[Federal Register: November 27, 2007 (Volume 72, Number 227)] [Rules and Regulations] [Page 66579-67225] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr27no07-23] [[Page 66579]] ----------------------------------------------------------------------- Part III Book 2 of 2 Books Pages 66579-67226 Department of Health and Human Services ----------------------------------------------------------------------- Centers for Medicare & Medicaid Services ----------------------------------------------------------------------- 42 CFR Parts 410, 411, 412, et al. Medicare and Medicaid Programs; Interim and Final Rule [[Page 66580]] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 410, 411, 412, 413, 414, 416, 419, 482 and 485 [CMS-1392-FC], [CMS-1533-F2], and [CMS-1531-IFC2] RIN 0938-AO71, RIN 0938-AO70, and RIN 0938-AO35 Medicare Program: Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates, the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates, the Hospital Inpatient Prospective Payment System and FY 2008 Payment Rates; and Payments for Graduate Medical Education for Affiliated Teaching Hospitals in Certain Emergency Situations Medicare and Medicaid Programs: Hospital Conditions of Participation; Necessary Provider Designations of Critical Access Hospitals AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Interim and final rule with comment period. ----------------------------------------------------------------------- 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. We describe the 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, 2008. In addition, the rule sets forth the applicable relative payment weights and amounts for services furnished in ASCs, specific HCPCS codes to which the final policies of the ASC payment system apply, and other pertinent rate setting information for the CY 2008 ASC payment system. Furthermore, this final rule with comment period will make changes to the policies relating to the necessary provider designations of critical access hospitals and changes to several of the current conditions of participation requirements. The attached document also incorporates the changes to the FY 2008 hospital inpatient prospective payment system (IPPS) payment rates made as a result of the enactment of the TMA, Abstinence Education, and QI Programs Extension Act of 2007, Public Law 110-90. In addition, we are changing the provisions in our previously issued FY 2008 IPPS final rule and are establishing a new policy, retroactive to October 1, 2007, of not applying the documentation and coding adjustment to the FY 2008 hospital-specific rates for Medicare-dependent, small rural hospitals (MDHs) and sole community hospitals (SCHs). In the interim final rule with comment period in this document, we are modifying our regulations relating to graduate medical education (GME) payments made to teaching hospitals that have Medicare affiliation agreements for certain emergency situations. DATES: Effective Date: The provisions of this rule are effective on January 1, 2008. IPPS Payment Rates: The FY 2008 IPPS payment rates, provided in section XIX of the preamble of this document, became effective October 1, 2007. Comment Period: We will consider comments on the payment classifications assigned to HCPCS codes identified in Addenda B, AA, and BB to this final rule with the ``NI'' comment indicator, and other areas specified throughout this rule, at the appropriate address, as provided below, no later than 5 p.m. EST on January 28, 2008. We will also consider comments relating to the Medicare GME teaching hospital affiliated agreement provisions, as provided below, no later than 5 p.m. EST on January 28, 2008. Application Deadline--New Class of New Technology Intraocular Lens: Requests for review of applications for a new class of new technology intraocular lenses must be received by 5 p.m. EST on April 1, 2008. Deadline for Submission of Written Medicare GME Affiliation Agreements: Written Medicare GME affiliation agreements must be received by 5 p.m. EST on January 1, 2008. ADDRESSES: In commenting, please refer to file codes CMS-1392-FC (for OPPS and ASC matters) or CMS-1531-IFC (for Medicare GME matters), as appropriate. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (no duplicates, please): 1. Electronically. You may submit electronic comments on specific issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click on the link ``Submit electronic comments on CMS regulations with an open comment period.'' (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.) 2. By regular mail. You may 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-1392-FC (for OPPS and ASC matters), Attention: CMS-1531-IFC (for Medicare GME matters), P.O. Box 8013, Baltimore, MD 21244-1850. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send 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-1392-FC (for OPPS and ASC matters), Attention: CMS-1531- IFC (for Medicare GME matters), Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses: Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244- 1850. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-9994 in advance to schedule your arrival with one of our staff members. (Because access to the interior of the Hubert H. Humphrey 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 who wish to retain proof of filing by stamping in and retain 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 received after the comment period. For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section. Applications for a new class of new technology intraocular lenses: Requests for review of applications for a new class of new technology intraocular lenses must be sent by regular mail to:ASC/NTIOL, Division of Outpatient Care, Mailstop C4-05-17, Centers for Medicare and Medicaid Services,7500 Security Boulevard,Baltimore, MD 21244-1850. Submissions of written Medicare GME affiliation agreements: Written [[Page 66581]] Medicare GME affiliation agreements must be sent by regular mail to:Centers for Medicare and Medicaid Services, Division of Acute Care, Attention: Elizabeth Troung or Renate Rockwell,Mailstop C4-08-06,7500 Security Boulevard, Baltimore, MD 21244-1850. FOR FURTHER INFORMATION CONTACT: Alberta Dwivedi, (410) 786-0378, Hospital outpatient prospective payment issues. Dana Burley, (410) 786-0378, Ambulatory surgical center issues. Suzanne Asplen, (410) 786-4558, Partial hospitalization and community mental health center issues. Sheila Blackstock, (410) 786-3502, Reporting of quality data issues. Mary Collins, (410) 786-3189, and Jeannie Miller, (410) 786-3164, Necessary provider designations for CAHs issues. Scott Cooper, (410) 786-9465, and Jeannie Miller, (410) 786-3164, Hospital conditions of participation issues. Miechal Lefkowitz, (410) 786-5316, Hospital inpatient prospective payment system issues. Tzvi Hefter, (410) 786-4487, Graduate medical education program issues. SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments from the public on the OPPS APC assignments and/or status indicators assigned to HCPCS codes identified in Addendum B to this final rule with comment period with comment indicator ``NI'' and on the ASC payment indicators assigned to HCPCS codes identified in Addenda AA and BB to this final rule with comment period with comment indicator ``NI'' in order to assist us in fully considering issues and developing OPPS and ASC payment policies for those services. You can assist us by referencing file code CMS- 1392-FC. We also welcome comments from the public on all issues set forth regarding the revised regulations regarding the Medicare GME affiliation agreements to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1531-IFC2 and the specific ``issue identifier'' that precedes the section on which you choose to comment. Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on CMS Regulations'' on that Web site to view public comments. Comments received timely will also 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, MD 21244, on Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951. Electronic Access This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents' home page address is http://www.gpoaccess.gov/index.html, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required). 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 AMP Average manufacturer price ASC Ambulatory Surgical Center ASP Average sales price AWP Average wholesale price BBA Balanced Budget Act of 1997, Pub. L. 105-33 BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113 BCA Blue Cross Association BCBSA Blue Cross and Blue Shield Association BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, Pub. L. 106-554 CAH Critical access hospital CAP Competitive Acquisition Program CBSA Core-Based Statistical Area CCR Cost-to-charge ratio CERT Comprehensive Error Rate Testing CMHC Community mental health center CMS Centers for Medicare & Medicaid Services CoP [Hospital] Condition of participation CORF Comprehensive outpatient rehabilitation facility CPT [Physicians'] Current Procedural Terminology, Fourth Edition, 2007, copyrighted by the American Medical Association CRNA Certified registered nurse anesthetist CY Calendar year DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies DMERC Durable medical equipment regional carrier DRA Deficit Reduction Act of 2005, Pub. L. 109-171 DSH Disproportionate share hospital EACH Essential Access Community Hospital E/M Evaluation and management EPO Erythropoietin ESRD End-stage renal disease FACA Federal Advisory Committee Act, Pub. L. 92-463 FAR Federal Acquisition Regulations FDA Food and Drug Administration FFS Fee-for-service FSS Federal Supply Schedule FTE Full-time equivalent FY Federal fiscal year GAO Government Accountability Office GME Graduate medical education 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, Pub. L. 104-191 HOPD Hospital outpatient department HOP QDRP Hospital Outpatient Quality Data Reporting Program ICD-9-CM International Classification of Diseases, Ninth Edition, Clinical Modification IDE Investigational device exemption IME Indirect medical education IOL Intraocular lens IPPS [Hospital] Inpatient prospective payment system IVIG Intravenous immune globulin MAC Medicare Administrative Contractors MedPAC Medicare Payment Advisory Commission MDH Medicare-dependent, small rural hospital MIEA-TRHCA Medicare Improvements and Extension Act under Division B, Title I of the Tax Relief Health Care Act of 2006, Pub. L. 109-432 MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173 MPFS Medicare Physician Fee Schedule MSA Metropolitan Statistical Area NCCI National Correct Coding Initiative NCD National Coverage Determination NTIOL New technology intraocular lens OCE Outpatient Code Editor OMB Office of Management and Budget OPD [Hospital] Outpatient department OPPS [Hospital] Outpatient prospective payment system PHP Partial hospitalization program [[Page 66582]] PM Program memorandum PPI Producer Price Index PPS Prospective payment system PPV Pneumococcal pneumonia vaccine PRA Paperwork Reduction Act QIO Quality Improvement Organization RFA Regulatory Flexibility Act RHQDAPU Reporting Hospital Quality Data for Annual Payment Update [Program] RHHI Regional home health intermediary SBA Small Business Administration SCH Sole community hospital SDP Single Drug Pricer SI Status indicator TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97- 248 TOPS Transitional outpatient payments USPDI United States Pharmacopoeia Drug Information WAC Wholesale acquisition cost In this document, we address several payment systems under the Medicare program: The hospital outpatient prospective payment system (OPPS); the revised ambulatory surgical center (ASC) payment system; the hospital inpatient prospective payment system (IPPS); and payments for direct and indirect graduate medical education (GME). The provisions relating to the OPPS are included in sections I. through XV., XVII., XXI. through XXIV. of this final rule with comment period and in Addenda A, B, C (Addendum C is available on the Internet only; see section XXI. of this final rule with comment period), D1, D2, E, L, and M to this final rule with comment period. The provisions related to the revised ASC payment system are included in sections XVI., XVII., and XXI. through XXIV. of this final rule with comment period and in Addenda AA, BB, DD1, DD2, and EE (Addendum EE is available on the Internet only; see section XXI. of this final rule with comment period) to this final rule with comment period. The provisions relating to the IPPS payment rates are included in section XIX., XXIV., and XXV. of this document. The provisions relating to policy changes to the Medicare GME affiliation provisions for teaching hospitals in certain emergency situations are included in sections XX., XXIV., and XXV. of this document. Table of Contents I. Background for the OPPS A. Legislative and Regulatory Authority for the Hospital Outpatient Prospective Payment System B. Excluded OPPS Services and Hospitals C. Prior Rulemaking D. APC Advisory Panel 1. Authority of the APC Panel 2. Establishment of the APC Panel 3. APC Panel Meetings and Organizational Structure E. Provisions of the Medicare Improvements and Extension Act under Division B, Title I of the Tax Relief and Health Care Act of 2006 F. Summary of the Major Contents of the CY 2008 OPPS/ASC Proposed Rule 1. Updates Affecting OPPS Payments 2. OPPS Ambulatory Payment Classification (APC) Group Policies 3. OPPS Payment for Devices 4. OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals 5. Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, and Devices 6. OPPS Payment for Brachytherapy Sources 7. OPPS Coding and Payment for Drug Administration Services 8. OPPS Hospital Coding and Payment for Visits 9. OPPS Payment for Blood and Blood Products 10. OPPS Payment for Observation Services 11. Procedures That Will Be Paid Only as Inpatient Services 12. Nonrecurring Technical and Policy Changes 13. OPPS Payment Status and Comment Indicators 14. OPPS Policy and Payment Recommendations 15. Update of the Revised ASC Payment System 16. Quality Data for Annual Payment Updates 17. Changes Affecting Necessary Provider Critical Access Hospitals (CAHs) and Hospital Conditions of Participation (CoPs) 18. Regulatory Impact Analysis G. Public Comments Received in Response to the CY 2008 OPPS/ASC Proposed Rule H. Public Comments Received on the November 24, 2006 OPPS/ASC Final Rule with Comment Period II. Updates Affecting OPPS Payments A. Recalibration of APC Relative Weights 1. Database Construction a. Database Source and Methodology b. Use of Single and Multiple Procedure Claims (1) Use of Date of Service Stratification and a Bypass List to Increase the Amount of Data Used to Determine Medians (2) Exploration of Allocation of Packaged Costs to Separately Paid Procedure Codes c. Calculation of CCRs 2. Calculation of Median Costs 3. Calculation of OPPS Scaled Payment Weights 4. Changes to Packaged Services a. Background b. Addressing Growth in OPPS Volume and Spending c. Packaging Approach (1) Guidance Services (2) Image Processing Services (3) Intraoperative Services (4) Imaging Supervision and Interpretation Services (5) Diagnostic Radiopharmaceuticals (6) Contrast Agents (7) Observation Services d. Development of Composite APCs (1) Background (2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (a) Background (b) Payment for LDR Prostate Brachytherapy (3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC (a) Background (b) Payment for Cardiac Electrophysiologic Evaluation and Ablation e. Service-Specific Packaging Issues B. Payment for Partial Hospitalization 1. Background 2. PHP APC Update 3. Separate Threshold for Outlier Payments to CMHCs C. Conversion Factor Update D. Wage Index Changes E. Statewide Average Default CCRs F. OPPS Payments to Certain Rural Hospitals 1. Hold Harmless Transitional Payment Changes Made by Pub. L. 109-171 (DRA) 2. Adjustment for Rural SCHs Implemented in CY 2006 Related to Pub. L. 108-173 (MMA) G. Hospital Outpatient Outlier Payments H. Calculation of an Adjusted Medicare Payment from the National Unadjusted Medicare Payment I. Beneficiary Copayments 1. Background 2. Copayment 3. Calculation of an Adjusted Copayment Amount for an APC Group III. OPPS Ambulatory Payment Classification (APC) Group Policies A. Treatment of New HCPCS and CPT Codes 1. Treatment of New HCPCS Codes Included in the April and July Quarterly OPPS Updates for CY 2007 a. Background b. Implantation of Interstitial Devices (APC 0156) c. Other New HCPCS Codes Implemented in April or July 2007 2. Treatment of New Category I and III CPT Codes and Level II HCPCS Codes a. Establishment and Assignment of New Codes b. Electronic Brachytherapy (New Technology APC 1519) c. Other Mid-Year CPT Codes B. Variations within APCs 1. Background 2. Application of the 2 Times Rule 3. Exceptions to the 2 Times Rule C. New Technology APCs 1. Introduction 2. Movement of Procedures from New Technology APCs to Clinical APCs a. Positron Emission Tomography (PET)/Computed Tomography (CT) Scans (APC 0308) b. IVIG Preadministration-Related Services (APC 0430) c. Other Services in New Technology APCs (1) Breast Brachytherapy Catheter Implantation (APC 0648) (2) Preoperative Services for Lung Volume Reduction Surgery (LVRS) (APCs 0209 and 0213) D. APC Specific Policies 1. Cardiac Procedures [[Page 66583]] a. Cardiac Computed Tomography and Computed Tomographic Angiography (APCs 0282 and 0383) b. Coronary and Non-Coronary Angioplasty (PTCA/PTA)(APCs 0082, 0083, and 0103) c. Implantation of Cardioverter-Defibrillators (APCs 0107 and 0108) d. Removal of Patient-Activated Cardiac Event Recorder (APC 0109) e. Stress Echocardiography (APC 0697) 2. Gastrointestinal Procedures a. Computed Tomographic Colonography (APC 0332) b. Laparoscopic Neurostimulator Electrode Implantation (APC 0130) c. Screening Colonoscopies and Screening Flexible Sigmoidoscopies (APCs 0158 and 0159) 3. Genitourinary Procedures a. Cystoscopy with Stent (APC 0163) b. Percutaneous Renal Cryoablation (APC 0423) c. Prostatic Thermotherapy (APC 0163) d. Radiofrequency Ablation of Prostate (APC 0163) e. Ultrasound Ablation of Uterine Fibroids with Magnetic Resonance Guidance (MRgFUS) (APC 0067) f. Uterine Fibroid Embolization (APC 0202) 4. Nervous System Procedures a. Chemodenervation (APC 0206) b. Implantation of Intrathecal or Epidural Catheter (APC 0224) c. Implantation of Spinal Neurostimulators (APC 0222) 5. Nuclear Medicine and Radiation Oncology Procedures a. Adrenal Imaging (APC 0391) b. Injection for Sentinel Node Identification (APC 0389) c. Myocardial Positron Emission Tomography (PET) Scans (APC 0307) d. Nonmyocardial Positron Emission Tomography (PET) Scans (APC 0308) e. Proton Beam Therapy (APCs 0664 and 0667) 6. Ocular and Ear, Nose and Throat Procedures a. Amniotic Membrane for Ocular Surface Reconstruction (APC 0244) b. Keratoprosthesis (APC 0293) c. Palatal Implant (New Technology APC 1510) 7. Orthopedic Procedures a. Arthroscopic Procedures (APCs 0041 and 0042) b. Closed Fracture Treatment (APC 0043) c. Insertion of Posterior Spinous Process Distraction Device (APC 0050) d. Intradiscal Annuloplasty (APC 0050) e. Kyphoplasty Procedures (APC 0052) 8. Vascular Procedures a. Blood Transfusion (APC 0110) b. Endovenous Ablation (APC 0092) c. Insertion of Central Venous Access Device (APC 0625) d. Noninvasive Vascular Studies (APC 0267) 9. Other Procedures a. Hyperbaric Oxygen Therapy (APC 0659) b. Skin Repair Procedures (APCs 0133, 0134, 0135, 0136, and 0137) c. Stereotactic Radiosurgery (SRS) Treatment Delivery Services (APCs 0065, 0066, and 0067) 10. Medical Services a. Single Allergy Tests (APC 0381) b. Continuous Glucose Monitoring (APC 0097) c. Home International Normalized Ratio (INR) Monitoring (APC 0097) d. Mental Health Services (APC 0322, 0323, 0324, 0325) IV. OPPS Payment for Devices A. Treatment of Device Dependent APCs 1. Background 2. Payment under the OPPS 3. Payment When Devices Are Replaced with Partial Credit to the Hospital B. Pass-Through Payments for Devices 1. Expiration of Transitional Pass Through Payments for Certain Devices a. Background b. Final Policy 2. Provisions for Reducing Transitional Pass Through Payments to Offset Costs Packaged into APC Groups a. Background b. Final Policy V. OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals A. Transitional Pass-Through Payment for Additional Costs of Drugs and Biologicals 1. Background 2. Drugs and Biologicals with Expiring Pass-Through Status in CY 2007 3. Drugs and Biologicals with Pass-Through Status in CY 2008 B. Payment for Drugs, Biologicals, and Radiopharmaceuticals without Pass Through Status 1. Background 2. Criteria for Packaging Payment for Drugs and Biologicals 3. Payment for Drugs and Biologicals without Pass Through Status That Are Not Packaged a. Payment for Specified Covered Outpatient Drugs (1) Background (2) Payment Policy (3) Payment for Blood Clotting Factors (a) Background (b) Payment for Diagnostic Radiopharmaceuticals (c) Payment for Therapeutic Radiopharmaceuticals b. Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals with HCPCS Codes, But without OPPS Hospital Claims Data VI. Estimate of OPPS Transitional Pass Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices A. Total Allowed Pass Through Spending B. Estimate of Pass Through Spending VII. OPPS Payment for Brachytherapy Sources A. Background B. Payment for Brachytherapy Sources VIII. OPPS Drug Administration Coding and Payment A. Background B. Coding and Payment for Drug Administration Services IX. Hospital Coding and Payments for Visits A. Background B. Policies for Hospital Outpatient Visits 1. Clinic Visits: New and Established Patient Visits and Consultations 2. Emergency Department Visits C. Visit Reporting Guidelines 1. Background 2. CY 2007 Work on Visit Guidelines 3. Visit Guidelines X. OPPS Payment for Blood and Blood Products A. Background B. Payment for Blood and Blood Products XI. OPPS Payment for Observation Services A. Observation Services (HCPCS Code G0378) B. Direct Admission to Observation (HCPCS Code G0379) XII. Procedures That Will Be Paid Only as Inpatient Procedures A. Background B. Changes to the Inpatient List XIII. Nonrecurring Technical and Policy Changes A. Outpatient Hospital Services and Supplies Incident to a Physician Service B. Interrupted Procedures C. Transitional Adjustments--Hold Harmless Provisions D. Reporting of Wound Care Services E. Reporting of Cardiac Rehabilitation Services F. Reporting of Bone Marrow and Stem Cell Processing Services G. Reporting of Alcohol and/or Substance Abuse Assessment and Intervention Services XIV. OPPS Payment Status and Comment Indicators A. Payment Status Indicator Definitions 1. Payment Status Indicators to Designate Services That Are Paid under the OPPS 2. Payment Status Indicators to Designate Services That Are Paid under a Payment System Other Than the OPPS 3. Payment Status Indicators to Designate Services That Are Not Recognized under the OPPS But That May Be Recognized by Other Institutional Providers 4. Payment Status Indicators to Designate Services That Are Not Payable by Medicare B. Comment Indicator Definitions XV. OPPS Policy and Payment Recommendations A. MedPAC Recommendations B. APC Panel Recommendations XVI. Update of the Revised Ambulatory Surgical Center Payment System A. Legislative and Regulatory Authority for the ASC Payment System B. Rulemaking for the Revised ASC Payment System C. Revisions to the ASC Payment System Effective January 1, 2008 1. Covered Surgical Procedures under the Revised ASC Payment System a. Definition of Surgical Procedure b. Identification of Surgical Procedures Eligible for Payment under the Revised ASC Payment System c. Payment for Covered Surgical Procedures under the Revised ASC Payment System (1) General Policies (2) Office-Based Procedures (3) Device-Intensive Procedures (4) Multiple and Interrupted Procedure Discounting (5) Transition to Revised ASC Payment Rates [[Page 66584]] 2. Covered Ancillary Services under the Revised ASC Payment System a. General Policies b. Payment Policies for Specific Items and Services (1) Radiology Services (2) Brachytherapy Sources 3. General Payment Policies a. Adjustment for Geographic Wage Differences b. Beneficiary Coinsurance D. Treatment of New HCPCS Codes 1. Treatment of New CY 2008 Category I and III CPT Codes and Level II HCPCS Codes 2. Treatment of New Mid-Year Category III CPT Codes 3. Treatment of Level II HCPCS Codes Released on a Quarterly Basis E. Updates to Covered Surgical Procedures and Covered Ancillary Services 1. Identification of Covered Surgical Procedures a. General Policies b. Changes in Designation of Covered Surgical Procedures as Office-Based c. Changes in Designation of Covered Surgical Procedures as Device Intensive 2. Changes in Identification of Covered Ancillary Services F. Payment for Covered Surgical Procedures and Covered Ancillary Services 1. Payment for Covered Surgical Procedures a. Update to Payment Rates b. Payment Policies When Devices Are Replaced at No Cost or with Credit (1) Policy When Devices Are Replaced at No Cost or with Full Credit (2) Policy When Implantable Devices Are Replaced with Partial Credit 2. Payment for Covered Ancillary Services G. Physician Payment for Procedures and Services Provided in ASC H. Changes to Definitions of ``Radiology and Certain Other Imaging Services'' and ``Outpatient Prescription Drugs'' I. New Technology Intraocular Lenses (NTIOLs) 1. Background 2. Changes to the NTIOL Determination Process Finalized for CY 2008 3. NTIOL Application Process for CY 2008 Payment Adjustment 4. Classes of NTIOLS Approved for Payment Adjustment 5. Payment Adjustment 6. CY 2008 ASC Payment for Insertion of IOLs J. ASC Payment and Comment Indicators K. ASC Policy and Payment Recommendations L. Calculation of the ASC Conversion Factor and ASC Payment Rates XVII. Reporting Quality Data for Annual Payment Rate Updates A. Background 1. Reporting Hospital Outpatient Quality Data for Annual Payment Update 2. Reporting ASC Quality Data for Annual Payment Increase 3. Reporting Hospital Inpatient Quality Data for Annual Payment Update B. Hospital Outpatient Measures C. Other Hospital Outpatient Measures D. Implementation of the HOP QDRP and Request for Additional Suggested Measures E. Requirements for HOP Quality Data Reporting for CY 2009 and Subsequent Calendar Years 1. Administrative Requirements 2. Data Collection and Submission Requirements 3. HOP QDRP Validation Requirements F. Publication of HOP QDRP Data Collected G. Attestation Requirement for Future Payment Years H. HOP QDRP Reconsiderations I. Reporting of ASC Quality Data J. FY 2009 IPPS Quality Measures under the RHQDAPU Program XVIII. Changes Affecting Critical Access Hospitals (CAHs) and Hospital Conditions of Participation (CoPs) A. Changes Affecting CAHs 1. Background 2. Co-Location of Necessary Provider CAHs 3. Provider-Based Facilities of CAHs 4. Termination of Provider Agreement 5. Regulation Changes B. Revisions to Hospital CoPs 1. Background 2. Provisions of the Final Regulation a. Timeframes for Completion of the Medical History and Physical Examination b. Requirements for Preanesthesia and Postanesthesia Evaluations c. Technical Amendment to Nursing Services CoP XIX. Changes to the FY 2008 Hospital Inpatient Prospective Payment System (IPPS) Payment Rates A. Background B. Revised IPPS Payment Rates 1. MS-DRG Documentation and Coding Adjustment 2. Application of the Documentation and Coding Adjustment to the Hospital Specific Rates XX. Medicare Graduate Medical Education Affiliation Provisions for Teaching Hospitals in Certain Emergency Situations A. Background 1. Legislative Authority 2. Existing Medicare Direct GME and Indirect GME Policies 3. Regulatory Changes Issued in 2006 to Address Certain Emergency Situations B. Additional Changes in This Interim Final Rule with Comment Period 1. Summary of Regulatory Changes 2. Discussion of Training in Nonhospital Settings C. Responses to Comments on the April 12, 2006 Interim Final Rule with Comment Period and This Interim Final Rule with Comment Period XXI. Files Available to the Public Via the Internet A. Information in Addenda Related to the Revised CY 2008 Hospital OPPS B. Information in Addenda Related to the Revised CY 2008 ASC Payment System XXII. Collection of Information Requirements XXIII. Response to Comments XXIV. Regulatory Impact Analysis A. Overall Impact of Changes to the OPPS and ASC Payment Systems 1. Executive Order 12866 2. Regulatory Flexibility Act (RFA) 3. Small Rural Hospitals 4. Unfunded Mandates 5. Federalism B. Effects of OPPS Changes in This Final Rule with Comment Period 1. Alternatives Considered 2. Limitation of Our Analysis 3. Estimated Impact of This Final Rule with Comment Period on Hospitals and CMHCs 4. Estimated Effect of This Final Rule with Comment Period on Beneficiaries 5. Conclusion 6. Accounting Statement C. Effects of ASC Payment System Changes in This Final Rule with Comment Period 1. Alternatives Considered 2. Limitations on Our Analysis 3. Estimated Effects of This Final Rule with Comment Period on ASCs 4. Estimated Effects of This Final Rule with Comment Period on Beneficiaries 5. Conclusion 6. Accounting Statement D. Effects of the Requirements for Reporting of Quality Data for Hospital Outpatient Settings E. Effects of the Policy on CAH Off-Campus and Co-Location Requirements F. Effects of the Policy Revisions to the Hospital CoPs G. Effects of the Changes to the Hospital Inpatient Prospective Payment System (IPPS) Payment Rates 1. Overall Impact 2. Objectives 3. Limitations of Our Analysis 4. Quantitative Effects of the IPPS Policy Changes on Operating Costs 5. Analysis of Table I a. Effects of All Changes with CMI Adjustment Prior to Estimated Growth (Columns 2a and 2b) b. Effects of All Changes with CMI Adjustment and Estimated Growth (Column 3) 6. Overall Conclusion 7. Accounting Statement 8. Executive order 12866 H. Impact of the Policy Revisions to the Emergency Medicare GME Affiliated Groups for Hospitals in Certain Declared Emergency Areas 1. Overall Impact 2. RFA 3. Small Rural Hospitals 4. Unfunded Mandates 5. Federalism 6. Anticipated Effects 7. Alternatives Considered 8. Conclusion 9. Executive Order 12866 XXV. Waiver of Proposed Rulemaking, Waiver of Delay in Effective Date, and Retroactive Effective Date A. Requirements for Waivers and Retroactive Rulemaking B. IPPS Payment Rate Policies C. Medicare GME Affiliation Agreement Provisions Regulation Text Addenda Addendum A-OPPS APCs for CY 2008 [[Page 66585]] Addendum AA-ASC Covered Surgical Procedures for CY 2008 (Including Surgical Procedures for Which Payment is Packaged) Addendum B-OPPS Payment By HCPCS Code for CY 2008 Addendum BB-ASC Covered Ancillary Services Integral to Covered Surgical Procedures for CY 2008 (Including Ancillary Services for Which Payment Is Packaged) Addendum D1-OPPS Payment Status Indicators Addendum DD1-ASC Payment Indicators Addendum D2-OPPS Comment Indicators Addendum DD2-ASC Comment Indicators Addendum E-HCPCS Codes That Would Be Paid Only as Inpatient Procedures for CY 2008 Addendum L-Out-Migration Adjustment Addendum M-HCPCS Codes for Assignment to Composite APCs for CY 2008 I. Background for the OPPS A. Legislative and Regulatory Authority for the Hospital 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 reasonable cost-based payment methodology with a prospective payment system (PPS). The Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33) added section 1833(t) to the Social Security Act (the Act) authorizing implementation of a PPS for hospital outpatient services. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113) made major changes in the hospital outpatient prospective payment system (OPPS). The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-554) made further changes in the OPPS. Section 1833(t) of the Act was also amended by the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108 173). The Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171), enacted on February 8, 2006, also made additional changes in the OPPS. In addition, the Medicare Improvements and Extension Act under Division B of Title I of the Tax Relief and Health Care Act (MIEA-TRHCA) of 2006 (Pub. L. 109- 432), enacted on December 20, 2006, made further changes in the OPPS. A discussion of these changes is included in sections I.E., VII., and XVII. of this final rule with comment period. The OPPS was first implemented for services furnished on or after August 1, 2000. Implementing regulations for the OPPS are located at 42 CFR part 419. Under the OPPS, we pay for hospital outpatient services on a rate- per-service basis that varies according to the ambulatory payment classification (APC) group to which the service is assigned. We use the Healthcare Common Procedure Coding System (HCPCS) codes (which include certain Current Procedural Terminology (CPT) codes) and descriptors to identify and group the services within each APC group. The OPPS includes payment for most hospital outpatient services, except those identified in section I.B. of this final rule with comment period. Section 1833(t)(1)(B)(ii) of the Act provides for Medicare payment under the OPPS for hospital outpatient services designated by the Secretary (which includes partial hospitalization services furnished by community mental health centers (CMHCs)) and hospital outpatient services that are furnished to inpatients who have exhausted their Part A benefits, or who are otherwise not in a covered Part A stay. Section 611 of Pub. L. 108-173 added provisions for Medicare coverage of an initial preventive physical examination, subject to the applicable deductible and coinsurance, as an outpatient department service, payable under the OPPS. The OPPS rate is an unadjusted national payment amount that includes the Medicare payment and the beneficiary copayment. This rate is divided into a labor-related amount and a nonlabor-related amount. The labor-related amount is adjusted for area wage differences using the hospital inpatient wage index value for the locality in which the hospital or CMHC is located. All services and items within an APC group are comparable clinically and with respect to resource use (section 1833(t)(2)(B) of the Act). In accordance with section 1833(t)(2) of the Act, subject to certain exceptions, services and items 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 APC group is more than 2 times greater than the lowest median cost for an item or service within the same APC group (referred to as the ``2 times rule''). In implementing this provision, we generally use the median cost of the item or service assigned to an APC group. For new technology items and services, special payments under the OPPS may be made in one of two ways. Section 1833(t)(6) of the Act provides for temporary additional payments, which we refer to as ``transitional pass through payments,'' for at least 2 but not more than 3 years for certain drugs, biological agents, brachytherapy devices used for the treatment of cancer, and categories of other medical devices. For new technology services that are not eligible for transitional pass through payments, and for which we lack sufficient data to appropriately assign them to a clinical APC group, we have established special APC groups based on costs, which we refer to as New Technology APCs. These New Technology APCs are designated by cost bands which allow us to provide appropriate and consistent payment for designated new procedures that are not yet reflected in our claims data. Similar to pass through payments, an assignment to a New Technology APC is temporary; that is, we retain a service within a New Technology APC until we acquire sufficient data to assign it to a clinically appropriate APC group. B. Excluded OPPS Services and Hospitals Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to designate the hospital outpatient services that are paid under the OPPS. While most hospital outpatient services are payable under the OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for ambulance, physical and occupational therapy, and speech-language pathology services, for which payment is made under a fee schedule. Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the Act to exclude payment for screening and diagnostic mammography services from the OPPS. The Secretary exercised the authority granted under the statute to also exclude from the OPPS those services that are paid under fee schedules or other payment systems. Such excluded services include, for example, the professional services of physicians and nonphysician practitioners paid under the Medicare Physician Fee Schedule (MPFS); laboratory services paid under the clinical diagnostic laboratory fee schedule (CLFS); services for beneficiaries with end stage renal disease (ESRD) that are paid under the ESRD composite rate; and services and procedures that require an inpatient stay that are paid under the hospital inpatient prospective payment system (IPPS). We set forth the services that are excluded from payment under the OPPS in Sec. 419.22 of the regulations. Under Sec. 419.20(b) of the regulations, we specify the types of hospitals and entities that are excluded from payment under the OPPS. These excluded [[Page 66586]] entities include Maryland hospitals, but only for services that are paid under a cost containment waiver in accordance with section 1814(b)(3) of the Act; critical access hospitals (CAHs); hospitals located outside of the 50 States, the District of Columbia, and Puerto Rico; and Indian Health Service hospitals. C. Prior Rulemaking On April 7, 2000, we published in the Federal Register a final rule with comment period (65 FR 18434) to implement a prospective payment system for hospital outpatient services. The hospital OPPS was first implemented for services furnished on or after August 1, 2000. Section 1833(t)(9) of the Act requires the Secretary to review certain components of the OPPS, not less often than annually, and to revise the groups, relative payment weights, and other adjustments that take into account changes in medical practices, changes in technologies, and the addition of new services, new cost data, and other relevant information and factors. Since initially implementing the OPPS, we have published final rules in the Federal Register annually to implement statutory requirements and changes arising from our continuing experience with this system. We published in the Federal Register on November 24, 2006 the CY 2007 OPPS/ASC final rule with comment period (71 FR 67960). In that final rule with comment period, we revised the OPPS to update the payment weights and conversion factor for services payable under the CY 2007 OPPS on the basis of claims data from January 1, 2005, through December 31, 2005, and to implement certain provisions of Pub. L. 108- 173 and Pub. L. 109-171. In addition, we responded to public comments received on the provisions of the November 10, 2005 final rule with comment period (70 FR 86516) pertaining to the APC assignment of HCPCS codes identified in Addendum B of that rule with the new interim (NI) comment indicator; and public comments received on the August 23, 2006 OPPS/ASC proposed rule for CY 2007 (71 FR 49506). On August 2, 2007, we issued in the Federal Register (72 FR 42628) a proposed rule for the CY 2008 OPPS/ASC to implement statutory requirements and changes arising from our continuing experience with both systems. We received approximately 2,180 pieces of timely correspondence in response to the proposed rule. A summary of the public comments we received and our responses to those comments are included in the specific sections of this final rule with comment period. D. APC Advisory Panel 1. Authority of the APC Panel Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of the BBRA, and redesignated by section 202(a)(2) of the BBRA, requires that we consult with an outside panel of experts to review the clinical integrity of the payment groups and their weights under the OPPS. The Act further specifies that the panel will act in an advisory capacity. The Advisory Panel on Ambulatory Payment Classification (APC) Groups (the APC Panel), discussed under section I.D.2. of this final rule with comment period, fulfills these requirements. The APC Panel is not restricted to using data compiled by CMS, and may use data collected or developed by organizations outside the Department in conducting its review. 2. Establishment of the APC Panel On November 21, 2000, the Secretary signed the initial charter establishing the APC Panel. This expert panel, which may be composed of up to 15 representatives of providers subject to the OPPS (currently employed full-time, not as consultants, in their respective areas of expertise), reviews clinical data and advises CMS about the clinical integrity of the APC groups and their payment weights. For purposes of this Panel, consultants or independent contractors are not considered to be full-time employees. The APC Panel is technical in nature, and is governed by the provisions of the Federal Advisory Committee Act (FACA). Since its initial chartering, the Secretary has renewed the APC Panel's charter three times: On November 1, 2002; on November 1, 2004; and effective November 21, 2006. The current charter specifies, among other requirements, that the APC Panel continue to be technical in nature; be governed by the provisions of the FACA; may convene up to three meetings per year; has a Designated Federal Officer (DFO); and is chaired by a Federal official designated by the Secretary. The current APC Panel membership and other information pertaining to the APC Panel, including its charter, Federal Register notices, membership, meeting dates, agenda topics, and meeting reports can be viewed on the CMS Web site at: http://www.cms.hhs.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp#TopOfPage . 3. APC Panel Meetings and Organizational Structure The APC Panel first met on February 27, February 28, and March 1, 2001. Since the initial meeting, the APC Panel has held 12 subsequent meetings, with the last meeting taking place on September 5 and 6, 2007. Prior to each meeting, we publish a notice in the Federal Register to announce the meeting, and when necessary, to solicit nominations for APC Panel membership, and to announce new members. The APC Panel has established an operational structure that, in part, includes the use of three subcommittees to facilitate its required APC review process. The three current subcommittees are the Data Subcommittee, the Observation and Visit Subcommittee, and the Packaging Subcommittee. The Data Subcommittee is responsible for studying the data issues confronting the APC Panel, and for recommending options for resolving them. The Observation and Visit Subcommittee reviews and makes recommendations to the APC Panel on all technical issues pertaining to observation services and hospital outpatient visits paid under the OPPS (for example, APC configurations and APC payment weights). The Packaging Subcommittee studies and makes recommendations on issues pertaining to services that are not separately payable under the OPPS, but whose payments are bundled or packaged into APC payments. Each of these subcommittees was established by a majority vote from the full APC Panel during a scheduled APC Panel meeting, and their continuation as subcommittees was last approved at the September 2007 APC Panel meetings. All subcommittee recommendations are discussed and voted upon by the full APC Panel. Discussions of the recommendations resulting from the APC Panel's March 2007 and September 2007 meetings are included in the sections of this final rule with comment period that are specific to each recommendation. For discussions of earlier APC Panel meetings and recommendations, we refer readers to previously published hospital OPPS final rules or the Web site mentioned earlier in this section. E. Provisions of the Medicare Improvements and Extension Act under Division B of Title I of the Tax Relief and Health Care Act of 2006 The Medicare Improvements and Extension Act under Division B of Title I of the Tax Relief and Health Care Act [[Page 66587]] (MIEA-TRHCA) of 2006, Pub. L. 109-432, enacted on December 20, 2006, included the following provisions affecting the OPPS: 1. Section 107(a) of the MIEA-TRHCA amended section 1833(t)(16)(C) of the Act to extend the period for payment of brachytherapy devices based on the hospital's charges adjusted to cost for 1 additional year, through December 31, 2007. 2. Section 107(b)(1) of the MIEA-TRHCA amended section 1833(t)(2)(H) of the Act by adding stranded and non stranded devices furnished on or after July 1, 2007, as additional classifications of brachytherapy devices for which separate payment groups must be established for payment under the OPPS. Section 107(b)(2) of the MIEA TRCHA provides that the Secretary may implement the section 107(b)(1) amendment to section 1833(t)(2)(H) of the Act ``by program instruction or otherwise.'' 3. Section 109(a) of the MIEA-TRHCA added new paragraph (17) to section 1833(t) of the Act which authorizes the Secretary, beginning in 2009 and each subsequent year, to reduce the OPPS full annual update by 2.0 percentage points if a hospital paid under the OPPS fails to submit data as required by the Secretary in the form and manner specified on selected measures of quality of care, including medication errors. In accordance with this provision, the selected measures are those that are appropriate for the measurement of quality of care furnished by hospitals in the outpatient setting, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more of the national consensus entities, and that may be the same as those required for reporting by hospitals paid under the IPPS. This provision specifies that a reduction for 1 year cannot be taken into account when computing the OPPS update for a subsequent year. In addition, this provision requires the Secretary to establish a process for making the submitted data available for public review. F. Summary of the Major Contents of the CY 2008 OPPS/ASC Proposed Rule On August 2, 2007, we published a proposed rule in the Federal Register (72 FR 42628) that set forth proposed changes to the Medicare hospital OPPS for CY 2008 to implement statutory requirements and changes arising from our continuing experience with the system and to implement certain statutory provisions. In addition, we proposed changes to the revised Medicare ASC payment system for CY 2008 such as adding procedures to the list of covered surgical procedures and adjusting the ASC rates so that the revised ASC payment system is budget neutral. We also proposed to make changes to the policies relating to the necessary provider designations of CAHs that are being recertified when a CAH enters into a new co-location arrangement with another hospital or CAH or when the CAH creates or acquires an off- campus location. Further, we proposed changes to several of the current conditions of participation that hospitals must meet to participate in the Medicare and Medicaid programs to require the completion and documentation in the medical record of medical histories and physical examinations of patients conducted after admission and prior to surgery or a procedure requiring anesthesia services and for postanesthesia evaluations of patients before discharge or transfer from the postanesthesia recovery area. Finally, we set forth proposed quality measures for a Hospital Outpatient Quality Data Reporting (HOP QDRP) program for reporting quality data for annual payment rate updates for CY 2009 and subsequent calendar years. We also briefly discussed the legislative provisions of the MIEA-TRHCA that give the Secretary authority to develop quality measures for reporting data by ASCs. The following is a summary of the major changes included in the CY 2008 OPPS/ASC proposed rule: 1. Updates Affecting OPPS Payments In section II. of the proposed rule, we set forth-- The methodology used to recalibrate the proposed APC relative payment weights. The proposed payment for partial hospitalization services, including the proposed separate threshold for outlier payments for CMHCs. The proposed update to the conversion factor used to determine payment rates under the OPPS. The proposed retention of our current policy to use the IPPS wage indices to adjust, for geographic wage differences, the portion of the OPPS payment rate and the copayment standardized amount attributable to labor related cost. The proposed update of statewide average default CCRs. The proposed application of hold harmless transitional outpatient payments (TOPs) for certain small rural hospitals. The proposed payment adjustment for rural SCHs. The proposed calculation of the hospital outpatient outlier payment. The calculation of the proposed national unadjusted Medicare OPPS payment. The proposed beneficiary copayments for OPPS services. 2. OPPS Ambulatory Payment Classification (APC) Group Policies In section III. of the proposed rule, we discussed the proposed additions of new procedure codes to the APCs; our proposal to establish a number of new APCs; and our analyses of Medicare claims data and certain recommendations of the APC Panel. We also discussed the application of the 2 times rule and proposed exceptions to it; proposed changes to specific APCs; and the proposed movement of procedures from New Technology APCs to clinical APCs. 3. OPPS Payment for Devices In section IV. of the proposed rule, we discussed proposed payment for device dependent APCs and pass-through payment for specific categories of devices. 4. OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals In section V. of the proposed rule, we discussed the proposed CY 2008 OPPS payment for drugs, biologicals, and radiopharmaceuticals, including the proposed payment for drugs, biologicals, and radiopharmaceuticals with and without pass-through status. 5. Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, and Devices In section VI. of the proposed rule, we discussed the estimate of CY 2008 OPPS transitional pass-through spending for drugs, biologicals, and devices. 6. OPPS Payment for Brachytherapy Sources In section VII. of the proposed rule, we discussed our proposal concerning coding and payment for brachytherapy sources. 7. OPPS Coding and Payment for Drug Administration Services In section VIII. of the proposed rule, we set forth our proposed policy concerning coding and payment for drug administration services. 8. OPPS Hospital Coding and Payments for Visits In section IX. of the proposed rule, we set forth our proposed policies for the coding and reporting of clinic and emergency department visits and [[Page 66588]] critical care services on claims paid under the OPPS. 9. OPPS Payment for Blood and Blood Products In section X. of the proposed rule, we discussed our proposed payment for blood and blood products. 10. Proposed OPPS Payment for Observation Services In section XI. of the proposed rule, we discussed the proposed payment policies for observation services furnished to patients on an outpatient basis. 11. Procedures That Will Be Paid Only as Inpatient Services In section XII. of the proposed rule, we discussed the procedures that we proposed to remove from the inpatient list and assign to APCs. 12. Nonrecurring Technical and Policy Changes In section XIII. of the proposed rule, we set forth our proposals for nonrecurring technical and policy changes and clarifications relating to outpatient services and supplies incident to physicians' services; payment for interrupted procedures prior to and after the administration of anesthesia; transitional adjustments to payments for covered outpatient services furnished by small rural hospitals and SCHs located in rural areas; and reporting requirements for wound care services, cardiac rehabilitation services, and bone marrow and stem cell processing services. 13. OPPS Payment Status and Comment Indicators In section XIV. of the proposed rule, we discussed proposed changes to the definitions of status indicators assigned to APCs and presented our proposed comment indicators for the OPPS/ASC final rule with comment period. 14. OPPS Policy and Payment Recommendations In section XV. of the proposed rule, we addressed recommendations made by the Medicare Payment Advisory Commission (MedPAC) in its March and June 2007 Reports to Congress and by the APC Panel regarding the OPPS for CY 2008. 15. Update of the Revised ASC Payment System In section XVI. of the proposed rule, we discussed the proposed update of the revised ASC payment system payment rates for CY 2008. We also discussed our proposed changes to our regulations at Sec. Sec. 414.22(b)(5)(i)(A) and (B) regarding physician payment for performing excluded surgical procedures in ASCs. In addition, we set forth our proposal to revise the definitions of ``radiology and certain other imaging services'' and ``outpatient prescription drugs'' when provided integral to an ASC covered surgical procedure. 16. Reporting Quality Data for Annual Payment Rate Updates In section XVII. of the proposed rule, we discussed the proposed quality measures for reporting hospital outpatient quality data for CY 2009 and subsequent years and set forth the requirements for data collection and submission for the annual payment update. We also briefly discussed the legislative provisions of the MIEA-TRHCA that give the Secretary authority to develop quality measures for reporting by ASCs. (We note that, as discussed in section XVII.J. of this final rule with comment period, we are also finalizing a proposal from the FY 2008 IPPS proposed rule relating to the FY 2009 RHQDAPU quality measures. Specifically, we are finalizing the inclusion of SCIP Infection 4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose and SCIP Infection 6: Surgery Patients with Appropriate Hair Removal in the FY 2009 RHQDAPU measure set, bringing the total number of measures in that measure set to 30.) 17. Changes Affecting Necessary Provider Critical Access Hospitals (CAHs) and Hospital Conditions of Participation (CoPs) In section XVIII. of the proposed rule, we discussed our proposed changes affecting CAHs both when the CAH enters into a new co-location arrangement with another hospital or CAH and when the CAH creates or acquires a provider-based off campus location. We also discussed our proposed changes relating to several hospital CoPs to require the completion of physical examinations and medical histories and documentation in the medical records for patients after admission and prior to surgery or a procedure requiring anesthesia services, and for postanesthesia evaluations of patients after surgery or a procedure requiring anesthesia services but before discharge or transfer from the postanesthesia recovery area. 18. Regulatory Impact Analysis In section XXII. of the proposed rule, we set forth an analysis of the impact the proposed changes would have on affected entities and beneficiaries. (We note that this regulatory impact analysis section is redesignated as section XXIV. of this final rule with comment period.) G. Public Comments Received in Response to the CY 2008 OPPS/ASC Proposed Rule We received approximately 2,180 timely pieces of correspondence containing multiple comments on the CY 2008 OPPS/ASC proposed rule. We note that we received some comments that were outside the scope of the CY 2008 OPS/ASC proposed rule. These comments are not addressed in this CY 2008 OPPS/ASC final rule with comment period. Summaries of the public comments that are within the scope of the proposals and our responses to those comments are set forth in the various sections of this final rule with comment period under the appropriate headings. H. Public Comments Received on the November 24, 2006 OPPS/ASC Final Rule with Comment Period We received approximately 21 timely items of correspondence on the CY 2007 OPPS/ASC final rule with comment period, some of which contained multiple comments on the interim final APC assignments and/or status indicators of HCPCS codes identified with comment indicator ``NI'' in Addendum B to that final rule with comment period. Summaries of those public comments and our responses to them are set forth in the various sections of this final rule with comment period under the appropriate headings. II. Updates Affecting OPPS Payments A. Recalibration of APC Relative Weights 1. Database Construction a. Database Source and Methodology Section 1833(t)(9)(A) of the Act requires that the Secretary review and revise the relative payment weights for APCs at least annually. In the April 7, 2000 OPPS final rule with comment period (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 a small number of APC changes, these relative payment weights continued to be in effect for CY 2001. This policy is discussed in the November 13, 2000 interim final rule (65 FR 67824 through 67827). In the CY 2008 OPPS/ASC proposed rule, we proposed to use the same basic methodology that we described in the [[Page 66589]] April 7, 2000 OPPS final rule with comment period to recalibrate the APC relative payment weights for services furnished on or after January 1, 2008 and before January 1, 2009. That is, we proposed to recalibrate the relative payment weights for each APC based on claims and cost report data for outpatient services. We proposed to use the most recent available data to construct the database for calculating APC group weights. For the purpose of recalibrating the proposed APC relative payment weights for CY 2008, we used approximately 131 million final action claims for hospital outpatient department (HOPD) services furnished on or after January 1, 2006 and before January 1, 2007. (For exact counts of claims used, we refer readers to the claims accounting narrative under supporting documentation for the proposed rule on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/HORD/). Of the 141 million final action claims for services provided in hospital outpatient settings used to calculate the CY 2008 OPPS payment rates for this final rule with comment period, approximately 103 million claims were of the type of bill potentially appropriate for use in setting rates for OPPS services (but did not necessarily contain services payable under the OPPS). Of the 103 million claims, approximately 45 million were not for services paid under the OPPS or were excluded as not appropriate for use (for example, erroneous cost- to-charge ratios (CCRs) or no HCPCS codes reported on the claim). We were able to use approximately 54 million whole claims of the approximately 58 million claims that remained to set the OPPS APC relative weights for the CY 2008 OPPS. From the 54 million whole claims, we created approximately 97 million single records, of which approximately 65 million were ``pseudo'' single claims (created from multiple procedure claims using the process we discuss in this section). Approximately 926,000 claims trimmed out on cost or units in excess of +/-3 standard deviations from the geometric mean, yielding approximately 96 million single bills used for median setting. Ultimately, we were able to use for CY 2008 ratesetting some portion of 93 ercent of the CY 2006 claims containing services payable under the OPPS. This is approximately the same percentage of CY 2005 claims where some portion could be used for CY 2007 ratesetting as described in the CY 2007 OPPS/ASC final rule with comment period (71 FR 67970). As proposed, the final APC relative weights and payments for CY 2008 in Addenda A and B to this final rule with comment period were calculated using claims from this period that were processed before June 30, 2007, and continue to be based on the median hospital costs for services in the APC groups. We selected claims for services paid under the OPPS and matched these claims to the most recent cost report filed by the individual hospitals represented in our claims data. We continue to believe that it is appropriate to use the most current full calendar year claims data and the most recently submitted cost reports to calculate the median costs which we proposed to convert to relative payment weights for purposes of calculating the CY 2008 payment rates. We did not receive any comments on our proposal to base the CY 2008 APC relative weights on the most currently available cost reports and on claims for services furnished in CY 2006. Therefore, we are finalizing our data source for the recalibration of the CY 2008 APC relative payment weights as proposed, without modification, as described in this section of this final rule with comment period. b. Use of Single and Multiple Procedure Claims For CY 2008, in general, we proposed to continue to use single procedure claims to set the medians on which the APC relative payment weights would be based, with some exceptions as discussed below. We generally use single procedure claims to set the median costs for APCs because we believe that it is important that the OPPS relative weights on which payment rates are based be appropriate when one and only one procedure is furnished and because we are, so far, unable to ensure that packaged costs can be appropriately allocated across multiple procedures performed on the same date of service. We agree that, optimally, it is desirable to use the data from as many claims as possible to recalibrate the APC relative payment weights, including those claims for multiple procedures. We engaged in several efforts this year to improve our use of multiple procedure claims for ratesetting. As we have for several years, we continued to use date of service stratification and a list of codes to be bypassed to convert multiple procedure claims to ``pseudo'' single procedure claims. We also continued our internal efforts to better understand the patterns of services and costs from multiple bills toward the goal of using more multiple bill information by assessing the amount of packaging in the multiple bills and, specifically, by exploring the amount of packaging for drug administration services in the single and multiple bill claims. Moreover, in many cases, the packaging approach that we proposed for the CY 2008 OPPS also allows the use of more claims data by enabling us to treat claims with multiple procedure codes as single claims. We refer readers to section II.A.4. of the proposed rule for a full discussion of the packaging approach for CY 2008. We received several public comments on our proposed use of single bills to calculate the APC median costs for ratesetting under the CY 2008 OPPS. A summary of the public comments and our responses follow. Comment: Some commenters supported the ``natural'' and ``pseudo'' single methodology but asked that CMS continue to refine the approach in order to improve the accuracy of the estimates because the medians are used to develop payment rates for services on both single and multiple procedure claims. Other commenters asserted that continued reliance on single procedure bills to establish the medians from which the rates were calculated failed to produce a statistically valid sample of services for ratesetting, in particular for brachytherapy services that are often provided in combination with one another in a single encounter. Other commenters requested that CMS explore additional revisions to the current methodology to ensure that OPPS payment would be based on a substantial number of accurate hospital claims. Response: We generally base median costs for services on single procedure claims to ensure that the median cost captures the full cost of a service when it is the only service furnished. We recognize that this approach has limitations and, in some cases, prevents us from using many of the claims for services that are most commonly furnished at the same time as other services. For this reason, we have developed a number of different strategies, such as date of service stratification and the use of the bypass list, that enable us to break multiple procedure claims into ``pseudo'' single procedure claims where we have confidence that the ``pseudo'' single claim contains the full cost of the service, including related packaged costs. In recent years, however, we have increasingly used multiple procedure claims to develop median costs for individual services or groups of services. We have developed these methodologies so that we can use more naturally occurring claims data in cases in which care is most commonly reported with multiple major procedure [[Page 66590]] codes on the same date, such as observation services, hyperbaric oxygen therapy (HBOT), and single allergy tests. Similarly, for CY 2008, we developed and proposed composite APCs for low dose rate prostate brachytherapy (APC 8001 (LDR Prostate Brachytherapy Composite)) and cardiac electrophysiology services (APC 8000 (Cardiac Electrophysiologic Evaluation and Ablation Composite)). These APCs are designed to use multiple procedure claims to establish a median cost and APC payment for multiple major procedures when they are furnished together. As we discuss in section II.A.4.d. of this final rule with comment period, we intend to explore the creation of additional composite APCs for services that frequently are provided in the same HOPD encounter. We also plan to continue to develop and refine methods to increase the amount of claims data that we can use for setting OPPS payment rates in a manner that gives us the most confidence that the costs derived from these approaches are valid reflections of the costs of the services described by HCPCS codes or, in the case of composite APCs, described by the APCs. We anticipate that the Data Subcommittee of the APC Panel will continue to provide us with valuable advice regarding possible methodologies for increasing the OPPS use of multiple procedure claims for ratesetting. After consideration of the public comments received, we are finalizing our proposal, without modification, to calculate median costs for APCs using single and ``pseudo'' single procedure claims, except where otherwise specified. (1) Use of Date of Service Stratification and a Bypass List To Increase the Amount of Data Used To Determine Medians Through bypassing specified codes that we believe do not have significant packaged costs, we are able to use more data from multiple procedure claims. In many cases, this enables us to create multiple ``pseudo'' single claims from claims that, as submitted, contained numerous separately paid procedures reported on the same date on one claim. We refer to these newly created single procedure claims as ``pseudo'' single claims because they were submitted by providers as multiple procedure claims. The history of our use of a bypass list to generate ``pseudo'' single claims is well documented, most recently in the CY 2007 OPPS/ASC final rule with comment period (71 FR 67969 through 67970). The date of service stratification (sorting the lines by date of service and treating all lines with the same date of service as a separate claim) and bypass list process we used for the CY 2007 OPPS (combined with the packaging changes we proposed in section II.A.4. of the proposed rule) resulted in our being able to use some part of approximately 92 percent of the total claims that were eligible for use in the OPPS ratesetting and modeling for the proposed rule. This process enabled us to create, for the CY 2008 proposed rule, approximately 58 million ``pseudo'' singles and approximately 30 million ``natural'' single bills. For the proposed rule, ``pseudo'' single procedure bills represented 66 percent of all single bills used to calculate median costs. This compared favorably to the CY 2007 OPPS final rule data in which ``pseudo'' single bills represented 68 percent of all single bills used to calculate the median costs on which the CY 2007 OPPS payment rates were based. We believed that the reduction in the percent of ``pseudo'' single bills and the corresponding increase in the proportion of ``natural'' single bills observed for the CY 2008 proposed rule occurred largely because of our proposal to increase packaging as discussed in section II.A.4. of the proposed rule. In many cases, the packaging proposal for CY 2008 enabled us to use claims that would otherwise have been considered to be multiple procedure claims and, absent the proposal for additional packaging, could have been used for ratesetting only if we had been able to create ``pseudo'' single claims from them. For CY 2008, we proposed to bypass 425 HCPCS codes that are identified in Table 1 of the proposed rule. We proposed to continue the use of the codes on the CY 2007 OPPS bypass list but to remove codes we proposed to package for CY 2008. We also proposed to remove codes that were on the CY 2007 bypass list that ceased to meet the empirical criteria under the proposed packaging changes when clinical review confirmed that their removal would be appropriate in the context of the full proposal for the CY 2008 OPPS. Since the inception of the bypass list, we have calculated the percent of ``natural'' single bills that contained packaging for each code and the amount of packaging in each ``natural'' single bill for each code. We retained the codes on the previous year's bypass list and used the update year's data to determine whether it would be appropriate to add additional codes to the previous year's bypass list. The entire list (including the codes that remained on the bypass list from prior years) was open to public comment. For the CY 2008 proposed rule, we explicitly reviewed all ``natural'' single bills against the empirical criteria for all codes on the CY 2007 bypass list because of the proposal for greater packaging discussed in section II.A.4. of the proposed rule, as this effort increased the packaging associated with some codes. We removed 106 HCPCS codes from the CY 2007 bypass list for the CY 2008 proposal. In addition, we note that many of the codes we proposed to newly package for CY 2008 were on the bypass list used for setting the OPPS payment rates for CY 2007 and were not proposed for bypass because we also proposed to package them. We proposed to add to the bypass list HCPCS codes that, using the proposed rule data, met the same previously established empirical criteria for the bypass list that are reviewed below or which our clinicians believed would have little associated packaging if the services were coded correctly. The CY 2008 packaging proposal minimally reduced the percentage of total claims that we were able to use, in whole or in part, from 93 percent for CY 2007 to 92 percent for the proposed rule. The proposed packaging approach increased the number of ``natural'' single bills, in spite of reducing the universe of codes requiring single bills for ratesetting, but reduced the number of ``pseudo'' single bills. More ``natural'' single procedure bills can be created by the packaging of codes that always appear with another procedure because these dependent services are supportive of and ancillary to the primary independent procedures for which payment is being made. A claim containing two independent procedure codes on the same date of service and not on the bypass list previously could not be used for ratesetting, but packaging the cost of one of the codes on the claim frees the claim to be used to calculate the median cost of the procedure that is not packaged. On the other hand, our proposed packaging approach reduced the number of codes eligible for the bypass list because of the limitation on packaging set by our previously established empirical criteria. A smaller bypass list and the presence of greater packaging on claims reduced the final number of ``pseudo'' single claims. In prior years, roughly 68 percent of single bills were ``pseudo'' single bills, but based on the CY 2008 proposed rule data, 66 percent of single bills were ``pseudo'' singles. Similarly, for this final rule with comment period, [[Page 66591]] 66 percent of single bills were ``pseudo'' singles. Moreover, the numbers of ``natural'' single bills and ``pseudo'' single bills were reduced by the volume of services that we proposed to package. Hence, our CY 2008 proposal to package payment for some HCPCS codes with relatively high frequencies would eliminate for ratesetting the number of available ``natural'' and ``pseudo'' single bills attributable to the codes that we proposed to package. As in prior years, we proposed to use the following empirical criteria to determine the additional codes to add to the CY 2007 bypass list to create the CY 2008 bypass list. We assumed that the representation of packaging in the single claims for any given code was comparable to packaging for that code in the multiple claims: There are 100 or more single claims for the code. This number of single claims ensures that observed outcomes are sufficiently representative of packaging that might occur in the multiple claims. Five percent or fewer of the single claims for the code have packaged costs on that single claim for the code. This criterion results in limiting the amount of packaging being redistributed to the separately payable procedure remaining on the claim after the bypass code is removed and ensures that the costs associated with the bypass code represent the cost of the bypassed service. The median cost of packaging observed in the single claims is equal to or less than $50. This limits the amount of error in redistributed costs. The code is not a code for an unlisted service. In addition, we proposed to add to the bypass list codes that our clinicians believe have minimal associated packaging based on their clinical assessment of the complete CY 2008 OPPS proposal. As proposed, this list contained bypass codes that were appropriate to claims for services in CY 2006 and, therefore, included codes that were deleted for CY 2007. Moreover, there were codes on the proposed bypass list that were new for CY 2007 and which were appropriate additions to the bypass list in preparation for use of the CY 2007 claims for creation of the CY 2009 OPPS. We received a number of public comments on the use of the bypass list for creation of ``pseudo'' single procedure claims. A summary of the comments and our responses follow. Comment: Some commenters objected to the removal of HCPCS codes from the bypass list because the codes ceased to meet the criteria for the bypass list as a result of increased packaging in the ``natural'' single claims due to the proposed packaging approach. The commenters objected to the removal of codes from the bypass list for this reason because they asserted that it caused claims that would otherwise have become ``pseudo'' single claims to not be used and, thereby, reduced the number of single bills that were available for ratesetting for certain services. Response: We agree with the commenters, so we have reevaluated the bypass list for this final rule with comment period and restored a number of codes on the bypass list prior to the CY 2008 proposal to maximize the creation of single and ``pseudo'' single procedure bills. As we discuss later in this section and in section II.A.4. of this final rule with comment period, we have made changes to the data process to ensure that we capture as much data as possible for services assigned status indicator ``Q.'' Although we revised the process to apply the specific ``Q'' status indicator policies before assessment of the bypass list so that additional HCPCS codes could be considered for the bypass list without risk of losing their data regarding packaging, we determined that no codes with status indicator ``Q'' were appropriate for addition to the final CY 2008 bypass list because of their significant associated packaging. Comment: Several commenters asked that CMS add certain HCPCS codes to the bypass list so that more single bills would be available for median setting. Some commenters specifically objected to the removal of the following radiation oncology services that they indicated should seldom have any associated packaging: CPT codes 77280 (Therapeutic radiology simulation-aided field setting; simple); 77285 (Therapeutic radiology simulation-aided field setting; intermediate); 77290 (Therapeutic radiology simulation-aided field setting; complex); 77295 (Therapeutic radiology simulation-aided field setting; 3-dimensional); 77332 (Treatment devices, design and construction; simple (simple block, simple bolus)); 77333 (Treatment devices, design and construction; intermediate (multiple blocks, stents, bite blocks, special bolus)); 77334 (Treatment devices, design and construction; complex (irregular blocks, special shields, compensators, wedges, molds or casts)); and 77417 (Therapeutic radiology port film(s)). One commenter explained that there was an interaction with the packaging of image guided radiation therapy codes that reduced the percentage of single bills for high dose rate (HDR) brachytherapy from 62 percent to 48 percent of the total frequency. The commenter believed that the payment for APC 0313 (Brachytherapy) dropped from $789.70 in CY 2007 to $739.46 in the CY 2008 proposed rule because there were packaged costs on claims that could no longer be used because the multiple procedure claims included codes that were removed from the bypass list. The commenter asked that these codes be restored to the bypass list so that these claims could be used. Other commenters asked that CMS place CPT code 93017 (Cardiovascular stress test using maximal or submaximal treadmill or bicycle exercise, continuous electrocardiographic monitoring, and/or pharmacological stress; tracing only, without interpretation and report) on the bypass list because it is typically performed with single photon emission computed tomography (SPECT) procedures (CPT code 78465 (Myocardial perfusion imaging; tomographic (SPECT), multiple studies (including attenuation correction when performed), at rest and/or stress (exercise and/or pharmacologic) and redistribution and/or rest injection, without or without quantification)). These commenters believed that significant data from multiple procedure claims were lost because CPT code 93017 was not bypassed. Other commenters asked that CMS add the following drug administration CPT codes to the bypass list because doing so would enable use of more multiple procedure claims data to establish median costs for drug administration services: CPT codes 90767 (Intravenous infusion, for therapy, prophylaxis, or diagnosis (specify substance or drug); additional sequential infusion, up to 1 hour (List separately in addition to code for primary procedure)); 90768 (Intravenous infusion, for therapy, prophylaxis, or diagnosis (specify substance or drug); concurrent infusion (List separately in addition to code for primary procedure); 90775 (Therapeutic, prophylactic or diagnostic injection (specify substance or drug); each additional sequential intravenous push of a new substance/drug (List separately in addition to code for primary procedure)); 96411 (Chemotherapy administration; intravenous, push technique, each additional substance/drug (List separately in addition to code for primary procedure)); and 96417 (Chemotherapy administration, intravenous infusion technique; each additional sequential infusion (different substance/drug), up to 1 hour (List [[Page 66592]] separately in addition to code for primary procedure)). A commenter asked that we add HCPCS code 88307 (Level V Surgical pathology, gross and microscopic examination) because it is so similar to HCPCS codes 88305 (Level III Surgical pathology, gross and microscopic examination) and 88306 (Level IV Surgical pathology, gross and microscopic examination) that were already included on the bypass list. Response: We have reviewed the requests to add these codes to the bypass list and we have made the following decisions for CY 2008 for the reasons stated below: We have added the radiation oncology services listed above, with the exception of CPT code 77417, to the bypass list because we agree that they are of the type that should not have packaging associated with them. We recognize that including them on the bypass list may yield significantly more single procedure bills and may also increase the number of claims that we can use for calculation of the low dose rate prostate brachytherapy composite APC (APC8001). We have not added CPT code 77417 to the CY 2008 bypass list because, based on its final CY 2008 unconditionally packaged status, the code would not be a candidate for the bypass list. Unconditionally packaged codes are not included on the bypass list because their presence on a claim does not make that claim a multiple procedure bill. We have added CPT code 93017 to the bypass list because we agree that it should not have significant associated packaging, and we recognize that including it on the bypass list may yield significantly more single procedure bills for median setting. We have not added the drug administration services listed above to the bypass list. Four of these five codes are for sequential drug infusion services or injections of additional drugs and, therefore, by definition, new drugs and medical supplies that are associated with these codes should be reported in all cases in which the services are furnished. We note that, beginning in CY 2007, we placed the CPT codes for additional hours of infusion on the bypass list, recognizing that all packaging related to these hours would be associated with the initial services on the claim. We proposed and finalized this approach for CY 2007, because we were unable to accurately assign representative portions of packaged costs to multiple different drug administration services. We expected that the packaging related to additional hours of infusion of drugs that spanned several hours would be appropriately assigned to the code for the first hour of infusion on the same claim. If we had not placed the codes for additional hours of infusion on the bypass list, we would have had a substantial set of drug administration multiple procedure claims that were unusable for ratesetting purposes. However, adding the sequential drug administration services to the bypass list too would force all of the costs of the associated additional drugs and supplies to be packaged into the payment for the initial drug administration service for another drug, which we do not believe is an appropriate allocation of packaging. While we understand the concerns of the commenters regarding the challenges associated with setting appropriate payment rates for these sequential services reported on multiple procedure claims, we have very little CY 2006 claims data for the four codes because they were not recognized for payment under the CY 2006 OPPS. We will reconsider the treatment of these CPT codes for the CY 2009 OPPS update when CY 2007 data, where these codes were separately paid under the OPPS, are available. We have not added CPT code 90768 to the bypass list because our final CY 2008 policy unconditionally packages payment for this service and, therefore, it is not a candidate for the bypass list. We agree that HCPCS code 88307 (which was on the proposed bypass list for the CY 2008 OPPS) is appropriate and we have added it to the final CY 2008 bypass list. In addition to these responses to comments, we have added six other HCPCS codes to the final CY 2008 bypass list that met the empirical criteria for inclusion using the final rule data, and we have also added three HCPCS codes for clinical consistency with codes that are already on the bypass list. New bypass codes for this final rule with comment period are identified in Table 1 with an asterisk. Comment: One commenter objected to the use of the bypass list to create ``pseudo'' single claims for median setting on the basis that it artificially lowers the median cost of the services on the bypass list by sending all packaging on the claim to the other major separately paid service on the claim. Specifically, the commenter believed that inclusion of CPT code 93880 (Duplex scan of extracranial arteries; complete bilateral study) on the bypass list resulted in the use of the cost data for the lowest cost services and, thereby, lowered the cost of this service. The commenter stated that CMS should work with stakeholders on use of the bypass list, its impact on median costs, and ways that CMS could use data that were more reflective of the real costs for these procedures. The commenter believed that the median cost of CPT code 93880 should be based on the cost of the typical patient and not the least expensive patient because the OPPS payment caps payment in the physician's office for the service. The commenter explained that using the bypass list to generate more ``pseudo'' single claims without any packaging resulted in stagnation in payment that encouraged hospitals to pressure physicians to order more expensive tests and threatened access to care for beneficiaries who would be served well by simpler tests that were being underpaid as a result of inclusion of CPT code 93880 on the bypass list. One commenter asked that CMS provide a code-specific analysis of the impact of bypassing each code on the bypass list because the commenter believed that removing and using the line item costs for the bypass codes to set the median costs for the APCs to which the bypass codes are assigned results in understatement of the median costs for those APCs. Response: The bypass list has been very effective in enabling us to use claims data that would not otherwise be available for median calculation. Since its origin for the CY 2004 OPPS, we have been very careful in determining the codes to be placed on the bypass list. As described above, we use a standard set of criteria to select claims that seldom have packaging (that is, fewer than 5 percent of ``natural'' single bills); that have little packaging (that is, less than $50); for which we have at least 100 ``natural'' single bills; and that are not unlisted codes (for which there is no specified service). In addition to codes that pass these criteria, we also have added HCPCS codes to the bypass list that have been recommended to us by members of the public, including the specialty societies that are most familiar with them, as services with which packaging should be seldom, if ever, associated. Therefore, we believe that we have been very prudent with regard to our selection of the codes to be added to the bypass list and with our use of the list. Moreover, we open the criteria and the list to public comment each year and we respond to comments in the final rule for the update year. We also make available the claims data used to calculate the median costs on which the relative weights are based, and we provide an extensive narrative description of our data process. Hence, we provide commenters with the tools to conduct any further analyses they chose with regard to the codes on the [[Page 66593]] bypass list or otherwise. In the case of CPT code 93880, the median packaged cost on ``natural'' single procedure claims (of which there were 403,106) was $0 and the percent of natural single procedure claims on which there was any packaging was 0.47 percent (1,899 claims out of 403,106 ). Therefore, the code meets the criteria for inclusion on the bypass list and will remain on it for CY 2008. We have no evidence that physicians or hospitals are billing more expensive tests as a result of the OPPS payment rate for CPT code 93880, and our data show there is very little packaging associated with the service in the typical case. In order to keep the established empirical criteria for the bypass list constant, we specifically solicited public comment on whether we should adjust the $50 packaging cost criterion for inflation each year and, if so, recommendations for the source of the adjustment. We believed that adding an inflation adjustment factor would ensure that the same amount of packaging associated with candidate codes for the bypass list was reviewed each year relative to nominal costs. We received one public comment on the appropriateness of updating the $50 packaging cost criteria for inclusion of a code on the bypass list to account for annual inflation. A summary of the comment and our response follow. Comment: One commenter stated that CMS should update the $50 maximum ``natural'' single bill median packaging cost criterion for including HCPCS codes on the bypass list on the basis of empirical criteria. The commenter did not suggest a methodology we might use for the update. Response: We have not changed the $50 maximum ``natural'' bill median packaging cost criterion for this final rule with comment period. However, we will consider whether to update the criterion and, if so, what methodology would be used, as part of the development of the proposals for the CY 2009 OPPS. After consideration of the public comments received, we are adopting, as final, the proposed ``pseudo'' single claims process and the CY 2008 bypass codes listed in Table 1 below. This list has been modified from the CY 2008 proposed list, with the addition of HCPCS codes that meet the empirical criteria based on updated claims data and certain HCPCS codes recommended by commenters, as discussed above. As stated earlier, the new bypass codes for this final rule with comment period are identified in Table 1 with an asterisk. Table 1.--CY 2008 Final Bypass Codes for Creating ``Pseudo'' Single Claims for Calculating Median Costs ------------------------------------------------------------------------ Added for HCPCS code Short description this final rule ------------------------------------------------------------------------ 11056...................... Trim skin lesions, 2 to 4.... 11057...................... Trim skin lesions, over 4.... 11300...................... Shave skin lesion............ 11301...................... Shave skin lesion............ 11719...................... Trim nail(s)................. 11720...................... Debride nail, 1-5............ 11721...................... Debride nail, 6 or more...... 11954...................... Therapy for contour defects.. 17003...................... Destruct premalg les, 2-14... 31231...................... Nasal endoscopy, dx.......... 31579...................... Diagnostic laryngoscopy...... 51798...................... Us urine capacity measure.... 53661...................... Dilation of urethra.......... * 54240...................... Penis study.................. 56820...................... Exam of vulva w/scope........ 57150...................... Treat vagina infection....... * 67820...................... Revise eyelashes............. 69210...................... Remove impacted ear wax...... 69220...................... Clean out mastoid cavity..... 70030...................... X-ray eye for foreign body... 70100...................... X-ray exam of jaw............ 70110...................... X-ray exam of jaw............ 70120...................... X-ray exam of mastoids....... 70130...................... X-ray exam of mastoids....... 70140...................... X-ray exam of facial bones... 70150...................... X-ray exam of facial bones... 70160...................... X-ray exam of nasal bones.... 70200...................... X-ray exam of eye sockets.... 70210...................... X-ray exam of sinuses........ 70220...................... X-ray exam of sinuses........ 70250...................... X-ray exam of skull.......... 70260...................... X-ray exam of skull.......... 70328...................... X-ray exam of jaw joint...... 70330...................... X-ray exam of jaw joints..... 70336...................... Magnetic image, jaw joint.... 70355...................... Panoramic x-ray of jaws...... 70360...................... X-ray exam of neck........... 70370...................... Throat x-ray & fluoroscopy... 70371...................... Speech evaluation, complex... 70450...................... Ct head/brain w/o dye........ 70480...................... Ct orbit/ear/fossa w/o dye... 70486...................... Ct maxillofacial w/o dye..... 70490...................... Ct soft tissue neck w/o dye.. 70544...................... Mr angiography head w/o dye.. 70551...................... Mri brain w/o dye............ 71010...................... Chest x-ray.................. 71015...................... Chest x-ray.................. 71020...................... Chest x-ray.................. 71021...................... Chest x-ray.................. 71022...................... Chest x-ray.................. 71023...................... Chest x-ray and fluoroscopy.. 71030...................... Chest x-ray.................. 71034...................... Chest x-ray and fluoroscopy.. 71035...................... Chest x-ray.................. 71100...................... X-ray exam of ribs........... 71101...................... X-ray exam of ribs/chest..... 71110...................... X-ray exam of ribs........... 71111...................... X-ray exam of ribs/chest..... 71120...................... X-ray exam of breastbone..... 71130...................... X-ray exam of breastbone..... 71250...................... Ct thorax w/o dye............ 72010...................... X-ray exam of spine.......... 72020...................... X-ray exam of spine.......... 72040...................... X-ray exam of neck spine..... 72050...................... X-ray exam of neck spine..... 72052...................... X-ray exam of neck spine..... 72069...................... X-ray exam of trunk spine.... 72070...................... X-ray exam of thoracic spine. 72072...................... X-ray exam of thoracic spine. 72074...................... X-ray exam of thoracic spine. 72080...................... X-ray exam of trunk spine.... 72090...................... X-ray exam of trunk spine.... 72100...................... X-ray exam of lower spine.... 72110...................... X-ray exam of lower spine.... 72114...................... X-ray exam of lower spine.... 72120...................... X-ray exam of lower spine.... [[Page 66594]] 72125...................... Ct neck spine w/o dye........ 72128...................... Ct chest spine w/o dye....... 72131...................... Ct lumbar spine w/o dye...... 72141...................... Mri neck spine w/o dye....... 72146...................... Mri chest spine w/o dye...... 72148...................... Mri lumbar spine w/o dye..... 72170...................... X-ray exam of pelvis......... 72190...................... X-ray exam of pelvis......... 72192...................... Ct pelvis w/o dye............ 72202...................... X-ray exam sacroiliac joints. 72220...................... X-ray exam of tailbone....... 73000...................... X-ray exam of collar bone.... 73010...................... X-ray exam of shoulder blade. 73020...................... X-ray exam of shoulder....... 73030...................... X-ray exam of shoulder....... 73050...................... X-ray exam of shoulders...... 73060...................... X-ray exam of humerus........ 73070...................... X-ray exam of elbow.......... 73080...................... X-ray exam of elbow.......... 73090...................... X-ray exam of forearm........ 73100...................... X-ray exam of wrist.......... 73110...................... X-ray exam of wrist.......... 73120...................... X-ray exam of hand........... 73130...................... X-ray exam of hand........... 73140...................... X-ray exam of finger(s)...... 73200...................... Ct upper extremity w/o dye... 73218...................... Mri upper extremity w/o dye.. 73221...................... Mri joint upr extrem w/o dye. 73510...................... X-ray exam of hip............ 73520...................... X-ray exam of hips........... 73540...................... X-ray exam of pelvis & hips.. 73550...................... X-ray exam of thigh.......... 73560...................... X-ray exam of knee, 1 or 2... 73562...................... X-ray exam of knee, 3........ 73564...................... X-ray exam, knee, 4 or more.. 73565...................... X-ray exam of knees.......... 73590...................... X-ray exam of lower leg...... 73600...................... X-ray exam of ankle.......... 73610...................... X-ray exam of ankle.......... 73620...................... X-ray exam of foot........... 73630...................... X-ray exam of foot........... 73650...................... X-ray exam of heel........... 73660...................... X-ray exam of toe(s)......... 73700...................... Ct lower extremity w/o dye... 73718...................... Mri lower extremity w/o dye.. 73721...................... Mri jnt of lwr extre w/o dye. 74000...................... X-ray exam of abdomen........ 74010...................... X-ray exam of abdomen........ 74020...................... X-ray exam of abdomen........ 74022...................... X-ray exam series, abdomen... 74150...................... Ct abdomen w/o dye........... 74210...................... Contrast x-ray exam of throat 74220...................... Contrast x-ray, esophagus.... 74230...................... Cine/vid x-ray, throat/esoph. 74246...................... Contrast x-ray uppr gi tract. 74247...................... Contrst x-ray uppr gi tract.. 74249...................... Contrst x-ray uppr gi tract.. 76020...................... X-rays for bone age.......... 76040...................... X-rays, bone evaluation...... 76061...................... X-rays, bone survey.......... 76062...................... X-rays, bone survey.......... 76065...................... X-rays, bone evaluation...... 76066...................... Joint survey, single view.... 76070...................... Ct bone density, axial....... 76071...................... Ct bone density, peripheral.. 76075...................... Dxa bone density, axial...... 76076...................... Dxa bone density/peripheral.. 76077...................... Dxa bone density/v-fracture.. 76078...................... Radiographic absorptiometry.. 76100...................... X-ray exam of body section... 76400...................... Magnetic image, bone marrow.. 76510...................... Ophth us, b & quant a........ 76511...................... Ophth us, quant a only....... 76512...................... Ophth us, b w/non-quant a.... 76513...................... Echo exam of eye, water bath. 76514...................... Echo exam of eye, thickness.. 76516...................... Echo exam of eye............. 76519...................... Echo exam of eye............. 76536...................... Us exam of head and neck..... 76645...................... Us exam, breast(s)........... 76700...................... Us exam, abdom, complete..... 76705...................... Echo exam of abdomen......... 76770...................... Us exam abdo back wall, comp. 76775...................... Us exam abdo back wall, lim.. 76778...................... Us exam kidney transplant.... 76801...................... Ob us < 14 wks, single fetus. 76805...................... Ob us >/= 14 wks, sngl fetus. 76811...................... Ob us, detailed, sngl fetus.. 76816...................... Ob us, follow-up, per fetus.. 76817...................... Transvaginal us, obstetric... 76830...................... Transvaginal us, non-ob...... 76856...................... Us exam, pelvic, complete.... 76857...................... Us exam, pelvic, limited..... 76870...................... Us exam, scrotum............. 76880...................... Us exam, extremity........... 76970...................... Ultrasound exam follow-up.... 76977...................... Us bone density measure...... 76999...................... Echo examination procedure... 77280...................... Set radiation therapy field.. * 77285...................... Set radiation therapy field.. * 77290...................... Set radiation therapy field.. * 77295...................... Set radiation therapy field.. * 77300...................... Radiation therapy dose plan.. [[Page 66595]] 77301...................... Radiotherapy dose plan, imrt. 77315...................... Teletx isodose plan complex.. 77326...................... Brachytx isodose calc simp... 77327...................... Brachytx isodose calc interm. 77328...................... Brachytx isodose plan compl.. 77331...................... Special radiation dosimetry.. 77332...................... Radiation treatment aid(s)... * 77333...................... Radiation treatment aid(s)... * 77334...................... Radiation treatment aid(s)... * 77336...................... Radiation physics consult.... 77370...................... Radiation physics consult.... 77401...................... Radiation treatment delivery. 77402...................... Radiation treatment delivery. 77403...................... Radiation treatment delivery. 77404...................... Radiation treatment delivery. 77407...................... Radiation treatment delivery. 77408...................... Radiation treatment delivery. 77409...................... Radiation treatment delivery. 77411...................... Radiation treatment delivery. 77412...................... Radiation treatment delivery. 77413...................... Radiation treatment delivery. 77414...................... Radiation treatment delivery. 77416...................... Radiation treatment delivery. 77418...................... Radiation tx delivery, imrt.. 77470...................... Special radiation treatment.. 77520...................... Proton trmt, simple w/o comp. 77523...................... Proton trmt, intermediate.... 80500...................... Lab pathology consultation... 80502...................... Lab pathology consultation... 85097...................... Bone marrow interpretation... 86510...................... Histoplasmosis skin test..... 86850...................... RBC antibody screen.......... 86870...................... RBC antibody identification.. 86880...................... Coombs test, direct.......... 86885...................... Coombs test, indirect, qual.. 86886...................... Coombs test, indirect, titer. 86890...................... Autologous blood process..... 86900...................... Blood typing, ABO............ 86901...................... Blood typing, Rh (D)......... 86903...................... Blood typing, antigen screen. 86904...................... Blood typing, patient serum.. 86905...................... Blood typing, RBC antigens... 86906...................... Blood typing, Rh phenotype... 86930...................... Frozen blood prep............ 86970...................... RBC pretreatment............. 88104...................... Cytopath fl nongyn, smears... 88106...................... Cytopath fl nongyn, filter... 88107...................... Cytopath fl nongyn, sm/fltr.. 88108...................... Cytopath, concentrate tech... 88112...................... Cytopath, cell enhance tech.. 88160...................... Cytopath smear, other source. 88161...................... Cytopath smear, other source. 88162...................... Cytopath smear, other source. 88172...................... Cytopathology eval of fna.... 88173...................... Cytopath eval, fna, report... 88182...................... Cell marker study............ 88184...................... Flowcytometry/ tc, 1 marker.. 88185...................... Flowcytometry/tc, add-on..... 88300...................... Surgical path, gross......... 88302...................... Tissue exam by pathologist... 88304...................... Tissue exam by pathologist... 88305...................... Tissue exam by pathologist... 88307...................... Tissue exam by pathologist... 88311...................... Decalcify tissue............. 88312...................... Special stains............... 88313...................... Special stains............... 88321...................... Microslide consultation...... 88323...................... Microslide consultation...... 88325...................... Comprehensive review of data. 88331...................... Path consult intraop, 1 bloc. 88342...................... Immunohistochemistry......... 88346...................... Immunofluorescent study...... 88347...................... Immunofluorescent study...... 88348...................... Electron microscopy.......... 88358...................... Analysis, tumor.............. 88360...................... Tumor immunohistochem/manual. 88361...................... Tumor immunohistochem/comput. * 88365...................... Insitu hybridization (fish).. 88368...................... Insitu hybridization, manual. 88399...................... Surgical pathology procedure. 89049...................... Chct for mal hyperthermia.... 89230...................... Collect sweat for test....... 89240...................... Pathology lab procedure...... 90761...................... Hydrate iv infusion, add-on.. 90761...................... Hydrate iv infusion, add-on.. * 90766...................... Ther/proph/dg iv inf, add-on. * 90801...................... Psy dx interview............. 90802...................... Intac psy dx interview....... 90804...................... Psytx, office, 20-30 min..... 90805...................... Psytx, off, 20-30 min w/e&m.. 90806...................... Psytx, off, 45-50 min........ 90807...................... Psytx, off, 45-50 min w/e&m.. 90808...................... Psytx, office, 75-80 min..... 90809...................... Psytx, off, 75-80, w/e&m..... 90810...................... Intac psytx, off, 20-30 min.. 90812...................... Intac psytx, off, 45-50 min.. 90816...................... Psytx, hosp, 20-30 min....... 90818...................... Psytx, hosp, 45-50 min....... 90826...................... Intac psytx, hosp, 45-50 min. * 90845...................... Psychoanalysis............... 90846...................... Family psytx w/o patient..... 90847...................... Family psytx w/patient....... [[Page 66596]] 90853...................... Group psychotherapy.......... 90857...................... Intac group psytx............ 90862...................... Medication management........ 92002...................... Eye exam, new patient........ 92004...................... Eye exam, new patient........ 92012...................... Eye exam established pat..... 92014...................... Eye exam & treatment......... 92020...................... Special eye evaluation....... 92081...................... Visual field examination(s).. 92082...................... Visual field examination(s).. 92083...................... Visual field examination(s).. 92135...................... Ophth dx imaging post seg.... 92136...................... Ophthalmic biometry.......... 92225...................... Special eye exam, initial.... 92226...................... Special eye exam, subsequent. 92230...................... Eye exam with photos......... 92240...................... Icg angiography.............. 92250...................... Eye exam with photos......... 92275...................... Electroretinography.......... 92285...................... Eye photography.............. 92286...................... Internal eye photography..... 92520...................... Laryngeal function studies... 92541...................... Spontaneous nystagmus test... 92546...................... Sinusoidal rotational test... 92548...................... Posturography................ 92552...................... Pure tone audiometry, air.... 92553...................... Audiometry, air & bone....... 92555...................... Speech threshold audiometry.. 92556...................... Speech audiometry, complete.. 92557...................... Comprehensive hearing test... 92567...................... Tympanometry................. 92582...................... Conditioning play audiometry. 92585...................... Auditor evoke potent, compre. 92603...................... Cochlear implt f/up exam 7 >. 92604...................... Reprogram cochlear implt 7 >. 92626...................... Eval aud rehab status........ 93005...................... Electrocardiogram, tracing... 93017...................... Cardiovascular stress test... * 93225...................... ECG monitor/record, 24 hrs... 93226...................... ECG monitor/report, 24 hrs... 93231...................... Ecg monitor/record, 24 hrs... 93232...................... ECG monitor/report, 24 hrs... 93236...................... ECG monitor/report, 24 hrs... 93270...................... ECG recording................ 93271...................... Ecg/monitoring and analysis.. 93278...................... ECG/signal-averaged.......... 93727...................... Analyze ilr system........... 93731...................... Analyze pacemaker system..... 93732...................... Analyze pacemaker system..... 93733...................... Telephone analy, pacemaker... 93734...................... Analyze pacemaker system..... 93735...................... Analyze pacemaker system..... 93736...................... Telephonic analy, pacemaker.. 93741...................... Analyze ht pace device sngl.. 93742...................... Analyze ht pace device sngl.. 93743...................... Analyze ht pace device dual.. 93744...................... Analyze ht pace device dual.. 93786...................... Ambulatory BP recording...... 93788...................... Ambulatory BP analysis....... 93797...................... Cardiac rehab................ 93798...................... Cardiac rehab/monitor........ 93875...................... Extracranial study........... 93880...................... Extracranial study........... 93882...................... Extracranial study........... 93886...................... Intracranial study........... 93888...................... Intracranial study........... 93922...................... Extremity study.............. 93923...................... Extremity study.............. 93924...................... Extremity study.............. 93925...................... Lower extremity study........ 93926...................... Lower extremity study........ 93930...................... Upper extremity study........ 93931...................... Upper extremity study........ 93965...................... Extremity study.............. 93970...................... Extremity study.............. 93971...................... Extremity study.............. 93975...................... Vascular study............... 93976...................... Vascular study............... 93978...................... Vascular study............... 93979...................... Vascular study............... 93990...................... Doppler flow testing......... 94015...................... Patient recorded spirometry.. 94690...................... Exhaled air analysis......... 95115...................... Immunotherapy, one injection. 95117...................... Immunotherapy injections..... 95165...................... Antigen therapy services..... 95250...................... Glucose monitoring, cont..... * 95805...................... Multiple sleep latency test.. 95806...................... Sleep study, unattended...... 95807...................... Sleep study, attended........ 95808...................... Polysomnography, 1-3......... 95812...................... Eeg, 41-60 minutes........... 95813...................... Eeg, over 1 hour............. 95816...................... Eeg, awake and drowsy........ 95819...................... Eeg, awake and asleep........ 95822...................... Eeg, coma or sleep only...... 95869...................... Muscle test, thor paraspinal. 95872...................... Muscle test, one fiber....... * 95900...................... Motor nerve conduction test.. 95921...................... Autonomic nerv function test. 95925...................... Somatosensory testing........ 95926...................... Somatosensory testing........ * 95930...................... Visual evoked potential test. 95950...................... Ambulatory eeg monitoring.... 95953...................... EEG monitoring/computer...... 95970...................... Analyze neurostim, no prog... 95972...................... Analyze neurostim, complex... 95974...................... Cranial neurostim, complex... 95978...................... Analyze neurostim brain/1h... 96000...................... Motion analysis, video/3d.... 96101...................... Psycho testing by psych/phys. [[Page 66597]] 96111...................... Developmental test, extend... 96116...................... Neurobehavioral status exam.. 96118...................... Neuropsych tst by psych/phys. 96119...................... Neuropsych testing by tec.... 96150...................... Assess hlth/behave, init..... 96151...................... Assess hlth/behave, subseq... 96152...................... Intervene hlth/behave, indiv. 96153...................... Intervene hlth/behave, group. 96415...................... Chemo, iv infusion, addl hr.. 96423...................... Chemo ia infuse each addl hr. 96900...................... Ultraviolet light therapy.... 96910...................... Photochemotherapy with UV-B.. 96912...................... Photochemotherapy with UV-A.. 96913...................... Photochemotherapy, UV-A or B. 96920...................... Laser tx, skin < 250 sq cm... 98925...................... Osteopathic manipulation..... 98926...................... Osteopathic manipulation..... 98927...................... Osteopathic manipulation..... 98940...................... Chiropractic manipulation.... 98941...................... Chiropractic manipulation.... 98942...................... Chiropractic manipulation.... 99204...................... Office/outpatient visit, new. 99212...................... Office/outpatient visit, est. 99213...................... Office/outpatient visit, est. 99214...................... Office/outpatient visit, est. 99241...................... Office consultation.......... 99242...................... Office consultation.......... 99243...................... Office consultation.......... 99244...................... Office consultation.......... 99245...................... Office consultation.......... 0144T...................... CT heart wo dye; qual calc... C8951...................... IV inf, tx/dx, each addl hr.. C8955...................... Chemotx adm, IV inf, addl hr. G0008...................... Admin influenza virus vac.... G0101...................... CA screen; pelvic/breast exam G0127...................... Trim nail(s)................. G0130...................... Single energy x-ray study.... G0166...................... Extrnl counterpulse, per tx.. G0175...................... OPPS Service,sched team conf. G0332...................... Preadmin IV immunoglobulin... G0340...................... Robt lin-radsurg fractx 2-5.. G0344...................... Initial preventive exam...... G0365...................... Vessel mapping hemo access... G0367...................... EKG tracing for initial prev. G0376...................... Smoke/tobacco counseling >10. M0064...................... Visit for drug monitoring.... Q0091...................... Obtaining screen pap smear... ------------------------------------------------------------------------ (2) Exploration of Allocation of Packaged Costs to Separately Paid Procedure Codes During its August 23-24, 2006 meeting, the APC Panel recommended that CMS provide claims analysis of the contributions of packaged costs (including packaged revenue code charges and charges for packaged HCPCS codes) to the median cost of each drug administration service. (We refer readers to Recommendation 28 in the August 23-24, 2006 meeting recommendation summary on the CMS Web site at: http://www.cms.hhs.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp#TopOfPage. ) In our continued effort to better understand the multiple claims in order to extract single bill information from them, we examined the extent to which the packaging in multiple procedure claims differs from the packaging in the single procedure claims on which we base the median costs both in general and more specifically for drug administration services. We performed this analysis using the claims data on which we based the CY 2007 OPPS/ASC final rule with comment period. We examined the amount of packaging in multiple procedure versus single procedure claims in general and in claims for drug administration services in particular. We conducted this analysis without taking into account the proposed packaging approach presented in the CY 2008 OPPS/ASC proposed rule. However, we did not expect the services newly proposed for packaged payment to commonly appear with a drug administration service. Therefore, we believed that the analysis conducted on the CY 2007 final rule with comment period data was sufficient to inform our development of the CY 2008 OPPS/ASC proposed rule. In general, we did not believe that the proportionate amount of packaged costs in the multiple bills relative to the number of primary services would be greater than that in the single bills. Our findings supported our hypothesis. The costs in uncoded revenue codes and HCPCS codes with a packaged status indicator accounted for 22 percent of observed costs in the universe of all CY 2005 claims that we used to model the CY 2007 OPPS (including both the single and multiple procedure bills). Similarly, the costs in uncoded revenue codes and HCPCS codes with a packaged status indicator accounted for 18 percent of the total cost in the subset of CY 2005 single bills that we used to calculate the median costs on which the relative weights were based. However, the bypass methodology creates a ``pseudo'' single bill for all claims for services or items on the bypass list, and these ``pseudo'' single bills have no associated packaging, by definition of the application of the bypass list. Excluding the total cost associated with bypass codes, 28 percent of observed costs in the single bills were attributable to packaged services, and 29 percent of observed costs across all claims were attributable to packaged services. Therefore, we concluded that, in general, the extent of packaging in all bills was similar to the amount of packaging in the single procedure bills we used to set median costs for most APCs. In the CY 2008 proposed rule (72 FR 42640), we recognized that aggregate numbers do not address the packaging associated with single and multiple procedure claims for specific services. In past years, we received comments stating that the amount of packaging in the single bills for drug administration services was not representative of the typical packaged costs of these drug administration services, which were usually performed in combination with one another, because the single bills represented less complex and less resource-intensive services than the usual cases. We published a study in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68120 through 68121) that discussed the amount of packaging on [[Page 66598]] the single bills for drug administration procedure codes, and we promised to replicate that study for the APC Panel. We discussed the results of this study with the APC Panel at its March 2007 meeting, in accordance with the APC Panel's August 2006 recommendation and also published the results in the CY 2008 OPPS/ASC proposed rule (72 FR 42640 through 42641). As discussed in the proposed rule, we found that drug administration services demonstrated reasonable single bill representation in comparison with other OPPS services. Single bills for drug administration constituted, roughly, 30 percent of all observed occurrences of drug administration services, varying by code from 7 to 55 percent. The study also demonstrated that packaged costs substantially contributed to median cost estimates for the majority of drug administration HCPCS codes (72 FR 42640 through 42641). For all single bills for CPT code 90780 (Intravenous infusion for therapy/diagnosis, administered by physician or under direct supervision of physician; up to one hour), on average, packaged costs were 31 percent of total cost (median 27 percent). For the same code, packaged drug and pharmacy costs comprised, on average, 23 percent of total costs (median 15 percent). Single bills made up 34 percent of all line-item occurrences of the service, suggesting that this single bill median cost was fairly robust and probably captured packaging adequately. On the other hand, CPT code 90784 (Therapeutic, prophylactic or diagnostic injection (specify material injected); subcutaneous or intramuscular) demonstrated limited packaging (median 0 percent and mean 17 percent), and the median cost for the code was derived from only 7 percent of all occurrences of the code. Across all drug administration codes, over half showed significant median packaged costs largely attributable to packaged drug and pharmacy costs. By definition, we were unable to precisely assess the amount of packaging associated with drug administration codes in the multiple bills. As a proxy, we estimated packaging as a percent of total cost on each claim for two subsets of claims. Both analyses suggested the presence of moderate packaged costs, especially drug and pharmacy costs, associated with drug administration services in the multiple bills. We calculated measures of central tendency for packaging percentages in the multiple bills or portions of multiple bills remaining after ``pseudo'' singles were created. We referred to this group of the multiple bills as the ``hardcore'' multiple bills. For the first subset of ``hardcore'' multiple bills with only drug administration codes, that is, where multiple drug administration codes were the only separately paid procedure codes on the claim, we estimated that packaged costs were 22 percent of total costs (27 percent, on average), where total costs consisted of costs for all payable codes. Costs for packaged drug HCPCS codes and pharmacy revenue codes comprised 13 percent of total cost at the median (19 percent, on average). For the second subset of ``hardcore'' multiple bills with any drug administration code, that is, where a drug administration code appeared with other payable codes (largely radiology services and visits), we estimated packaged costs were 13 percent of total cost at the median (19 percent, on average). Costs for packaged drugs and pharmacy revenue codes comprised 6 percent of total cost at the median (10 percent, on average). The amount of packaging in both proxy measures, but especially the first subset, closely resembled the packaged costs as a percentage of drug administration costs observed in the single bills for drug administration services. While finding a way to accurately use data from the ``hardcore'' multiple bills to estimate drug administration median costs undoubtedly would impact medians, these comparisons suggested that the multiple bill data probably would support current median estimates. In the CY 2008 OPPS/ASC proposed rule (72 FR 42641), we noted that we had received several comments over the past few years offering algorithms for packaging the costs associated with specific revenue codes or packaging drugs with certain drug administration codes. Because of the complexity of even routine OPPS claims, prior research suggested that such algorithms have limited power to generate additional single bill claims and do little to change median cost estimates. In the proposed rule (72 FR 42641), we explained that we continue to look for simple, but powerful, methodologies like the bypass list and packaging of HCPCS codes for additional ancillary and supportive services to assign packaged costs to all services within the ``hardcore'' multiple bills. Ideally, these methodologies should be intuitive to the provider community, easily integrated into the complexity of OPPS median cost estimation, and simple to maintain from year to year. We specifically solicited methodologies for creation of single bills that meet these criteria. We received several public comments with regard to the use of data from single and multiple procedure claims for ratesetting. A summary of the public comments and our responses follow. Comment: Several commenters expressed appreciation for CMS' analysis of packaged costs included on single and multiple procedure claims for drug administration services. One commenter encouraged CMS to further analyze the total amount and percentage of packaged costs associated with all packaged HCPCS codes, as well as other packaged services reported by hospitals, and examine this information on single versus multiple procedure claims in order to increase hospitals' understanding of the actual packaged costs used in the ratesetting process. Once again, several commenters encouraged CMS to consider specific packaging algorithms to allocate packaged costs on multiple procedures claims, in order to create additional ``pseudo'' single claims for ratesetting. Response: The packaging of associated costs into payment for major procedures is a longstanding principle of the OPPS. The OPPS packages payment for the operating and capital-related costs that are directly related and integral to furnishing a service on an outpatient basis. These packaged costs have historically included costs related to use of an operating or treatment room, anesthesia, medical supplies, implantable devices, inexpensive drugs, etc. Our findings related to the packaged costs on single and multiple claims for drug administration services confirm that the packaging on the single bills used for ratesetting resembles the drug and pharmacy-related packaged costs on multiple procedure claims. The packaging associated with drug administration services on single and multiple claims has historically been of particular concern to the public, so we are reassured by this finding. We are not convinced that developing this information for all other HCPCS codes would provide further useful information to hospitals. Instead, we prefer to direct our analytic resources toward exploring additional approaches to using more cost data from multiple procedure claims for ratesetting. If we are eventually able to use all OPPS claims in developing median costs, then all packaged costs on claims would also be incorporated in ratesetting under the OPPS. We remind hospitals that they should continue to take into consideration all costs associated with providing HOPD services in establishing their charges for the services. In addition, hospitals should report packaged HCPCS codes and charges, consistent with all CPT, OPPS, and local [[Page 66599]] contractor instructions, whenever those services are provided to ensure that the associated costs are included in ratesetting for the major services. As we have stated previously regarding our exploration of specific packaging algorithms, we have found that these approaches, while resource-intensive on our part, have limited power to generate additional single bill claims and do little to change median cost estimates. We received no other specific suggestions for other approaches to allocating packaged costs on ``hardcore'' multiple bills that would be intuitive to the provider community, easily integrated into the complexity of OPPS median cost estimation, and simple to maintain from year to year. We will continue to explore these data challenges with the assistance of the Data Subcommittee of the APC Panel. We believe that further progression toward encounter-based or episode-based payment for commonly provided combinations of services could reduce the number of these multiple claims and incorporate additional claims data, as discussed in section II.A.4.d. of this final rule with comment period regarding low dose rate prostate brachytherapy and cardiac electrophysiologic evaluation and ablation procedures. After consideration of the public comments received, we are finalizing our CY 2008 proposal for the use of single and multiple procedure claims for ratesetting. We will continue to pursue additional methodologies that would allow use of cost data from ``hardcore'' multiple claims for ratesetting. c. Calculation of CCRs We calculated hospital-specific overall CCRs and hospital-specific departmental CCRs for each hospital for which we had claims data in the period of claims being used to calculate the median costs that we converted to scaled relative weights for purposes of setting the OPPS payment rates. We applied the hospital-specific CCR to the hospital's charges at the most detailed level possible, based on a revenue code to cost center crosswalk that contains a hierarchy of CCRs used to estimate costs from charges for each revenue code. That crosswalk is available for review and continuous comment on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage. We calculated CCRs for the standard and nonstandard cost centers accepted by the electronic cost report database. In general, the most detailed level at which we calculated CCRs was the hospital-specific departmental level. Following the expiration of most medical devices from pass-through status in CY 2003, prior to which devices were paid at charges reduced to cost using the hospital's overall CCR, we received comments that our OPPS cost estimates for device implantation procedures systematically underestimate the cost of the devices included in the packaged payment for the procedures because hospitals routinely mark up charges for low cost items to a much greater extent than they mark up high cost items, and that these items are often combined in a single cost center on their Medicare cost report. This is commonly known as ``charge compression.'' In CY 2006, the device industry commissioned a study to interpolate a device specific CCR from the medical supply CCR, using publicly available hospital claims and Medicare cost report data rather than proprietary data on device costs. After reviewing the device industry's data analysis and study model, CMS contracted with RTI International (RTI) to study the impact of charge compression on the cost-based weight methodology adopted in the FY 2007 IPPS final rule, to evaluate this model, and to propose solutions. For more information, interested individuals can view RTI's report on the CMS Web site at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf . Any study of cost estimation in general, and charge compression specifically, has obvious importance for both the OPPS and the IPPS. RTI's research explicitly focused on the IPPS for several reasons, which include greater Medicare expenditures under the IPPS, a desire to evaluate the model quickly given IPPS regulation deadlines, and a focus on other components of the new FY 2007 IPPS cost-based weight methodology (CMS Contract No. 500-00-0024-T012, ``A Study of Charge Compression in Calculating DRG Relative Weights,'' page 5). The study first addressed the possibility of cross-aggregation bias in the CCRs used to estimate costs under the IPPS created by the IPPS methodology of aggregating cost centers into larger departments before calculating CCRs. The report also addressed potential bias created by estimating costs using a CCR that reflects the combined costs and charges of services with wide variation in the amount of hospital markup. In its assessment of the latter, RTI targeted its attempt to identify the presence of charge compression to those cost centers presumably associated with revenue codes demonstrating significant IPPS expenditures and utilization. RTI assessed the correlation between cost report CCRs and the percent of charges in a cost center attributable to a set of similar services represented by a group of revenue codes. RTI did not examine the correlation between CCRs and revenue codes without significant IPPS expenditures or a demonstrated concentration in a specific Diagnosis Related Group (DRG). For example, RTI did not examine revenue code groups within the pharmacy cost center with low proportionate inpatient charges that might be important to the OPPS, such as ``Pharmacy Incident to Radiology.'' RTI states this limitation in its study and specifically recommends that disaggregated CCRs be reestimated for hospital outpatient charges. Cost report CCRs combine both inpatient and outpatient services. Ideally, RTI would be able to examine the correlation between CCRs for Medicare inpatient services and inpatient claim charges and the correlation between CCRs for Medicare outpatient services and outpatient claim charges. However, the comprehensive nature of the cost report CCR (which combines inpatient and outpatient services) argues for an analysis of the correlation between CCRs and combined inpatient and outpatient claim charges. As noted, the RTI study accepted some measurement error in its analysis by matching an ``all charges'' CCR to inpatient estimates of charges for groups of similar services represented by revenue codes because of short timelines and because inpatient costs dominate outpatient costs in many ancillary cost centers. We believe that CCR adjustments used to calculate payment should be based on the comparison of cost report CCRs to combined inpatient and outpatient charges. An ``all charges'' model would reduce measurement error and estimate adjustments to disaggregated CCRs that could be used in both hospital inpatient and outpatient payment systems. RTI made several short-term recommendations for improving the accuracy of DRG weight estimates from a cost-based methodology to address bias in combining cost centers and charge compression that could be considered in the context of OPPS policy. We discussed each recommendation within the context of the OPPS and provided our assessment of its application to the OPPS in the CY 2008 OPPS/ASC proposed rule (72 FR 42642). Of the four short term recommendations, we believe that only the recommendation to establish regression based estimates as a [[Page 66600]] temporary or permanent method for disaggregating national average CCRs for medical supplies, drugs, and radiology services under the IPPS has specific application to the OPPS (RTI study, pages 11 and 86). Moreover, with regard to radiology services, the OPPS already has partially implemented RTI's recommendation to use lower CCRs to estimate costs for those OPPS services allocated to MRI or CT Scan cost centers through its use of hospital-specific CCRs for nonstandard cost centers. For reasons discussed below and in more detail in the proposed rule (72 FR 42642 through 42643), we proposed to develop an all charges model that would compare variation in CCRs with variation in combined inpatient and outpatient charges for sets of similar services and establish disaggregated regression-based CCRs that could be applied to both inpatient and outpatient charges. We proposed to evaluate the results of that methodology for purposes of determining whether the resulting regression-based CCRs should be proposed for use in developing the CY 2009 OPPS payment rates. As noted in the proposed rule (72 FR 42642), the revised all charges model and resulting regression-based CCRs were not available in time for use in developing this final rule with comment period. Since publication of the proposed rule, we have contracted with RTI to determine whether the statistical model that RTI recommended in its January 2007 report for adjusting CCRs in inpatient cost computations can be expanded to include cost computations for significant categories of outpatient services that are paid under the OPPS and to assess the impact of any such changes on payment under the OPPS (HHSM 500-2005- 00029I Task Order 0008, ``Refining Cost-to-Charge Ratios for Calculating APC and DRG Relative Payment Weights''). Under this task order, RTI will assess the validity of the revenue code-to-cost center crosswalk used under the OPPS by comparing revenue code and cost center charges, make recommendations for changes to the crosswalk, and assess the OPPS use of nonstandard cost centers. RTI will estimate regression- based CCRs using charge data from both inpatient and outpatient claims for hospital ancillary departments. RTI will extend its recommended models to estimate regression-based CCRs for cost centers that are particularly relevant to APCs, working with CMS staff to analyze the sensitivity of APC weights to proposed adjustments. RTI also will convene a technical expert panel to review analyses, as it did for its first study. There are several reasons why we did not propose to use the intradepartmental regression-based CCRs that RTI estimated using IPPS charges for the CY 2008 OPPS estimation of median costs. We agree with RTI that the intradepartmental CCRs calculated for the IPPS would not always be appropriate for application to the OPPS (RTI study, pages 34 and 35). While RTI recommends that the model be recalibrated for outpatient charges before it is applied to the OPPS, we believed that the combined nature of the CCRs available from the cost report prevents an accurate outpatient recalibration that would be appropriate for the OPPS alone. Therefore, we believed that an all charges model examining an expanded subset of revenue codes would be the most appropriate, and that this model should be developed before we could apply the resulting regression based CCRs to the charges for supplies paid under the OPPS. Moreover, we were concerned that implementing the regression-based IPPS related CCRs in the OPPS that RTI estimated for CY 2008 could result in greater instability in relative payment weights for CY 2008 than would otherwise occur, and that a subsequent change to application of the regression-based CCRs resulting from development of an all charges model might also result in significant fluctuations in median costs and increased instability in payments from CY 2008 to CY 2009. Therefore, these sequential changes could result in significant increases in median costs in one year and significant declines in median costs in the next year. Therefore, we did not propose to adopt the RTI regression-based CCRs under the CY 2008 OPPS. As indicated in the proposed rule (72 FR 42643), we stated that we would consider whether it would be appropriate to adopt regression-based CCRs for the OPPS after we received RTI's comprehensive review of the OPPS cost estimation methodology and reviewed the results of the use of both inpatient and outpatient charges across all payers to reestimate regression-based CCRs. We received many public comments on the issue of application of the disaggregated CCRs that RTI estimated using regression analysis to calculate payments for the CY 2008 OPPS. A summary of the public comments and our responses follow. Comment: The commenters made a number of requests for the CY 2008 OPPS. Some commenters asked specifically that CMS use the RTI regression-based CCRs to calculate the costs of devices, implants, and drugs under the CY 2008 OPPS. Other commenters urged CMS not to apply this charge compression adjustment methodology to diagnostic radiology services because the application of the methodology to these capital intensive procedures has not been fully validated and would benefit from additional analysis. The commenters who supported the application of the adjustment methodology for CY 2008 asserted that CMS should disregard the fact that the estimated regression-based CCRs were calculated using only inpatient charge data because the commenters had found that using inpatient or outpatient charges yielded similar CCR estimates for implantable devices and all other supplies. These commenters believed that CMS should accept the RTI findings that were based on inpatient charges alone and apply them to the calculation of median costs for all OPPS weights. They explained that CMS could consider further refinements to the methodology in future years, such as estimating the regression-based CCRs using either outpatient or combined charges, but that CMS should not delay implementing this important change as it evaluates an all charges model. Some commenters who supported the application of the adjustment for CY 2008 also stated that the most glaring cases of charge compression occur with high cost implantable devices that are reported by hospitals with low cost supplies in the same supply cost center. They asserted that the need for analysis of the extent of a problem in other cost centers should not stop CMS from applying the estimated regression- based CCRs for CY 2008 to charges for medical supplies, drugs, and radiology services. One commenter submitted a set of revised weights for all APCs reflecting regression-based CCRs for implantable devices and all other supplies, as well as its assumptions in developing the weights, and asked that CMS review the results. Some commenters stated that if CMS decides not to implement the RTI recommendations for regression-based CCRs for CY 2008, it should ensure that an all charges model is implemented in both the IPPS and the OPPS for CY 2009 through a joint IPPS/OPPS task force. Some commenters believed that CMS should either implement the regression-based adjustments in CY 2008 or begin a transition to them over a period of 2 to 3 years. The MedPAC recommended that CMS use the RTI's estimated disaggregated, regression-based CCRs for medical supplies, drugs, and radiology as part of the OPPS ratesetting process for CY [[Page 66601]] 2008. It stated that, although the application of the regression based CCR estimates is not a perfect solution to the problem of charge compression, the possibility of payment inaccuracies is sufficiently serious that CMS should implement this imperfect solution. The MedPAC also recommended that if CMS prefers to await the results of the all charges model and chooses not to correct for the effects of charge compression under the CY 2008 OPPS, CMS must do so for the CY 2009 OPPS. Response: While the RTI recommendations for regression-based CCRs may have the potential to address issues of charge compression raised in the public comments about OPPS cost-based weights, we are not sufficiently convinced that we should adopt the regression-based CCR estimates for the CY 2008 OPPS from the January 2007 RTI short-term recommendations for several reasons. First, the focus of the RTI study on inpatient charges did more than just restrict the regression model dependent variables to inpatient percentages. The study also limited the cost centers addressed to those where the inpatient charges comprised a significant portion of the cost center charges and substantially contributed to the DRGs. The RTI analysis did not examine cost centers that have a much greater proportion of outpatient charges, and as such, are particularly important to APC weights, while also potentially having a residual import for DRG weight calculations as well. Second, adoption of regression-based CCRs in this final rule with comment period would produce significant changes to the proposed APC payment rates beyond those already introduced with our CY 2008 packaging approach. The lengthy discussion of public comments to our proposed packaging approach in section II.A.4. of this final rule with comment period reflects the public concern raised by a modest change in the methodology for estimating APC relative weights. Disaggregating drug and supply cost centers clearly would redistribute hospitals' resource costs among relative weights for different APCs. Estimated APC median costs calculated using regression-based CCRs for implantable devices and all other supplies, which were furnished by one commenter, showed increases for some services of as high as 28 percent, such as APC 0418 (Insertion of Left Ventricular Lead). Others would decline by as much as 11 percent, including APC 0674 (Prostate Cryoablation) and APC 0086 (Level III Electrophysiologic Procedures). An adjusted ``all other supply'' CCR would reduce the median cost of any service with significant supply packaging. Adoption of regression-based CCRs could interact with other potential changes to the APC payment groups under the OPPS. Budget neutrality adjustments could further increase the magnitude of these observed differences. We believe that these significant redistributional effects would have to be confirmed through CMS analysis, modeled, and made available for public comment should CMS decide to adopt regression-based CCRs. Third, we anticipate overall changes to our cost estimation methodology in the future, including changes to the revenue code-to- cost center crosswalk and use of nonstandard cost centers. We believe that a comprehensive review of cost estimation is an appropriate time to explore the potential use of disaggregated CCRs for the OPPS. For example, if we implemented only select regression-based CCRs or crosswalk refinements, we could inappropriately redistribute weight within the system. Finally, as noted in the FY 2008 IPPS final rule (72 FR 47192 through 47200), despite commenters' support for the disaggregated CCRs developed from regression analysis, we remain concerned about the accuracy of using regression-based estimates to determine relative weights rather than the Medicare cost report. This is especially true for the OPPS, given the potential redistribution of resource costs among services. One commenter noted that poor capital allocation to MRI and CT Scan revenue code charges could explain the observed differences in CCRs for these services, and a regression-based adjustment based on incorrect capital allocation would be equally inaccurate. As discussed in the FY 2008 IPPS final rule (72 FR 47196), we fully support voluntary educational initiatives to improve uniformity in reporting costs and charges on the cost report. Participation in these educational initiatives by hospitals is voluntary. Hospitals are not required to change how they report costs and charges if their current cost reporting practices are consistent with rules and regulations and applicable instructions. However, both the IPPS and OPPS relative weight estimates will benefit from any steps taken to improve cost reporting. To the extent allowed under current regulations and cost report instructions, we encourage hospitals to report costs and charges consistently with how the data are used to determine relative weights. We believe this goal is of mutual benefit to both Medicare and hospitals. In conclusion, we believe that it is important that the initial RTI estimation of regression-based CCRs be replicated with the inclusion of hospital outpatient charges, that the study examine the current OPPS revenue code-to-cost center crosswalk and the use of nonstandard cost centers, and that the analysis focus on the cost centers that have significant hospital outpatient charges. Regression-based CCRs may have potential to address issues of charge compression under the OPPS and possible mismatches between how costs and charges are reported in the cost reports and on OPPS claims. However, given the potential resulting change in APC weights and redistributional impact, we believe we would need to apply regression-based CCRs in all areas eligible for an adjustment, as well as implement appropriate crosswalk refinements, in order to not under-or overvalue relative weights within the system. We continue to have concerns about premature adoption of regression-based CCRs without the benefit of knowing how they would interact with other APC changes. We further believe that such methodological changes would need to be proposed, including presentation of our assessment of the possible impact of the methodology and solicitation of public comment. Once we have received the results of RTI's evaluation, we will analyze the findings and then consider whether it could be appropriate to propose to use regression-based CCRs under the OPPS. Once we have completed our analysis, we will then examine whether the educational activities being undertaken by the hospital community to improve cost reporting accuracy under the IPPS would help to mitigate charge compression under the OPPS, either as an adjunct to the application of regression-based CCRs or in lieu of such an adjustment. After the conclusion of our analysis of the RTI evaluation and our review of hospital educational activities, we will then determine whether any refinements should be proposed. Comment: One commenter indicated that the standard hospital accounting methodology for treatment of high capital costs, including the costs of expensive nonmovable radiology equipment, results in CCRs for radiology services that understate the true costs of radiology services because the high capital costs are spread over all departments of the hospital on a square footage basis. The commenter argued that this understatement of the costs in the CCR for radiology-related [[Page 66602]] departments results in calculated costs for radiology services that are too low because flawed CCRs are applied to the charges for the services provided by the radiology department. Response: We will consider the issue as part of our assessment of CCRs over the upcoming year, in the context of the RTI study as described earlier and the ongoing work that the hospital industry is undertaking with respect to cost reporting. 2. Calculation of Median Costs In this section of this final rule with comment period, we discuss the use of claims to calculate the final OPPS payment rates for CY 2008. The hospital OPPS page on the CMS Web site on which this final rule with comment period is posted provides an accounting of claims used in the development of the final rates on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS. The accounting of claims used in the development of this final rule with comment period is included on the Web site under supplemental materials for the CY 2008 final rule with comment period. That accounting provides additional detail regarding the number of claims derived at each stage of the process. In addition, below we discuss the files of claims that comprise the data sets that are available for purchase under a CMS data user contract. Our CMS Web site, http://www.cms.hhs.gov/HospitalOutpatientPPS , includes information about purchasing the following two OPPS data files: ``OPPS Limited Data Set'' and ``OPPS Identifiable Data Set.'' These files are available for both the claims that were used to calculate the proposed payment rates for the CY 2008 OPPS and also for the claims that were used to calculate the final payment rates for the CY 2008 OPPS. As proposed, we used the following methodology to establish the relative weights used in calculating the OPPS payment rates for CY 2008 shown in Addenda A and B to this final rule with comment period. This methodology is as follows: a. Claims Preparation We used hospital outpatient claims for the full CY 2006, processed before June 30, 2007, to set the final relative weights for CY 2008. To begin the calculation of the relative weights for CY 2008, we pulled all claims for outpatient services furnished in CY 2006 from the national claims history file. This is not the population of claims paid under the OPPS, but all outpatient claims (including, for example, CAH claims and hospital claims for clinical laboratory services for persons who are neither inpatients nor outpatients of the hospital). We then excluded claims with condition codes 04, 20, 21, and 77. These are claims that providers submitted to Medicare knowing that no payment would be made. For example, providers submit claims with a condition code 21 to elicit an official denial notice from Medicare and document that a service is not covered. We then excluded claims for services furnished in Maryland, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands because hospitals in those geographic areas are not paid under the OPPS. We divided the remaining claims into the three groups shown below. Groups 2 and 3 comprise the 108 million claims that contain hospital bill types paid under the OPPS. 1. Claims that were not bill types 12X, 13X, 14X (hospital bill types), or 76X (CMHC bill types). Other bill types are not paid under the OPPS and, therefore, these claims were not used to set OPPS payment. 2. Claims that were bill types 12X, 13X, or 14X (hospital bill types). These claims are hospital outpatient claims. 3. Claims that were bill type 76X (CMHC). (These claims are later combined with any claims in item 2 above with a condition code 41 to set the per diem partial hospitalization rate determined through a separate process.) For the CCR calculation process, we used the same general approach as we used in developing the final APC rates for CY 2007, using the revised CCR calculation which excluded the costs of paramedical education programs and weighted the outpatient charges by the volume of outpatient services furnished by the hospital. We refer readers to the CY 2007 OPPS/ASC final rule with comment period for more information (71 FR 67983 through 67985). We first limited the population of cost reports to only those for hospitals that filed outpatient claims in CY 2006 before determining whether the CCRs for such hospitals were valid. We then calculated the CCRs for each cost center and the overall CCR for each hospital for which we had claims data. We did this using hospital-specific data from the Healthcare Cost Report Information System (HCRIS). We used the most recent available cost report data, in most cases, cost reports for CY 2005. As proposed, for this final rule with comment period, we used the most recently submitted cost reports to calculate the CCRs to be used to calculate median costs for the CY 2008 OPPS rates. If the most recent available cost report was submitted but not settled, we looked at the last settled cost report to determine the ratio of submitted to settled cost using the overall CCR, and we then adjusted the most recent available submitted but not settled cost report using that ratio. We calculated both an overall CCR and cost center-specific CCRs for each hospital. We used the final overall CCR calculation discussed in section II.A.1.c. of this final rule with comment period for all purposes that required use of an overall CCR. We then flagged CAH claims, which are not paid under the OPPS, and claims from hospitals with invalid CCRs. The latter included claims from hospitals without a CCR; those from hospitals paid an all- inclusive rate; those from hospitals with obviously erroneous CCRs (greater than 90 or less than .0001); and those from hospitals with overall CCRs that were identified as outliers (3 standard deviations from the geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the cost center (that is, departmental) level by removing the CCRs for each cost center as outliers if they exceeded +/- 3 standard deviations from the geometric mean. We used a four tiered hierarchy of cost center CCRs to match a cost center to every possible revenue code appearing in the outpatient claims, with the top tier being the most common cost center and the last tier being the default CCR. If a hospital's cost center CCR was deleted by trimming, we set the CCR for that cost center to ``missing'' so that another cost center CCR in the revenue center hierarchy could apply. If no other cost center CCR could apply to the revenue code on the claim, we used the hospital's overall CCR for the revenue code in question. For example, if a visit was reported under the clinic revenue code, but the hospital did not have a clinic cost center, we mapped the hospital-specific overall CCR to the clinic revenue code. The hierarchy of CCRs is available for inspection and comment on the CMS Web site: http://www.cms.hhs.gov/HospitalOutpatientPPS. We then converted the charges to costs on each claim by applying the CCR that we believed was best suited to the revenue code indicated on the line with the charge. Table 4 of the proposed rule contained a list of the revenue codes we proposed to package. Revenue codes not included in Table 4 were those not allowed under the OPPS because their services could not be paid under the OPPS (for example, inpatient room and [[Page 66603]] board charges), and thus charges with those revenue codes were not packaged for creation of the OPPS median costs. One exception is the calculation of median blood costs, as discussed in section X. of this final rule with comment period. Thus, we applied CCRs as described above to claims with bill types 12X, 13X, or 14X, excluding all claims from CAHs and hospitals in Maryland, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands and claims from all hospitals for which CCRs were flagged as invalid. We identified claims with condition code 41 as partial hospitalization services of hospitals and moved them to another file. These claims were combined with the 76X claims identified previously to calculate the partial hospitalization per diem rate. We then excluded claims without a HCPCS code. We moved to another file claims that contained nothing but influenza and pneumococcal pneumonia (``PPV'') vaccines. Influenza and PPV vaccines are paid at reasonable cost and, therefore, these claims are not used to set OPPS rates. We note that the separate file containing partial hospitalization claims is included in the files that are available for purchase as discussed above. Unlike years past, we did not create a separate file of claims containing observation services because we are packaging all observation care for the CY 2008 OPPS. We next copied line-item costs for drugs, blood, and brachytherapy sources (the lines stay on the claim, but are copied onto another file) to a separate file. No claims were deleted when we copied these lines onto another file. These line-items are used to calculate a per unit mean and median and a per day mean and median for drugs, radiopharmaceutical agents, blood and blood products, and brachytherapy sources, as well as other information used to set payment rates, such as a unit-to-day ratio for drugs. b. Splitting Claims and Creation of ``Pseudo'' Single Claims. We then split the claims into five groups: single majors, multiple majors, single minors, multiple minors, and other claims. (Specific definitions of these groups follow below.) In years prior to the CY 2007 OPPS, we made a determination about whether each HCPCS code was a major code or a minor code or a code other than a major or minor code. We used those code-specific determinations to sort claims into the five groups identified above. For the CY 2007 OPPS, we used status indicators to sort the claims into these groups. We defined major procedures as any procedure having a status indicator of ``S,'' ``T,'' ``V,'' or ``X;'' defined minor procedures as any code having a status indicator of ``N;'' and classified ``other'' procedures as any code having a status indicator other than ``S,'' ``T,'' ``V,'' ``X,'' or ``N.'' For the CY 2007 OPPS proposed rule limited data set and identifiable data set, these definitions excluded claims on which hospitals billed drugs and devices without also reporting separately paid procedure codes and, therefore, those public use files did not contain all claims used to calculate the drug and device frequencies and medians. We corrected this for the CY 2007 OPPS/ASC final rule with comment period limited data set and identifiable data set by extracting claims containing drugs and devices from the set of ``other'' claims and adding them to the public use files. At its March 2007 meeting, the APC Panel recommended that CMS edit and return for correction claims that contain a HCPCS code for a separately paid drug or device but that also do not contain a HCPCS code assigned to a procedural APC (that is, those not assigned status indicator ``S,'' ``T,'' ``V,'' or ``X''). The APC Panel stated that this edit should improve the claims data and may increase the number of single bills available for ratesetting. We noted that such an edit would be broader than the device-to-procedure code edits we implemented for CY 2007 for selected devices, and we solicited comments on the impact of establishing such edits on hospital billing processes and related potential improvements to claims data. In the CY 2008 proposed rule (72 FR 42645), we explained that in view of the prior public comments and our desire to ensure that the public data files contained all appropriate data, for the CY 2008 OPPS, we proposed to define majors as HCPCS codes that have a status indicator of ``S,'' ``T,'' ``V,'' or ``X.'' We proposed to define minors as HCPCS codes that have a status indicator of ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N'' but, as discussed above, to make single bills out of any claims for single procedures with a minor code that also has an APC assignment. This ensured that the claims that contained only HCPCS codes for drugs and biologicals or devices but that did not contain codes for procedures were included in the limited data set and the identifiable data set. It also ensured that conditionally packaged services proposed to receive separate payment only when they were billed without any other separately payable OPPS services would be treated appropriately for purposes of median cost calculations. We proposed to define ``other'' services as HCPCS codes that had a status indicator other than those defined as majors or minors. We received several public comments regarding our proposal to continue to process OPPS claims for a separately paid drug or device that did not also report a procedural HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X.'' A summary of the public comments and our responses follow. Comment: Several commenters requested that we adopt the recommendation of the APC Panel that CMS edit and return for correction claims that contained a HCPCS code for a separately paid drug or device but that did not also report a HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X.'' These commenters believed that this process would generally improve hospitals' coding and charging practices. One commenter indicated that, under some circumstances, a hospital may bill for a diagnostic radiopharmaceutical that is administered on one day but may not report the associated nuclear medicine procedure on the same claim because the procedure would be provided several days later. In this case, the bill for the diagnostic radiopharmaceutical would include no other services with a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' because the administration of the radiopharmaceutical would be considered to be a part of the nuclear medicine study. Response: We have accepted this recommendation in selective situations. We currently edit claims in the Outpatient Code Editor (OCE) for selected devices for which our data show that hospitals have a history of reporting the HCPCS device code but not reporting the HCPCS procedure code that is necessary for the device to have therapeutic benefit. See the device-to-procedure edits on the OPPS Web page at http://www.cms.hhs.gov/HospitalOutpatientPPS/. Moreover, as discussed in more detail in section II.A.4.c.(5) of this final rule with comment period, effective for dates of service on or after January 1, 2008, we will implement OCE edits for diagnostic nuclear medicine services that will require that a HCPCS code for a diagnostic radiopharmaceutical must be on the claim for the claim to be processed to payment. Claims will be returned to the provider for correction if they contain a nuclear medicine service but the hospital does not also report a radiopharmaceutical on the same claim. We will continue to assess the need for OCE edits based upon the unique [[Page 66604]] circumstances of individual services or categories of services. In the CY 2008 proposed rule (72 FR 42645), we explained our continued belief that using status indicators, with the proposed changes, was an appropriate way to sort the claims into these groups and also to make our process more transparent to the public. We further believed that this proposed method of sorting claims would enhance the public's ability to derive useful information for analysis and public comment on the proposed rule. We used status indicator ``Q'' in Addendum B to the proposed rule to identify services that would receive separate HCPCS code-specific payment when specific criteria are met, and payment for the individual service would be packaged in all other circumstances. We proposed several different sets of criteria to determine whether separate payment would be made for specific services. For example, we proposed that HCPCS code G0379 (Direct admission of patient for hospital observation care) be assigned status indicator ``Q'' in Addendum B to the proposed rule because we proposed that it receive separate payment only if it is billed on the same date of service as HCPCS code G0378 (Hospital observation service, per hour), without any services with status indicator ``T'' or ``V'' or Critical Care (APC 0617). We also proposed to assign the specific services in the proposed composite APCs discussed in section II.A.4.d. of the proposed rule status indicator ``Q'' in Addendum B to the proposed rule because we proposed that their payment would be bundled into a single composite payment for a combination of major procedures under certain circumstances. As proposed, these services would only receive separate code-specific payment if certain criteria were met. The same is true for those less intensive outpatient mental health treatment services for which payment would be limited to the partial hospitalization per diem rate and which also were assigned status indicator ``Q'' in Addendum B to the proposed rule. According to longstanding OPPS payment policy (65 FR 18455), payment for these individual mental health services is bundled into a single payment, APC 0034 (Mental Health Services Composite), when the sum of the individual mental health service payments for all of those mental health services provided on the same day would exceed payment for a day of partial hospitalization services. However, the largest number of specific HCPCS codes identified by status indicator ``Q'' in Addendum B to the proposed rule were those codes that we identified as ``special'' packaged codes, where we proposed that a hospital would receive separate payment for providing one unit of a service when the ``special'' packaged code appears on the same day on a claim without another service that was assigned status indicator ``S,'' ``T,'' ``V,'' or ``X.'' We proposed to package payment for these HCPCS codes when the code appears on the same date of service on a claim with any other service that was assigned status indicator ``S,'' ``T,'' ``V,'' or ``X.'' In response to public comments as discussed in detail in section II.A.4. of this final rule with comment period, we refined the proposed methodology for paying claims that contain ``special'' packaged codes with status indicator ``Q'' when there is a major separately paid procedure on the claim for the same date and when there are multiple ``special'' packaged codes with status indicator ``Q'' but no major procedure on the claim. This last and largest subset of conditionally packaged services, referred to as ``special'' packaged codes in the proposed rule, had to be integrated into the identification of single and multiple bills for ratesetting to ensure that the costs for these services were appropriately packaged when they appeared with any other separately paid service or paid separately when appearing by themselves. We handled these ``special'' packaged ``Q'' status codes in the data for this final rule with comment period by assigning the HCPCS code an APC and a data status indicator of ``N.'' This gives all special packaged codes an initial status of ``minor'' that is changed, when appropriate, through the split process. We identified two subsets of the ``special'' packaged codes for the purpose of payment and ratesetting. Imaging supervision and interpretation ``special'' packaged codes are now named ``T-packaged'' codes. All other ``special'' packaged codes are referred to as ``STVX-packaged'' codes. When an ``STVX-packaged'' code appeared with a HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' on the same date of service, it retained its minor status and was treated as a packaged code and received a status indicator of ``N.'' The costs that appeared on the lines with these codes were packaged into the cost of the HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' in the single bills and contributed to the median cost for the primary service with which they appeared. When the ``STVX packaged'' code appeared by itself, without other special packaged codes on the same claim, and had a unit of one, we changed the status indicator on the line to the status indicator of the APC to which the code was assigned, converting the service from a single minor to a single major. This created ``natural'' single bills for the ``STVX-packaged'' codes. In the case of multiple ``STVX-packaged'' codes reported on a claim on the same date of service but without a major separately paid procedure (that is, ``S,'' ``T,'' ``V,'' or ``X''), we first identified the ``STVX- packaged'' code with the highest CY 2007 OPPS payment weight. We then changed the status indicator on the line to the status indicator of the APC to which this particular code was assigned, converting the service from a single minor to a single major, and we forced the units to be one to conform with our policy of paying only one unit of a ``Q'' status service. We extracted these claims from the multiple minors to create ``pseudo'' single bills. We summed all costs on the claim and associated the resulting cost with the payable ``STVX-packaged'' code that had the highest CY 2007 OPPS payment weight. We used natural and ``pseudo'' single procedure claims for ``STVX-packaged'' codes to set the median costs for the APCs to which the codes were assigned when they would be separately paid. We modified this methodology for the ``T-packaged'' codes (imaging supervision and interpretation services in CY 2008) because our final CY 2008 payment policy for these services differs from the policy for ``STVX-packaged'' codes. Although we treated all ``special'' packaged codes as ``STVX-packaged'' codes in the proposed rule, in this final rule with comment period, ``T-packaged'' services are packaged only when they appear with a service with a status indicator of ``T'' on the same date; otherwise, ``T packaged'' services are paid separately. We assessed all claims for the presence of ``T packaged'' services and determined their final payment disposition, packaged or separately paid, prior to splitting the claims into single and multiple majors and minors. When a ``T-packaged'' code appeared with a HCPCS code with a status indicator of ``T'' on the same date of service, the ``T- packaged'' code was treated as a packaged code and retained its minor status and a status indicator of ``N.'' Otherwise, we designated a ``T- packaged'' service that would be separately paid by identifying the ``T-packaged'' code on the date of service with the highest CY 2007 payment weight. We changed the status indicator on the line of the ``T- packaged'' code with the highest CY 2007 payment weight to the status indicator of the APC [[Page 66605]] to which the code was assigned, converting it from a single minor to a single major. We forced the units to be one to conform with our policy of paying only one unit of a service with a status indicator of ``Q.'' Any remaining ``T-packaged'' codes appearing on the same date of service retained their minor status and a status indicator of ``N.'' In the single and ``pseudo'' single bills, the costs that appeared on the lines with these codes were packaged into the cost of the HCPCS code with a status indicator of ``T.'' The remaining claims, ``T-packaged'' services on claims with another service with a status indicator of ``S,'' ``V,'' or ``X'' on the same date, became multiple majors. The bypass process for breaking multiple major claims created additional ``pseudo'' single bills for the ``T-packaged'' codes that had been converted to major status. When the ``T-packaged'' code appeared by itself with packaged services and one unit, we changed the status indicator on the line to the status indicator of the APC to which the code was assigned, converting the service to a single major procedure. In the case of multiple ``T-packaged'' codes reported on a claim on the same date of service but without a major separately paid procedure (``S,'' ``T,'' ``V,'' or ``X''), we summed all costs on the claim, associated the resulting cost with the ``T-packaged'' or ``STVX- packaged'' code that had the highest 2007 OPPS payment weight, and forced the units to one. We extracted these claims from the multiple minors to created new single bills. These processes created ``natural'' and ``pseudo'' single bills for the ``T-packaged'' codes that were then used to set the median cost for each specific code and for the APCs to which the codes would be assigned when they were separately paid. We added the logic necessary to deal with these codes as part of the split of the claims into the five groups defined below and in our review of the multiple minor claims. We evaluated the ``T-packaged'' codes that had been on the bypass list to see if they might be eligible for continuation on the list, as these codes would appear with their final payment disposition in the multiple majors. However, we determined that none of these codes should be returned to the bypass list because their associated packaging under their CY 2008 ``Q'' payment status exceeded the empirical criteria designed to limit error in the allocation of packaged costs through the bypass process. Specifically, we divided the remaining claims into the following five groups: 1. Single Major Claims: Claims with a single separately payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or ``X''). Claims with one unit of a status indicator ``Q'' code that was an ``STVX-packaged'' code or ``T-packaged'' code where there was no code on the claim with status indicator ``S,'' ``T,'' `` V,'' or ``X,'' or ``T,'' respectively. 2. Multiple Major Claims: Claims with more than one separately payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or ``X''), or multiple units of one payable procedure. As discussed below, some of these were used in median setting. These claims included those with a status indicator ``Q'' code that was a ``T-packaged'' code and no procedure with a status indicator ``T'' on the same date of service. We also included in this set claims that contained one unit of one code when the bilateral modifier was appended to the code and the code was conditionally or independently bilateral. In these cases, the claims represented more than one unit of the service described by the code, notwithstanding that only one unit was billed. 3. Single Minor Claims: Claims with a single HCPCS code that was assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N'' and was not an ``STVX-packaged'' or ``T packaged code.'' 4. Multiple Minor Claims: Claims with multiple HCPCS codes that were assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N.'' This set included ``STVX packaged'' and ``T-packaged'' codes with more than one unit of the code or more than one line of these codes on the same date of service. As noted above, we created ``pseudo'' singles from some of these claims when we broke the claim by date, packaged the costs into the code with the highest CY 2007 payment weight, and forced the units to one to match our payment policy of paying one unit. 5. Non-OPPS Claims: Claims that contained no services payable under the OPPS (that is, all status indicators other than those listed for major or minor status). These claims were excluded from the files used for the OPPS. Non-OPPS claims have codes paid under other fee schedules, for example, durable medical equipment or clinical laboratory tests, and do not contain either a code for a separately paid service or a code for a packaged service. The claims listed in numbers 1, 2, 3, and 4 above were included in the data files that can be purchased as described above. ``STVX- packaged'' and ``T-packaged'' codes appear in the single major file, the multiple major file, and the multiple minor file. We set aside the single minor, multiple minor, and non-OPPS claims (numbers 3, 4, and 5 above) because we did not use these claims in calculating median costs of procedural APCs. We then used the bypass codes listed earlier in Table 1 and discussed in section II.A.1.b. of this final rule with comment period to remove separately payable procedures that we determined contained limited or no packaged costs or that were otherwise suitable for inclusion on the bypass list from a multiple procedure bill. When one of the two separately payable procedures on a multiple procedure claim was on the bypass list, we split the claim into two ``pseudo'' single procedure claim records. The single procedure claim record that contained the bypass code did not retain packaged services. The single procedure claim record that contained the other separately payable procedure (but no bypass code) retained the packaged revenue code charges and the packaged HCPCS code charges. We then examined the multiple major claims for dates of service to determine if we could break them into ``pseudo'' single procedure claims using the dates of service on all lines on the claim. If we could create claims with single major procedures by using dates of service, we created a single procedure claim record for each separately paid procedure on a different date of service (that is, a ``pseudo'' single). We also removed lines that contained multiple units of codes on the bypass list and treated them as ``pseudo'' single claims by dividing the cost for the multiple units by the number of units on the line. Where one unit of a single, separately paid procedure code remained on the claim after removal of the multiple units of the bypass code, we created a ``pseudo'' single claim from that residual claim record, which retained the costs of packaged revenue codes and packaged HCPCS codes. This enabled us to use claims that would otherwise be multiple procedure claims and could not be used. We excluded those claims that we were not able to convert to single claims even after applying all of the techniques for creation of ``pseudo'' singles. Among those excluded were claims that contained codes that were viewed as independently or conditionally bilateral and that contained the bilateral modifier (Modifier 50 (Bilateral procedure)) because the line-item cost for the code represented the cost of two units of the procedure, notwithstanding that the code appeared with a unit of one. Therefore, the charge on the line [[Page 66606]] represented the charge for two services rather than a single service and using the line as reported would have overstated the cost of a single procedure. c. Completion of Claim Records and Median Cost Calculations We then packaged the costs of packaged HCPCS codes (codes with status indicator ``N'' listed in Addendum B to the proposed rule and the costs of those lines for ``Q'' status services that retained status indicator ``N'' through the split process as described above) and packaged revenue codes into the cost of the single major procedure remaining on the claim. The final list of packaged revenue codes is shown in Table 2 below. At its March 2007 meeting, the APC Panel recommended that CMS review the final list of packaged revenue codes for consistency with OPPS policy and ensure that future versions of the OCE edit accordingly. We compared the packaged revenue codes in the OCE to the final list of packaged revenue codes for the CY 2007 OPPS (71 FR 67989 through 67990) that we used for packaging costs in median calculation. As a result of that analysis, we stated in the CY 2008 OPPS/ASC proposed rule (72 RF 42646) that we accepted the APC Panel's recommendation and we proposed to change the list of packaged revenue codes for the CY 2008 OPPS in the following manner. First, we proposed to remove revenue codes 0274 (Prosthetic/Orthotic devices) and 0290 (Durable Medical Equipment) from the list of packaged revenue codes because we do not permit hospitals to report implantable devices in these revenue codes (Internet Only Manual 100-4, Chapter 4, section 20.5.1.1). We also specifically proposed to add revenue code 0273 (Take Home Supplies) to the list of packaged revenue codes because we believed that the charges under this revenue code were for the incidental supplies that hospitals sometimes provided for patients who were discharged at a time when it was not possible to secure the supplies needed for a brief time at home. We proposed to conform the list of packaged revenue codes in the OCE to the OPPS for CY 2008. We made these changes in the calculation of the CY 2008 OPPS payment rates. The final CY 2008 packaged revenue codes are displayed in Table 2 below. We packaged the costs of the HCPCS codes that were shown with status indicator ``N'' into the cost of the independent service to which the packaged service was ancillary or supportive. We refer readers to section II.A.4. of this final rule with comment period for a more complete discussion of the final packaging changes for CY 2008. We also excluded (1) claims that had zero costs after summing all costs on the claim and (2) claims containing packaging flag number 3. Effective for services furnished on or after July 1, 2004, the OCE assigned packaging flag number 3 to claims on which hospitals submitted token charges for a service with status indicator ``S'' or ``T'' (a major separately paid service under the OPPS) for which the fiscal intermediary was required to allocate the sum of charges for services with a status indicator equaling ``S'' or ``T'' based on the weight of the APC to which each code was assigned. We did not believe that these charges, which were token charges as submitted by the hospital, were valid reflections of hospital resources. Therefore, we deleted these claims. We also deleted claims for which the charges equaled the revenue center payment (that is, the Medicare payment) on the assumption that where the charge equaled the payment, to apply a CCR to the charge would not yield a valid estimate of relative provider cost. For the remaining claims, we then standardized 60 percent of the costs of the claim (which we have previously determined to be the labor-related portion) for geographic differences in labor input costs. We made this adjustment by determining the wage index that applied to the hospital that furnished the service and dividing the cost for the separately paid HCPCS code furnished by the hospital by that wage index. As has been our policy since the inception of the OPPS, we used the pre reclassified wage indices for standardization because we believed that they better reflected the true costs of items and services in the area in which the hospital was located than the post reclassification wage indices and, therefore, would result in the most accurate unadjusted median costs. We also excluded claims that were outside 3 standard deviations from the geometric mean of units for each HCPCS code on the bypass list (because, as discussed above, we used claims that contain multiple units of the bypass codes). After removing claims for hospitals with error CCRs, claims without HCPCS codes, claims for immunizations not covered under the OPPS, and claims for services not paid under the OPPS, approximately 58 million claims were left for this final rule comment period. Of these 58 million claims, we were able to use some portion of approximately 54 million whole claims (93 percent of approximately 58 million potentially usable claims) to create approximately 97 million single and ``pseudo'' single claims, of which we used 96 million single bills (after trimming out just over 900,000 claims as discussed below) in the CY 2008 median development and ratesetting. We used the remaining claims to calculate the CY 2008 median costs for each separately payable HCPCS code and each APC. The comparison of HCPCS and APC medians determines the applicability of the ``2 times'' rule. 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 (``the 2 times rule''). Finally, we reviewed the medians and reassigned HCPCS codes to different APCs where we believed that it was appropriate. Section III. of this final rule with comment period includes a discussion of certain HCPCS code assignment changes that resulted from examination of the medians and for other reasons. The APC medians were recalculated after we reassigned the affected HCPCS codes. Both the HCPCS medians and the APC medians were weighted to account for the inclusion of multiple units of the bypass codes in the creation of ``pseudo'' single bills. In the CY 2008 proposed rule (72 FR 42646), we explained that in our review of median costs for HCPCS codes and their assigned APCs, we had frequently noticed that some services were consistently rarely performed in the hospital outpatient setting for the Medicare population. In particular, there were a number of services, such as several procedures related to the care of pregnant women, that had annual Medicare claims volume of 100 or fewer occurrences. By definition, these services also had a small number of single bills from which to estimate median costs. In addition, in some cases, these codes had been historically assigned to clinical APCs where all the services were low volume. Therefore, the median costs for these services and APCs often fluctuated from year to year, in part due to the variability created by such a small number of claims. One of the benefits of basing payment on the median cost of many HCPCS codes with sufficient single bill representation in an APC is that such fluctuation would be moderated by the increased number of observations for similar services on [[Page 66607]] which the APC median cost was also based. We considered proposing a distinct methodology for calculation of the median cost of low total volume APCs in order to provide more stability in payment from year to year for these low total volume services. However, after examination of the low total volume OPPS services and their assigned APCs, we concluded that there were other clinical APCs with higher volumes of total claims to which these low total volume services could be reassigned, while ensuring the continued clinical and resource homogeneity of the clinical APCs to which they would be newly reassigned. Therefore, we believed that it would be more appropriate to reconfigure clinical APCs to eliminate most of the low total volume APCs. We observed that these low volume services differed from other OPPS services only because they were not often furnished to the Medicare population. Therefore, we proposed to reconfigure certain clinical APCs for CY 2008 as a way to promote stability and appropriate payment for the services assigned to them, including low total volume services. We believed that these proposed reconfigurations maintained APC clinical and resource homogeneity. We proposed these changes as an alternative to developing specific quantitative approaches to treating low total volume APCs differently for purposes of median calculation. Specifically, we proposed that 3 APCs (all of which are New Technology APCs) would have a total volume of services less than 100, and only 17 APCs would have a total volume of less than 1,000, in comparison with CY 2007 where 9 APCs (including 3 New Technology APCs) had a total volume of less than 100 and 36 APCs had a total volume of less than 1,000. In this final rule with comment period, 3 APCs (all New Technology APCs) have a total volume of less than 100 and 15 APCs have a total volume of less than 1,000. We received a number of public comments on our proposed process for calculating the median costs on which our payment rates are based. A summary of the pubic comments and our responses follow. Comment: Some commenters objected to the volatility of the OPPS rates from year to year. The commenters asserted that the absence of stability in the OPPS rates creates budgeting, planning, and operating problems for hospitals, and that as more care is provided on an outpatient, rather than inpatient basis, the need for stable payment rates from one year to the next becomes more important to hospitals. Some commenters asked that CMS permit no payment rate to change by more than 5 percent from one year to the next. Response: There are a number of factors pertinent to the OPPS that cause median costs to change from one year to the next. Some of these are a reflection of hospital behavior, and some of them are a reflection of fundamental characteristics of the OPPS as defined in statute. For example, the OPPS payment rates are based on hospital cost report and claims data. However, hospital costs and charges change each year and this results in both changes to the CCRs taken from the most currently available cost reports and also differences in the charges on the claims that are the basis of the calculation of the median costs on which OPPS rates are based. Similarly, hospitals adjust their mix of services from year to year by offering new services and ceasing to furnish services or changing the proportion of the various services they furnish, which has impact on the CCRs that we derive from their cost reports. CMS cannot stabilize these hospital-driven fundamental inputs to the calculation of OPPS payment rates. Moreover, there are other essential elements of the OPPS which contribute to the changes in relative weights each year. These include, but are not limited to, reassignments of HCPCS codes to APCs to rectify 2 times violations as required by the law, to address the costs of new services, and to respond to public comments. Moreover, for some services, we cannot avoid using small numbers of claims, either because the volume of services is naturally low or because the claims data do not facilitate the calculation of a median cost for a single service. Where there are small numbers of claims to be used in median calculation, there is more volatility in the median cost from one year to the next. Lastly, changes to OPPS payment policy (for example, changes to packaging) also contribute to some extent to the fluctuations in the OPPS payment rates for the same service from year to year. We cannot avoid the naturally occurring volatility in the cost report and claims data that hospitals submit and on which the payment rates are based. Moreover (with limited exceptions), we are required by law to reassign HCPCS codes to APCs where it is necessary to avoid 2 times violations. However, we have made other changes to resolve some of the other potential reasons for instability from year to year. Specifically, we continue to seek ways to use more claims data so that we have fewer APCs for which there are small numbers of single bills used to set the APC median costs. Moreover, we have tried to eliminate APCs with very small numbers of single bills where we could do so. We received no public comments that objected to our proposal to eliminate a number of very low volume APCs; therefore, we are adopting these reconfigurations for CY 2008. We recognize that changes to payment policies, such as the packaging of payment for ancillary and supportive services and the implementation of composite APCs, may contribute to volatility in payment rates in the short term, but we believe that larger payment packages and bundles will help to stabilize payments in future years by enabling us to use more claims data and by establishing payments for larger groups of services. Comment: A commenter stated that CMS should crosswalk revenue code 0278 (Other implants, under the Medical/Surgical Supplies category) to cost center 3540 (Prosthetic Devices), which generally represents higher cost technology, instead of crosswalking it to cost center 5500 (Medical Supplies Charge to Patient), which often represents lower cost items. The commenter indicated that this change to the revenue code-to- cost center crosswalk would result in improved estimates of the costs of the devices billed under revenue code 0278 and, therefore, would result in more accurate payments. Response: We will carefully examine the implications of making this change in the future. However, for CY 2008 this change would have a negligible effect on the median costs for services with charges reported under revenue code 0278. Only 20 providers out of 4,201 in the file of the 2005-2006 cost reports used cost center 3540. Comment: Some commenters asked that CMS provide an adjustment for medical education costs under the OPPS because so much of the costs of teaching services are being incurred in the HOPD as many of the services previously furnished only in the inpatient setting are now being furnished in the HOPD. The commenters stated that CMS indicated that it would study the costs and payment differential among different classes of providers in the April 7, 2000 OPPS final rule with comment period but has not done so. The commenters also asserted that section 4523 of the BBA requires the Secretary to establish adjustments ``as determined to be necessary to ensure equitable payments * * * for certain classes of hospitals'' and, therefore, CMS should study whether the hospital outpatient costs of teaching hospitals are higher than the costs of other hospitals for purposes of determining whether there should be a teaching [[Page 66608]] hospital adjustment. The commenters explained that their internal analysis of 2004 Medicare cost reports showed that the average outpatient margins were -20.2 percent for major teaching hospitals, - 10.1 percent for other teaching hospitals, and -11.8 percent for non- teaching hospitals. They believed these findings demonstrated that the hospital outpatient costs of major teaching hospitals are significantly greater than the costs of other hospitals. The commenters requested that CMS conduct its own analysis, and added that if that analysis shows such a difference, CMS should add a teaching adjustment to the OPPS. Response: Unlike payment under the IPPS, the law does not provide for payment for indirect medical education costs to be made through the OPPS. Section 1833(t)(2)(E) of the Act, as added by section 4523 of the BBA, states that the Secretary shall establish, in a budget neutral manner `` * * * other adjustments as determined to be necessary to ensure equitable payments, such as adjustments for certain classes of hospitals.'' We have not found such an adjustment to be necessary to ensure equitable payments to teaching hospitals and, therefore, have not developed such an adjustment. We do not believe an indirect medical education add-on payment is appropriate in a budget neutral payment system where such changes would result in reduced payments to all other hospitals. Furthermore, in this final rule with comment period, we have developed payment weights that we believe provide appropriate and adequate payment for the complex medical services, such as visits requiring prolonged observation, new technology services and device- dependent procedures, which we understand are furnished largely by teaching hospitals. Teaching hospitals benefit from the recalibration of the APCs and the changes to packaging that are implemented in this final rule with comment period. The final CY 2008 impacts by class of hospital are displayed in Table 61 in section XXIV.B. of this final rule with comment period. Therefore, we do not believe that there is sufficient reason to develop an adjustment to the OPPS payment to teaching hospitals for the CY 2008 OPPS. Comment: The MedPAC commented that while CMS proposed to apply a multiple procedure reduction to imaging services for CY 2006, CMS did not adopt this proposal as final but stated that it would continue to study whether such a reduction was appropriate. The MedPAC asked that CMS continue to examine ways to improve payment accuracy for imaging services, including considering applying a multiple procedure reduction to these services. Response: The question of whether it would be appropriate to apply a multiple procedure reduction pertains only to those imaging services for which we make separate payment. It is not an issue for packaged imaging services, including the numerous imaging services that we are packaging for CY 2008 as part of our expanded payment bundles under the OPPS. The concern, therefore, is partially mitigated by our final CY 2008 packaging policies. Commenters responding to the CY 2006 proposal OPPS indicated that, in contrast to the MPFS payment rates, the hospital cost data used by CMS to set payment rates for imaging services already reflects savings due to the efficiencies of performing multiple procedures during the same session and that the proposal to discount second and subsequent procedures would be tantamount to discounting those procedures twice (70 FR 68707). As we indicated in our response to that comment, we were unable to disprove commenters' contentions that there are already efficiencies included in hospitals' costs and, therefore, in their CCRs and in the median costs on which the OPPS payments are based (70 FR 68708). However, we believe it is possible that there may be a relationship between the extent to which efficiencies are incorporated into the median costs and the degree to which charge compression affects the median costs for imaging services. RTI's study of charge compression using inpatient charges found that use of regression adjusted CCRs would reduce the costs of magnetic resonance imaging and computed tomography services. This is one of the categories of hospital services that has high outpatient utilization. Over the coming year, as discussed earlier in this section of this final rule with comment period, we will explore through the RTI contract the results of including hospital outpatient charges to determine regression-adjusted CCRs for calculation of the median costs for imaging services. We believe that this information could be useful in the reassessment of whether it would be appropriate to apply a multiple procedure reduction to separately paid imaging services. A detailed discussion of the development of median costs for blood and blood products is included in section X. of this final rule with comment period. A discussion of the calculation of medians for APCs that require one or more implantable devices when the service is performed is provided in section IV.A. of this final rule with comment period. The methodology for developing the median costs for composite APCs is included below in section II.A.4.d. of this final rule with comment period. A description of the methodology for calculating the median cost for partial hospitalization services is presented below in section II.B. of this final rule with comment period. After consideration of the public comments received, we are finalizing our proposed CY 2008 methodology for calculating the median costs upon which the CY 2008 OPPS payment rates are based, with the modifications described earlier regarding the treatment of services which are assigned status indicator ``Q.'' Table 2.--CY 2008 Packaged Revenue Codes ------------------------------------------------------------------------ Revenue code Description ------------------------------------------------------------------------ 0250.............................. PHARMACY. 0251.............................. GENERIC. 0252.............................. NONGENERIC. 0254.............................. PHARMACY INCIDENT TO OTHER DIAGNOSTIC. 0255.............................. PHARMACY INCIDENT TO RADIOLOGY. 0257.............................. NONPRESCRIPTION DRUGS. 0258.............................. IV SOLUTIONS. 0259.............................. OTHER PHARMACY. 0260.............................. IV THERAPY, GENERAL CLASS. 0262.............................. IV THERAPY/PHARMACY SERVICES. 0263.............................. SUPPLY/DELIVERY. [[Page 66609]] 0264.............................. IV THERAPY/SUPPLIES. 0269.............................. OTHER IV THERAPY. 0270.............................. M&S SUPPLIES. 0271.............................. NONSTERILE SUPPLIES. 0272.............................. STERILE SUPPLIES. 0273.............................. TAKE HOME SUPPLIES. 0275.............................. PACEMAKER DRUG. 0276.............................. INTRAOCULAR LENS SOURCE DRUG. 0278.............................. OTHER IMPLANTS. 0279.............................. OTHER M&S SUPPLIES. 0280.............................. ONCOLOGY. 0289.............................. OTHER ONCOLOGY. 0343.............................. DIAGNOSTIC RADIOPHARMS. 0344.............................. THERAPEUTIC RADIOPHARMS. 0370.............................. ANESTHESIA. 0371.............................. ANESTHESIA INCIDENT TO RADIOLOGY. 0372.............................. ANESTHESIA INCIDENT TO OTHER DIAGNOSTIC. 0379.............................. OTHER ANESTHESIA. 0390.............................. BLOOD STORAGE AND PROCESSING. 0399.............................. OTHER BLOOD STORAGE AND PROCESSING. 0560.............................. MEDICAL SOCIAL SERVICES. 0569.............................. OTHER MEDICAL SOCIAL SERVICES. 0621.............................. SUPPLIES INCIDENT TO RADIOLOGY. 0622.............................. SUPPLIES INCIDENT TO OTHER DIAGNOSTIC. 0624.............................. INVESTIGATIONAL DEVICE (IDE). 0630.............................. DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS. 0631.............................. SINGLE SOURCE. 0632.............................. MULTIPLE. 0633.............................. RESTRICTIVE PRESCRIPTION. 0681.............................. TRAUMA RESPONSE, LEVEL I. 0682.............................. TRAUMA RESPONSE, LEVEL II. 0683.............................. TRAUMA RESPONSE, LEVEL III. 0684.............................. TRAUMA RESPONSE, LEVEL IV. 0689.............................. TRAUMA RESPONSE, OTHER. 0700.............................. CAST ROOM. 0709.............................. OTHER CAST ROOM. 0710.............................. RECOVERY ROOM. 0719.............................. OTHER RECOVERY ROOM. 0720.............................. LABOR ROOM. 0721.............................. LABOR. 0732.............................. TELEMETRY. 0762.............................. OBSERVATION ROOM. 0801.............................. HEMODIALYSIS. 0802.............................. PERITONEAL DIALYSIS. 0803.............................. CAPD. 0804.............................. CCPD. 0809.............................. OTHER INPATIENT DIALYSIS. 0810.............................. ORGAN ACQUISITION. 0819.............................. OTHER ORGAN ACQUISITION. 0821.............................. HEMODIALYSIS COMP OR OTHER RATE. 0824.............................. MAINTENANCE 100%. 0825.............................. SUPPORT SERVICES. 0829.............................. OTHER HEMO OUTPATIENT. 0942.............................. EDUCATION/TRAINING. ------------------------------------------------------------------------ 3. Calculation of OPPS Scaled Payment Weights Using the median APC costs discussed previously, we calculated the final relative payment weights for each APC for CY 2008 shown in Addenda A and B to this final rule with comment period. In years prior to CY 2007, we standardized all the relative payment weights to APC 0601 (Mid Level Clinic Visit) because it was 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. Beginning with the CY 2007 OPPS, we standardized all of the relative payment weights to APC 0606 (Level 3 Clinic Visits) because we deleted APC 0601 as part of the reconfiguration of the visit APCs. We chose APC 0606 as the base because APC 0606 was the middle level clinic visit APC (that is, Level 3 of five levels). We had historically used the median cost of the middle level clinic visit APC (that is APC 0601 through CY 2006) to calculate unscaled weights because mid-level clinic visits were among the most frequently performed services in the hospital outpatient setting. As proposed for CY 2008, to maintain consistency in using a median for calculating unscaled weights representing the median cost of some of the most frequently provided services, we continued to use the [[Page 66610]] median cost of the mid-level clinic APC, proposed APC 0606, to calculate unscaled weights. Following our standard methodology, but using the CY 2008 median for APC 0606, for CY 2008 we assigned APC 0606 a relative payment weight of 1.00 and divided the median cost of each APC by the median cost for APC 0606 to derive the unscaled relative payment weight for each APC. The choice of the APC on which to base the relative weights for all other APCs does not affect the payments made under the OPPS because we scale the weights for budget neutrality. Section 1833(t)(9)(B) of the Act requires that APC reclassification and recalibration changes, wage index changes, and other adjustments be made in a manner that assures that aggregate payments under the OPPS for CY 2008 are neither greater than nor less than the 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 2007 relative weights to aggregate payments using the CY 2008 final relative weights. This year, we included payments to CMHCs in our comparison. Based on this comparison, we adjusted the relative weights for purposes of budget neutrality. The final unscaled relative payment weights were adjusted by a weight scaler of 1.3226 for budget neutrality. In addition to adjusting for increases and decreases in weight due to the recalibration of APC medians, the scaler also accounts for any change in the base, other than changes in volume which are not a factor in the weight scaler. The decline in the weight scaler compared to the proposed weight scaler of 1.3665 results largely from the refinement for this final rule with comment period of the proposed packaging policy to package imaging supervision and interpretation services only if they are reported on the same date of service as a HCPCS code that has a status indicator of ``T.'' This change both increased the median costs for these imaging supervision and interpretation services and added a significant number of units for these services that would be separately paid under the final CY 2008 policy. The other factors that contributed to the decline of the scaler from the proposed rule to this final rule with comment period include the creation of the observation composite APCs and the increase in the final CY 2008 payment rate for partial hospitalization services compared to the proposed payment rate. The final relative payment weights listed in Addenda A and B to this final rule with comment period incorporate the recalibration adjustments discussed in sections II.A.1. and 2. of this final rule with comment period. Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, states that ``Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion factor, weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall be taken into account for subsequent years.'' Section 1833(t)(14) of the Act provides the payment rates for certain ``specified covered outpatient drugs.'' Therefore, the cost of those specified covered outpatient drugs (as discussed in section V. of this final rule with comment period) is included in the budget neutrality calculations for the CY 2008 OPPS. We did not receive any public comments on the methodology for calculating scaled weights from the median costs for the CY 2008 OPPS. Therefore, we are finalizing our proposed methodology, without modification, including updating of the budget neutrality scaler for the final rule as proposed. 4. Changes to Packaged Services a. Background When the Medicare program was first implemented, it paid for hospital services (inpatient and outpatient) based on hospital-specific reasonable costs attributable to furnishing services to Medicare beneficiaries. Later, the law was amended to limit payment to the lesser of the hospital's reasonable cost or customary charges for services furnished to Medicare beneficiaries. Specific service-based methodologies were then developed for certain types of services, such as clinical laboratory tests and durable medical equipment, while payments for outpatient surgical procedures and other diagnostic tests were based on a blend of the hospital's aggregate Medicare costs for these services and Medicare's payment for similar services in other ambulatory settings. While this mix of different payment methodologies was in use, hospital outpatient services were growing rapidly following the implementation of the IPPS in 1983. The brisk increase in hospital outpatient services led to an interest in creating payment incentives to promote more efficient delivery of hospital outpatient services through a Medicare prospective payment system for hospital outpatient services, and the final statutory requirements for the OPPS were established by the BBA and the BBRA. During the period of time when different approaches to prospective payment for hospital outpatient services were being considered, a variety of reports to Congress (June 1988, September 1990, and March 1995) discussed three major issues related to defining the unit of payment for the payment system, specifically the extent to which clinically similar procedures should be grouped for payment purposes and the logic that should be used for the groupings; the extent to which payment for minor, ancillary services associated with a significant procedure should be packaged into a single payment for the procedure (which we refer to as ``packaging''); and the extent to which payment for multiple significant procedures or multiple units of the same procedure related to an outpatient encounter or to an episode of care should be bundled into a single unit of payment (which we refer to as ``bundling''). Both packaging and bundling were presented as approaches to creating incentives for efficiency, with their potential policy disadvantages including inconsistency with other ambulatory fee schedules, reduced transparency of service-specific payment, and the potential for hospitals shifting the delivery of packaged or bundled services to delivery settings other than the hospital outpatient department (HOPD). The OPPS, like other prospective payment systems, relies on the concept of averaging, where the payment may be more or less than the estimated costs of providing a service or package of services for a particular patient, but with the exception of outlier cases, it is adequate to ensure access to appropriate care. Decisions about packaging and bundling payment involve a balance between ensuring some separate payment for individual services and establishing incentives for efficiency through larger units of payment. In many situations, the final payment rate for a package of services may do a better job of balancing variability in the relative costs of component services compared to individual rates covering a smaller unit of service without packaging or bundling. Packaging payments into larger payment bundles promotes the stability of payment for services over time, a characteristic that reportedly is very important to hospitals. Unlike packaged services, the costs of individual services typically show greater variation because the higher variability for some component items and services cannot be balanced with lower variability for others and because relative weights are typically estimated using a smaller set of claims. [[Page 66611]] When compared to service-specific payment, packaging or bundling payment for component services may change payment at the hospital level to the extent that there are systematic differences across hospitals in their performance of the services included in that unit of payment. Hospitals spending more per case than payment received would be encouraged to review their service patterns to ensure that they furnish services as efficiently as possible. Similarly, we believe that unpackaging services heightens the hospital's focus on pricing individual services, rather than the efficient delivery of those services. Over the past several years of the OPPS, greater unpackaging of payment has occurred simultaneously with continued tremendous growth in OPPS expenditures as a result of increasing volumes of individual services, as discussed in further detail below. Also discussed in further detail below, most recently in its comments to the CY 2007 OPPS/ASC proposed rule and in the context of this rapid spending growth, MedPAC encouraged CMS to broaden the payment bundles under the OPPS to encourage providers to use resources efficiently. As permitted under section 1833(t)(2)(B) of the Act, the OPPS establishes groups of covered HOPD services, namely APC groups, and uses them as the basic unit of payment. During the evolution of the OPPS over the past 7 years, significant attention has been concentrated on service-specific payment for services furnished to particular patients, rather than on creating incentives for the efficient delivery of services through encounter or episode-of-care-based payment. Overall packaging included in the clinical APCs has decreased, and the procedure groupings have become smaller as the focus has shifted to refining service-level payment. Specifically, in the CY 2003 OPPS, there were 569 APCs, but by CY 2007, the number of APCs had grown to 862, a 51 percent increase in 4 years. Similarly, the percentage of CPT codes for procedural services that receive packaged payment declined by over 10 percent between CY 2003 and CY 2007. Currently, the APC groups reflect a modest degree of packaging, including packaged payment for minor ancillary services, inexpensive drugs, medical supplies, implantable devices, capital-related costs, operating and recovery room use, and anesthesia services. Bundling payment for multiple significant services provided in the same hospital outpatient encounter or during an episode of care is not currently a common OPPS payment practice, because the APC groups generally reflect only the modest packaging associated with individual procedures or services. Unconditionally packaged services with HCPCS codes are identified by the status indicator ``N.'' Conditionally packaged services, specifically those services whose payment is packaged unless specific criteria for separate payment are met, are assigned status indicator ``Q.'' To the extent possible, hospitals may use HCPCS codes to report any packaged services that were performed, consistent with CPT or CMS coding guidelines, but packaged costs also may be uncoded and included in specific revenue code charges. Hospitals include charges for packaged services on their claims, and the costs associated with those packaged services are then added into the costs of separately payable procedures on the same claims in establishing payment rates for the separately payable services. Packaging and bundling payment for multiple interrelated services into a single payment create incentives for providers to furnish services in the most efficient way by enabling hospitals to manage their resources with maximum flexibility, thereby encouraging long-term cost containment. For example, where there are a variety of supplies that could be used to furnish a service, some of which are more expensive than others, packaging encourages hospitals to use the least expensive item that meets the patient's needs, rather than to routinely use a more expensive item. Packaging also encourages hospitals to negotiate carefully with manufacturers and suppliers to reduce the costs of purchased items and services or to explore alternative group purchasing arrangements, thereby encouraging the most economical health care. Similarly, packaging encourages hospitals to establish protocols that ensure that services are furnished only when they are important and to carefully scrutinize the services ordered by practitioners to maximize the efficient use of hospital resources. Finally, packaging payments into larger payment bundles promotes the stability of payment for services over time. Packaging and bundling also may reduce the importance of refining service-specific payment because there is more opportunity for hospitals to average payment across higher cost cases requiring many ancillary services and lower cost cases requiring fewer ancillary services. b. Addressing Growth in OPPS Volume and Spending Creating additional incentives for providing only necessary services in the most efficient manner is of vital importance to Medicare today, in view of the recent explosion of growth in program expenditures for hospital outpatient services paid under the OPPS. As illustrated in Table 3 below, total spending has been growing at a rate of roughly 10 percent per year under the OPPS, and the Medicare Trustees project that total spending under the OPPS will increase by more than $3 billion from CY 2007 through CY 2008 to nearly $35 billion. Implementation of the OPPS has not slowed outpatient spending growth over the past few years; in fact, double-digit spending growth has generally been occurring. We are greatly concerned with this rate of increase in program expenditures under the OPPS. Table 3.-Growth in Expenditures Under Opps From CY 2001-CY 2008 [Projected expenditures for CY 2006-CY 2008 in billions] -------------------------------------------------------------------------------------------------------------------------------------------------------- OPPS growth CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 -------------------------------------------------------------------------------------------------------------------------------------------------------- Incurred Cost........................................... 17.702 19.561 21.156 23.866 26.572 29.741 32.714 36.072 Percent Increase........................................ .......... 10.5 8.2 12.8 11.3 11.9 10.1 10.26 -------------------------------------------------------------------------------------------------------------------------------------------------------- Based on the Midsession Review of the President's FY 2008 Budget. As with the other Medicare fee-for-service payment systems that are experiencing rapid spending growth, brisk growth in the intensity and utilization of services is the major reason for the current rates of growth in the OPPS, rather than general price or enrollment changes. Table 4 below illustrates the increases in the volume and intensity of hospital outpatient services over the past several years. [[Page 66612]] Table 4.-Percentage Increase in Volume and Intensity of Hospital Outpatient Services -------------------------------------------------------------------------------------------------------------------------------------------------------- CY 2006 CY 2007 CY 2008 CY 2002 CY 2003 CY 2004 CY 2005 (Est.) (Est.) (Est.) -------------------------------------------------------------------------------------------------------------------------------------------------------- Percent Increase............................................. 3.5 2.5 7.6 7.4 10.1 9.4 5.8 -------------------------------------------------------------------------------------------------------------------------------------------------------- Based on the Midsession Review of the President's FY 2008 Budget. For hospital outpatient services, the volume and intensity of services are estimated to have continued to increase significantly in recent years, at a rate of 10.1 percent between CY 2005 and CY 2006, the last two completed calendar years. As we discussed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68189 through 68190), the rapid growth in utilization of services under the OPPS shows that Medicare is paying mainly for more services each year, regardless of their quality or impact on beneficiary health. In its March 2007 Report to Congress (pages 55 and 56), MedPAC confirmed that much of the growth in service volume from 2003 to 2005 resulted from increases in the number of services per beneficiary who received care, rather than from increases in the number of beneficiaries served. MedPAC found that while the rate of growth in service volume declined over that time period, the complexity of services, defined as the sum of the relative payment weights of all OPPS services divided by the volume of all services, increased, and that most of the growth was attributable to the insertion of devices and the provision of complex imaging services. MedPAC further found that regression analysis suggested that relatively complex hospital outpatient services may be more profitable for hospitals than less complex services. In addition, its analysis indicated that favorable payments for complex services give hospitals an incentive to provide more of those complex services rather than fewer basic services, which increases overall service complexity. MedPAC expressed concern about this relationship and concluded that the historically large increases in outpatient volume and service complexity suggest a need to recalibrate the OPPS. In the future, MedPAC plans to examine options for recalibrating the payment system to accurately match payments to the costs of individual services (Medicare Payment Advisory Commission Report to the Congress: Medicare Payment Policy, March 2007, pages 55 and 56). As proposed for the CY 2007 OPPS and finalized for the CY 2009 OPPS, we developed a plan to promote higher quality services under the OPPS, so that Medicare spending would be directed toward those higher quality services (71 FR 68189 through 68197). We believe that Medicare payments should encourage physicians and other providers in their efforts to achieve better health outcomes for Medicare beneficiaries at a lower cost. In the CY 2007 OPPS/ASC final rule with comment period, we discussed the concept of ``value-based purchasing'' in the OPPS as well as in other Medicare payment systems. ``Value-based purchasing'' may use a range of budget-neutral incentives to achieve identified quality and efficiency goals, as a means of promoting better quality of care and more effective resource use in the Medicare payment systems. In developing the concept of value-based purchasing for Medicare, we have been working closely with stakeholder partners. We continue to believe that the collection and submission of performance data and the public reporting of comparative information are strong incentives for hospital accountability in general and quality improvement in particular, while encouraging the most efficient and effective care. Measurement and reporting can focus the attention of hospitals and consumers on specific goals and on hospitals' performance relative to those goals. Development and implementation of performance measurement and reporting by hospitals can thus produce quality improvement in health care delivery. Hospital performance measures may also provide a foundation for performance-based rather than volume-based payments. In the CY 2007 OPPS/ASC final rule with comment period, as a first step in the OPPS toward value-based purchasing, we finalized a policy that would employ our equitable adjustment authority under section 1833(t)(2)(E) of the Act to establish an OPPS Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program based on measures specifically developed to characterize the quality of outpatient care (71 FR 68197). We finalized implementation of the program for CY 2009, when we would implement a 2.0 point reduction to the OPPS conversion factor update for those hospitals that do not meet the specific requirements of the CY 2009 program. We described the CY 2009 program, which would be based upon CY 2008 hospital reporting of appropriate measures of the quality of hospital outpatient care that have been carefully developed and evaluated, and endorsed as appropriate, with significant input from stakeholders. We reiterated our belief that ensuring that Medicare beneficiaries receive the care they need and that such services are of high quality are the necessary initial steps to incorporating value-based purchasing into the OPPS. We explained that we are specifically seeking to encourage care that is both efficient and of high quality in the HOPD. Subsequent to the publication of the CY 2007 OPPS/ASC final rule with comment period, section 109(a) of the MIEA-TRHCA, which added section 1833(t)(19) to the Act, specifies that in the case of a subsection (d) hospital (defined under section 1886(d)(1)(B) of the Act as hospitals that are located in the 50 States or the District of Columbia other than those categories of hospitals or hospital units that are specifically excluded from the IPPS, including psychiatric, rehabilitation, long-term care, children's, and cancer hospitals or hospital units) that does not submit to the Secretary the quality reporting data required for CY 2009 and each subsequent year, the OPPS annual update factor shall be reduced by 2.0 percentage points. The quality reporting program proposed for CY 2008 according to this provision is referred to as the Hospital Outpatient Quality Data Reporting Program (HOP QDRP) and is discussed in detail in section XVII. of this final rule with comment period. As the next step in our movement toward value-based purchasing under the OPPS and to complement the HOP QDRP for CY 2009, with measure reporting beginning in CY 2008, we believe it is important to initiate specific payment approaches to explicitly encourage efficiency in the hospital outpatient setting that we believe will control future growth in the volume of OPPS services. While the HOP QDRP will encourage the provision of higher quality hospital outpatient services that lead to improved health outcomes for Medicare beneficiaries, we believe that more targeted approaches are also necessary to encourage increased [[Page 66613]] hospital efficiency. Two alternatives we have considered that would be feasible under current law include establishing a methodology to measure the growth in volume and reduce OPPS payment rates to account for unnecessary increases in volume or developing payment incentives for hospitals to ensure that they provide necessary services as efficiently as possible. With respect to the first alternative, section 1833(t)(2)(F) of the Act requires us to establish a methodology for controlling unnecessary increases in the volume of covered OPPS services, and section 1833(t)(9)(C) of the Act authorizes us to adjust the update to the conversion factor if, under section 1833(t)(2)(F) of the Act, we determine that there is growth in volume that exceeds established tolerances. As we indicated in the September 8, 1998 proposed rule proposing the establishment of the OPPS (63 FR 47585), we considered creating a system that mirrors the sustainable growth rate (SGR) methodology applied to the MPFS update to control unnecessary growth in service volume. However, implementing such a system could have the potentially undesirable effect of escalating service volume as payment rates stagnate and hospital costs rise, thus actually resulting in a growth in volume rather than providing an incentive to control volume. Therefore, this approach to addressing the volume growth under the OPPS could inadvertently result in the exact opposite of our desired outcome. The second alternative we considered is to expand the packaging of supportive ancillary services and ultimately bundle payment for multiple independent services into a single OPPS payment. We believe that this would create incentives for hospitals to monitor and adjust the volume and efficiency of services themselves, by enabling them to manage their resources with maximum flexibility. Instead of external controls on volume, we believe that it is preferable for the OPPS to create payment incentives for hospitals to carefully scrutinize their service patterns to ensure that they furnish only those services that are necessary for high quality care and to ensure that they provide care as efficiently as possible. Specifically, we believe that increased packaging and bundling are the most appropriate payment strategies to establish such incentives in a prospective payment system, and that this approach is clearly preferable to the establishment of an SGR or other methodology that seeks to control spending by addressing significant growth in volume and program spending with lower payments. In its October 6, 2006 letter of comment on the CY 2007 OPPS/ASC proposed rule, MedPAC urged us to establish broader payment bundles in both the revised ASC payment system and the OPPS to promote efficient resource use and better align the two payment systems. In particular, our proposal for the CY 2008 revised ASC payment system proposed to package payment for all items and services directly related to the provision of covered surgical procedures into the ASC facility payment for the associated surgical procedure (71 FR 49468). These other items and services included all drugs, biologicals, contrast agents, implantable devices, and diagnostic services such as imaging. Because a number of these items and services are separately paid under the OPPS and the proposal included the establishment of most ASC payment weights based on the procedures' corresponding OPPS payment weights, MedPAC encouraged us to align the payment bundles in the two payment systems by increasing the size of the payment bundles under the OPPS. Moreover, MedPAC staff indicated in testimony at the January 9, 2007 MedPAC public meeting that the growth in OPPS spending and volume raises questions about whether the OPPS should be changed to encourage greater efficiency (page 390 of the January 9, 2007 MedPAC meeting transcript available at the Web site at: http://www.medpac.gov). MedPAC staff explained at that time that MedPAC intends to perform a long term assessment of the design of the OPPS, including considering the bundling of payments for procedures and visits furnished over a period of time into a single payment, assessing whether there should be an expenditure target for hospital outpatient services, evaluating whether payments for multiple imaging services provided in the same session should be discounted, and reviewing the methodology used by CMS to determine relative payment weights for hospital outpatient services. We welcome MedPAC's study of these areas, particularly with regard to how we might develop appropriate payment rates for larger bundles of services. Because we believe it is important that the OPPS create enhanced incentives for hospitals to provide only necessary, high quality care and to provide that care as efficiently as possible, we have given considerable thought to how we could increase packaging under the OPPS in a manner that would not place hospitals at substantial financial risk but which would create incentives for efficiency and volume control, while providing hospitals with flexibility to provide care in the most appropriate way for each Medicare beneficiary. We are considering the possibility of greater bundling of payment for major hospital outpatient services, which could result in establishing OPPS payments for episodes of care, and for this reason we particularly welcome MedPAC's exploration of how such an approach might be incorporated into the OPPS payment methodology. We are particularly concerned about the potential for shifting higher cost bundled services to other ambulatory settings. We are currently considering the complex policy issues related to the possible development and implementation of a bundled payment policy for hospital outpatient services that involves significant services provided over a period of time which could be paid through an episode-based payment methodology, but we consider this possible approach to be a long-term policy objective. We also are examining how we might possibly establish payments for same-day care encounters, building upon the current use of APCs for payment through greater packaging of supportive ancillary services. This could include conditional packaging of supportive ancillary services into payment for the procedure that is the reason for the OPPS encounter (for example, diagnostic tests performed on the day of a scheduled procedure). Another approach could include creation of composite APCs for frequently performed combinations of surgical procedures (for example, one APC payment for multiple cardiac electrophysiologic procedures performed on the same date). Not only could these encounter-based payment groups create enhanced incentives for efficiency, but they may also enable us to utilize for ratesetting many of the multiple procedure claims that are not now used in our establishment of OPPS rates for single procedures. (We refer readers to section II.A.1.b. of this final rule with comment period for a more detailed discussion of the treatment of multiple procedure claims in the ratesetting process.) In the CY 2008 OPPS/ASC proposed rule, we proposed two new composite APCs for CY 2008 payment of combinations of services in two clinical care areas, as discussed in section II.A.4.d. of this final rule with comment period. In that section, we summarize and respond to the public comments we received on this proposal [[Page 66614]] as we explore the possibility of moving toward basing OPPS payment on larger packages and bundles of services provided in a single hospital outpatient encounter. We intend to involve the APC Panel in our future exploration of how we can develop encounter-based and episode-based payment groups, and we look forward to the findings and recommendations of MedPAC in this area. This is a significant change in direction for the OPPS, and we specifically seek the recommendations of all stakeholders with regard to which ancillary services could be packaged and those combinations of services provided in a single encounter or over time that could be bundled together for payment. We are hopeful that expanded packaging and, ultimately, greater bundling under the OPPS may result in sufficient moderation of growth in volume and spending that further controls would not be needed. However, if spending were to continue to escalate at the current rates, even after we have exhausted our options for increased packaging and bundling, we are considering multiple options under our authority to address these issues. c. Packaging Approach With the exception of the two composite APCs that we proposed for CY 2008 and discuss in detail in section II.A.4.d. of this final rule with comment period, we indicated in the CY 2008 OPPS/ASC proposed rule that we were not prepared to propose an episode-based or fully developed encounter-based payment methodology for CY 2008 as our next step in value-based purchasing for the OPPS. However, in reviewing our approach to revising payment packages and bundles for the proposed rule, we examined services currently provided under the OPPS, looking for categories of ancillary items and services for which we believed payment could be appropriately packaged into larger payment packages for the encounter. For this first step in creating larger payment groups, we examined the HCPCS code definitions (including CPT code descriptors) to see whether there were categories of codes for which packaging would be a logical expansion of the longstanding packaging policy that has been a part of the OPPS since its inception. In general, we have often packaged the costs of selected HCPCS codes into payment for services reported with other HCPCS codes where we believed that one code reported an item or service that was integral to the provision of care that was reported by another HCPCS code. As an example of a previous change in the OPPS packaging status for a HCPCS code that is ancillary and supportive, under the CY 2007 OPPS, we note that CPT code 93641 (Electrophysiologic evaluation of single or dual chamber pacing cardioverter defibrillator leads including defibrillation threshold evaluation (induction of arrhythmia, evaluate of sensing an pacing for arrhythmia termination) at the time of initial implantation or replacement; with testing of single chamber or dual chamber cardioverter defibrillator) went from separate to packaged payment. This service is only performed during the course of a surgical procedure for implantation or replacement of implantable cardioverter- defibrillator (ICD) leads, and these surgical implantation procedures are currently assigned to APC 0106 (Insertion/Replacement/Repair of Pacemaker and/or Electrodes) and APC 0108 (Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads). We considered the electrophysiologic evaluation service (CPT code 93641) to be an ancillary supportive service that may be performed only in the same operative session as a procedure that could otherwise be performed independently of the electrophysiologic evaluation service. In this particular case, the APC Panel recommended for CY 2007 that we package payment for this diagnostic test, and we adopted that recommendation for the CY 2007 OPPS. Making this payment change in this specific case resulted in the availability of significantly more claims data and, therefore, establishment of more valid and representative estimated median costs for the lead insertion and electrophysiologic evaluation services furnished in the single hospital encounter. In the case of much of the care furnished in the HOPD, we believe that it is appropriate to view a complete service as potentially being reported by a combination of two or more HCPCS codes, rather than a single code, and to establish payment policy that supports this view. Ideally, we would consider a complete HOPD service to be the totality of care furnished in a hospital outpatient encounter or in an episode of care. In general, we believe that it is particularly appropriate to package payment for those items and services that are typically ancillary and supportive into the payment for the primary diagnostic or therapeutic modalities in which they are used. As a significant first step towards creating payment units that represent larger units of service, in development of the proposed rule, we examined whether there were categories of HCPCS codes that are typically ancillary and supportive to diagnostic and therapeutic modalities. Specifically, as our initial substantial step toward creating larger payment groups for hospital outpatient care, in the CY 2008 OPPS/ASC proposed rule (72 FR 42652), we proposed to package payment for items and services in the seven categories listed below into the payment for the primary diagnostic or therapeutic modality to which we believe these items and services are typically ancillary and supportive. We specifically chose these categories of HCPCS codes for packaging because we believe that the items and services described by the codes in these categories are the HCPCS codes that are typically ancillary and supportive to a primary diagnostic or therapeutic modality and, in those cases, are an integral part of the primary service they support. We proposed to assign status indicator ``N'' to those HCPCS codes that we believe are always integral to the performance of the primary modality and to package their costs into the costs of the separately paid primary services with which they are billed. We proposed to assign status indicator ``Q'' to those HCPCS codes that we believe are typically integral to the performance of the primary modality and to package payment for their costs into the costs of the separately paid primary services with which they are usually billed but to pay them separately in those uncommon cases in which no other separately paid primary service is furnished in the hospital outpatient encounter. For ease of reference in our subsequent discussion in each of the seven areas, we refer to the HCPCS codes for which we proposed to package (or conditionally package) payment as dependent services. We use the term ``independent service'' to refer to the HCPCS codes that represent the primary therapeutic or diagnostic modality into which we are proposing to package payment for the dependent service. We note that, in future years as we consider the development of larger payment groups that more broadly reflect services provided in an encounter or episode of care, it is possible that we might propose to bundle payment for a service that we now refer to as ``independent'' in this final rule with comment period. Specifically, we proposed to package the payment for HCPCS codes describing the dependent items and services in the following seven categories into the payment for the [[Page 66615]] independent services with which they are furnished: Guidance services Image processing services Intraoperative services Imaging supervision and interpretation services Diagnostic radiopharmaceuticals Contrast media Observation services In the proposed rule, we identified the HCPCS codes we proposed to package for CY 2008, explained our rationale for proposing to package the codes in these categories, provided examples of how HCPCS and APC median costs and payments would change under these proposals, and discussed the impact of these changes under each category, as follows: The median costs of services at the HCPCS level for many separately paid procedures changed as a result of our proposal because we proposed to change the composition of the payment packages associated with the HCPCS codes. Moreover, as a result of changes to the HCPCS median costs, we proposed to reassign some HCPCS codes to different clinical APCs for CY 2008 to avoid 2 times violations and to ensure continuing clinical and resource homogeneity of the APCs. Therefore, the proposed APC median costs changed not only as a result of the increased packaging itself but also as a result of the migration of HCPCS codes into and out of APCs through APC reconfiguration. The file of HCPCS code and APC median costs resulting from our proposal is found under supporting documentation for the proposed rule on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/HORD/list.asp#TopOfPage. Review of the HCPCS median costs for the proposed rule indicated that, while the proposed median costs rise for some HCPCS codes as a result of increased packaging that expands the costs included in the payment packages, there are also cases in which the proposed median costs decline as a result of these proposed changes. While it seems intuitive to believe that the proposed median costs of the remaining separately paid services should rise when the costs of services previously paid separately are packaged into larger payment groups, it is more challenging to understand why the proposed median costs of separately paid services would not change or would decline when the costs of previously paid services are packaged. Medians are generally more stable than means because they are less sensitive to extreme observations, but medians typically do not reflect subtle changes in cost distributions. The OPPS' use of medians rather than means usually results in relative weight estimates being less sensitive to packaging decisions. Specifically, the median cost for a particular independent procedure generally will be higher as a result of added packaging, but also could change little or be lower because median costs typically do not reflect small distributional changes and also because changes to the packaged HCPCS codes affect both the number and composition of single bills and the mix of hospitals contributing those single bills. Such a decline, no change, or an increase in the median cost at the HCPCS code level could result from a change in the number of single bills used to set the median cost. With greater packaging, more ``natural'' single bills are created for some codes but fewer ``pseudo'' single bills are created. Thus, some APCs gain single bills and some lose single bills due to packaging changes, as well as to the reassignment of some codes to different APCs. When more claims from a different mix of providers are used to set the median cost for the HCPCS code, the median cost could move higher or lower within the array of per claim costs. Similarly, revisions to APC assignments that are necessary to resolve 2 times violations that could arise as a result of changes in the HCPCS median cost for one or more codes due to additional packaging may also result in increases or decreases to APC median costs and, therefore, to increases or decreases in the payments for HCPCS codes that would not be otherwise affected except for the CY 2008 proposed packaging approach for the seven categories of items and services. We examined the aggregate impact of making these proposed changes on payment for CY 2008 in the proposed rule. Because the OPPS is a budget neutral payment system in which the amount of payment weight in the system is annually adjusted for changes in expenditures created by changes in APC weights and codes (but is not currently adjusted based on estimated growth in service volume), the effects of the packaging changes we proposed resulted in changes to scaled weights and, therefore, to the proposed payment rates for all separately paid procedures. These changes resulted from both shifts in median costs as a result of increased packaging, changes in multiple procedure discounting patterns, and a higher weight scaler that was applied to all unscaled APC weights. (We refer readers to section II.A.3. of this final rule with comment period for an explanation of the weight scaler.) In a budget neutral system, the monies previously paid for services that were proposed to be packaged are not lost, but are redistributed to all other services. A higher weight scaler would increase payment rates relative to observed median costs for independent services by redistributing the lost weight of packaged items that historically have been paid separately and the lost weight when the median costs of independent services did not completely reflect the full incremental cost of the packaged services. The impact of the cumulative changes for the CY 2008 OPPS payments is discussed in section XXIV.B. of this final rule with comment period. We estimated that our CY 2008 packaging proposal would redistribute approximately 1.2 percent of the estimated CY 2007 base year expenditures under the OPPS. The monies associated with this redistribution were in addition to any increases that would otherwise occur due to a higher median cost for the APC as a result of the expanded payment package. If the relative weight for a particular APC decreased as a result of the proposed packaging approach, the increased weight scaler may or may not result in a relative weight that is equal to or greater than the relative weight that would occur without the proposed packaging approach. In general, the packaging that we proposed would have more effect on payment for some services than on payment for others because the dependent items and services that we proposed for packaging are furnished more often with some independent services than with others. However, because of the amount of payment weight that would be redistributed by our proposal, there would be some impact on payments for all OPPS services whose rates are set based on payment weights, and the impact on any given hospital would vary based on the mix of services furnished by the hospital. We received many, often widely diverging, public comments on the CY 2008 proposed packaging approach. In many cases the comments were generally applicable to the totality of the packaging proposal and, in other cases, the same general comments were made but only with regard to a specific category or set of services of interest to the commenter. We have addressed all similar public comments in the discussion of general comments, whether they were made in general or for specific categories of services, because the same response applies [[Page 66616]] whether the comment was on packaging in general or on a specific service. We have limited the summary of public comments and our responses in the individual category discussions to issues that pertain only to the category or specific services within the category. During the September 2007 APC Panel meeting, the APC Panel supported packaging for contrast agents, image processing services, guidance (except for radiation oncology guidance procedures), diagnostic radiopharmaceuticals with a median per day cost of less than $200, and intraoperative testing other than possibly for CPT code 96020 (Neurofunctional testing selection and administration during noninvasive imaging functional brain mapping, with test administered entirely by a physician or psychologist, with review of test results and report). The Panel recommended a delay in packaging for imaging supervision and interpretation services because of excessive payment reductions that the Panel believed would occur under the CMS proposal, particularly with regard to packaging payment for those supervision and interpretation services that already include packaged injection services. The Panel did not support packaging of observation services, although it suggested that if CMS were to package observation, it should instead create a composite APC (or a group of composite APCs) for observation and the related visit services, without restriction to specific clinical conditions. The APC Panel also recommended that CMS provide additional information in the CY 2008 final rule with comment period about packaging, including crosswalks and information clarifying how newly packaged services map back to primary procedures. Comment: MedPAC generally supported the proposed packaging because the services proposed for packaging are typically furnished on the same day as a separately paid service and there is little potential for them to be furnished on another date to avoid the effects of packaging. MedPAC explained that packaging of observation services is logical because currently 70 percent of observation care is packaged. MedPAC's principal concern about the proposed packaging of observation was that this approach could result in hospitals' costs being higher than OPPS payments in some cases, and thereby create an incentive for inpatient admissions. It encouraged CMS to carefully monitoring whether hospitals change their behavior with regard to inpatient admissions. Some commenters supported encounter-based or episode-based payment, but asked that this approach be based on single encounter only and not span a period of time, because they believed that it would be very difficult to set rates for periods of recurring services. The commenters supported use of multiple procedure claims and payment for combinations of services but encouraged CMS to carefully evaluate the overall impact of packaging on all hospitals. Other commenters suggested that CMS package only services that are low cost and furnished at a high frequency with the independent service. Several commenters stated that CMS should not finalize the proposed packaging approach because it would lead to inappropriate payment, including both overpayments and underpayments. Several commenters asked that CMS delay the packaging approach for at least a year because they believed the proposed rule did not furnish sufficient data analysis in support of the proposal. They asserted that the aggregate impact analysis provided no information that commenters could use to evaluate the individual codes proposed to be packaged, making it impossible for the public to determine how payment for services would be affected. Some commenters requested that CMS furnish the same level of impact discussion for each of the services in each of the categories as it did for the composite APCs. Other commenters asked CMS to identify the percent of charges for dependent services that were packaged into each independent procedure, identify all independent procedures into which cost was packaged from each packaged procedure, and identify the cost of each procedure code with and without the proposed packaging. They recommended that, before implementing the proposed packaging, CMS publish all HCPCS and revenue codes and the costs for each that enter into the consideration of packaging for every code proposed to be packaged. The commenters believed that the lack of transparency, together with late availability of a correct OPPS proposed rule claims data set, made it difficult to determine whether packaged costs were retained or lost in the median setting process. Other commenters suggested that CMS explicitly crosswalk packaged services to identified independent services, rather than packaging payment into the independent service with which the packaged services is billed on each claim. They asserted that no service should be packaged unless it is furnished the majority of the time with the specified independent service. The commenters stated that items and services should be packaged only where there are substitutable services that could be chosen by the hospital, and that no packaging should occur where there is only one dependent service that would be provided with the independent service. Some commenters contended that CMS should not implement the proposed packaging changes until after it implements an adjustment for charge compression because errors in the proposed rates as a result of charge compression would result in too little payment being packaged into the independent service and would create disincentives for hospital to furnish the packaged services, thus harming beneficiary access to advanced technologies. Some commenters requested that CMS develop and propose a set of criteria for packaging services that would be open to public comment and that would control whether and, if so, when CMS could package payment for a service. The commenters stated that the criteria in the proposed rule were too vague, undefined, and subjective to identify which codes should be packaged. The commenters provided criteria that they believe should govern whether a service should be packaged. The suggested criteria included, but were not limited to, requiring that packaging should only be adopted for high volume, low cost, minor and ancillary services that are very frequently performed with the specified independent service; no packaging of services that require specialized equipment or devices; no packaging of services that are only furnished in a small number of hospitals; no packaging of add-on services unless the service is furnished with its base code at least 50 percent or 75 percent of the time; packaging only when a service is being packaged into a specified service and, therefore, no general packaging of services into the service with which it is performed; no packaging unless CMS has provided the public with a full data assessment of the effects of packaging each service; and no packaging if the median cost for the code exceeds an established amount. Other commenters suggested CMS not implement the proposed packaging because the 60-day comment period provided insufficient time for analysis and because the APC Panel recommendations and report were not posted on the Web site immediately after the meeting. Response: We have reviewed all of the public comments we received on the [[Page 66617]] proposed packaging approach, and we have decided to finalize our proposal with significant modifications and refinements to address some of the concerns raised by commenters on our proposal to package payment for diagnostic radiopharmaceuticals, imaging supervision and interpretation services, contrast agents, and observation services. We refer readers to sections II.A.4.c.(4), (5), (6), and (7) of this final rule with comment period for detailed discussion of these modifications and section II.A.2 of this final rule with comment period for discussion of the changes we made to the data process in this regard. We are finalizing our proposal for guidance, image processing, and intraoperative services without substantial modification. Table 10, which appears in section II.A.4., contains a comprehensive list of all codes in the final seven categories for which we will package payment either unconditionally (to which we assign status indicator ``N'') or conditionally, providing separate payment if certain criteria are met (to which we assign status indicator ``Q''). There is a category of conditionally packaged codes assigned status indicator ``Q,'' which we previously referred to as ``special'' packaged codes because their payment was packaged when provided on the same date as a service that was assigned status indicator ``S,'' ``T,'' ``V,'' or ``X.'' These ``special'' packaged codes will now be referred to as ``STVX-packaged codes.'' We have identified a new category of conditionally packaged codes that are called ``T-packaged codes,'' whose payment is packaged when provided on the same date as another service that is assigned status indicator ``T.'' The rationale for these changes are discussed in detail below in section II.A.4.c.(4) of this final rule with comment period. We believe that it is appropriate and fully consistent with the principles of a prospective payment system to package payment for ancillary and supportive services into the payment for the independent service with which they are furnished as a means of making payment for a more comprehensive service package. Although separate payment will no longer be made for the packaged services, the payments for the independent services with which they are furnished will reflect the costs of the packaged services to the extent that the packaged services are provided with the independent service. We recognize that, in some cases, certain supportive and ancillary dependent services are furnished with only one independent service, and in other cases they are furnished with many independent services. Similarly, in some cases they are furnished frequently with independent services, and in some cases they are uncommonly furnished with independent services. We believe that packaging should reflect the reality of how the services are furnished and reported on claims by hospitals. We believe that nonspecific packaging (as opposed to selected code packaging) based on combinations of services observed on hospital claims is fully appropriate because of the myriad combinations of services that can be appropriately provided together. This approach to packaging payment has long existed in prospective payment systems, including the OPPS. For example, in the IPPS, Medicare's oldest prospective payment system, payment for all services furnished is packaged into a single payment for an entire hospital inpatient stay that is based on the diagnosis- related group (DRG) into which the stay is categorized. The DRG payment packages together all payment for routine care, drugs, biologicals, medical supplies, diagnostic tests, and all other covered services that were provided to the patient, regardless of the extent to which different patients in the same DRG received somewhat different services during their stay. We believe that a similar approach to nonspecific packaging under the OPPS is likewise fully appropriate. We have used this packaging approach for ratesetting throughout the history of the OPPS, and note that payment for APC groups currently reflects significant nonspecific packaging in many cases. Similarly, we believe that it is appropriate to establish under the OPPS a single payment for multiple independent procedures that are frequently furnished together. For that reason, we are adopting five composite APCs for CY 2008 and intend to explore developing others. We do not agree with the commenters that we should not package a service unless it is a low cost ancillary and supportive service that appears frequently with an independent service. To establish that policy would negate the concept of averaging that is an underlying premise of a prospective payment system by packaging only services that will increase the payment for the independent service. To do that would also create incentives for hospitals to provide ancillary and dependent services that are higher cost or historically were infrequently furnished with an independent service and would remain separately paid. Similarly, we do not agree that we should not finalize the proposed packaging approach because it will ``overpay'' some services and ``underpay'' others. Payment based on a measure of central tendency is also a principle of any prospective payment system. In some cases, payment in an individual case exceeds the average cost and in other cases payment is less than the average cost, but on balance, payment should approximate the relative cost of the average case, recognizing that the OPPS, as created in the statute, was not intended to pay the full cost of HOPD services. We also do not agree that it would be beneficial to delay the implementation of the proposed packaging approach for a year because that would delay the implementation of incentives under the OPPS for hospitals to look carefully at ways that they could provide care more efficiently. We recognize that, as with any payment policy, there will be affected parties that will ask for changes to the policy, and we are always willing to hear their concerns and to make changes if the changes are appropriate. Moreover, both APC and status indicator assignments are open to public comment each year in the proposed rule, and hence affected parties may provide their arguments for separate payment as part of that process in the future. We further disagree that we should delay or not finalize the proposed packaging approach pending provision of the extensive data that the commenters requested. We make available a considerable amount of data for public analysis each year and while we are not developing and providing the extensively detailed information that the commenters request, we provide the public use files of claims and a detailed narrative description of our data process that the public can use to perform any desired analyses. While we acknowledge that we needed to issue a second corrected file of claims data, the second file differed from the first only in that it deleted a relatively small number of duplicate claims for observation that would have been used to calculate an APC rate for separately payable observation, had we proposed to pay separately for observation, and hence we believe that the accidental inclusion of these duplicate claims for observation care should have had little or no effect on the majority of studies of the HCPCS codes we proposed to package. With regard to the request for extensive data on all HCPCS codes we proposed to package, it would not be possible for us to anticipate the specific combinations of services of interest to the public. In addition, we believe that [[Page 66618]] the commenters must examine the data themselves to develop the specific arguments to support their requests for changes to payments under the OPPS. We note that we pay hospitals under the OPPS, and we showed the impact of the CY 2008 packaging proposal on payment to different classes of hospitals in Table 67 of the proposed rule (72 FR 42822 through 42824). We believe our estimate of the impact of these changes provided valuable information to the hospitals that would receive packaged payment for services that had been previously paid separately under the OPPS. With regard to the public comments that we should explicitly crosswalk packaged codes to the independent codes into which the costs would be packaged, we do not believe that this is feasible, given the myriad combinations of services that are furnished in the HOPD, nor is it consistent with the principles of a prospective payment system, which bases payment on real occurrences of services that are furnished by hospitals and reported on claims. Moreover, creation of such a crosswalk would undoubtedly result in omissions of appropriate packaging of services and would create a maintenance task that would not be sustainable, given the number of changes to HCPCS codes each year and the ever changing way in which services are furnished. Similarly, it is not consistent with the concept of packaging within a prospective payment system to package only those services for which there are substitutes that could be furnished. In contrast, it is fully consistent with the principles of a prospective payment system for groups of services to package items and services that are always furnished with an independent service and for which there are no substitutes. We also do not agree that we should delay creation of larger payment bundles through packaging until after there is adjustment for charge compression under the OPPS. As we discuss in section II.A.1.c. of this final rule with comment period, we will consider whether to use regression-adjusted CCRs to adjust for charge compression under the OPPS after RTI reviews the OPPS cost estimation process, including an assessment of the revenue code-to-cost center crosswalk and estimating regression-adjusted CCRs from a model that includes outpatient charges. There is no reason to delay the creation of incentives for encouraging cost-effective utilization and efficiency in the provision of HOPD services until a decision is made regarding the appropriateness of using regression-adjusted CCRs to estimate OPPS costs. We do not agree that we should develop and establish criteria with stakeholder input before we finalize the packaging proposal. Nor do we believe that the specific criteria the commenters recommended are appropriate for determining when services should be packaged. The criteria that the commenters provided are focused almost exclusively on preventing packaging, rather than on determining when packaging would be appropriate. We believe that packaging is appropriate when the nature of a service is such that it is supportive and ancillary to another service, whether the dependent service is frequently furnished with the independent service or not and regardless of the cost of the supportive ancillary service. This is largely a clinical decision based on the nature of the service being considered for packaging. Lastly, we do not agree that we should not implement the proposed changes because the commenters believed that the 60 day comment period was insufficient or because the APC Panel recommendations and report were not posted to the Web site immediately after the public meeting. The 60 day comment period is generally the standard comment period for the proposed rule process. The availability of updated claims and cost report data necessary to develop the proposed rule and issue the final rule for the OPPS precludes a longer period for comment. Moreover, we do not believe that the Web site posting of the APC Panel recommendations and report is necessary for the public to provide meaningful comments, in light of the fact that the APC Panel meeting is open to the public. We are not accepting the recommendation of the APC Panel to provide information in this final rule with comment period clarifying how newly packaged services map back to primary procedures because we would be unable to display in a meaningful way all of the many combinations of services that may be of interest to the public. Moreover, given the numerous new, refined, and interrelated payment policies finalized for CY 2008 involving APC reconfiguration, HCPCS migration, reduction in the numbers of low volume APCs, and others, to adopt the APC Panel's example of simulating median costs holding all other CY 2008 policies constant for HCPCS codes with and without the additional packaging of those services newly packaged for CY 2008 would not provide meaningful comparative information. Almost certainly, if we were not to adopt packaging of the additional services for CY 2008, the APC configurations, bypass list, single claims available for ratesetting, and other important features upon which the final median costs depend would differ in significant ways from those aspects under our final CY 2008 policies. Comment: A number of commenters disagreed with the CMS estimate of the amount of payment that would be redistributed under the proposed rule. The commenters indicated that the services proposed to be newly packaged constitute 6 percent of the OPPS costs, although CMS estimated that the packaging proposal would redistribute 1.2 percent of the CY 2008 expenditures under the OPPS. They attributed the difference in cost estimates to the methodology for applying status indicator ``Q.'' The commenters believed that the resulting impact analysis would be quite different from CMS' estimated impact displayed in the proposed rule and, therefore, the implications of the policy are not fully understood. They objected to packaging of observation services in particular, but recommended that CMS reevaluate the entire packaging proposal in light of methodological and data concerns. Response: In the proposed rule, we estimated that the proposed packaging approach would redistribute 1.2 percent of the CY 2007 base expenditures under the OPPS to other OPPS services as part of our budget neutrality adjustments for the proposed CY 2008 payment system. This 1.2 percent is the aggregate payment weight reduction from the packaging proposal, where the medians are marginally less than the costs for the individual services prior to packaging. This is not inconsistent with a finding that the total cost of services proposed to be packaged constitutes 6 percent of HOPD costs. These percentages measure different things. The first provides an estimate of money redistributed to other services and the second an estimate of the proportion of OPPS spending on services addressed by the policy. We understand, and intended, that the packaging proposal affect services responsible for significant OPPS spending, in order to provide hospitals with meaningful incentives to examine their patterns of care delivery and improve efficiency. The 1.2 percent reflects the difference in total weight with and without the packaging proposal relative to the CY 2007 total base weight. Whether or not the 1.2 percent of redistributed dollars was entirely attributable to the proposed policy for estimating the median cost for ``Q'' status indicator services cannot be [[Page 66619]] determined. For this final rule with comment period, we made modifications to the policy governing the handling of many services assigned status indicator ``Q,'' as discussed in section II.A.4.c.(4) of this final rule with comment period, that resulted in use of more claims data and significant changes to the median costs for some services. We also accepted the public comments that recommended that we create a composite APC for observation services, as discussed in section II.A.4.c.(7) of this final rule with comment period. Comment: Some commenters stated that CMS must undertake provider education and claims monitoring because providers will cease to bill HCPCS codes and charges for packaged services, which will result in lower payment rates than would otherwise be made if they reported all codes and charges and thus the costs of packaged services would be lost to the payment system in future years. They indicated that this presents huge operational challenges to hospitals to ensure that they bill and charge for the packaged codes. Other commenters believed that the implementation of increased packaging will be particularly difficult in CY 2008 because CMS is simultaneously implementing Medicare-Severity DRGs (MS-DRGs) for IPPS payment, which also poses operational challenges for hospitals. Response: We do not believe that there will be a significant change in what hospitals charge and report for the services they furnish to Medicare beneficiaries and to others as a result of the increased packaging for the CY 2008 OPPS. Medicare cost reporting standards specify that hospitals must impose the same charges for Medicare patients as for other patients. We are often told by hospitals that many private payers pay based on a percentage of charges and that hospital chargemasters do not differentiate between the charges to Medicare patients and others. Therefore, we have no reason to believe that hospitals will cease to report charges and HCPCS codes for packaged services they provide to Medicare beneficiaries. We expect that hospitals, as other prudent businesses, will have a quality review process that ensures that they accurately and completely report the services they furnish, with the appropriate charges for those services to Medicare and all other payers. Therefore, we do not see either the need or the responsibility to undertake a special effort to educate providers to report and charge Medicare for the services they furnish, whether separately paid or packaged. According to our longstanding policy, we will continue to encourage hospitals to report the HCPCS codes and associated charges for all services they provide, taking into consideration all CPT, OPPS, and local contracture instructions, regardless of whether payment for those HCPCS codes is packaged or separately provided. Similarly, we do not believe that the implementation of MS-DRGs will create operational issues for hospitals that would be complicated by increased packaging under the OPPS. Comment: Some commenters asserted that increased packaging will create disincentives to provide certain services and that providers may stop furnishing these services to Medicare beneficiaries. The commenters stated that increased packaging would reduce expenditures, but the ultimate result would be reduced access to necessary care as the payment incentives to provide care are reduced. Other commenters believed that increased packaging will result in services being furnished on multiple days in order to maximize payment, which will increase, rather than decrease, volumes of services and provide a significant inconvenience to beneficiaries. Response: We also do not agree that beneficiary access to care will be harmed by increased packaging. We believe that packaging will create incentives for hospitals and their physician partners to work together to establish appropriate protocols that will eliminate unnecessary services where they exist and will institutionalize approaches to providing necessary services more efficiently. Where this review results in reductions in services that are only marginally beneficial, we believe that this could improve rather than harm the quality of care for beneficiaries because every service furnished in a hospital carries some level of risk to the patient. Similarly, where this review results in the concentration of some services in a reduced number of hospitals in the community, we believe that the quality of care and hospital efficiency may both be enhanced as a result. The medical literature shows that concentration of services in certain hospitals often results in both greater efficiency and higher quality of care for patients. Moreover, we do not believe that packaging will result in Medicare beneficiaries being treated differently from other patients with regard to the care they receive in the hospital. A hospital may have its provider agreement terminated by Medicare under 42 CFR 489.53(a)(2) if it places restrictions on the persons it accepts for treatment and either fails to exempt Medicare beneficiaries from those restrictions or apply them to Medicare beneficiaries the same as to all other persons seeking care. We do not believe that a hospital would risk termination of its provider agreement by Medicare by refusing to furnish a medically necessary service to a Medicare beneficiary, although it provides the same service to other patients for the same clinical indications. As we indicated in the proposed rule, we will examine our claims data for patterns of fragmented care and if we find a pattern in which a hospital appears to be fragmenting care across multiple days, we will refer it for investigation to the QIO or to the program safeguard contractor, as appropriate to the circumstances we find. However, we do not believe that, in general, hospitals would routinely, and for purposes of financial gain, require patients to return on multiple days to receive services that could have been furnished on the same day. Comment: One commenter objected to the implication in the proposed rule that hospitals provide whatever services they wish at whatever cost, with their only concern being payment for the services, and that payment rates could motivate hospitals to report services on separate claims or split the service among different hospitals in order to be paid more. The commenter stated that 42 CFR 411.15(m) requires that hospitals must furnish and bill for services necessary to complete an outpatient encounter and that, therefore, it would be a violation of CMS regulations for a hospital to deliver part of the service at one hospital and the rest at another hospital. Response: We believe that hospitals strive to provide the best care they can to the patients they serve. However, we are aware that there are financial pressures on hospitals that might motivate some of them to split services in such a way as to maximize payments. While we do not expect that hospitals would routinely change the way they furnish services or the way they bill in order to maximize payment, we do believe that it would be possible, and hence we offered the cautionary note in the proposed rule that we will consider that possibility as we review our claims data. Other commenters, as described in the preceding comment, stated that volumes of services and expenditures would increase because hospitals would provide services on multiple days to maximize payment. We note that 42 CFR 411.15(m) specifies exclusions from Medicare coverage in cases in which the hospital does not furnish a service directly or [[Page 66620]] under arrangements as defined in 42 CFR 409.3 and, therefore, would not prohibit a hospital from discharging a patient and sending that patient to another hospital for a service that would otherwise be packaged if furnished during the same encounter. However, as noted above, a hospital that does not make available the same services to Medicare beneficiaries as to its other hospital patients can be terminated from Medicare under 42 CFR 489.53(a)(2). Additionally, we remind hospitals that any business models or arrangements they make for the provision of services intended to be billed by that hospital must comply with all applicable laws and regulations, including, but not limited to, the Stark law and other anti-kickback laws, the provider-based rules at 42 CFR 413.65, the ``incident-to'' rules at 42 CFR 410.27, and the conditions for outpatient diagnostic services at 42 CFR 410.28. In regard to hospital services provided under arrangements, as defined in 42 CFR 409.3, we have specified in the Eligibility and Entitlement Manual that, ``In permitting providers to furnish services under arrangements, it was not intended that the provider merely serve as a billing mechanism for the other party. Accordingly, for services provided under arrangements to be covered, the provider must exercise professional responsibility over the arranged for services'' (Pub. 100- 1, Chapter 5, section 10.3). Therefore, we would not expect hospitals to send patients to a separate entity merely to avoid packaged payment, but, as stated above, we will consider that possibility as we review our claims data. Comment: Some commenters suggested that CMS work with and through the AMA process in making any packaging decisions and not make any arbitrary and single-sided bundling decisions that have not been fully reviewed and analyzed for impact by the stakeholders. They suggested that CMS discuss with the AMA CPT Editorial Panel the potential for unintended consequences of proposed packaging or bundling on the establishment of CPT codes. For example, one commenter believed that packaging add-on codes, which the commenter viewed as integral to maintaining flexibility of CPT coding, would likely discourage future consideration of creating add-on codes as a means to describe code- specific procedures and resources. Other commenters objected to what they view as a ``codebook'' approach to determining what should be packaged. The commenters stated that CMS not rely on CPT and HCPCS code descriptors because the descriptors are complex and many do not accurately describe the services furnished. Some commenters argued that CMS should pay across settings in the same way and, therefore, should not package under the OPPS services that are paid separately under the MPFS. Response: Our general process for developing the OPPS, including making major payment policy decisions, is prescribed by the Administrative Procedure Act (APA) and the Federal Advisory Committee Act (FACA). As such, proposed payment rates and the attendant policies are open to public comment both through the Federal Register notice and comment rulemaking process and through the public meetings of the APC Panel, which is a Federal Advisory Committee chartered by the Secretary of Health and Human Services. Therefore, our proposed packaging for the CY 2008 OPPS and the decisions we are announcing in this final rule with comment period are neither arbitrary nor single-sided, as all stakeholders have had the opportunity to comment. In this final rule with comment period, we are responding to their comments. We note that the AMA, as a member of the public, has the same opportunity to comment on the packaging proposal in the proposed rule as any other member of the public. We believe that it is entirely appropriate to rely on the HCPCS descriptors, including the AMA's CPT descriptors, for the definition of the services furnished for purposes of the proposed packaging approach and other payment policies. The OPPS is based on the definitions of services reported with HCPCS codes, of which the CPT code set is a fundamental part. The HCPCS codes are the only means by which hospitals report the services they furnish and the charges for those services and, therefore, they are basis of the OPPS. For that reason, we look to the HCPCS definition of the service to determine whether a particular service is ancillary and supportive of another service. To the extent that there are changes to the HCPCS codes and, by extension, to the CPT code descriptors, we will reevaluate the decisions we make with regard to packaging payment. However, we do not believe that the AMA's CPT Editorial Board is influenced by OPPS payment policy in its deliberations, nor should it be influenced by OPPS payment policy in its creation of CPT codes. Moreover, we disagree that we should not package payment for ancillary and supportive services because the MPFS pays separately for them. The OPPS is not a fee schedule, but a prospective payment system based on relative weights derived from costs and charges. Packaging of payments into appropriate groups is a fundamental principle that distinguishes a prospective payment system from a fee schedule and we do not believe that we should refrain from packaging payment for ancillary and supportive services into payment for the independent services with which they are furnished because they may be treated differently in the MPFS or because of the unlikely possibility that this policy may have some influence on the AMA CPT Editorial Panel's decisions regarding creation of codes. Comment: One commenter stated that the concept of creating incentives for hospitals to negotiate better prices on goods and services through packaging is not applicable to small rural hospitals and, therefore, it should not apply to them. The commenter argued that smaller rural hospitals cannot negotiate for better prices on goods and services because they buy smaller amounts of products and lack the ability that large urban hospitals have to negotiate for better prices on goods and services. Response: We believe that the creation of incentives for hospitals to seek more efficient ways of furnishing services is applicable to all hospitals, including small rural hospitals. Small rural hospitals and their physician partners have the same capacity and capability as other hospitals to evaluate the appropriateness and efficiency of the packaged services they furnish. Moreover, small rural hospitals can join in cooperatives and group purchasing organizations that can achieve purchasing efficiencies that they could not achieve by themselves. We recognize that some costs are higher for certain categories of rural hospitals, therefore we have provided the 7.1 percent rural adjustment for rural SCHs. Moreover, the law holds harmless rural hospitals with 100 or fewer beds. However, we also expect that small rural hospitals will be motivated by the packaging approach to seek ways of furnishing services as efficiently as possible and to eliminate services that are essential to the appropriate treatment of the patient in any clinical case. Comment: Some commenters contended that the proposed packaging approach has the potential for systemwide net savings and redistribution of payments away from hospitals that invested in high- cost equipment and toward hospitals that do not have such costs. They believed that charge compression contributes to this [[Page 66621]] problem because hospitals are limited in what they can charge, and the allocation of radiology equipment capital costs exacerbates the problem. The commenters suggested that CMS not finalize the packaging proposal because packaging creates incentives for hospitals to divest themselves of important but expensive technologies because those technologies have ceased to be profitable. Response: We agree that there is the potential for systemwide redistribution of payments away from hospitals that invested in costly equipment for services for which payment will be packaged and toward hospitals that do not have such costs. However, to the extent that packaging payment for ancillary and supportive services reduces the amount of payment weight in the system for separately paid services, that amount will be redistributed to all hospitals across all services paid under the OPPS through the budget neutral weight scaler. Any reduction in the growth of OPPS expenditures will result from slower growth in hospital costs in future years as a result of hospitals reducing the volume of certain services or finding more efficient ways to provide care. That potential future savings is one of the purposes of this packaging initiative and the exploration of episode-based or encounter-based payments under the OPPS. Similarly, if increased packaging causes hospitals to be more cautious in their decision making regarding investing in new equipment or incurring other large capital expenditures, we view that as a positive result of the policy. Hospitals make decisions regarding the equipment they buy for general business reasons, of which payment under the OPPS is only one factor among many, including, but not limited to, utilization and payments from other payers and payments from Medicare for IPPS services, which is the dominant source of Medicare payment for hospital care. Comment: One commenter asserted that linking growth in volume to reduced payments is premature, inappropriate, and not supported by statutory authority. The commenter was particularly concerned about any methodology that would establish different update factors for different OPPS service categories, where the update factor is determined in a manner that takes into account utilization trends. Many commenters stated that HOPD utilization of services is only marginally within the control of hospitals. They explained that hospitals provide services ordered by their medical staff and community physicians, and it would be inappropriate to penalize hospitals for performing services whose utilization is not within their control. The commenters believed that innovation and best practices have increased utilization, not the provision of excessive services. Response: Section 1833(t)(2)(F) of the Act requires us to develop a method of controlling unnecessary increases in the volume of covered OPS services and section 1833(t)(9)(C) of the Act authorizes us to adjust the update to the conversion factor if under section 1833(t)(2)(F) of the Act, we determine that there is growth in volume that exceeds established tolerances. As we indicated in our proposed rule, we prefer not to take the approach of creating an SGR-type mechanism that could result in a reduced conversion factor under the OPPS and that could inadvertently result in actually increasing the volume of services. We prefer to establish larger packages of services on which to base OPPS payment in order to create incentives for hospitals and their physician partners to make thoughtful decisions regarding what services are medically necessary for their patients and to continuously reassess how they might be able to provide care more efficiently. We recognize that decisions regarding the care provided in HOPDs are not made unilaterally by the hospital, nor are they made unilaterally by the physician who is ordering the care. While physicians, rather than hospital staff, may order specific services for patients, hospitals decide what HOPD services they will and will not furnish, what drugs and supplies they will or will not buy and from whom they will buy them, what investments in equipment they will or will not make, and what programs they will open or close. Certainly, they make these decisions with significant input from their medical staff, but it is the hospital administration that makes the final decisions in this regard. Moreover, hospitals control, to some extent, the physicians on their medical staff and increasingly employ physicians to provide services to patients and to supervise the provision of hospital services. Hence, we do not agree with the argument that hospitals have no control over the services they furnish or that they have no influence over the physicians who order the specific services furnished to their patients. Comment: Some commenters asked CMS to impose a payment floor to limit the amount of decline in any APC payment in at least the first year of implementation as a means of mitigating the effects of no longer paying separately for the packaged services. Response: We do not agree that we should impose a payment floor to limit the amount of decline in any APC payment as a means of mitigating the effects of no longer paying separately for the packaged services. The purpose of creating larger payment packages is to create incentives for hospitals to assess the services they are furnishing to ensure that they are furnishing only medically necessary services as efficiently as possible. To establish a payment floor that would artificially inflate payments for APCs that are declining would reduce what would otherwise be appropriate increases in payments for other APCs. We believe that this would be contrary to the stated goal of paying appropriately for all services through larger payment bundles that are intended to create incentives for efficiency. Comment: Several commenters objected to the proposed packaging approach because they believed that it would be more difficult for new services to be approved for payment under New Technology APCs. One commenter believed that it would be difficult for new guidance services, in particular, to be approved for assignment to a New Technology APC if CMS considers guidance to be a supportive and ancillary service rather than a separately paid complete service. Therefore, the commenter concluded that the proposed packaging not only packages existing services but creates the potential for new technologies to not be approved for New Technology APC payment. Response: We assess applications for New Technology APC placement on a case-by-case basis. The commenter is correct that, to qualify for New Technology APC placement, the service must be a complete service, by which we mean a comprehensive service that stands alone as a meaningful diagnostic or therapeutic service. To the extent that a service for which New Technology APC status is being requested is ancillary and supportive of another service, for example, a new intraoperative service or a new guidance service, we might not consider it to be a complete service because its value is as part of an independent service. However, if the entire, complete service, including the guidance component of the service, for example, is ``truly new,'' as we explained that term at length in the November 30, 2001 final rule (66 FR 59898) which set forth the criteria for eligibility for assignment of services to New Technology APCs, we would consider the new complete procedure for New Technology APC assignment. [[Page 66622]] As stated in the November 30, 2001 final rule, by way of examples provided, ``The use of a new expensive instrument for tissue debridement or a new, expensive wound dressing does not in and of itself warrant creation of a new HCPCS code to describe the instrument or dressing; rather, the existing wound repair code appropriately describes the service that is being furnished * * * '' (66 FR 59898). This example may hold for some new guidance technologies as well. The following discussions separately address each of the seven categories of items and services for which we proposed to package payment under the CY 2008 OPPS as part of our packaging proposal and which we are adopting in this final rule with comment period, with the modifications discussed under the applicable topic. Many codes that we proposed to package for CY 2008 could fit into more than one of those seven categories. For example, CPT code 93325 (Doppler echocardiography color flow velocity mapping (List separately in addition to codes for echocardiography)) could be included in both the intraoperative and image processing categories. Therefore, for organizational purposes, both to ensure that each code appears in only one category and to facilitate discussion of our CY 2008 proposed and final policy, we have created a hierarchy of categories that determines which category each code appropriately falls into. This hierarchy is organized from the most clinically specific to the most general type of category. The hierarchy of categories is as follows: guidance services; image processing services; intraoperative services; and imaging supervision and interpretation services. Therefore, while CPT code 93325 may logically be grouped with either image processing services or intraoperative services, it is treated as an image processing service because that group is more clinically specific and precedes intraoperative services in the hierarchy. We did not believe it was necessary to include diagnostic radiopharmaceuticals, contrast media, or observation categories in this list because those services generally map to only one of those categories. We note that there is no cost estimation or payment implications related to the assignment of a HCPCS code for purposes of discussion to any specific category. Each HCPCS code we discuss in this section has a status indicator of either ``N'' or ``Q.'' The payment for a HCPCS code with a status indicator of ``N'' is unconditionally packaged so that its payment is always incorporated into the payments for the separately paid services with which it is reported. Payment for a HCPCS code with a status indicator of ``Q'' is either packaged or separately paid, depending on the services with which it is reported. Payment for a HCPCS code with a status indicator of ``Q'' that is ``STVX-packaged'' is packaged unless the HCPCS code is not reported on the same day with a service that has a status indicator of ``S,'' ``T,'' ``V,'' or ``X,'' in which case it would be paid separately. Payment for a HCPCS code with a status indicator of ``Q'' that is ``T-packaged'' is packaged unless the HCPCS code is not reported on the same day with a service that has a status indicator of ``T,'' in which case it would be paid separately. Payment for a HCPCS code with a status indicator of ``Q'' that is assigned to a composite APC is packaged into the payment for the composite APC when the criteria for payment of the composite APC are met. (1) Guidance Services We proposed to package payment for HCPCS guidance codes for CY 2008, specifically those codes that are reported for supportive guidance services, such as ultrasound, fluoroscopic, and stereotactic navigation services, that aid the performance of an independent procedure. We performed a broad search for such services, relying upon the AMA's CY 2007 book of CPT codes and the CY 2007 book of Level II HCPCS codes, which identified specific HCPCS codes as guidance codes. Moreover, we performed a clinical review of all HCPCS codes to capture additional codes that are not necessarily identified as ``guidance'' services but describe services that provide directional information during the course of performing an independent procedure. For example, we proposed to package CPT code 61795 (Stereotactic computer-assisted volumetric (navigational) procedure, intracranial, extracranial, or spinal (List separately in addition to code for primary procedure)) because we consider it to be a guidance service that provides three- dimensional information to direct the performance of intracranial or other diagnostic or therapeutic procedures. We also included HCPCS codes that existed in CY 2006 but were deleted and were replaced in CY 2007. We included the CY 2006 HCPCS codes because we proposed to use the CY 2006 claims data to calculate the CY 2008 OPPS median costs on which the CY 2008 payment rates would be based. Many, although not all, of the CPT guidance codes we identified are designated in the CPT coding scheme as add-on codes that are to be reported in addition to the CPT code for the primary procedure. We also note that there are a number of CPT codes describing independent surgical procedures that have code descriptors that indicate that guidance is included in the code reported for the surgical procedure if it is used and, therefore, packaged payment is already made for the associated guidance service under the OPPS. For example, the independent procedure described by CPT code 55873 (Cryosurgical ablation of the prostate (includes ultrasonic guidance for interstitial cryosurgical probe placement)) already includes the ultrasound guidance that may be used. We believed packaging payment for every guidance service under the OPPS would provide consistently packaged payment for all these services that are used to direct independent procedures, even if they are currently separately reported. Because these dependent guidance procedures support the performance of an independent procedure and they are generally provided in the same operative session as the independent procedure, we believed that it would be appropriate to package their payment into the OPPS payment for the independent procedure performed. However, guidance services differ from some of the other categories of services that we proposed to package for CY 2008. Hospitals sometimes may have the option of choosing whether to perform a guidance service immediately preceding or during the main independent procedure, or not at all, unlike many of the imaging supervision and interpretation services, for example, which are generally always reported when the independent procedure is performed. Once a hospital decides that guidance is appropriate, the hospital may have several options regarding the type of guidance service that can be performed. For example, when inserting a central venous access device, hospitals have the option of using no guidance, ultrasound guidance, or fluoroscopic guidance, and the selection in any specific case will depend upon the specific clinical circumstances of the device insertion procedure. In fact, as we noted in the CY 2008 proposed rule, the historical hospital claims data demonstrated that various guidance services for the insertion of these devices, which have historically received packaged payment under the OPPS, are used frequently for the insertion of vascular access devices. Thus, we recognized that hospitals have several options regarding the performance and types of guidance services they use. However, we believed [[Page 66623]] that hospitals utilize the most appropriate form of guidance for the specific procedure that is performed. We did not want to create payment incentives to use guidance for all independent procedures or to provide one form of guidance instead of another. Therefore, by proposing to package payment for all forms of guidance, we specifically encouraged hospitals to utilize the most cost effective and clinically advantageous method of guidance that is appropriate in each situation by providing them with the maximum flexibility associated with a single payment for the independent procedure. Similarly, hospitals may appropriately not utilize guidance services in certain situations based on clinical indications. Because guidance services can be appropriately reported in association with many independent procedures, under our proposed packaging of guidance services for CY 2008, the costs associated with guidance services would be mapped to a larger number of independent procedures than some other categories of codes that we proposed to package. For example, CPT code 76001 (Fluoroscopy, physician time more than one hour, assisting a non-radiologic physician (e.g., nephrostolithotomy, ERCP, bronchoscopy, transbronchial biopsy)) can be reported with a wide range of services. According to the CPT code descriptor, these procedures include nephrostolithotomy, which may be reported with CPT code 50080 (Percutaneous nephrostolithotomy or pyelostolithotomy, with or without dilation, endoscopy, lithotripsy, stenting, or basket extraction; up to 2 cm), and endoscopic retrograde cholangiopancreatography, which may be reported with CPT code 43260 (Endoscopic retrograde cholangiopancreatography (ERCP); diagnostic, with or without collection of specimen(s) by brushing or washing (separate procedure)). Therefore, the cost of the fluoroscopic guidance would be reflected in the payment for each of these independent services, in addition to numerous other procedures, rather than in the payment for only one or two independent services, as is the case for some of the other categories of codes that we proposed to package for CY 2008. In addition, because independent procedures such as CPT code 20610 (Arthrocentesis, aspiration and/or injection; major joint or bursa (e.g., shoulder, hip, knee joint, subacromial bursa)) may be reported with or without guidance, the cost for the guidance will be reflected in the median cost for the independent procedure as a function of the frequency that guidance is reported with that procedure. As we stated previously, the median cost for a particular independent procedure generally will be higher as a result of added packaging, but also could change little or be lower because median costs typically do not reflect small distributional changes and because changes to the packaged HCPCS codes affect both the number and composition of single bills and the mix of hospitals contributing those single bills. In fact, the CY 2007 CPT book indicates that if guidance is performed with CPT code 20610, it may be appropriate to bill CPT code 76942 (Ultrasonic guidance for needle placement (e.g., biopsy, aspiration, injection, localization device), imaging supervision and interpretation); 77002 (Fluoroscopic guidance for needle placement (e.g., biopsy, aspiration, injection, localization device)); 77012 (Computed tomography guidance for needle placement (e.g., biopsy, aspiration, injection, localization device), radiological supervision and interpretation); or 77021 (Magnetic resonance guidance for needle placement (e.g., for biopsy, needle aspiration, injection, or placement of localization device) radiological supervision and interpretation). The CY 2007 CPT book also implies that it is not always clinically necessary to use guidance in performing an arthrocentesis described by CPT code 20610. The guidance procedures that we proposed to package for CY 2008 vary in their resource costs. Resource cost was not a factor we considered when proposing to package guidance procedures. Notably, most of the guidance procedures are relatively low cost in comparison to the independent services they frequently accompany. The codes we proposed to identify as guidance codes for CY 2008 that would receive packaged payment were listed in Table 8 of the CY 2008 proposed rule (72 FR 42657). (Table 10 in this final rule with comment period contains a comprehensive list of all codes in the final seven categories for services that are packaged for CY 2008.) Several of these codes, including CPT code 76937 (Ultrasound guidance for vascular access requiring ultrasound evaluation of potential access sites, documentation of selected vessel patency, concurrent real time ultrasound visualization of vascular needle entry, with permanent recording and reporting (List separately in addition to code for primary procedure)), were already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned status indicator ``N.'' Payment for these services is currently made as part of the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned to status indicator ``N.'' We did not propose status indicator changes for the five guidance procedures that were unconditionally packaged for CY 2007. We proposed to change the status indicators for 31 guidance procedures from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. We believed that these services are always integral to and dependent upon the independent services that they support and, therefore, their payment would be appropriately packaged because they would generally be performed on the same date and in the same hospital as the independent services. We proposed to change the status indicator for one guidance procedure from separately paid to conditionally packaged (status indicator ``Q''), and to treat it as a ``special'' ``packaged code for the CY 2008 OPPS, specifically, CPT code 76000 (Fluoroscopy (separate procedure), up to 1 hour physician time, other than 71023 or 71034 (e.g., cardiac fluoroscopy)). This code was discussed in the past with the Packaging Subcommittee of the APC Panel, which determined that, consistent with its code descriptor as a separate procedure, this procedure could sometimes be provided alone, without any other services on the claim. We believe that this procedure will usually be provided by a hospital as guidance in conjunction with another significant independent procedure on the same date of service but may occasionally be provided without another independent service. As a ``special'' packaged code, if the fluoroscopy service were billed without any other service assigned status indicator ``S,'' ``T,'' ``V,'' or ``X'' reported on the same date of service, under our proposal we would not treat the fluoroscopy procedure as a dependent service for purposes of payment. If we were to unconditionally package payment for this procedure, treating it as a dependent service, hospitals would receive no payment at all when providing this service alone, although the procedure would not be functioning as a guidance service in that case. However, according to our proposal, its conditionally packaged status with its designation as a ``special'' packaged code would allow payment to be provided for this ``Q'' status fluoroscopy [[Page 66624]] procedure, in which case it would be treated as an independent service under these limited circumstances. On the other hand, when the fluoroscopy service is furnished as a guidance procedure on the same day and in the same hospital as independent, separately paid services that are assigned status indicator ``S,'' ``T,'' ``V,'' or ``X,'' we proposed to package payment for it as a dependent service. In all cases, we proposed that hospitals that furnish independent services on the same date as dependent guidance services must bill them all on the same claim. We believed that when dependent guidance services and independent services are furnished on the same date and in the same facility, they are part of a single complete hospital outpatient service that is reported with more than one HCPCS code, and no separate payment should be made for the guidance service that supports the independent service. The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (section XXIV.B. in this final rule with comment period) was based on the assumption that hospital behavior would not change with regard to when these dependent services are performed on the same date and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and perform the guidance services more or less frequently, on subsequent dates, or at settings outside of the hospital, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. However, with respect to guidance services in particular, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services. By their definition, these guidance services generally must be furnished on the same date and at the same operative location as the independent procedure in order for the guidance service to meaningfully contribute to the treatment of the patient in directing the performance of the independent procedure. We do not believe the clinical characteristics of the guidance services will change in the immediate future. As we indicated earlier, in all cases, we proposed that hospitals that furnish the guidance service on the same date as the independent service must bill both services on the same claim. We indicated that we expected to carefully monitor any changes in billing practices on a service-specific and hospital-specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record. During the September 2007 APC Panel meeting, the Panel recommended that CMS finalize the proposal to package guidance services, with the exception of radiation oncology guidance procedures. We received many public comments on our proposal to package guidance services for CY 2008. A summary of the public comments and our responses follow. Comment: Many commenters requested that, if CMS elected to finalize the packaging status of the guidance codes proposed for packaging, CMS exclude radiation oncology guidance procedures, in accordance with the APC Panel recommendation. Specifically, many commenters requested that CMS pay separately for CPT codes 76950 (Ultrasonic guidance for placement of radiation therapy fields); 76965 (Ultrasonic guidance for interstitial radioelement application); 77014 (Computed tomography guidance for placement of radiation therapy fields); 77417 (Therapeutic radiology port film(s)); and 77421 (Stereoscopic X-ray guidance for localization of target volume for the delivery of radiation therapy). The commenters were concerned that packaging radiation oncology guidance procedures would encourage hospitals to decrease utilization of advanced technologies for localization used in radiation oncology treatment delivery. The commenters noted that packaging payment for radiation oncology guidance services offers a financial incentive to those hospitals that use little or no daily localization when providing radiation therapy. One commenter believed that packaging payment for these guidance services encourages hospitals to use older, less effective technologies, thereby discouraging development of new, more effective technologies. Another commenter noted that if hospitals are discouraged from using new technologies due to low payment rates, it will take many years to gather robust cost data that reflect these new technologies, likely even longer than New Technology APC and pass- through payments are available for new technologies. Response: After reviewing these public comments, considering the recommendation of the APC Panel, and ensuring that CMS clinical staff analyzed the content of these comments, we have decided to finalize our proposal to package these guidance services, as proposed. These services are ancillary and dependent in relation to the radiation therapy services with which they are most commonly furnished. Moreover, there are no unique clinical aspects to these radiation oncology guidance services that would differentiate them from other guidance services. Consistent with the principles of a prospective payment system, in some cases, payment in an individual case exceeds the average costs, and in other cases payment is less than the average cost, but on balance, payment should approximate the relative cost of the average case. We do not believe that beneficiary access to care will be harmed by increased packaging. We believe that packaging will create incentives for hospitals and their physician partners to work together to establish appropriate protocols that will eliminate unnecessary services where they exist and institutionalize approaches to providing necessary services more efficiently. Therefore, we see no basis for treating radiation oncology services differently from other guidance services that are ancillary and dependent to the procedure that they facilitate. Comment: Many commenters were concerned with the proposal to package payment for electrodiagnostic guidance for chemodenervation procedures, specifically, CPT codes 95873 (Electrical stimulation for guidance in conjunction with chemodenervation (List separately in addition to code for primary procedure)), and 95874 (Needle electromyography for guidance in conjunction with chemodenervation (List separately in addition to code for primary procedure)). The commenters indicated that chemodenervation involves the injection of chemodenervation agents, such as botulinum toxin, to control the symptoms associated with dystonia and other disorders. According to the commenters, physicians often, but not always, use electromyography or electrical stimulation guidance to guide the needle to the most appropriate location. The commenters were concerned that the proposal to package payment for these guidance services may discourage utilization of this particular form of guidance, even when medically appropriate. Several commenters noted that the CY 2008 proposed payment rate for the injection and the associated guidance is a 15 percent decrease from the CY 2007 payment rate. Most commenters requested that CMS pay separately for electrodiagnostic guidance, several of whom specified that CMS assign the [[Page 66625]] three chemodenervation procedures to their own APC. The commenters noted that even if the median cost for the chemodenervation procedures increased, the payment rate would not increase because chemodenervation procedures are only a small proportion of all claims in their proposed APC 0204 (Level I Nervous System Injections). Several other commenters stated that the median costs for the chemodenervation procedures do not reflect the full cost of the guidance because the guidance is performed with the procedure infrequently. Response: We note that the cost of the chemodenervation guidance services will be reflected in the median cost for the independent HCPCS code as a function of the frequency that chemodenervation services are reported with that particular HCPCS code. As noted above, we recognize that, in some cases, supportive and ancillary dependent services are furnished at high frequency with independent services, and in other cases, they are furnished with independent services at a low frequency. We believe that packaging should reflect the reality of how services are furnished. While the commenters are correct that the chemodenervation procedures reflect only approximately 10 percent of the services that comprise APC 0204, we note that they appropriately map to this APC both clinically and in terms of resource use. If the median costs for the individual chemodenervation procedures were to change dramatically, based on resource cost data, we would review these services as part of our annual review process to determine if a different APC were more appropriate. We also note that if these three chemodenervation procedures were mapped to their own APC, the estimated median cost of the APC would be in the same general cost range as the current median cost for APC 0204. Therefore, it is unnecessary to map these three services to their own APC for CY 2008. Comment: Several commenters requested that CMS clarify how the DRA imaging cap for services paid under the MPFS would be applied to services that are packaged under the OPPS. Response: If an imaging service is packaged under the OPPS, the DRA cap on the technical component payment for that service under the MPFS is not applicable. Comment: Many commenters supported the proposal to package each of the guidance services that we identified in the proposed rule. The commenters also gave specific comments related to almost every guidance code that we proposed to package. In general, each commenter requested that we pay separately for several of the guidance codes that we proposed to package. The commenters expressed concern in several areas, specifically, that insufficient payment rates would discourage new technologies; that guidance services used infrequently with specific services contribute very little to the payment rates for those services; that the expected decrease in utilization for guidance services could ultimately lead to increased costs, as a result of worse patient outcomes; that packaged payment under the OPPS and separate payment under the MPFS leads to payment disparity; and, in general, that the lack of published crosswalks makes it difficult to analyze the specific effects of this policy. Response: We note that we did not receive any unique arguments specific to any particular code. We received many similar public comments regarding all the categories of codes that we proposed for packaged payment. Therefore, we have responded to these general comments above in section II.A.4.c. of this final rule with comment period. In light of the public comments we received, our clinical advisors reassessed every guidance code on the list to ensure that it was still appropriate for packaged payment. For CY 2008, we are finalizing the CY 2008 proposal, without modification, to package payment for all guidance services for CY 2008. We are partially accepting the APC Panel recommendation. Specifically, we are packaging all guidance services for CY 2008, including radiation oncology services. The guidance codes that are packaged for CY 2008 are identified and displayed in Table 10 of this final rule with comment period. These services are assigned status indicator ``N'' to indicate their unconditional packaging, with the exception of CPT code 76000, which is an ``STVX-packaged'' code assigned status indicator ``Q.'' (2) Image Processing Services We proposed to package payment for ``image processing'' HCPCS codes for CY 2008, specifically those codes that are reported as supportive dependent services to process and integrate diagnostic test data in the development of images, performed concurrently or after the independent service is complete. We performed a broad search for such services, relying upon the AMA's CY 2007 book of CPT codes and the CY 2007 book of Level II HCPCS codes, which identified specific codes as ``processing'' codes. In addition, we performed a clinical review of all HCPCS codes to capture additional codes that we consider to be image processing. For example, we proposed to package payment for CPT code 93325 (Doppler echocardiography color flow velocity mapping (List separately in addition to codes for echocardiography)) because it is an image processing procedure, even though the code descriptor does not specifically indicate it as such. An image processing service processes and integrates diagnostic test data that were captured during another independent procedure, usually one that is separately payable under the OPPS. The image processing service is not necessarily provided on the same date of service as the independent procedure. In fact, several of the image processing services that we proposed to package for CY 2008 do not need to be provided face-to-face with the patient in the same encounter as the independent service. While this approach to service delivery may be administratively advantageous from a hospital's perspective, providing separate payment for each image processing service whenever it is performed is not consistent with encouraging value-based purchasing under the OPPS. We believed it was important to package payment for supportive dependent services that accompany independent services but that may not need to be provided face-to-face with the patient in the same encounter because the supportive services utilize data that were collected during the preceding independent services and packaging their payment encourages the most efficient use of hospital resources. We are particularly concerned with any continuance of current OPPS payment policies that could encourage certain inefficient and more costly service patterns. As stated above, packaging encourages hospitals to establish protocols that ensure that services are furnished only when they are medically necessary and to carefully scrutinize the services ordered by practitioners to minimize unnecessary use of hospital resources. Our standard methodology to calculate median costs packages the costs of dependent services with the costs of independent services on ``natural'' single claims across different dates of service, so we are confident that we would capture the costs of the supportive image processing services for ratesetting when they are packaged according to our CY 2008 proposal, even if they were provided on a different date than the independent procedure. We listed the image processing services that we proposed to be packaged for CY 2008 in Table 10 in the [[Page 66626]] CY 2008 proposed rule (72 FR 42659). As these services support the performance of an independent service, we believe it would be appropriate to package their payment into the OPPS payment for the independent service provided. As many independent services may be reported with or without image processing services, the cost of the image processing services will be reflected in the median cost for the independent HCPCS code as a function of the frequency that image processing services are reported with that particular HCPCS code. Again, while the median cost for a particular independent procedure generally will be higher as a result of added packaging, it could also change little or be lower because median costs typically do not reflect small distributional changes and because changes to the packaged HCPCS codes affect both the number and composition of single bills and the mix of hospitals contributing those single bills. For example, CPT code 70450 (Computed tomography, head or brain; without contrast material) may be provided alone or in conjunction with CPT code 76376 (3D rendering with interpretation and reporting of computed tomography, magnetic resource imaging, ultrasound, or other tomographic modality; not requiring image post- processing on an independent workstation). In fact, CPT code 70450 was provided approximately 1.5 million times based on CY 2008 proposed rule claims data. CPT code 76376 was provided with CPT code 70450 less than 2 percent of the total instances that CPT code 70450 was billed. Therefore, as the frequency of CPT code 76376 provided in conjunction with CPT code 70450 increases, the median cost for CPT code 70450 would be more likely to reflect that additional cost. The image processing services that we proposed to package vary in their hospital resource costs. Resource cost was not a factor we considered when we proposed to package supportive image processing services. Notably, the majority of image processing services that we proposed to package have modest median costs in relationship to the cost of the independent service that they typically accompany. Several of these codes, including CPT code 76350 (Subtraction in conjunction with contrast studies), are already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned status indicator ``N.'' Payment for these services is made as part of the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned status indicator ``N.'' We did not propose status indicator changes for the four image processing services that were unconditionally packaged for CY 2007. We proposed to change the status indicator for seven image processing services from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. We believe that these services are always integral to and dependent upon the independent service that they support and, therefore, their payment would be appropriately packaged. The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (section XXIV.B. of this final rule with comment period) was based on the assumption that hospital behavior would not change with regard to when these dependent image processing services are performed on the same date and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and perform the image processing services more or less frequently, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. As we indicated earlier, in all cases, we provided that hospitals that furnish the image processing procedure in association with the independent service must bill both services on the same claim. We indicated that we expected to carefully monitor any changes in billing practices on a service-specific and hospital-specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record. The APC Panel recommended that all image processing services be packaged as proposed in the proposed rule. We received a number of public comments on our proposal to package image processing service for CY 2008. A summary of the public comments and our responses follow. Comment: Many commenters were concerned with the proposal to package payment for CPT code 93325 (Doppler echocardiography color flow velocity mapping (List separately in addition to codes for echocardiography)). The commenters noted that this service is often critical to decisionmaking and consumes significantly greater resources than the general echocardiography study process. Several commenters noted that the AMA is planning to revise this CPT code for CY 2009, and that changing the payment status of this code may confuse hospital coding staff. Some commenters requested that CMS make no changes to the payment status of this code until this code's descriptor has been revised by the AMA, while others requested that CMS instruct hospitals not to use the new CPT code that will be created by the AMA. Response: We acknowledge that this service may be an important clinical tool that is critical to decisionmaking. However, we continue to believe that packaged payment is appropriate for this dependent service that must, per the CY 2007 CPT book, be provided in conjunction with echocardiography. In fact, packaging the status of this code may make it easier to crosswalk the data from this code to the new CPT code that the AMA may create for CY 2009. We see no compelling reason to postpone packaging this service until CY 2009. Comment: One commenter requested that CMS pay separately for HCPCS code G0288 (Reconstruction, computed tomographic angiography of aorta for surgical planning for vascular surgery) because it is different than the other image processing codes proposed for packaged payment. The commenter stated that the service is often an out-sourced service purchased by the hospital. The commenter was particularly concerned that hospitals would no longer continue to purchase this service if insufficient payment was provided. Another commenter requested separate payment for CPT code 95957 (Digital analysis of electroencephalogram (EEG) (eg, for epileptic spike analysis)). The commenter stated that this service is often performed on a different day than the EEG and by a technologist other than the one who performed the EEG. Response: As noted above, we believe it is important to package payment for supportive dependent services that may not need to be provided face-to-face with the patient in the same encounter as the independent service. Packaging payment for supportive services that utilize data that were collected during the preceding independent services encourages the most efficient use of hospital resources. In fact, as part of our proposed CY 2008 packaging approach, we also proposed to unconditionally package payment in CY 2008 for several other image processing services that are not always performed face-to- face, including CPT codes 0174T (Computer aided detection (CAD) (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation and report, with or without digitization of [[Page 66627]] film radiographic images, chest radiograph(s), performed concurrent with primary interpretation); 0175T ((Computer aided detection (CAD) (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation and report, with or without digitization of film radiographic images, chest radiograph(s), performed remote from primary interpretation); and CPT code 76377 (3D rendering with interpretation and reporting of computed tomography, magnetic resource imaging, ultrasound, or other tomographic modality; requiring image postprocessing on an independent workstation). We also believe it is likely that a hospital that performed the computed tomographic angiography diagnostic procedure but does not have the technology necessary to provide the preoperative image reconstruction would send the results to another hospital for performance of the reconstruction. In this situation, the second hospital would be providing the reconstruction under arrangement and, therefore, at least one service provided by the first hospital would be separately paid. We believe that packaged payment for image reconstruction under a prospective payment methodology for hospital outpatient services is most appropriate. The same situation occurs when hospitals provide the service described by CPT code 95957. We proposed to unconditionally package payment for HCPCS code G0288 and CPT code 95957 for CY 2008, fully consistent with the packaging approach for the CY 2008 OPPS. Because HCPCS code G0288 and CPT code 95957 are supportive ancillary services that fit into the image processing category, and we proposed to package payment for all image processing services for CY 2008, we believe it is appropriate to unconditionally package payment associated with these codes. Specifically, we determined that these services are dependent services that are integral to independent services, in this case, the computed tomographic angiography and the EEG that we would expect to be provided. Even if the imaging process services were provided on another day than the independent services, our packaging methodology packages costs across dates of service on ``natural'' single claims, so that the costs of image process services would be captured. For CY 2008, we are finalizing the packaged status of HCPCS code G0288 and CPT code 95957, as listed in Table 10 of the proposed rule. We note an inadvertent error in Addendum B to the proposed rule. However, Table 10 of the proposed rule listed the accurate proposed payment status of HCPCS code G0288. Comment: Many commenters supported the proposal to package each of the image processing services that was identified in the proposed rule. Numerous other commenters requested that CMS postpone packaging all the packaged codes included in all categories of the proposal until additional data were provided to the public. These commenters also submitted specific comments related to almost every image processing code that CMS proposed to package. The commenters expressed concern in several areas, specifically, that what they considered to be insufficient payment rates would discourage new technologies; that image processing services used infrequently with specific services contribute very little to the payment rates for those services; that the expected decrease in utilization for image processing services could ultimately lead to increased costs, as a result of worse patient outcomes; and in general, that the lack of published crosswalks makes it difficult to analyze the specific effects of this policy. Several commenters requested a crosswalk that specified how the packaged costs were allocated from each dependent code to each independent code. Other commenters requested that CMS create edits to ensure that costs are appropriately mapped to independent codes. Several commenters requested that CMS consider resource cost when determining which codes to package. The commenters were concerned that what they considered to be insufficient payment would create a disincentive for hospitals to adopt new technology. Response: We note that we did not receive any unique arguments specific to any particular code. These comments are similar to those received for all the categories of codes that we proposed for packaged payment. Therefore, we have responded to these general comments above in section II.A.4.c. of this final rule with comment period. In light of the public comments we received, our clinical advisors reassessed every image processing code on the list to ensure that it was still appropriate for packaged payment. We received one comment related to CPT codes 0174T and 0175T. The comment summary and response related to those codes are located in section II.A.4.e. of this final rule with comment period. For CY 2008, we are finalizing our proposal, without modification, to unconditionally package the payment for all imaging processing codes listed in Table 10 of this final rule with comment period. We are accepting the APC Panel recommendation to package all image processing services. These services are assigned status indicator ``N'' to indicate their unconditional packaging. (3) Intraoperative Services We proposed to package payment for ``intraoperative'' HCPCS codes for CY 2008, specifically those codes that are reported for supportive dependent diagnostic testing or other minor procedures performed during independent procedures. We performed a broad search for possible intraoperative HCPCS codes, relying upon the AMA's CY 2007 book of CPT codes and the CY 2007 book of Level II HCPCS codes, to identify specific codes as ``intraoperative'' codes. Furthermore, we performed a clinical review of all HCPCS codes to capture additional supportive diagnostic testing or other minor intraoperative or intraprocedural codes that are not necessarily identified as ``intraoperative'' codes. For example, we proposed to package payment for CPT code 95955 (Electroencephalogram (EEG) during nonintracranial surgery (e.g., carotid surgery)) because it is a minor intraoperative diagnostic testing procedure even though the code descriptor does not indicate it as such. Although we use the term ``intraoperative'' to categorize these procedures, we also have included supportive dependent services in this group that are provided during an independent procedure, although that procedure may not necessarily be a surgical procedure. These dependent services clearly fit into this category because they are provided during, and are integral to, an independent procedure, like all the other intraoperative codes, but the independent procedure they accompany may not necessarily be a surgical procedure. For example, we proposed to package HCPCS code G0268 (Removal of impacted cerumen (one or both ears) by physician on same date of service as audiologic function testing). While specific audiologic function testing procedures are not surgical procedures performed in an operating room, they are independent procedures that are separately payable under the OPPS, and HCPCS code G0268 is a supportive dependent service always provided in association with one of these independent services. All references to ``intraoperative'' below refer to services that are usually or always provided during a surgical procedure or other independent procedure. [[Page 66628]] By definition, a service that is performed intraoperatively is provided during and, therefore, on the same date of service as another procedure that is separately payable under the OPPS. Because these intraoperative services support the performance of an independent procedure and they are provided in the same operative session as the independent procedure, we believed it would be appropriate to package their payment into the OPPS payment for the independent procedure performed. Therefore, we did not propose to package payment for CY 2008 for those diagnostic services, such as CPT code 93005 (Electrocardiogram, routine ECG with at least 12 leads; tracing only, without interpretation and report) that are sometimes or only rarely performed and reported as supportive services in association with other independent procedures. Instead, we proposed to include those HCPCS codes that are usually or always performed intraoperatively, based upon our review of the codes described above. The intraoperative services that we proposed to package vary in hospital resource costs. Resource cost was not a factor we considered when determining which supportive intraoperative procedures to package. The codes we proposed to identify as intraoperative services for CY 2008 that would receive packaged payment under the OPPS were listed in Table 12 of the proposed rule (72 FR 42661 through 42662). Several of these codes, including CPT code 93640 (Electrophysiologic evaluation of single or dual chamber pacing cardioverter-defibrillator leads including defibrillation threshold evaluation (induction of arrhythmia, evaluation of sensing and pacing for arrhythmia termination) at the time of initial implantation or replacement), are already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned status indicator ``N.'' Payment for these services is made through the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned status indicator ``N.'' We did not propose status indicator changes for the five diagnostic intraoperative services that were unconditionally packaged for CY 2007. We proposed to change the status indicator for 34 intraoperative services from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. As stated in the CY 2008 proposed rule, we believe that these services are always integral to and dependent upon the independent services that they support and, therefore, their payment would be appropriately packaged because they would generally be performed on the same date and in the same hospital as the independent services. We also proposed to change the status indicator for one intraoperative procedure from unconditionally packaged to conditionally packaged (status indicator ``Q'') as a ``special'' packaged code for the CY 2008 OPPS, specifically, CPT code 0126T (Common carotid intima- media thickness (IMT) study for evaluation of atherosclerotic burden or coronary heart disease risk factor assessment). This code was discussed in the past with the Packaging Subcommittee of the APC Panel, which determined that, consistent with its code descriptor as a separate procedure, this procedure could sometimes be provided alone, without any other OPPS services on the claim. We believed that this procedure would usually be provided by a hospital in conjunction with another independent procedure on the same date of service but may occasionally be provided without another independent service. As a ``special'' packaged code, if the study were billed without any other service assigned status indicator ``S,'' ``T,'' ``V,'' or ``X'' reported on the same date of service, under our proposal we proposed not to treat the IMT study as a dependent service for purposes of payment. If we were to continue to unconditionally package payment for this procedure, treating it as a dependent service, hospitals would receive no payment at all when providing this service alone, although the procedure would not be functioning as an intraoperative service in that case. However, according to our proposal, its conditionally packaged status as a ``special'' packaged code would allow payment to be provided for this ``Q'' status IMT study when provided alone, in which case it would be treated as an independent service under these limited circumstances. On the other hand, when this service is furnished as an intraoperative procedure on the same day and in the same hospital as independent, separately paid services that are assigned status indicator ``S,'' ``T,'' ``V,'' or ``X,'' we proposed to package payment for it as a dependent service. In all cases, we proposed that hospitals that furnish independent services on the same date as this IMT procedure must bill them all on the same claim. We believed that when dependent and independent services are furnished on the same date and in the same facility, they are part of a single complete hospital outpatient service that is reported with more than one HCPCS code, and no separate payment should be made for the intraoperative procedure that supports the independent service. The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (section XXIV.B. of this final rule with comment period) was based on the assumption that hospital behavior would not change with regard to when these intraoperative dependent services are performed on the same date and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and perform the intraoperative services more or less frequently, on subsequent dates, or at settings outside of the hospital, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. However, with respect to intraoperative services in particular, we believed that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services. By their definition, these intraoperative services generally must be furnished on the same date and at the same operative location as the independent procedure in order to be considered intraoperative. For these codes, we assume that both the dependent and independent services would be furnished on the same date in the same hospital, and hospitals should bill them on the same claim with the same date of service. As we indicated earlier, in all cases we provided that hospitals that furnish the intraoperative procedure on the same date as the independent service must bill both services on the same claim. We expect to carefully monitor any changes in billing practices on a service-specific and hospital-specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record. During the September 2007 APC Panel meeting, the Panel recommended that CMS finalize the proposal to package intraoperative services and that CMS consider assigning status indicator ``Q'' to CPT code 96020 (Neurofunctional testing selection and administration during noninvasive imaging functional brain mapping, with test administered entirely by a physician or psychologist, with review of test results and report). We received many public comments on our proposal to package [[Continued on page 66629]] From the Federal Register Online via GPO Access [wais.access.gpo.gov] ] [[pp. 66629-66678]] Medicare Program: Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates, the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates, the Hospital Inpatient Prospective Payment System and FY 2008 Payment Rates; and [[Page 66629]] [[Continued from page 66628]] [[Page 66629]] intraoperative services for CY 2008. A summary of the public comments and our responses follow. Comment: Several commenters requested that CMS change the status of CPT code 96020 to conditionally packaged or separately payable instead of finalizing the proposal to unconditionally package this code. According to the commenters, functional brain mapping is often performed prior to epilepsy surgery. The commenters noted that functional brain mapping is performed by staff other than the neurologist or neuropsychologist who performs the accompanying functional MRI, reported with CPT code 70555 (Magnetic resonance imaging, brain, functional MRI; requiring physician or psychologist administration of entire neurofunctional testing). One commenter clarified that functional MRI is more commonly performed without functional brain mapping. If CPT code 96020 were conditionally packaged, the commenter believed that separate payment should be made for CPT code 96020 when it was provided with the functional MRI. Another commenter stated that functional brain mapping is a separate service from the functional MRI, and therefore should not be packaged. Response: The AMA 2007 CPT book specifically states that CPT code 70555 can only be reported if CPT code 96020 is also performed. CPT code 70555 is separately payable under the CY 2008 OPPS. Therefore, whenever CPT code 70555, the independent procedure, is billed with CPT code 96020, the dependent procedure, the payment associated with CPT code 96020 is appropriately packaged into the payment for CPT code 70555. Even if CPT code 96020 were conditionally packaged, separate payment would not be made when it was billed with CPT code 70555. In addition, we believe that functional brain mapping is never provided to a patient as a sole service. Instead, it is always provided in conjunction with a functional MRI. Therefore, we continue to believe that unconditional packaging is appropriate for CPT code 96020. Comment: Many commenters requested that CMS continue to pay separately for intravascular ultrasound (IVUS), fractional flow reserve (FFR), and intracardiac echocardiography (ICE) reported with CPT codes 37250 (Intravascular ultrasound (non-coronary vessel) during diagnostic evaluation and/or therapeutic intervention; initial vessel (List separately in addition to code for primary procedure)); 37251 (Intravascular ultrasound (non-coronary vessel) during diagnostic evaluation and/or therapeutic intervention; each additional vessel (List separately in addition to code for primary procedure)); 75946 (Intravascular ultrasound (non coronary vessel), radiological supervision and interpretation; each additional non-coronary vessel (List separately in addition to code for primary procedure)); 92978 (Intravascular ultrasound (coronary vessel or graft) during diagnostic evaluation and/or therapeutic intervention including imaging supervision, interpretation and report; initial vessel (List separately in addition to code for primary procedure)); 92979 (Intravascular ultrasound (coronary vessel or graft) during diagnostic evaluation and/ or therapeutic intervention including imaging supervision, interpretation and report; each additional vessel (List separately in addition to code for primary procedure)); 93571 (Intravascular Doppler velocity and/or pressure derived coronary flow reserve measurement (coronary vessel or graft) during coronary angiography including pharmacologically induced stress; initial vessel (List separately in addition to code for primary procedure)); 93572 (Intravascular Doppler velocity and/or pressure derived coronary flow reserve measurement (coronary vessel or graft) during coronary angiography including pharmacologically induced stress; each additional vessel (List separately in addition to code for primary procedure)); and 93662 (Intracardiac echocardiography during therapeutic/diagnostic intervention, including imaging supervision and interpretation (List separately in addition to code for primary procedure)). The commenters noted that, while use of these procedures often results in better patient outcomes and reduced need for subsequent procedures, they are only provided to a small proportion of patients who undergo stenting, angioplasty, and other related services. A number of commenters specified that IVUS is performed on 1 to 20 percent of patients who undergo a related diagnostic or therapeutic intervention, using Medicare claims and internal hospital assessments. Therefore, the commenters stated that the costs for IVUS, FFR, and ICE do not affect the payment rates for the independent procedures in a significant way, if at all. In addition, the commenters noted that IVUS, in particular, involves high resource costs because of expensive capital equipment, significant labor cost, and disposable supplies. Several commenters noted that the CY 2005 OPPS data included a median cost of $2,000 for IVUS, with approximately $800 of those costs related solely to the device component. One commenter stated that IVUS may be performed in conjunction with a diagnostic procedure that maps to an APC such as 0080 (Diagnostic Cardiac Catheterization); 0267 (Level III Diagnostic and Screening Ultrasound); or 0280 (Level III Angiography and Venography), rather than a major therapeutic procedure such as stenting or angioplasty, resulting in a total payment of $150 to $2,500, which would not cover the hospital's costs. Other commenters elaborated on the costs associated with ICE, which is reported with the corresponding independent services described by CPT codes 93621 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with left atrial pacing and recording from coronary sinus or left atrium (List separately in addition to code for primary procedure)); 93622 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with left ventricular pacing and recording (List separately in addition to code for primary procedure)); 93651 (Intracardiac catheter ablation of arrhythmogenic focus; for treatment of supraventricular tachycardia by ablation of fast or slow atrioventricular pathways, accessory atrioventricular connections or other atrial foci, singly or in combination); and 93652 (Intracardiac catheter ablation of arrhythmogenic focus; for treatment of ventricular tachycardia), in only 5 percent of the claims involving the above procedures. The commenters also noted that only 14 percent of hospitals billed ICE with the CPT codes listed above, indicating that the impact of packaged payment will affect a subset of hospitals who invested in this capital equipment. One commenter noted that IVUS and ICE are clearly not integral to any independent procedure because they are used infrequently. Other commenters noted that costs will be improperly allocated to hospitals that perform the independent procedure, regardless of whether they purchased the equipment for the dependent procedure. One commenter disputed describing FFR services as ``ancillary'' and stated that they are ``decisional'' and therefore should not be packaged. The commenters expressed concern that packaged payment will create a [[Page 66630]] significant financial disincentive to provide these services. The commenters also noted that these procedures should not be described as ``intraoperative'' because they precede the independent procedure, and may even result in canceling the independent procedure. One commenter requested that CMS assign status indicator ``Q'' to CPT codes 93571 and 93572. On the other hand, several commenters specified that these services are not stand alone procedures. One commenter stated that it is illegal under section 1833(t)(2)(G) of the Act to package payment for IVUS and FFR, which do not use contrast agents, into payment for coronary or peripheral angiography, which require contrast agents. Specifically, the commenter summarized the Act which states that CMS must create payment groups under the OPPS that ``classify separately those procedures that utilize contrast agents from those that do not.'' Response: We appreciate the many thoughtful comments related to the packaged status of IVUS, FFR, and ICE services. We acknowledge that the costs associated with packaged services may contribute more or less to the median cost of the independent service, depending on how often the dependent service is billed with the independent service. It is our goal to adhere to the principles inherent in a prospective payment system and to encourage hospitals to utilize resources in a cost- effective manner. In this case, hospitals must choose whether to utilize IVUS, FFR, and ICE, balancing the needs of the patient with the costs associated with the services. We continue to believe that IVUS, FFR, and ICE are dependent services that are always provided in association with independent services. This is different than stating that every angioplasty or other related independent procedure utilizes IVUS, FFR, or ICE. In fact, all of the codes about which we received comment are listed as add-on codes in the CY 2007 CPT book. While we agree that some of these services may contribute to decisionmaking, we still believe that these services are never provided without another independent service on the same day. Therefore, we do not believe it is appropriate to assign status indicator ``Q'' to CPT codes 93571 and 93572, or any of the other IVUS, FFR, or ICE services. While the statute requires us to establish separate APCs for those services that require contrast and those that do not require contrast, the statute does not state a similar requirement for the packaged services that are ancillary and supportive to the main independent procedure. In this case, IVUS, FFR, and ICE are not the services themselves that must be mapped to contrast or noncontrast APCs for payment. Instead, independent services must map to contrast or noncontrast APCs, as we have done. IVUS, FFR, and ICE are similar to other supportive packaged services, including drugs and anesthesia. Packaged codes never map to an APC, and, therefore, it is unnecessary to distinguish whether they require contrast agents or not. Instead, the independent procedure must map to a contrast or noncontrast APC. For the reasons stated above, we are finalizing our proposal to unconditionally package payment for IVUS, FFR, and ICE services for CY 2008. Comment: One commenter requested that CMS conditionally package payment for CPT code 75898 (Angiography through existing catheter for follow-up study for transcatheter therapy, embolization or infusion), instead of finalizing the proposal to unconditionally package payment for this service. The commenter clarified that this is often the only service performed when a patient has lengthy thrombolytic therapy. Response: We agree with the commenter that this code should be conditionally packaged rather than unconditionally packaged, so that separate payment is made when this service is provided without any other separately payable services on the same date of service. We are changing the status indicator for CPT code 75898 to ``Q'' for CY 2008 and including it as an ``STVX-packaged'' code. When provided on the same date of service as other separately payable services, payment for CPT code 75898 will be packaged into payment for the other services. Comment: One commenter requested that CMS continue to pay separately for CPT codes 67299 (Unlisted procedure, posterior segment) and 95999 (Unlisted neurological or neuromuscular diagnostic procedure). These codes describe unlisted procedures, and the commenter explained that it would be impossible to know whether the services they describe should be appropriately packaged or separately paid. Response: We agree with the commenter that CPT codes 67299 and 95999 should not be packaged under the OPPS for CY 2008 because they are unlisted procedures. Therefore, we are finalizing a separately payable status indicator and APC assignment for them in Addendum B to this final rule with comment period. Comment: Many commenters supported the proposal to package payment for all intraoperative services and recommended that CMS finalize the proposal without modification. Several commenters requested that CMS pay separately for other intraoperative services that it proposed to package for CY 2008, but did not present unique arguments specific to any code. Response: We agree with commenters that packaging payment for intraoperative services is consistent with the principles of the OPPS and will help contain costs while creating an incentive for hospitals to utilize resources in a cost efficient manner. We understand that hospitals would prefer if certain intraoperative services were paid separately. In light of the public comments we received, our clinical advisors reassessed each intraoperative code on the list to ensure that it was still appropriate for packaged payment. However, we did not see any compelling reason to pay separately for any of the intraoperative services that were not already discussed and revised above. For CY 2008, we are finalizing our CY 2008 proposal, with modification, to package the payment for all intraoperative HCPCS codes with three exceptions. Specifically, we are finalizing all of the packaging changes we proposed, with the exception of conditionally packaging CPT code 75898 as an ``STVX-packaged'' code and paying separately for CPT codes 67299 and 95999. Except as otherwise specified above, we are fully adopting the APC Panel recommendation to package all intraoperative services and to review the status indicator of CPT code 96020. Table 10 of this final rule with comment period includes the final comprehensive list of all codes in the seven categories that are packaged for CY 2008. (4) Imaging Supervision and Interpretation Services We proposed to change the packaging status of many imaging supervision and interpretation codes for CY 2008. We define ``imaging supervision and interpretation codes'' as HCPCS codes for services that are defined as ``radiological supervision and interpretation'' in the radiology series, 70000 through 79999, of the AMA CY 2007 book of CPT codes, with the addition of some services in other code ranges of CPT, Category III CPT tracking codes, or Level II HCPCS codes that are clinically similar or directly crosswalk to codes defined as radiological supervision and interpretation services in the CPT radiology range. We also [[Page 66631]] included HCPCS codes that existed in CY 2006 but were deleted and were replaced in CY 2007. We included the CY 2006 HCPCS codes because we proposed to use the CY 2006 claims data to calculate the CY 2008 OPPS median costs on which the CY 2008 payment rates would be based. In its discussion of ``radiological supervision and interpretation,'' CPT indicates that ``when a procedure is performed by two physicians, the radiologic portion of the procedure is designated as `radiological supervision and interpretation'.'' In addition, CPT guidance notes that, ``When a physician performs both the procedure and provides imaging supervision and interpretation, a combination of procedure codes outside the 70000 series and imaging supervision and interpretation codes are to be used.'' In the hospital outpatient setting, the concept of one or more than one physician performing related procedures does not apply to the reporting of these codes, but the radiological supervision and interpretation codes clearly are established for reporting in association with other procedural services outside the CPT 70000 series. Because these imaging supervision and interpretation codes are always reported for imaging services that support the performance of an independent procedure and they are, by definition, always provided in the same operative session as the independent procedure, we believe that it is appropriate to package their payment into the OPPS payment for the independent procedure performed. In addition to radiological supervision and interpretation codes in the radiology range of CPT codes, there are CPT codes in other series that describe similar procedures that we proposed to include in the group of imaging supervision and interpretation codes proposed for packaging under the CY 2008 OPPS. For example, CPT code 93555 (Imaging supervision, interpretation and report for injection procedure(s) during cardiac catheterization; ventricular and/or atrial angiography) whose payment under the OPPS is currently packaged, is commonly reported with an injection procedure code, such as CPT code 93543 (Injection procedure during cardiac catheterization; for selective left ventricular or left atrial angiography), whose payment is also currently packaged under the OPPS, and a cardiac catheterization procedure code, such as CPT code 93526 (Combined right heart catheterization and retrograde left heart catheterization), that is separately paid. In the case of cardiac catheterization, CPT code 93555 describes an imaging supervision and interpretation service in support of the cardiac catheterization procedure, and this dependent service is clinically quite similar to radiological supervision and interpretation codes in the radiology range of CPT. Payment for the cardiac catheterization imaging supervision and interpretation services has been packaged since the beginning of the OPPS. Therefore, in developing the proposal for the CY 2008 proposed rule, we conducted a comprehensive clinical review of all Category I and Category III CPT codes and Level II HCPCS codes to identify all codes that describe imaging supervision and interpretation services. The codes we proposed to identify as imaging supervision and interpretation codes for CY 2008 that would receive packaged payment were listed in Table 14 of the proposed rule (72 FR 42665-42667). Several of these codes, including CPT code 93555 discussed above, are already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned status indicator ``N.'' Payment for these services is made as part of the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned to status indicator ``N.'' We did not propose status indicator changes for the six imaging supervision and interpretation services that were unconditionally packaged for CY 2007. We proposed to change the status indicator for 33 imaging supervision and interpretation services from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. We believed that these services are always integral to and dependent upon the independent services that they support and, therefore, their payment would be appropriately packaged because they would generally be performed on the same date and in the same hospital as the independent services. We proposed to change the status indicator for 93 imaging supervision and interpretation services from separately paid to conditionally packaged (status indicator ``Q'') as ``special'' packaged codes for the CY 2008 OPPS. These services may occasionally be provided at the same time and at the same hospital with one or more other procedures for which payment is currently packaged under the OPPS, most commonly injection procedures, and in these cases we would not treat the imaging supervision and interpretation services as dependent services for purposes of payment. If we were to unconditionally package payment for these imaging supervision and interpretation services as dependent services, hospitals would receive no payment at all for providing the imaging supervision and interpretation service and the other minor procedure(s). However, according to our proposal, their conditional packaging status as ``special'' packaged codes would allow payment to be provided for these ``Q'' status imaging supervision and interpretation services as independent services in these limited circumstances, and for which payment for the accompanying minor procedure would be packaged. However, when these imaging supervision and interpretation dependent services are furnished on the same day and in the same hospital as independent separately paid services, specifically, any service assigned status indicator ``S,'' ``T,'' ``V,'' or ``X,'' we proposed to package payment for them as dependent services. In all cases, we proposed that hospitals that furnish the independent services on the same date as the dependent services must bill them all on the same claim. We believe that when the dependent and independent services are furnished on the same date and in the same hospital, they are part of a single complete hospital outpatient service that is reported with more than one HCPCS code, and no separate payment should be made for the imaging supervision and interpretation service that supports the independent service. In the case of services for which we proposed conditional packaging, we indicated that we would expect that, although these services would always be performed in the same session as another procedure, in some cases that other procedure's payment would also be packaged. For example, CPT code 73525 (Radiological examination, hip, arthrography, radiological supervision and interpretation) and CPT code 27093 (Injection procedure for hip arthrography; without anesthesia) could be provided in a single hospital outpatient encounter and reported as the only two services on a claim. In the case where only these two services were performed, the conditionally packaged status of CPT code 73525 would appropriately allow for its separate payment as an independent imaging supervision and interpretation arthrography service, into which payment for the dependent injection procedure would be packaged. The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (section XXIV.B. of this final rule with comment period) was based on the assumption that [[Page 66632]] hospital behavior would not change with regard to when these dependent services are performed on the same date and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and perform the imaging supervision and interpretation services more or less frequently, on subsequent dates, or at settings outside of the hospital, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. However, with respect to the imaging supervision and interpretation services in particular, we believed that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services. By their definition, these imaging and supervision services generally must be furnished on the same date and at the same operative location as the independent procedure in order for the imaging service to meaningfully contribute to the diagnosis or treatment of the patient. For those radiological supervision and interpretation codes in the radiology range of CPT in particular, if the same physician is able to perform both the procedure and the supervision and interpretation as stated by CPT, we assume that both the dependent and independent services would be furnished on the same date in the same hospital, and hospitals should bill them on the same claim with the same date of service. As we indicated earlier in this section, in all cases, we are providing that hospitals that furnish the imaging supervision and interpretation service on the same date as the independent service must bill both services on the same claim. We expect to carefully monitor any changes in billing practices on a service-specific and hospital- specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record. During the September 2007 APC Panel meeting, the APC Panel recommended that CMS delay packaging the imaging supervision and interpretation services because of the reductions in payment that would occur for services that would only be paid separately if they occurred with other minor procedures that are already packaged. The Panel was concerned about the proposed reductions in payment for typical combinations of expensive imaging services. The Panel asked that CMS develop an alternative model for these services and present it at the next APC Panel meeting. We received many public comments on our proposal to package imaging supervision and interpretation services for CY 2008. A summary of the public comments and our response follows. Comment: Many commenters objected to the packaging of imaging supervision and interpretation services. They asserted that the proposal would, in many cases, excessively reduce payments because the proposal packaged the cost of the service into one or more services that are already packaged or would inappropriately package the cost of expensive imaging supervision and interpretation services into more minor services, like visits or minor diagnostic tests. The commenters believed that this would result in little or no payment being made for the more expensive services provided in an encounter. Other commenters suggested that CMS package only the 33 codes for which the associated surgical service is separately paid but not package the 93 codes proposed to be conditionally packaged because payments would be excessively reduced. As an alternative, one commenter suggested that CMS review claims data for the 93 imaging supervision and interpretation codes proposed to be assigned status indicator ``Q'' to identify high volume combinations of services and evaluate the combinations for creation of composite APCs. For example, the commenter suggested that CMS could create a composite APC for CPT codes 72265 (Myelography, lumbosacral, radiological supervision and interpretation) and 72132 (Computed tomography lumbar spine, with contrast material) that would ensure that the full payment for CPT code 72265 would always be made when furnished with CPT code 72132. The commenter was concerned that CMS could ``overpay'' lumbar CT when no myelography was furnished but could ``underpay'' when myelography is performed without lumbar computed tomography (CT) but in addition to another minor services such as an emergency department visit or other radiological service. Like others, the commenter was concerned that, as proposed, if an expensive imaging supervision and interpretation service is billed on the same date as a visit, the visit would be paid and the expensive service would not be paid. Some commenters believed that the absence of consideration of how payment would be made when unrelated services or packaged services were the only other services on the claim demonstrated that the CMS proposal was not carefully or sufficiently analyzed prior to being proposed and should not be made final. The commenters cited several examples of packaging with minor services or packaged services that they view as common, which they believe illuminate the problems with packaging imaging supervision and interpretation services. The commenters asserted that CMS should ensure that no service is packaged into a service that is already packaged. Some commenters believed that the proposed policy would reduce payment for important interventional imaging services by 25 percent in the aggregate, would cause CMS to use fewer claims for ratesetting, and would result in access problems for patients. Some commenters stated that the methodology reduces the number of records that could be used to value these imaging codes for separate payment, thereby resulting in costs that would be much lower than would be the case if the medians were calculated with a higher number of claims. The commenters explained that some of the most common scenarios for the services that are assigned to APC 0280 (Level III Angiography and Venography) and are proposed for packaging are comparable to cardiac catheterization (APC 0080 (Diagnostic Cardiac Catheterization)) in time, equipment, supply, and labor but under the CMS proposal, the payment made under APC 0280 would be significantly less than the payment for APC 0080. Therefore, the commenters asked that the proposal to package services in APCs 0279 (Level II Angiography and Venography), 280, and 668 (Level I Angiography and Venography) not be adopted in CY 2008 because the packaging would result in payments that are much less than the cost of furnishing the services. One commenter added that it is methodologically circular and unreasonable to package payment for services that already include other packaged services. Response: We have carefully considered the comments of the APC Panel and the many thoughtful public comments we received on the proposal to package imaging supervision and interpretation services for the CY 2008 OPPS. We spent considerable time and effort in analysis of the data as we developed our proposed rule, and we appreciate the helpful comments we received on this issue. We have decided to finalize our proposal to package these services after refining our methodology for estimating the median cost of conditionally packaged codes assigned status indicator ``Q'' to address concerns that packaging significant services into services that either are already packaged [[Page 66633]] or are minor services leads to underpayment and concerns that the proposal reduced the number of claims available for setting APC medians for these services. We agree that we should not pay for a more minor service, such as a visit or minor diagnostic procedure, when the conditionally packaged imaging supervision and interpretation services require more resources. We have modified the conditionally packaged status of these services to be specific to surgical procedures and called them ``T-packaged services.'' The payment for these imaging supervision and interpretation codes will be packaged into the payment for services with a status indicator ``T'' when they appear on the same date as the surgical procedure. When these imaging supervision and interpretation services appear with other codes that have any other payable status indicator (``S,'' ''V,'' or ''X'') or with other services that have a status indicator ``Q'' on the same date, we would pay one unit of the ``T-packaged'' service with the highest relative payment weight. We discuss how we split the claims to acquire ``T- packaged'' single bills that represent all of the resource costs associated with the conditionally packaged service in greater detail in section II.A.2. of this final rule with comment period. The ratesetting methodology specifically includes single bill claims for T-packed services that represent the costs of multiple services with status indicator ``Q'' and other packaged services. We believe that this resolves many of the payment concerns with regard to our proposal to treat the majority of supervision and interpretation codes as conditionally packaged codes. These refinements to our methodology significantly raised the median costs for a number of these services compared to the proposed rule median costs. Furthermore, the refinements, especially those creating single bills from multiple minor claims, allowed us to use many more claims to estimate a median cost for these conditionally packaged codes and, therefore, to develop an APC median cost estimate that better reflects the resources consumed by these services that are commonly performed in combination with one another. We believe that our changes have resulted in resolution of many of the concerns raised by the commenters and the APC Panel. There were a number of specific examples cited by the commenters to illustrate their concerns on this issue. We include the commenters' examples below, expanded to add the CY 2008 final rule payment. In the examples below, ``pkg'' means payment is packaged; ``na'' means not applicable. Example 1.--Myleography and Lumbosacral CT With Contrast -------------------------------------------------------------------------------------------------------------------------------------------------------- CY 2007 CY 2008 Proposed CY 2008 CY 2008 Final HCPCS Code Descriptor APC CY 2007 SI CY 2007 Payment payment APC CY 2008 SI payment -------------------------------------------------------------------------------------------------------------------------------------------------------- 72265................... Contrast X-ray 0274 S............. $157.01......... pkg............. 0274 Q............ $481.46 lower spine. 72132................... CT lumbar spine w/ 0283 S............. $250.94......... $751.09......... 0283 S............ $277.48 dye. ------------------------------------------------------------------------------------------------------------------------------- Sum................. ................... ......... .............. $407.95......... $751.09......... ......... ............. $758.94 -------------------------------------------------------------------------------------------------------------------------------------------------------- Example 2.--Angiography, Carotid, Cervical, Vertebral and/or Intracranial -------------------------------------------------------------------------------------------------------------------------------------------------------- CY 2007 CY 2008 Proposed CY 2008 CY 2008 Final HCPCS Code Descriptor APC CY 2007 SI CY 2007 Payment payment APC CY 2008 SI payment -------------------------------------------------------------------------------------------------------------------------------------------------------- 36216................... Place catheter in ......... N............. pkg............. pkg............. na N............ pkg artery. 36215................... Place catheter in ......... N............. pkg............. pkg............. na N............ pkg artery. 36217................... Place catheter in ......... N............. pkg............. pkg............. na N............ pkg artery. 36216-59................ Place catheter in ......... N............. pkg............. pkg............. na N............ pkg artery. 75671................... Artery Xrays head 0280 S............. $1,279.92....... pkg............. 0280 Q............ $2,847.85 and neck. 75680................... Artery Xrays, neck. 0280 S............. $1,279.92....... pkg............. 0279 Q............ pkg 75685X2................. Artery Xrays, spine 0280 S............. $2,559.84....... $1,442.28....... 0279 Q............ pkg ------------------------------------------------------------------------------------------------------------------------------- Sum................. ................... ......... .............. $5,119.68....... $1,442.28....... ......... ............. $2,847.85 -------------------------------------------------------------------------------------------------------------------------------------------------------- Note: Several commenters submitted this example or this example with minor variation. The final payment for this service in its entirety is similar to the payment for cardiac catheterization (APC 0080), to which the commenters compared this service. Example 3.--Evaluation and Percutaneous Revascularization of Graft -------------------------------------------------------------------------------------------------------------------------------------------------------- CY 2007 CY 2008 Proposed CY 2008 CY 2008 Final HCPCS Code Descriptor APC CY 2007 SI CY 2007 Payment payment APC CY 2008 SI payment -------------------------------------------------------------------------------------------------------------------------------------------------------- 36145X2................. Place catheter in na N............. pkg............. pkg............. na N............ pkg artery. 75790................... Visualize A-V shunt 0279 S............. $584.32......... pkg............. 0668 Q............ pkg G0393................... A-V fistula or 0081 T............. $2,639.19....... $2,934.24....... 0083 T............ $2,890.72 graft venous. 75978X2................. Repair venous 0668 S............. $767.90......... pkg............. 0083 Q............ pkg blockage. 35476................... Repair venous 0081 T............. $1,319.60....... $1,467.37....... 0083 T............ $1,445.36 blockage. ------------------------------------------------------------------------------------------------------------------------------- Sum................. ................... ......... .............. $5,311.01....... $4,401.61....... ......... ............. $4,336.08 -------------------------------------------------------------------------------------------------------------------------------------------------------- [[Page 66634]] Example 4.--Diagnostic Angiography With Balloon Angioplasty of Superficial Femoral Artery -------------------------------------------------------------------------------------------------------------------------------------------------------- CY 2007 CY 2008 Proposed CY 2008 CY 2008 Final HCPCS Code Descriptor APC CY 2007 SI CY 2007 Payment payment APC CY 2008 SI payment -------------------------------------------------------------------------------------------------------------------------------------------------------- 75625................... Contrast Xray exam 0280 S............. $1,279.92....... pkg............. 0279 Q............ pkg of aorta. 75716................... Artery Xrays, arms/ 0280 S............. $1,279.92....... pkg............. 0279 Q............ pkg legs. 75774................... Artery Xray, each 0279 S............. $584.32......... pkg............. na N............ pkg vessel. 75774................... Artery Xray, each 0279 S............. $584.32......... pkg............. na N............ pkg vessel. 36247................... Place catheter in ......... N............. pkg............. pkg............. na N............ pkg artery. 35474................... Repair arterial 0081 T............. $2,639.19....... $2,934.24....... 0083 T............ $2,890.72 blockage. 35474................... Repair arterial 0081 T............. $1,319.60....... $1,467.37....... 0083 T............ $1,445.36 blockage. 75962................... Repair atrial 0668 S............. $383.95......... pkg............. 0083 Q............ pkg blockage. 75964................... Repair artery 0668 S............. $383.95......... pkg............. na N............ pkg blockage, each. ------------------------------------------------------------------------------------------------------------------------------- Sum................. ................... ......... .............. $8,455.17....... $4,401.61....... ......... ............. $4336.08 -------------------------------------------------------------------------------------------------------------------------------------------------------- Comment: Some commenters believed that CMS should not package imaging supervision and interpretation services because CMS did not conduct a sufficiently thorough analysis of the many ways that CPT codes can be reported for services where there could be more than one surgical CPT code associated with a single imaging supervision and interpretation service. The commenters stated that these codes are created on a ``component'' basis to deal effectively with the huge variation in the combinations of services that could occur. Response: We disagree with the commenters. We acknowledge that the APC Panel and the commenters raised concerns about the packaging of these services that we did not fully anticipate in development of the proposed rule. However, the purpose of the APC Panel and the exposure of the proposal to public comment are to raise issues for our consideration as we develop final policies for the final rule. We appreciate the assistance of the APC Panel and the many thoughtful public comments we received on the proposal to package these codes. We recognize that the codes are created as they exist, in order to describe many different treatment scenarios through the use of multiple and varied combinations of codes. As we discuss above, we have developed a methodology that addresses the concerns raised by the commenters and, as such, continue to believe that it is appropriate to package these services for CY 2008. Comment: Some commenters believed that the revenue code to CCR mapping for these services is problematic because most are billed with revenue code 0361 and revenue code 0361 is mapped to the surgery cost center. However, as the commenters pointed out, most of these procedures are performed in the imaging department or the heart catheterization laboratory and, therefore, their median cost calculation is highly suspect. Response: We do not view the unknown amount of error that occurs as a result of a theoretical conflict between the revenue code reported for a service and the CCR used to reduce that charge to an estimated cost as justification to not package these services. The costs we calculate for purposes of establishing median costs for ratesetting are estimated costs and as such, in general, there is error in them to the extent that the charges are reported under a revenue code that maps to a cost center in which the costs for the services are not found. Hospitals select the revenue codes with which they report services to Medicare and other payers for a wide range of reasons over which CMS generally exercises no control. The CMS crosswalk of revenue codes to cost centers is available for inspection and comment at the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/. Hospitals that want to ensure that the correct CCR is applied to a service could, if they chose, use this crosswalk to select either the revenue codes to report or the cost center to use for costs reported with a particular revenue code. Comment: Some commenters believed that implementation of the imaging and supervision packaging would present huge operational challenges for hospitals to ensure that codes and charges continue to be billed so that the data in future years will be acceptable as the basis for setting relative weights for the OPPS. The commenters stated that hospitals will cease to report the codes and charges for the services that are no longer separately paid and that the costs of the services will then be lost to the payment system and the median costs for the services that should carry the packaging will be inappropriately low. Response: The commenters did not articulate how implementation of the imaging supervision and interpretation packaging proposal would present huge operational challenges for hospitals to ensure that the codes and charges continue to be billed so that future claims will contain the necessary costs for setting relative weights for the OPPS. Hospitals need only continue to report the codes and charges for all of the services they furnish. There are no new billing requirements associated with this change in payment policy. Moreover, hospitals are required to charge the same amount to all payers for the same services. We understand that many private payers continue to pay a percent of charges, creating incentives for hospitals to report and charge for all services furnished to all patients. Comment: Some commenters suggested that CMS update the OPPS packaging policies to address newly added or deleted codes. Response: We routinely review all new or revised HCPCS codes each year to determine what status indicator to assign and whether other changes to our files are needed. We also indicate new codes with a change indicator in Addendum B to this final rule with comment period, and we solicit public comments on the interim APC placement and status indicator we assign to them for those HCPCS codes designated with comment indicator ``NI'' in the final rule with comment period. We do not review deleted codes because they naturally fall out of the system, beginning in the claims for the period in which they are deleted, although we continue to assign their claims data for ratesetting purposes. Comment: Some commenters expressed concerns with the treatment of the claims data for imaging supervision and interpretation codes with status indicator ``Q'' with regard to the impact on the number of multiple procedure claims. Some commenters stated that reporting packaged services [[Page 66635]] will create more multiple procedure bills that will not be used to set rates. Response: The reporting of packaged services will not result in more multiple procedure claims because the packaged service, which has a status indicator of ``N'' for data purposes, unless it is changed to be separately paid, will not by itself cause a claim to be viewed as a multiple major procedure claim. Moreover, if packaged services and their charges are not reported, the payment for the services into which their cost is packaged may be understated. Therefore, it is important that hospitals report all services furnished and the associated charges. Comment: Some commenters indicated that where there are multiple codes with status indicator ``Q'' on a claim and no separately paid services, they are assigned status indicator ``N'' and sent to multiple minors because the assignment of the status indicator ``N'' happens before the split. They suggested that if the assignment happened after the split and after the ``pseudo'' single creation, they could be used in the median calculation for the APC. Response: The commenter correctly describes how codes with status indicator ``Q'' were treated in this circumstance for the proposed rule data. We agree that claims with multiple occurrences of codes with status indicator ``Q'' should be used to estimate the APC median cost through which they will be separately paid. In response to the public comments we received, we have revised the data process in several places to address the estimation of costs for services with a status indicator of ``Q.'' (See section II.A.2.b. of this final rule with comment period for further discussion of the changes to the data process.) With regard to this particular comment, we continue to assign claims with multiple ``Q'' procedure or packaged services to the multiple minor file. We then create additional single bills from the multiple minor file by identifying which conditionally packaged code will be the prime code that will carry the packaging by selecting the conditionally packaged code with the highest payment for CY 2007 and packaging all costs of the other codes into the cost for that code. We also set the units to one for the prime code to reflect our policy of only paying one unit of a service for codes with a status indicator of ``Q.'' That claim then becomes a single procedure claim assigned to the APC to which the prime code is assigned. These modifications have resulted in the use of many more claims than were used for the proposed rule to set APC medians where conditionally packaged codes are assigned. Comment: One commenter believed that the data for many single bills for the services with status indicator ``Q'' will be lost because CMS assesses the status of the status indicator ``Q'' code before applying the bypass list. The commenters stated that where there are three services on the claim, two of which are on the bypass list, the status indicator ``Q'' service will be changed to packaged before the bypass list is applied and the two bypass codes will leave the claim without packaging. The commenter added that there will then be no code to which to package the cost of the status indicator ``Q'' code and the data will neither be used nor packaged into anything (because nothing is left for it to be packaged with). The commenter believed that if CMS had made the assignment of the ``Q'' after the bypass codes were removed, the data could be used to set the APC median for the ``Q'' service and more claims could have been used. Response: The commenter accurately described the treatment of a code with status indicator ``Q'' if it is on the same claim with two codes that are on the bypass list. However, we disagree with the commenter's recommendation. First, by definition, codes on the bypass list do not have significant packaging. We specifically reassessed the codes included on the bypass list in light of this packaging proposal to ensure removal of any services with significant packaging. The circumstances where ``Q'' service data would remain on a claim as ``packaging'' after removing the other two codes as bypass codes should be very limited. Second, we would not want to use that data to set the median cost for the ``Q'' status service because the final payment disposition of the code with status indicator ``Q'' on the claim would be packaged. Under this commenter's recommendation, we would be sending the data for the status indicator ``Q'' codes to the APC to which it is assigned even though, when the claim was processed, no separate payment would be made for the status indicator ``Q'' code. Comment: One commenter found that its calculation of median costs using proposed rule data for the imaging supervision and interpretation services to which CMS proposed to assign status indicator ``Q'' resulted in median costs for these codes and the APCs to which they were assigned that were significantly higher than the median costs calculated by CMS for these codes and their APCs. The commenter was concerned that CMS may have inadvertently failed to include the packaged costs in the calculation of the medians for these costs codes. Response: The commenter is correct in that we inadvertently erred and did not include the packaged costs of ``Q'' status procedures in the calculation of the medians for these codes and their related APCs in the proposed rule. We have packaged these costs with the ``Q'' procedures for this final rule with comment period, in addition to making the other modifications to the calculation of the median costs for these codes as discussed in detail above and in section II.A.2. of this final rule with comment period. For CY 2008, we are finalizing our proposal, with modification as discussed above, to unconditionally or conditionally packaged imaging supervision and interpretation services. These codes, with their assigned status indicator ``N'' as unconditionally packaged or ``Q'' as ``T-packaged'' codes, are listed in Table 10 of this final rule with comment period. We are not accepting the APC Panel recommendation to delay packaging of these services and provide an alternative model at the next Panel meeting, because we are finalizing a modified model. We will review the final CY 2008 policy, including the ratesetting methodology, with the APC Panel at its 2008 winter meeting. (5) Diagnostic Radiopharmaceuticals For CY 2008, we proposed to change the packaging status of diagnostic radiopharmaceuticals as part of our overall enhanced packaging approach for the CY 2008 OPPS. Packaging costs into a single aggregate payment for a service, encounter, or episode of care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. In general, packaging the costs of supportive items and services into the payment for the independent procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility. As we stated in the CY 2007 OPPS/ASC final rule with comment period, we believe that a policy to package payment for additional radiopharmaceuticals (other than those already packaged when their per day costs are below the packaging threshold for OPPS drugs, biologicals, and radiopharmaceuticals based on data for the update year) is consistent with OPPS packaging principles and would provide greater administrative simplicity for hospitals (71 FR 68094). All nuclear medicine procedures require the use of at least one radiopharmaceutical, and there are only [[Page 66636]] a small number of radiopharmaceuticals that may be appropriately billed with each diagnostic nuclear medicine procedure. While examining the CY 2005 hospital claims data in preparation for the CY 2007 OPPS/ASC proposed rule, we identified a significant number of diagnostic nuclear medicine procedure claims that were missing HCPCS codes for the associated radiopharmaceutical. At that time, we believed that there could be two reasons for the presence of these claims in the data. One reason could be that the radiopharmaceutical used for the procedure was packaged under the OPPS and, therefore, some hospitals may have decided not to include the specific radiopharmaceutical HCPCS code and an associated charge on the claim. A second reason could be that the hospitals may have incorporated the cost of the radiopharmaceutical into the charges for the associated nuclear medicine procedures. A third possibility not offered in the CY 2007 OPPS/ASC proposed rule is that hospitals may have included the charges for radiopharmaceuticals on an uncoded revenue code line. In the CY 2007 OPPS/ASC proposed rule, we did not propose packaging payment for radiopharmaceuticals with per day costs above the $55 CY 2007 packaging threshold because we indicated that we were concerned that payments for certain nuclear medicine procedures could potentially be less than the costs of some of the packaged radiopharmaceuticals, especially those that are relatively expensive. At the same time, we also noted the GAO's comment in reference to the CY 2006 OPPS proposed rule that stated a methodology that includes packaging all radiopharmaceutical costs into the payments for the nuclear medicine procedures may result in payments that exceed hospitals' acquisition costs for certain radiopharmaceuticals because there may be more than one radiopharmaceutical that may be used for a particular procedure. We also expressed concern that packaging payment for additional radiopharmaceuticals could provoke treatment decisions that may not reflect use of the most clinically appropriate radiopharmaceutical for a particular nuclear medicine procedure in any specific case (71 FR 68094). After considering this issue further and examining our CY 2006 claims data for the CY 2008 OPPS update, as we indicated in the CY 2008 OPPS/ASC proposed rule, we believe that it is most appropriate to package payment for some radiopharmaceuticals, specifically diagnostic radiopharmaceuticals, into the payment for diagnostic nuclear medicine procedures for CY 2008. We expect that packaging would encourage hospitals to use the most cost efficient diagnostic radiopharmaceutical products that are clinically appropriate. We anticipate that hospitals would continue to provide care that is aligned with the best interests of the patient. Furthermore, we believe that it would be the intent of most hospitals to provide both the diagnostic radiopharmaceutical and the associated diagnostic nuclear medicine procedure at the time the diagnostic radiopharmaceutical is administered and not to send patients to a different provider for administration of the radiopharmaceutical. As we indicated in the proposed rule, we do not believe that our packaging proposal would limit beneficiaries' ability to receive clinically appropriate diagnostic procedures. Again, the OPPS is a system of averages, and payment in the aggregate is intended to be adequate, although payment for any one service may be higher or lower than a hospital's actual costs in that case. For CY 2008, we have separated radiopharmaceuticals into two groupings. The first group includes diagnostic radiopharmaceuticals, while the second group includes therapeutic radiopharmaceuticals. We identified all diagnostic radiopharmaceuticals as those Level II HCPCS codes that include the term ``diagnostic'' along with a radiopharmaceutical in their long code descriptors. Therefore, we were able to distinguish therapeutic radiopharmaceuticals from diagnostic radiopharmaceuticals as those Level II HCPCS codes that have the term ``therapeutic'' along with a radiopharmaceutical in their long code descriptors. There currently are no HCPCS C-codes used to report radiopharmaceuticals under the OPPS. For CY 2008, we proposed to package payment for all diagnostic radiopharmaceuticals that are not otherwise packaged according to the CY 2008 packaging threshold for drugs, biologicals, and radiopharmaceuticals that we proposed. We proposed this packaging approach for diagnostic radiopharmaceuticals, while we proposed to continue to pay separately for therapeutic radiopharmaceuticals with an average per day cost of more than $60 as discussed in section V.B.3.a.(c) of this final rule with comment period. In that section, we review our reasons for treating diagnostic radiopharmaceuticals (as well as contrast media) differently from other types of specified covered outpatient drugs identified in section 1833(t)(B) of the Act. Diagnostic radiopharmaceuticals are always intended to be used with a diagnostic nuclear medicine procedure. In examining our CY 2006 claims data, we were able to match most diagnostic radiopharmaceuticals to their associated diagnostic procedures and most diagnostic nuclear medicine procedures to their associated diagnostic radiopharmaceuticals in the vast majority of single bills used for ratesetting. We estimate that less than 5 percent of all claims with a diagnostic radiopharmaceutical had no corresponding diagnostic nuclear medicine procedure. In addition, we found that only about 13 percent of all single bills with a diagnostic nuclear medicine procedure code had no corresponding diagnostic radiopharmaceutical billed. These statistics indicate that, in a majority of our single bills for diagnostic nuclear medicine procedures, a diagnostic radiopharmaceutical HCPCS code is included on the single bill. Table 15 in the proposed rule (72 FR 42668) presented the top 20 diagnostic nuclear medicine procedures in terms of the overall frequency with which they are reported in the OPPS claims data. Among these high volume diagnostic nuclear medicine procedures, their single bills included a HCPCS code for a diagnostic radiopharmaceutical at least 84 percent of the time for 19 of the top 20 procedures. More specifically, 84 to 86 percent of the single bills for 4 diagnostic nuclear medicine procedures included a diagnostic radiopharmaceutical, 87 to 89 percent of the single bills for 8 diagnostic nuclear medicine procedures included a diagnostic radiopharmaceutical, and 90 percent or more of the single bills for 7 diagnostic nuclear medicine procedures included a diagnostic radiopharmaceutical. Among the lower volume diagnostic nuclear medicine procedures (which were outside the top 20 in terms of volume), there was still good representation of diagnostic radiopharmaceutical HCPCS codes on the single bills for most procedures. About 40 percent of the low volume diagnostic nuclear medicine procedures had at least 80 percent of the single bills for that diagnostic procedure that included a diagnostic radiopharmaceutical HCPCS code; about 37 percent of the low volume diagnostic procedures had between 50 to 79 percent of the single bills that included a diagnostic radiopharmaceutical HCPCS code; and about 23 percent of the low volume diagnostic procedures [[Page 66637]] had less than 50 percent of the single bills that include a diagnostic radiopharmaceutical HCPCS code. For the few diagnostic nuclear medicine procedures where less than 50 percent of the single bills included a diagnostic radiopharmaceutical HCPCS code, we believed there could be several reasons why the percentage of single bills for the diagnostic nuclear medicine procedure with a diagnostic radiopharmaceutical HCPCS code was low. As noted earlier, it is possible that hospitals may have included the charge for the radiopharmaceutical in the charge for the diagnostic nuclear medicine procedure itself or on an uncoded revenue code line instead of reporting charges for a specific diagnostic radiopharmaceutical HCPCS code. We found that 24 percent of all single bills for a diagnostic nuclear medicine procedure but without a coded diagnostic radiopharmaceutical had uncoded costs in a revenue code that might contain diagnostic radiopharmaceutical costs, specifically, revenue codes 0254 (Drugs Incident to Other Diagnostic Services), 0255 (Drugs Incident to Radiology), 0343 (Diagnostic Radiopharmaceuticals), 0621 (Supplies Incident to Radiology), and 0622 (Supplies Incident to Other Diagnostic Services). In comparison, we found that only 2 percent of diagnostic nuclear medicine single bills with a nuclear medicine procedure and a coded diagnostic radiopharmaceutical had uncoded costs in these revenue codes. It is also possible that some of these procedures typically used a diagnostic radiopharmaceutical subject to packaged payment under the CY 2006 OPPS, and hospitals may have chosen not to report a separate charge for the diagnostic radiopharmaceutical. Payment for diagnostic radiopharmaceuticals commonly used with some diagnostic nuclear medicine procedures would already be packaged because these diagnostic radiopharmaceuticals' average per day costs were less than $50 in CY 2006. We stated in the proposed rule that the CY 2008 proposal to package additional diagnostic radiopharmaceuticals would have little impact on the payment for those diagnostic procedures that typically use inexpensive diagnostic radiopharmaceuticals that would be packaged under our proposed CY 2008 packaging threshold of $60, except to the extent that the budget neutrality adjustment due to the broader packaging proposal leads to an increase in the scaler and an increase in the payment for procedures in general. At its March 2007 meeting, the APC Panel recommended that CMS work with stakeholders on issues related to payment for radiopharmaceuticals, including evaluating claims data for different classes of radiopharmaceuticals and ensuring that a nuclear medicine procedure claim always includes at least one reported radiopharmaceutical agent. In the proposed rule, we noted that we planned to accept the APC Panel's recommendation, and we specifically welcomed public comment on the hospitals' burden involved should we require such precise reporting. We also sought public comment on the importance of such a requirement in light of our above discussion on the representation of diagnostic radiopharmaceuticals in the single bills for diagnostic nuclear medicine procedures, the presence of uncoded revenue code charges specific to diagnostic radiopharmaceuticals on claims without a coded diagnostic radiopharmaceutical, and our proposal to package payment for all diagnostic radiopharmaceuticals. As we indicated in the proposed rule, we are aware that several diagnostic radiopharmaceuticals may be used for multiple day studies; that is, a particular diagnostic radiopharmaceutical may be administered on one day and a related diagnostic nuclear medicine procedure may be performed on a subsequent day. While we understand that multiple day episodes for diagnostic radiopharmaceuticals and the related diagnostic nuclear medicine procedures occur, we expect that this would be a small proportion of all diagnostic nuclear medicine imaging procedures. We estimate that, roughly, 15 diagnostic radiopharmaceuticals have a half-life longer than one day such that they could support diagnostic nuclear medicine scans on different days. We believe these diagnostic radiopharmaceuticals would be concentrated in a specific set of diagnostic procedures. Excluding the 5 percent of diagnostic radiopharmaceutical claims with no matching diagnostic nuclear medicine scan for the same beneficiary, we found that a diagnostic nuclear medicine scan was reported on the same day as a coded diagnostic radiopharmaceutical 90 percent or more of the time for 10 of these 15 diagnostic radiopharmaceuticals. Further, between 80 and 90 percent single bills for each of the remaining 5 diagnostic radiopharmaceuticals had a diagnostic nuclear medicine scan on the same day. In the ``natural'' single bills we use for ratesetting, we package payment across dates of service. In light of such high percentages of extended half-life diagnostic radiopharmaceuticals with same day diagnostic nuclear medicine scans and the ability of ``natural'' singles to package costs across days, we indicated in the proposed rule that we believe that our standard OPPS ratesetting methodology of using median costs calculated from claims data would adequately capture the costs of diagnostic radiopharmaceuticals associated with diagnostic nuclear medicine procedures that are not provided on the same date of service. The packaging proposal we presented would have reduced the overall frequency of single bills for diagnostic nuclear medicine procedures, but the percent of single bills out of total claims remained robust for the majority of diagnostic nuclear medicine procedures. Typically, packaging more procedures should improve the number of single bill claims from which to derive median cost estimates because packaging reduces the number of separately paid procedures on a claim, thereby creating more single procedure bills. In the case of diagnostic nuclear medicine procedures, packaging diagnostic radiopharmaceuticals reduced the overall number of single bills available to calculate median costs by increasing packaged costs that previously were ignored in the bypass process. In prior years, we did not consider the costs of radiopharmaceuticals when we used our bypass methodology to extract ``pseudo'' single claims because we assumed that the cost of radiopharmaceutical overhead and handling would be included in the line-item charge for the radiopharmaceutical, and the diagnostic radiopharmaceuticals were subject to potential separate payment if their mean per day cost fell above the packaging threshold. The bypass process sets empirical and clinical criteria for minimal packaging for a specific list of procedures and services in order to assign packaged costs to other procedures on a claim and is discussed at length in section II.A.1. of the proposed rule, and this final rule with comment period. Generally, we found that changing the status of diagnostic radiopharmaceuticals to packaged increased the packaging on each claim. This would make it both harder for nuclear medicine procedures to qualify for the bypass list and more difficult to assign packaging to individual diagnostic nuclear medicine procedures, resulting in a possible reduction of the number of ``pseudo'' singles that are produced by the bypass process. Notwithstanding this potentiality, diagnostic nuclear medicine procedures [[Page 66638]] continued to have good representation in the single bills. On average, single bills as a percent of total occurrences remained substantial at 55 percent for individual procedures. We discuss our process for ratesetting, including the construction and use of single and multiple bills, in greater detail in section II.A.1. of this final rule with comment period. We indicated in the proposed rule that we believe our CY 2006 claims data supported our CY 2008 proposal to package payment for all diagnostic radiopharmaceuticals and would lead to payment rates for diagnostic nuclear medicine procedures that appropriately reflect payment for the costs of the diagnostic radiopharmaceuticals that are administered to carry out those diagnostic nuclear medicine procedures. Among the top 20 high volume diagnostic nuclear medicine procedures, at least 84 percent of the single bills for almost every diagnostic nuclear medicine procedure included a diagnostic radiopharmaceutical HCPCS code. While a diagnostic radiopharmaceutical, by definition, would be anticipated to accompany 100 percent of the diagnostic nuclear medicine procedures, it is not unexpected that, while percentages in our claims data are high, they are less than 100 percent. As noted previously, we have heard anecdotal reports that some hospitals may include the charges for diagnostic radiopharmaceuticals in their charge for the diagnostic nuclear medicine procedure or on an uncoded revenue code line, rather than reporting a HCPCS code for the diagnostic radiopharmaceutical. Thus, it is likely that the frequency of diagnostic radiopharmaceutical costs reflected in our claims data were even higher than the percentages indicated. Furthermore, we note that the OPPS ratesetting methodology is based on medians, which are less sensitive to extremes than means and typically do not reflect subtle changes in cost distributions. Therefore, to the extent that the vast majority of single bills for a particular diagnostic nuclear medicine procedure included a diagnostic radiopharmaceutical HCPCS code, the fact that the percentage was somewhat less than 100 percent was likely to have minimal impact on the median cost of the procedure in most cases. Even in those few instances where we had a low total number of single bills, largely because of low overall volume, we had ample representation of diagnostic radiopharmaceutical HCPCS codes on the single bills for the majority of lower volume nuclear medicine procedures. We also continued to have reasonable representation of single bills out of total claims in general. Finally, as noted previously, to the extent that the diagnostic radiopharmaceuticals commonly used with a particular diagnostic nuclear medicine procedure were already packaged, the proposal to package additional diagnostic radiopharmaceuticals would have had little impact on the payment for these procedures. The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (section XXIV.B. of this final rule with comment period) was based on the assumption that hospital behavior would not change with regard to whether the dependent diagnostic radiopharmaceuticals services are provided by the same hospital that performs the independent services. In order to provide diagnostic nuclear medicine procedures under this policy, hospitals would either need to administer the necessary diagnostic radiopharmaceuticals themselves or refer patients elsewhere for the administration of the diagnostic radiopharmaceuticals. In the latter case, claims data would show such a change in practice in future years and that change would be reflected in future ratesetting. However, with respect to diagnostic radiopharmaceuticals, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these items because diagnostic radiopharmaceuticals are typically provided on the same day as a diagnostic nuclear medicine procedure. It would be difficult for Hospital A to send patients to receive diagnostic radiopharmaceuticals from Hospital B and then have the patients return to Hospital A for the diagnostic nuclear medicine procedure in the appropriate timeframe (given the radiopharmaceutical's half-life) to perform a high quality study. We expect that hospitals would always bill the diagnostic radiopharmaceutical on the same claim as the other independent services for which the radiopharmaceutical was administered. The APC Panel recommended that CMS package radiopharmaceuticals with a median per day cost of less than $200 but pay separately for radiopharmaceuticals with a per day cost of $200 or more. The APC Panel also recommended that CMS should identify nuclear medicine procedure claims with and without radiopharmaceuticals and should present its findings to the Panel at the next meeting for consideration of whether an edit is needed to ensure that the cost of the radiopharmaceutical is packaged into the payment for the nuclear medicine service. We received many public comments on our proposal to package payment for diagnostic radiopharmaceuticals for CY 2008. A summary of the public comments and our responses follow. Comment: Some commenters recommended that CMS package radiopharmaceuticals with a per day cost less than $200 but pay separately for radiopharmaceuticals with a per day cost of $200 or more. Other commenters objected to packaging diagnostic radiopharmaceuticals and asked that CMS continue to pay separately for radiopharmaceuticals with per day costs that exceed the packaging threshold for drugs. These commenters explained that FDA views radiopharmaceuticals to be drugs, they are defined as drugs for purposes of pass-through payment under OPPS in sections 1833(t)(6)(A)(iii) of the Act, and for purposes of payment as specified covered outpatient drugs (SCODs) and biologicals in section 1833(t)(14)(B)(i)(l) of the Act. The commenters argued that CMS should, therefore, pay separately for radiopharmaceuticals with a per day cost in excess of $60, as it does for other drugs. The commenters believed that section 1833(t)(14)(B)(i)(l) of the Act requires CMS to treat radiopharmaceuticals no differently from other SCODs and, therefore, CMS must pay radiopharmaceuticals actual acquisition costs or, failing that, charges adjusted to costs. Some commenters believed that there is no authority for CMS to package drugs that are incidental or ancillary to a procedure and that by doing so, CMS is relying on a form of ``functional equivalence'' which is expressly limited by statute under section 1833(t)(6)(F) of the Act. The commenters argued that the proposal will create an incentive for hospitals to not use advanced technologies and will harm patient care. Some commenters believed that packaging diagnostic radiopharmaceuticals could discourage hospitals from using the most appropriate drug for each patient and encourage them to use less clinically effective radiopharmaceuticals when there is a choice of radiopharmaceutical. Some commenters added that the proposal ignores medical indications and focuses solely on cost reduction, which could result in constraints on medical decisionmaking and would compromise medical care. Response: After review of the public comments we received on this issue, we have decided to finalize our proposal to package payment for diagnostic [[Page 66639]] radiopharmaceuticals into the payment for the nuclear medicine services which cannot be performed without the administration of a radiopharmaceutical. We refer readers to section V.B.4.b. of this final rule with comment period for a discussion of the rationale to package payment for diagnostic radiopharmaceuticals as SCODs and our belief that the packaged payment provides payment at average acquisition cost for the products. We find the argument that we are creating functional equivalence by packaging the payment for diagnostic radiopharmaceuticals into the payment for the nuclear medicine services without which they cannot be performed to be unconvincing. We are not establishing an equivalent payment for different products based on their function. We are instead packaging the cost of radiopharmaceuticals, however differential those costs may be, into the payment for nuclear medicine services to create an appropriate payment for the nuclear medicine services that use these products, whether there is one product or multiple products that could be used to furnish the service. This is analogous to our longstanding practice of packaging of medical devices into the payment for the procedure in which they are used, notwithstanding that there may be different devices that could be used to furnish the service. Moreover, we do not agree with the argument that paying for radiopharmaceuticals as part of the payment for the nuclear medicine service to which they are essential will harm patient care. We believe that providing packaged payment for radiopharmaceuticals as part of the nuclear medicine service will cause hospitals and their physician partners to give even more careful consideration to the selection of the radiopharmaceutical that is the most appropriate for the patient whom they are treating. We are not accepting the APC Panel recommendation to pay separately for radiopharmaceuticals with a per day cost in excess of $200 because we could not determine an empirical basis for paying separately for radiopharmaceuticals with a per day cost in excess of $200. Comment: Many commenters stated that a diagnostic radiopharmaceutical is always needed to provide a nuclear medicine service and, therefore, CMS should use only claims in which both services were present to compute the median cost for the nuclear medicine procedure if CMS decides to package diagnostic radiopharmaceuticals. Some commenters suggested that CMS establish OCE edits that would require a charge be reported under the diagnostic radiopharmaceutical revenue code 0343 when there was a charge in revenue codes 0340 or 0341 for a nuclear medicine procedure. Other commenters recommended that CMS establish OCE edits that would require a HCPCS code for a diagnostic radiopharmaceutical be reported on a claim for a diagnostic nuclear medicine procedure. Some commenters were concerned that the actual cost of radiopharmaceuticals would be lost because hospitals would not report the charges on the claim unless CMS mandates and enforces their reporting. Response: We agree that it is important that the costs of radiopharmaceuticals be reported on the same claim with the nuclear medicine service so that we can have confidence that the payment for the nuclear medicine procedure reflects the cost of the radiopharmaceutical as well as the nuclear medicine service. Therefore, we have used only claims that contain a HCPCS code and charge for a diagnostic radiopharmaceutical to calculate the median costs of the nuclear medicine procedures for CY 2008. Moreover, effective for services furnished on and after January 1, 2008, the OCE will return for correction any claim for a nuclear medicine procedure that does not contain a HCPCS code and charge for a diagnostic radiopharmaceutical. These edits are similar to the edits we have had in place in the OCE since CY 2005 for medical devices. The significant difference, however, is that we recognize that, for some nuclear medicine procedures, there is a choice of radiopharmaceuticals that could be used and, therefore, the edits will not specify which radiopharmaceutical must be billed with any given nuclear medicine procedure. We also recognize that, in some cases, the radiopharmaceutical is administered several days before the nuclear medicine service is furnished. In these cases, the hospital will need to hold the claim until after the service is furnished so that the radiopharmaceutical can appear on the bill with the nuclear medicine procedure or the bill for the procedure will be returned for correction. We did not accept the comment that we should establish the edits using combinations of revenue codes because to do so would not provide specific information on the particular radiopharmaceutical being furnished and we could not be certain that the charges were for radiopharmaceuticals. Comment: Some commenters asserted that, based on survey data they gathered, claims data fail to capture hospital average acquisition costs for radiopharmaceuticals. The commenters, therefore, concluded that the costs of low volume, high cost radiopharmaceuticals are not captured in the claims data that is used to set the median costs on which the nuclear medicine services payment rates are based and the packaged payment for radiopharmaceuticals will be inadequate to pay for the cost of the drug. The commenters believed that these incorrectly priced products are unlikely to continue to be manufactured and thus will cease to be available. The commenters also stated that it is unlikely that the industry will develop new products for the market if they find that hospitals will not use them because of inadequate payment. The commenters believed that beneficiary care would suffer as hospitals ceased to furnish the service because payment would be inadequate to cover the cost. Some commenters explained that, while CMS implemented revenue codes for diagnostic and therapeutic radiopharmaceuticals in CY 2004, hospitals have not yet fully reflected these revenue codes in their billing practices and, therefore, the claims data are not correct or reliable and CMS should continue to pay separately for radiopharmaceuticals at charges adjusted to cost. Other commenters believed that the proposed changes would overestimate payments for some diagnostic radiopharmaceuticals, underestimate others, and create improper financial incentives for hospitals and physicians to select certain radiopharmaceuticals rather than others, potentially reducing the quality of care. Response: We believe that we have appropriately calculated the radiopharmaceutical costs that we are packaging into the nuclear medicine services by using only claims for nuclear medicine services that contain a radiopharmaceutical, as noted above. This is analogous to our process for ensuring that the costs of devices are packaged into the payment for the APC in which they are used, and we believe that using only these claims will negate any existing problems with the use or lack of use of the radiopharmaceutical revenue codes. With regard to the concern that packaging radiopharmaceuticals will result in overpayment in some cases and underpayment in others, we note that the most fundamental characteristic of a prospective payment system is that payment is to be set at an average for the service, which, by definition, means that some services are paid more or less than the average. However, the average [[Page 66640]] should provide adequate payment for the service, while creating incentives for hospitals to control costs and utilization of high cost services where it is appropriate to do so. We do not believe that either beneficiary access to care or the quality of care will be adversely affected because we pay for diagnostic radiopharmaceuticals as part of the payment for the procedure to which they are an integral part. With regard to the influence this may have on the development and production of radiopharmaceuticals, there are many aspects of the health care economy that influence what is developed and produced, of which Medicare payment under the OPPS is merely one. Comment: Some commenters stated that CMS has not provided adequate information for specialty societies and others to adequately review the matching of the drugs with the services to determine whether an appropriate radiopharmaceutical is packaged into the nuclear medicine services. The commenters indicated that CMS should provide data on the percent of nuclear medicine claims that were reported with and without a corresponding radiopharmaceutical so that the public can determine whether an edit is indicated for reporting these services either through OCE or backend rate setting and, if so, what edit would be appropriate. Response: We provided considerable information and data in support of our proposal. Moreover, we make available our claims data both for the proposed rule and the final rule so that the public can perform any analysis they choose. There are limits to our ability to provide specialized studies of interest. Therefore, we provide a narrative claims accounting that is intended to illuminate our data process for those who would like to use the claims data to explore alternatives. Comment: Some commenters believed that packaging diagnostic radiopharmaceuticals would undermine the clinical and resource homogeneity of the nuclear medicine APCs, especially the cardiac imaging APCs, resulting in 2 times violations. The commenters stated that the APC revision that is proposed as a result of the proposed packaging results in a lack of resource and clinical homogeneity within the APCs. Specifically, the commenters believed that, by packaging diagnostic radiopharmaceuticals, CMS created a 2 times violation in APC 0408 because the median costs for the services assigned to the APC vary widely for the procedure code based on the radiopharmaceutical used. Response: We agree that packaging costs into the median for a service to which they are an integral part can change the median cost for that service and result in 2 times violations. As we noted in the proposed rule, there were a significant number of APC reassignments to eliminate 2 times violations that would otherwise have resulted from the proposed packaging approach. However, we disagree that we should refrain from packaging payment for necessary items into the payment for the service in which they are required in order to prevent 2 times violations from occurring. Instead, we believe that we should make the necessary reassignments to different APCs where necessary to resolve 2 times violations where they occur. For example, to resolve 2 times violations that would otherwise have occurred when we used only those claims for nuclear medicine procedures reporting HCPCS code for diagnostic radiopharmaceuticals, we made the following APC reassignments for this final rule with comment period. We reassigned CPT code 78730 (Urinary bladder residual study (List separately in addition to code for primary procedure)) from APC 0340 (Minor Ancillary Procedures) to APC 0389 (Level I Non-Imaging Nuclear Medicine). We reassigned CPT code 78725 (Kidney function study, non-imaging radioisotopic study) from APC 0389 to APC 0392 (Level II Non-Imaging Nuclear Medicine). We reassigned CPT code 78006 (Thyroid imaging, with uptake; single determination) from APC 0390 (Level I Endocrine Imaging) to APC 0391 (Level II Endocrine Imaging). With regard to APC 0408 (Level III Tumor/Infection Imaging), that APC contained only one code for the proposed rule, CPT code 78804 (Radiopharmaceutical localization of tumor or distribution of radiopharmaceutical agent(s); whole body, requiring two or more days imaging), and it had a proposed median of approximately $1,010. For this final rule with comment period, APC 0408 contains 3 CPT codes: 78804 (Radiopharmaceutical localization of tumor or distribution of radiopharmaceutical agent(s); whole body, requiring two or more days imaging); 78075 (Adrenal Imaging, cortex and/or medulla); and 78803 (Radiopharmaceutical localization of tumor or distribution of radiopharmaceutical agent(t); tomographic (SPECT)). For this final rule with comment period, APC 408 has a median cost of approximately $969. Because we have traditionally paid for a service package under the OPPS as represented by a HCPCS code for the major procedure that is assigned to an APC group for payment, we assess the applicability of the 2 times rule to services at the HCPCS code level, not at a more specific level based on the individual diagnostic radiopharmaceuticals that may be utilized in a service reported with a single HCPCS code. If the use of a very expensive diagnostic radiopharmaceutical in a clinical scenario causes a specific procedure to be much more expensive for the hospital than the APC payment, we consider such a case to be the natural consequence of a prospective payment system that anticipates that some cases will be more costly and other less costly than the procedure payment. In addition, very high cost cases could be eligible for outlier payment. As we note elsewhere in this final rule with comment period, decisions about packaging and bundling payment involve a balance between ensuring some separate payment for individual services and establishing incentives for efficiency through larger units of payment. In the case of diagnostic radiopharmaceuticals, these products will be part of the OPPS payment package for the procedures in which they are used beginning in CY 2008. Comment: One commenter objected to packaging of diagnostic radiopharmaceuticals because the commenter believed that including the payment for the item in the payment for the procedure would improperly subject the portion of the payment that is attributable to the diagnostic radiopharmaceutical to wage adjustment. The commenter indicated that there should be no wage adjustment applied to the cost of a diagnostic radiopharmaceutical. Response: We disagree that we should not package the payment for a radiopharmaceutical into the payment for the procedure in which it is an integral part because part of the procedure payment will be wage adjusted. Since the inception of the OPPS, we have determined that, approximately 60 percent of the cost of an OPPS service is attributable to wage costs. That figure is an overall average percent that takes into account the extent to which there are costs in the OPPS payments that are not attributable to wages. We have a longstanding policy of wage adjusting 60 percent of the cost of the APC, regardless of whether it is an office visit (which is mostly wage costs) or an ICD replacement (in which most of the cost is a device), because our analysis shows that, overall, OPPS [[Page 66641]] services approximately 60 percent of the cost is attributable to wages. Comment: Some commenters stated that diagnostic radiopharmaceuticals are not interchangeable and carry high costs because, if the patient for whom the hospital secures a radiopharmaceutical cannot use the product, the hospital cannot bill for it and must absorb the loss. The commenters stated that hospitals have little or no flexibility in determining the diagnostic radiopharmaceutical that they purchase and have little ability to achieve efficiency. Response: We recognize that radiopharmaceuticals are specialized products that have unique costs associated with them. However, we believe that the costs should be reflected in the charges that hospitals set for them and in the cost report where the full costs of the services are carried. Therefore, the costs will be calculated like any other OPPS cost and packaged into the total cost of the nuclear medicine service to which they are an integral part and will be the basis for the payment rate for the nuclear medicine service in the same way that other packaged costs contribute to the payment rate for the services to which they are an integral part. Comment: Several commenters stated that HCPCS codes A9542 (Indium IN-111 ibritumomab tiuxetan, diagnostic, per study dose, up to 5 millicuires) and A9544 (Iodine I-131 tositumomab, diagnostic, per study dose) are not diagnostic radiopharmaceuticals and should not be packaged. The commenters reported that they are not used to diagnose the patient's disease but instead are used to assess the biodistribution of radioimmunotherapy agents or to calculate the therapeutic dose of those agents. The commenters contended that, although packaging is intended to create incentives for using the most cost-effective product, in these cases there are no other products that are available, and hence these products should always be paid separately. The commenters concluded that the proposed payments for these services are so low that hospitals will not offer the treatments to Medicare beneficiaries. Response: We continue to believe that HCPCS codes A9542 and A9544 are diagnostic radiopharmaceuticals. While they are not used to diagnose disease, they are used to determine whether future therapeutic services would be beneficial to the patient and to determine how to proceed with therapy. This is analogous to the use of positron emission tomography (PET) scanning for staging purposes when there has already been a diagnosis of disease but the physician is seeking information to use in planning a course of therapy. The scan is a diagnostic service, notwithstanding that the disease has previously been diagnosed and the diagnostic service is essential to planning therapy. While we recognize that these radiopharmaceuticals are sole source products, we do not believe that is sufficient to justify treating them differently from other diagnostic radiopharmaceuticals. Moreover, given that the Medicare population is such a dominant portion of the population to which these services are targeted, we do not believe that hospitals will cease to provide the service because the payment is packaged into the payment for the service to which the radiopharmaceutical is an integral part. We also note that, under 42 CFR 489.53(a)(2), CMS may terminate the provider agreement of any hospital that furnishes this or any other service to its