaccines will continue to be
made outside of the OPPS on a reasonable cost basis.
3. Payment for Drugs, Biologicals, and Radiopharmaceuticals That Are
Not Packaged
In order to establish payment rates for separately payable drugs
and radiopharmaceuticals for the 2004 OPPS, we first determined median
cost for each drug and radiopharmaceutical per unit. When we compared
the median cost per unit used for determining the 2003 payment rate
(for example, the true or dampened median cost) for separately payable
drugs and radiopharmaceuticals with their 2004 median cost per unit, we
found fluctuations in costs from 2003 to 2004.
We solicited comments concerning the reasons for the fluctuations
in median costs from 2003 to 2004. We stated our interest in
determining whether these fluctuations reflect changes in the market
prices of these drugs and radiopharmaceuticals or problems in the
hospital claims data (for example, inaccurate coding, improper charges)
that we use for setting payment rates.
In the proposed rule, we discussed in detail several options we
considered to address the fluctuations in median costs for separately
payable drugs and radiopharmaceuticals (68 FR 47997-47998). The option
that we proposed for 2004 was a variation of the methodology used for
the 2003 OPPS. For separately payable drugs and radiopharmaceuticals
whose 2004 median costs decreased by more than 15 percent from the
applicable 2003 median cost, we proposed to limit the reduction in
median costs to one fourth of the difference between the value derived
from claims data and a 15 percent reduction (for example, for a drug
whose cost decreased by 35 percent from the applicable 2003 median
cost, the allowed reduction from 2003 to 2004 would be 15 percent +
(\1/4\ times 35 - 15) percent = 20 percent). For separately payable
drugs and radiopharmaceuticals whose median costs decreased by less
than 15 percent from 2003 to 2004, we proposed to establish their
payment rates using the median costs derived from the 2002 claims data.
We stated that, based on more complete claims data we expected to have
for the final rule and on the comments from the public, we would re-
evaluate the appropriateness of adjusting median costs for drugs for
which median costs would decline in 2004.

[[Page 63446]]

We also proposed a separate payment policy for drugs, biologicals,
and radiopharmaceuticals for which generic alternatives have been
approved by the Food and Drug Administration (FDA) between October 2001
and December 2002.
We solicited comment on both our proposed methodology and payment
rates for separately payable drugs and radiopharmaceuticals for 2004.
We requested that commenters who disagree with the proposed rate for a
drug or radiopharmaceutical submit verifiable information to support
their opinions that the proposed rate is inaccurate and does not
reflect the price that is widely available to the hospital market.
We received a number of comments on our payment methodology options
for separately payable drugs, biologicals, and radiopharmaceuticals.
Those comments are summarized below along with our responses.
Comment: We received a number of comments noting disagreement with
the proposed payment rates for separately paid drugs, biologicals and
radiopharmaceuticals overall. Many of these comments were included in
the comments on our packaging proposal, summarized above, and expressed
some of the same concerns, such as restrictions to patient access,
particularly to cancer chemotherapy drugs. One hospital commenting on
the proposed rates stated that, as with most hospitals, they
continually attempt to leverage buying power to reduce the costs of
drugs but, like most hospitals, have been unable to do so for certain
drugs. Commenters asked that we critically review the data used to
establish the payment rates including consideration of the charge
compression issue. Commenters stated that the proposed payments would
not cover the direct acquisition costs of certain items.
A number of commenters objecting to our proposed payment rates
stated that the hospital data that we use to calculate those rates are
flawed and that the methodology we employ to convert hospital claims
data to relative weights is problematic. Commenters attributed these
concerns to issues such as hospital billing practices that result in
inaccurate reporting of units or charges, HCPCS coding changes, and the
use of cost-to-charge ratios across all products regardless of whether
an item is high or low cost.
We received numerous comments on alternatives to our proposed
policies for separately payable drugs and radiopharmaceuticals. One
commenter suggested that we pay the amount of the hospital's
acquisition cost plus an additional 25 percent to pay for costs of
receiving, processing and storing the items. Other comments suggested
that we limit the decreases for all separately paid drugs to a
reduction of 10 percent in the payment rates, as we proposed for blood
and blood products, instead of our proposed policy of limiting
reductions in median costs for those separately paid items with median
costs with reductions greater than 15 percent. Another suggestion was
that we establish a payment rate floor for a product that could be
raised if a manufacturer submitted information demonstrating that the
rate should be higher than the floor.
Several commenters indicated that we should use only claims that
have the appropriate administration or procedure code and the HCPCS
code for a particular drug or radiopharmaceutical when determining the
median cost for that drug or radiopharmaceutical. One commenter
recommended that we pay for drugs and biologicals at 95% AWP to
standardize payments for drugs and biologicals across different
practice settings. Another commenter requested that we establish
payment floors that are equal to those in the pending Congressional
Medicare legislation (for example, certain sole source drugs would be
paid at least 88 percent of AWP in 2004); whereas another drug
manufacturer recommended that we use the Federal Supply Schedule price
plus a certain percentage (for example, 12.5 percent) as an absolute
minimum payment amount for drugs and radiopharmaceuticals.
In addition to the comments regarding our proposed payment rates
for drugs, biologicals and radiopharmaceuticals overall, we received
comments concerning the proposed rate for specific items. For a few of
those items, we received external cost data that met the preferred
criteria we set forth in our proposed rule (for example, non-
proprietary data that demonstrates actual, market-based prices at which
a broadly-based national sample of hospitals were able to procure the
item). Several commenters suggested that we substitute external data on
hospital acquisition cost for median costs calculated from our claims
data when determining the payment rate for drugs and
radiopharmaceuticals for which we have received such data. Others
recommended that we use external data to benchmark payment for drugs
and radiopharmaceuticals and make appropriate adjustments to the
proposed 2004 payment levels. Even though most commenters supported the
use of external data in place of hospital claims data, a national
hospital association expressed concern about the use of external data
in OPPS. The commenter indicated that if external data is used for rate
setting in 2004, then we may have to continue to collect data on
acquisition cost for future years to be able to continue to adjust the

weights. Instead, the commenter was supportive of using claims data to
set payment rates without the use of external data and urged us to
remain committed to the averaging process inherent in the prospective
payment system.
Response: We have decided to adopt the general principle proposed
in our August 12, 2003 proposed rule limiting the reduction in median
costs to one-fourth of the difference between the value derived from
our claims data and a 15 percent reduction. For example, a drug whose
median cost decreased by 35 percent from the median cost used to
establish the separate payment rate for 2003 would be 15 percent + (\1/
4\ times 35-15) percent, or 20 percent. However, we will not apply this
methodology to the medians of those drugs, biologicals and
radiopharmaceuticals that are packaged in 2003 but for which we will
allow separate payment in 2004. Payment for drugs, biologicals and
radiopharmaceuticals that emerge from packaged status in 2004 because
their median per day costs are greater than $50 per day will be based
on the unadjusted median cost derived from our April-December 2002
claims data. Since these items are packaged in 2003, we did not
calculate any adjusted medians on which to base their payments on for
2003. Thus, we are unable to determine the extent to which their median
costs fluctuate from 2003 to 2004.
As discussed in our proposed rule and elsewhere in this final rule,
we used a more complete set of claims for the April-December 2002
claims period and the most recently submitted cost report data to
calculate median costs for all currently separately paid drugs,
biologicals and radiopharmaceuticals. Our analysis of the later and
more complete data revealed that a number of these items continued to
experience a decline of more than 15% in median cost. We again
considered several options to address the fluctuations in medians,
which for some items would result in wide fluctuations in payments to
hospitals. One option was to do nothing to adjust for the fluctuations;
another option was to apply a more modest give-back (for example, 50
percent instead of 75 percent, after allowing for the 15 percent
reduction.) We also considered the comments we received on drug
payments in general and for specific items.

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