[Federal Register: November 27, 2007 (Volume 72, Number 227)] [Rules and Regulations] [Page 66221-66578] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr27no07-15] [[Page 66221]] ----------------------------------------------------------------------- Part II Department of Health and Human Services ----------------------------------------------------------------------- Centers for Medicare & Medicaid Services ----------------------------------------------------------------------- 42 CFR Parts 409, 410, et al. Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule, and Other Part B Payment Policies for CY 2008; Revisions to the Payment Policies of Ambulance Services Under the Ambulance Fee Schedule for CY 2008; and the Amendment of the E-Prescribing Exemption for Computer Generated Facsimile Transmissions; Final Rule [[Page 66222]] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 409, 410, 411, 413, 414, 415, 418, 423, 424, 482, 484, and 485 [CMS-1385-FC] RIN 0938-AO65 Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule, and Other Part B Payment Policies for CY 2008; Revisions to the Payment Policies of Ambulance Services Under the Ambulance Fee Schedule for CY 2008; and the Amendment of the E- Prescribing Exemption for Computer Generated Facsimile Transmissions AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule with comment period. ----------------------------------------------------------------------- SUMMARY: This final rule with comment period addresses certain provisions of the Tax Relief and Health Care Act of 2006, as well as making other proposed changes to Medicare Part B payment policy. We are making these changes to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. This final rule with comment period also discusses refinements to resource-based practice expense (PE) relative value units (RVUs); geographic practice cost indices (GPCI) changes; malpractice RVUs; requests for additions to the list of telehealth services; several coding issues including additional codes from the 5-Year Review; payment for covered outpatient drugs and biologicals; the competitive acquisition program (CAP); clinical lab fee schedule issues; payment for renal dialysis services; performance standards for independent diagnostic testing facilities; expiration of the physician scarcity area (PSA) bonus payment; conforming and clarifying changes for comprehensive outpatient rehabilitation facilities (CORFs); a process for updating the drug compendia; physician self referral issues; beneficiary signature for ambulance transport services; durable medical equipment (DME) update; the chiropractic services demonstration; a Medicare economic index (MEI) data change; technical corrections; standards and requirements related to therapy services under Medicare Parts A and B; revisions to the ambulance fee schedule; the ambulance inflation factor for CY 2008; and amending the e-prescribing exemption for computer-generated facsimile transmissions. We are also finalizing the calendar year (CY) 2007 interim RVUs and are issuing interim RVUs for new and revised procedure codes for CY 2008. As required by the statute, we are announcing that the physician fee schedule update for CY 2008 is -10.1 percent, the initial estimate for the sustainable growth rate for CY 2008 is -0.1 percent, and the conversion factor (CF) for CY 2008 is $34.0682. DATES: Effective Date: The provisions of this final rule with comment period are effective January 1, 2008, except for the amendments to Sec. 409.17 and Sec. 409.23 which are effective July 1, 2008, and the amendments to Sec. 423.160 which is effective January 1, 2009. Comment Date: Comments will be considered if we receive them at one of the addresses provided below, no later than 5 p.m. e.s.t. on December 31, 2007. ADDRESSES: In commenting, please refer to file code CMS-1385-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of three 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 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-1385- FC, P.O. Box 8020, Baltimore, MD 21244-8020. 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-1385-FC, 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. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7197 in advance to schedule your arrival with one of our staff members. Room 445-G, Hubert H. Humphrey (HHH) Building, 200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-1850. (Because access to the interior of the HHH Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.) Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period. Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by mailing your comments to the addresses provided at the end of the ``Collection of Information Requirements'' section in this document. For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section. FOR FURTHER INFORMATION CONTACT: Pam West, (410) 786-2302 for issues related to practice expense and comprehensive outpatient rehabilitation facilities. Rick Ensor, (410) 786-5617 for issues related to practice expense methodology. Stephanie Monroe, (410) 786-6864 for issues related to the geographic practice cost index and malpractice RVUs. Craig Dobyski, (410) 786-4584 for issues related to list of telehealth services. Ken Marsalek, (410) 786-4502 for issues related to the DRA imaging cap. Catherine Jansto, (410) 786-7762 for issues related to payment for covered outpatient drugs and biologicals. Edmund Kasaitis (410) 786-0477 for issues related to the Competitive Acquisition Program (CAP) for part B drugs. Anita Greenberg (410) 786-4601 for issues related to the clinical laboratory fee schedule. Henry Richter, (410) 786-4562 for issues related to payments for end-stage renal disease facilities. August Nemec (410) 786-0612 for issues related to independent diagnostic testing facilities. Kate Tillman (410) 786-9252 or Brijit Burton (410) 786-7364 for issues related to the drug compendia. [[Page 66223]] David Walczak (410) 786-4475 for issues related to reassignment and physician self-referral rules for diagnostic tests and beneficiary signature for ambulance transport. Lisa Ohrin (410) 786-4565 or Joanne Sinsheimer (410) 786-4620 for issues related to physician self-referral rules. Bob Kuhl (410) 786-4597 for issues related to the DME update. Rachel Nelson (410) 786-1175 for issues related to the physician quality reporting system for CY 2008. Maria Ciccanti (410) 786-3107 for issues related to the reporting of anemia quality indicators. James Menas (410) 786-4507 for issues related to payment for physician pathology services. Dorothy Shannon, (410) 786-3396 for issues related to the outpatient therapy caps. Drew Morgan, (410) 786-2543 for issues related to the E-Prescribing Exemption for Computer Generated Facsimile Transmissions. Roechel Kujawa (410) 786-9111 or Anne Tayloe (410) 786-4546 for issues related to the ambulance fee schedule. Diane Milstead, (410) 786-3355 or Gaysha Brooks (410) 786-9649 for all other issues. SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments from the public on the following issues: Interim Relative Value Units (RVUs) for selected codes identified in Addendum C and the physician self-referral designated health services (DHS) procedures listed in Addendum I. You can assist us by referencing the file code [CMS-1385-FC] 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, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951. This Federal Register document is also available from the Federal Register online database through Government Printing Office Access a service of the U.S. Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html. Information on the physician fee schedule can also be found on the CMS homepage. You can access this data by using the following directions: 1. Go to the following Web site: http://www.cms.hhs.gov/PhysicianFeeSched/ . 2. Select ``PFS Federal Regulation Notices.'' To assist readers in referencing sections contained in this preamble, we are providing the following table of contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations. Information on the regulation's impact appears throughout the preamble and is not exclusively in section VI. Table of Contents I. Background A. Development of the Relative Value System B. Components of the Fee Schedule Payment Amounts C. Most Recent Changes to Fee Schedule II. Provisions of the Final Rule Related to the Physician Fee Schedule A. Resource Based Practice Expense (PE) Relative Value Units (RVUs) 1. Current Methodology 2. PE Proposals for CY 2008 B. Geographic Practice Cost Indices (GPCIs) 1. GPCI Update 2. Payment Localities C. Malpractice (MP) RVUs (TC/PC issue) D. Medicare Telehealth Services E. Specific Coding Issues Related to PFS 1. Reduction in the Technical Component (TC) Payment for Imaging Services Under the PFS to the Outpatient Department (OPD) Payment Amount 2. Application of Multiple Procedure Payment Reduction for Mohs Micrographic Surgery (CPT Codes 17311 Through 17315) 3. Payment for Intravenous Immune Globulin (IVIG) Add On Code for Preadmission Related Services 4. Reporting of Cardiac Rehabilitation Services F. Part B Drug Payment 1. Average Sales Price (ASP) Issues 2. Competitive Acquisition Program (CAP) Issues G. Issues Related to the Clinical Lab Fee Schedule 1. Date of Service for the Technical Component (TC) of Physician Pathology Services (Sec. 414.510) 2. New Clinical Diagnostic Laboratory Test (Sec. 414.508) H. Revisions Related to Payment for Renal Dialysis Services Furnished by End-Stage Renal Disease (ESRD) Facilities 1. Growth Update to the Drug Add-On Adjustment to the Composite Rates 2. Update to the Geographic Adjustment to the Composite Rates I. Independent Diagnostic Testing Facility (IDTF) Issues 1. Revisions of Existing IDTF Performance Standards 2. New IDTF Standards J. Expiration of MMA Section 413 Provisions for Physician Scarcity Area (PSA) K. Comprehensive Outpatient Rehabilitation Facility (CORF) Issues 1. Requirements for Coverage of CORF Services Plan of Treatment (Sec. 410.105(c)) 2. Included Services (Sec. 410.100) 3. Physician Services (Sec. 410.100(a)) 4. Clarifications of CORF Respiratory Therapy Services 5. Social and Psychological Services 6. Nursing Care Services 7. Drugs and Biologicals 8. Supplies and DME 9. Clarifications and Payment Updates for Other CORF Services 10. Cost Based Payment (Sec. 413.1) 11. Payment for Comprehensive Outpatient Rehabilitation Facility (CORF) Services 12. Vaccines L. Compendia for Determination of Medically Accepted Indications for Off Label Uses of Drugs and Biologicals in an Anti-Cancer Chemotherapeutic Regimen (Sec. 414.930) 1. Background 2. Process for Determining Changes to the Compendia List M. Physician Self Referral Issues 1. General 2. Changes to Reassignment and Physician Self Referral Rules Relating to Diagnostic Tests (Anti Markup Provision) N. Beneficiary Signature for Ambulance Transport Services O. Update to Fee Schedules for Class III DME for CYs 2007 and 2008 1. Background 2. Update to Fee Schedule P. Discussion of Chiropractic Services Demonstration Q. Technical Corrections 1. Particular Services Excluded From Coverage (Sec. 411.15(a)) 2. Medical Nutrition Therapy (Sec. 410.132(a)) 3. Payment Exception: Pediatric Patient Mix (Sec. 413.184) 4. Diagnostic X ray Tests, Diagnostic Laboratory Tests, and Other Diagnostic Tests: Conditions (Sec. 410.32(a)(1)) R. Other Issues 1. Recalls and Replacement Devices 2. Therapy Standards and Requirements 3. Amendment to the Exemption for Computer Generated Facsimile Transmission from the National Council for Prescription Drug Programs (NCPDP) SCRIPT Standard for Transmitting Prescription and Certain Prescription Related Information for Part D Eligible Individuals [[Page 66224]] S. Division B of the Tax Relief and Health Care Act of 2006-- Medicare Improvements and Extension Act of 2006 (Pub. L. 109-432) (MIEA-TRHCA) 1. Section 101(b)--Physician Quality Reporting Initiative (PQRI) 2. Section 110--Reporting of Hemoglobin or Hematocrit for Part B Cancer Anti-Anemia Drugs (Sec. 414.707(b)) 3. Section 104--Extension of Treatment of Certain Physician Pathology Services Under Medicare 4. Section 201--Extension of Therapy Cap Exception Process 5. Section 101(d)--Physician Assistance and Quality Initiative (PAQI) Fund III. Revisions to the Payment Policies of Ambulance Services Under the Fee Schedule for Ambulance Services; Ambulatory Inflation Factor Update for CY 2007 A. History of Medicare Ambulance Services 1. Statutory Coverage of Ambulance Services 2. Medicare Regulations for Ambulance Services 3. Transition to National Fee Schedule B. Ambulance Inflation Factor (AIF) During the Transition Period C. Ambulance Inflation Factor (AIF) for CY 2008 D. Revisions to the Publication of the Ambulance Fee Schedule (Sec. 414.620) IV. Refinement of Relative Value Units for Calendar Year 2008 and Response to Public Comments on Interim Relative Value Units for 2007 A. Summary of Issues Discussed Related to the Adjustment of Relative Value Units B. Process for Establishing Work Relative Value Units for the Physician Fee Schedule C. 5 Year Review of Work RVUs 1. Additional Codes from the 5-Year Review of Work RVUs 2. Anesthesia Coding (Part of 5-Year Review) 3. Budget Neutrality Adjustment D. Work Relative Value Unit Refinements of Interim Relative Value Units (Interim 2007 Codes) E. Establishment of Interim Work Relative Value Units for New and Revised Physician's Current Procedural Terminology (CPT) Codes and New Healthcare Common Procedure Coding System Codes (HCPCS) for 2008 (Includes Table Titled ``American Medical Association Specialty Relative Value Update Committee and Health Care Professionals Advisory Committee Recommendations and CMS's Decisions for New and Revised 2008 CPT Codes'') F. Discussion of Codes and RUC/HCPAC Recommendations G. Additional Coding Issues H. Establishment of Interim PE RVUs for New and Revised Physician's Current Procedural Terminology (CPT) Codes and New Healthcare Common Procedure Coding System (HCPCS) Codes for 2008 V. Physician Self-Referral Prohibition: Annual Update to the List of CPT/HCPCS Codes VI. Physician Fee Schedule Update for CY 2008 A. Physician Fee Schedule Update B. The Percentage Change in the Medicare Economic Index (MEI) C. The Update Adjustment Factor (UAF) VII. Allowed Expenditures for Physicians' Services and the Sustainable Growth Rate A. Medicare Sustainable Growth Rate B. Physicians' Services C. Preliminary Estimate of the SGR for 2008 D. Revised Sustainable Growth Rate for 2007 E. Final Sustainable Growth Rate for 2006 F. Calculation of 2008, 2007, and 2006 Sustainable Growth Rates VIII. Anesthesia and Physician Fee Schedule Conversion Factors for CY 2008 A. Physician Fee Schedule Conversion Factor B. Anesthesia Fee Schedule Conversion Factor IX. Telehealth Originating Site Facility Fee Payment Amount Update X. Provisions of the Final Rule XI. Waiver of Proposed Rulemaking and Delay in Effective Date XII. Collection of Information Requirements XIII. Response to Comments XIV. Regulatory Impact Analysis Regulation Text Addendum A--Explanation and Use of Addendum B Addendum B--2008 Relative Value Units and Related Information Used in Determining Medicare Payments for 2007 Addendum C--Codes With Interim RVUS Addendum D--2008 Geographic Adjustment Factors (GAFs) Addendum E--2008 Geographic Practice Cost Indices (GPCIs) by State and Medicare Locality Addendum F--CPT/HCPCS Imaging Codes Defined by Section 5102(b) of the DRA Addendum G--FY 2008 Wage Index for Urban Areas Based on CBSA Labor Market Areas Addendum H--FY 2008 Wage Index Based on CBSA Labor Market Areas for Rural Areas Addendum I--Updated List of CPT/HCPCS Codes Used To Describe Certain Designated Health Services Under the Physician Self-Referral Provision Acronyms In addition, because of the many organizations and terms to which we refer by acronym in this final rule with comment period, we are listing these acronyms and their corresponding terms in alphabetical order below: AAA Abdominal aortic aneurysm AAP Average acquisition price ACOTE Accreditation Council for Occupational Therapy Education ACR American College of Radiology AFROC Association of Freestanding Radiation Oncology Centers AHFS-DI American Hospital Formulary Service--Drug Information AHRQ Agency for Healthcare Research and Quality (HHS) AIF Ambulance inflation factor AMA American Medical Association AMA-DE American Medical Association Drug Evaluations AMP Average manufacturer price AOTA American Occupational Therapy Association APC Ambulatory payment classification APTA American Physical Therapy Association ASA American Society of Anesthesiologists ASC Ambulatory surgical center ASP Average sales price ASTRO American Society for Therapeutic Radiology and Oncology ATA American Telemedicine Association AWP Average wholesale price BBA Balanced Budget Act of 1997 (Pub. L. 105-33) BBRA [Medicare, Medicaid and State Child Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113) BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection Act of 2000 BLS Bureau of Labor Statistics BMD Bone mineral density BMI Body mass index BMM Bone mass measurement BN Budget neutrality BSA Body surface area CAD Computer aided detection CAH Critical access hospital CAP Competitive acquisition program CBSA Core-Based Statistical Area CEM Cardiac event monitoring CF Conversion factor CFR Code of Federal Regulations CMA California Medical Association CMS Centers for Medicare & Medicaid Services CNS Clinical nurse specialist CORF Comprehensive Outpatient Rehabilitation Facility COTA Certified Occupational Therapy Assistant CPEP Clinical Practice Expert Panel CPI Consumer Price Index CPI-U Consumer price index for urban customers CPT (Physicians') Current Procedural Terminology (4th Edition, 2002, copyrighted by the American Medical Association) CRT-D Cardiac resynchronization therapy defibrillator CT Computed tomography CTA Computed tomographic angiography CY Calendar year DEXA Dual energy x-ray absorptiometry DHS Designated health services DME Durable medical equipment DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies DO Doctor of Osteopathy DRA Deficit Reduction Act of 2005 (Pub. L. 109-432) E/M Evaluation and management ECI Employment cost index EHR Electronic health record EPC [Duke] Evidence-based Practice Centers EPO Erythopoeitin ESRD End stage renal disease F&C Facts and Comparisons FAW Furnish as written [[Page 66225]] FAX Facsimile FDA Food and Drug Administration (HHS) FMR Fair market rents FQHC Federally qualified health center FR Federal Register GAF Geographic adjustment factor GAO General Accounting Office GII Global Insight, Inc. GPO Group purchasing organization GPCI Geographic practice cost index HCPAC Health Care Professional Advisory Committee HCPCS Healthcare Common Procedure Coding System HCRIS Healthcare Cost Report Information System HIPAA Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191) HHA Home health agency HHS [Department of] Health and Human Services HIT Health information technology HMO Health maintenance organization HPSA Health Professional Shortage Area HRSA Health Resources Services Administration (HHS) HUD [Department of] Housing and Urban Development ICD Implantable cardioverter-defibrillator ICF Intermediate care facilities IDTF Independent diagnostic testing facility IFC Interim final rule with comment period IOTED International Occupational Therapy Eligibility Determination IPPE Initial preventive physical examination IPPS Inpatient prospective payment system IV Intravenous IVIG Intravenous immune globulin IWPUT Intra-service work per unit of time JCAAI Joint Council of Allergy, Asthma, and Immunology LPN Licensed practical nurse MA Medicare Advantage MA-PD Medicare Advantage Prescription Drug Plans MD Medical doctor MedCAC Medicare Evidence Development and Coverage Advisory Committee (formerly the Medicare Coverage Advisory Committee (MCAC)) MedPAC Medicare Payment Advisory Commission MEI Medicare Economic Index MIEA-TRHCA Medicare Improvements and Extension Act of 2006 (That is, Division B of the Tax Relief and Health Care Act of 2006 (TRHCA) MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) MNT Medical nutrition therapy MP Malpractice MRA Magnetic resonance angiography MRI Magnetic resonance imaging MSA Metropolitan statistical area MSP Medicare Secondary Payer MSVP Multi-specialty visit package NBCOT National Board for Certification in Occupational Therapy, Inc. NCCN National Comprehensive Cancer Network NCPDP National Council for Prescription Drug Programs NCQDIS National Coalition of Quality Diagnostic Imaging Services NDC National drug code NEMC New England Medical Center NISTA National Institute of Standards and Technology Act NLA National limitation amount NP Nurse practitioner NPP Nonphysician practitioners NQF National Quality Forum NTTAA National Technology Transfer and Advancement Act of 1995 (Pub. L. 104-113) OACT [CMS'] Office of the Actuary OBRA Omnibus Budget Reconciliation Act OIG Office of Inspector General OMB Office of Management and Budget OPD Outpatient Department OPPS Outpatient prospective payment system OPT Outpatient physical therapy OSCAR Online Survey and Certification and Reporting PA Physician assistant PC Professional component PCF Patient compensation fund PDP Prescription Drug Plan PE Practice Expense PE/HR Practice expense per hour PEAC Practice Expense Advisory Committee PECOS Provider Enrollment, Chain, and Ownership System PERC Practice Expense Review Committee PET Positron emission tomography PFS Physician Fee Schedule PLI Professional liability insurance PPI Producer price index PPS Prospective payment system PQRI Physician Quality Reporting Initiative PRA Paperwork Reduction Act PSA Physician scarcity areas PT Physical therapy PT/INR Prothrombin time, international normalized ratio RFA Regulatory Flexibility Act RHC Rural health clinic RIA Regulatory impact analysis RN Registered nurse RT Respiratory therapist RUC [AMA's Specialty Society] Relative (Value) Update Committee RVU Relative value unit SBA Small Business Administration SGR Sustainable growth rate SLP Speech--language pathology SLPs Speech--language pathologists SMS [AMA's] Socioeconomic Monitoring System SNF Skilled nursing facility STS Society of Thoracic Surgeons TA Technology Assessment TC Technical Component TENS Transcutaneous electric nerve stimulator TRHCA Tax Relief and Health Care Act of 2006 (Pub. L. 109-432) USP-DI United States Pharmacopoeia-Drug Information WAC Wholesale acquisition cost WAMP Widely available market price Wet AMD Exudative age-related macular degeneration WFOT World Federation of Occupational Therapists I. Background Since January 1, 1992, Medicare has paid for physicians' services under section 1848 of the Social Security Act (the Act), ``Payment for Physicians' Services.'' The Act requires that payments under the physician fee schedule (PFS) be based on national uniform relative value units (RVUs) based on the resources used in furnishing a service. Section 1848(c) of the Act requires that national RVUs be established for physician work, practice expense (PE), and malpractice expense. Before the establishment of the resource-based relative value system, Medicare payment for physicians' services was based on reasonable charges. A. Development of the Relative Value System 1. Work RVUs The concepts and methodology underlying the PFS were enacted as part of the Omnibus Budget Reconciliation Act (OBRA) of 1989, Pub. L. 101-239, and OBRA 1990, (Pub. L. 101-508). The final rule, published November 25, 1991 (56 FR 59502), set forth the fee schedule for payment for physicians' services beginning January 1, 1992. Initially, only the physician work RVUs were resource-based, and the PE and malpractice RVUs were based on average allowable charges. The physician work RVUs established for the implementation of the fee schedule in January 1992 were developed with extensive input from the physician community. A research team at the Harvard School of Public Health developed the original physician work RVUs for most codes in a cooperative agreement with the Department of Health and Human Services (HHS). In constructing the code-specific vignettes for the original physician work RVUs, Harvard worked with panels of experts, both inside and outside the Federal government, and obtained input from numerous physician specialty groups. Section 1848(b)(2)(B) of the Act specifies that the RVUs for anesthesia services are based on RVUs from a uniform relative value guide. We established a separate conversion factor (CF) for anesthesia services, and we continue to utilize time units as a factor in determining payment for these services. As a result, there is a separate formula used to calculate payment for anesthesia services. We establish physician work RVUs for new and revised codes based on recommendations received from the American Medical Association's (AMA) Specialty Society Relative Value Update Committee (RUC). [[Page 66226]] 2. Practice Expense Relative Value Units (PE RVUs) Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 103-32), enacted on October 31, 1994, amended section 1848(c)(2)(C)(ii) of the Act and required us to develop resource-based PE RVUs for each physician's service beginning in 1998. We were to consider general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising PEs. Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105 33), amended section 1848(c)(2)(C)(ii) of the Act to delay implementation of the resource based PE RVU system until January 1, 1999. In addition, section 4505(b) of the BBA provided for a 4-year transition period from charge based PE RVUs to resource-based RVUs. We established the resource based PE RVUs for each physician's service in a final rule, published November 2, 1998 (63 FR 58814), effective for services furnished in 1999. Based on the requirement to transition to a resource based system for PE over a 4-year period, resource-based PE RVUs did not become fully effective until 2002. This resource-based system was based on two significant sources of actual PE data: The Clinical Practice Expert Panel (CPEP) data and the AMA's Socioeconomic Monitoring System (SMS) data. The CPEP data were collected from panels of physicians, practice administrators, and nonphysicians (for example, registered nurses (RNs)) nominated by physician specialty societies and other groups. The CPEP panels identified the direct inputs required for each physician's service in both the office setting and out-of-office setting. We have since refined and revised these inputs based on recommendations from the RUC. The AMA's SMS data provided aggregate specialty-specific information on hours worked and PEs. Separate PE RVUs are established for procedures that can be performed in both a nonfacility setting, such as a physician's office, and a facility setting, such as a hospital outpatient department. The difference between the facility and nonfacility RVUs reflects the fact that a facility typically receives separate payment from Medicare for its costs of providing the service, apart from payment under the PFS. The nonfacility RVUs reflect all of the direct and indirect PEs of providing a particular service. Section 212 of the Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) directed the Secretary of Health and Human Services (the Secretary) to establish a process under which we accept and use, to the maximum extent practicable and consistent with sound data practices, data collected or developed by entities and organizations to supplement the data we normally collect in determining the PE component. On May 3, 2000, we published the interim final rule (65 FR 25664) that set forth the criteria for the submission of these supplemental PE survey data. The criteria were modified in response to comments received, and published in the Federal Register (65 FR 65376) as part of a November 1, 2000 final rule. The PFS final rules published in 2001 and 2003, respectively, (66 FR 55246 and 68 FR 63196) extended the period during which we would accept these supplemental data through March 1, 2005. In the CY 2007 PFS final rule with comment period (71 FR 69624), we revised the methodology for calculating PE RVUs beginning in CY 2007 and provided for a 4-year transition for the new PE RVUs under this new methodology. We will continue to reexamine this policy and proposed necessary revisions through future rulemaking. 3. Resource-Based Malpractice (MP) RVUs Section 4505(f) of the BBA amended section 1848(c) of the Act to require us to implement resource-based malpractice (MP) RVUs for services furnished on or after 2000. The resource-based MP RVUs were implemented in the PFS final rule published November 2, 1999 (64 FR 59380). The MP RVUs were based on malpractice insurance premium data collected from commercial and physician-owned insurers from all the States, the District of Columbia, and Puerto Rico. 4. Refinements to the RVUs Section 1848(c)(2)(B)(i) of the Act requires that we review RVUs no less often than every 5 years. The first 5-Year Review of the physician work RVUs was effective in 1997, published on November 22, 1996 (61 FR 59489). The second 5-Year Review went into effect in 2002, published in the CY 2002 PFS final rule (66 FR 55246). The third 5-Year Review of physician work RVUs went into effect on January 1, 2007 and was published in the CY 2007 PFS final rule with comment period (71 FR 69624) (although we note that certain additional proposals relating to the third 5-Year Review are addressed in the CY 2008 PFS proposed rule and in this final rule with comment period). In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC) for the purpose of refining the direct PE inputs. Through March 2004, the PEAC provided recommendations to CMS for over 7,600 codes (all but a few hundred of the codes currently listed in the AMA's Current Procedural Terminology (CPT) codes). As part of the CY 2007 PFS final rule with comment period (71 FR 69624), we implemented a new methodology for determining resource-based PE RVUs and are transitioning this over a 4-year period. In the CY 2005 PFS final rule with comment period (69 FR 66236), we implemented the first 5-Year Review of the malpractice RVUs (69 FR 66263). 5. Adjustments to RVUs are Budget Neutral Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs for a year may not cause total PFS payments to differ by more than $20 million from what they would have been if the adjustments were not made. In accordance with section 1848(c)(2)(B)(ii)(II) of the Act, if adjustments to RVUs cause expenditures to change by more than $20 million, we make adjustments to ensure that expenditures do not increase or decrease by more than $20 million. As explained in the CY 2007 PFS final rule with comment period (71 FR 69624), due to the increase in work RVUs resulting from the third 5- Year Review of physician work RVUs, we are applying a separate budget neutrality (BN) adjustor to the work RVUs for services furnished during 2007. This approach is consistent with the method we use to make BN adjustments to the PE RVUs to reflect the changes in these PE RVUs. B. Components of the Fee Schedule Payment Amounts To calculate the payment for every physician service, the components of the fee schedule (physician work, PE, and MP RVUs) are adjusted by a geographic practice cost index (GPCI). The GPCIs reflect the relative costs of physician work, PE, and malpractice insurance in an area compared to the national average costs for each component. Payments are converted to dollar amounts through the application of a CF, which is calculated by the Office of the Actuary (OACT) and is updated annually for inflation. The formula for calculating the Medicare fee schedule amount for a given service and fee schedule area can be expressed as: [[Page 66227]] Payment = [(RVU work x budget neutrality adjuster x work GPCI) + (RVU PE x PE GPCI) + (MP RVU x MP GPCI)] x CF. C. Most Recent Changes to the Fee Schedule The CY 2007 PFS final rule with comment period (71 FR 69624) addressed certain provisions of the Deficit Reduction Act of 2005 (Pub. L. 109-432) (DRA) and made other changes to Medicare Part B payment policy to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. This final rule with comment period also discussed GPCI changes; requests for additions to the list of telehealth services; payment for covered outpatient drugs and biologicals; payment for renal dialysis services; policies related to private contracts and opt-out; policies related to bone mass measurement (BMM) services, independent diagnostic testing facilities (IDTFs), the physician self-referral prohibition; laboratory billing for the technical component (TC) of physician pathology services; the clinical laboratory fee schedule; certification of advanced practice nurses; health information technology, the health care information transparency initiative; updated the list of certain services subject to the physician self-referral prohibitions, finalized ASP reporting requirements, and codified Medicare's longstanding policy that payment of bad debts associated with services paid under a fee schedule/charge-based system is not allowable. We also finalized the CY 2006 interim RVUs and issued interim RVUs for new and revised procedure codes for CY 2007. In addition, the CY 2007 PFS final rule with comment period included revisions to payment policies under the fee schedule for ambulance services and announced the ambulance inflation factor (AIF) update for CY 2007. In accordance with section 1848(d)(1)(E)(i) of the Act, we also announced that the PFS update for CY 2007 is -5.0 percent, the initial estimate for the sustainable growth rate (SGR) for CY 2007 is 1.8 percent and the CF for CY 2007 is $35.9848. However, subsequent to publication of the CY 2007 PFS final rule with comment period, section 101(a) of Division B, Title I of the Tax Relief and Health Care Act of 2006 (Pub. L. 109-432) (MIEA-TRHCA), which was enacted on December 20, 2006, amended section 1848(d) of the Act. [Division B of the Tax Relief and Health Care Act of 2006 is entitled Medicare and Other Health Provisions and its short title is the Medicare Improvements and Extension Act of 2006. Therefore, the law is hereinafter referred to as ``MIEA-TRHCA''.] As a result of this statutory change, the CF of $37.8975 was maintained for CY 2007. II. Provisions of the Final Rule Related to the Physician Fee Schedule In response to the CY 2008 PFS proposed rule (72 FR 38122), we received approximately 27,000 comments. We received comments from individual physicians, health care workers, professional associations and societies, and beneficiaries. The majority of the comments addressed the proposals related to anesthesia coding and the 5-Year Review, the physician self-referral provisions and the technical correction to Sec. 410.32(a)(1) concerning an exception to the requirement that diagnostic services (including x-rays) must be ordered by the treating physician. To the extent that comments were outside the scope of the proposed rule, they are not addressed in this final rule with comment period. RVU changes implemented through this final rule with comment are subject to the $20 million limitation on annual adjustments contained in section 1848(c)(2)(B)(ii)(II) of the Act. After reviewing the comments and determining the policies we would implement, we have estimated the costs and savings of these policies and discuss in detail the effects of these changes in the Regulatory Impact Analysis in section XIV. For the convenience of the reader, the headings for the policy issues correspond to the headings used in the CY 2008 PFS proposed rule (72 FR 38122). More detailed background information for each issue can be found in the CY 2008 PFS proposed rule. A. Resource Based Practice Expense (PE) Relative Value Units (RVUs) Practice expense (PE) is the portion of the resources used in furnishing the service that reflects the general categories of physician and practitioner expenses, such as office rent and personnel wages but excluding malpractice expenses, as specified in section 1848(c)(1)(B) of the Act. Section 121 of the Social Security Amendments of 1994 (Pub. L. 103- 432), enacted on October 31, 1994, required CMS to develop a methodology for a resource-based system for determining PE RVUs for each physician's service. Until that time, PE RVUs were based on historical allowed charges. This legislation required that the revised PE methodology must consider the staff, equipment, and supplies used in the provision of various medical and surgical services in various settings beginning in 1998. The Secretary has interpreted this to mean that Medicare payments for each service would be based on the relative PE resources typically involved with furnishing the service. The initial implementation of resource-based PE RVUs was delayed from January 1, 1998, until January 1, 1999, by section 4505(a) of the BBA. In addition, section 4505(b) of the BBA required that the new payment methodology be phased in over 4 years, effective for services furnished in CY 1999, and fully effective in CY 2002. The first step toward implementation of the statute was to adjust the PE values for certain services for CY 1998. Section 4505(d) of the BBA required that, in developing the resource-based PE RVUs, the Secretary must: Use, to the maximum extent possible, generally-accepted cost accounting principles that recognize all staff, equipment, supplies, and expenses, not solely those that can be linked to specific procedures and actual data on equipment utilization. Develop a refinement method to be used during the transition. Consider, in the course of notice and comment rulemaking, impact projections that compare new proposed payment amounts to data on actual physician PE. In CY 1999, we began the 4-year transition to resource-based PE RVUs utilizing a ``top-down'' methodology whereby we allocated aggregate specialty-specific practice costs to individual procedures. The specialty-specific PEs were derived from the American Medical Association's (AMA's) Socioeconomic Monitoring Survey (SMS). In addition, under section 212 of the BBRA, we established a process extending through March 2005 to supplement the SMS data with data submitted by a specialty. The aggregate PEs for a given specialty were then allocated to the services furnished by that specialty on the basis of the direct input data (that is, the staff time, equipment, and supplies) and work RVUs assigned to each CPT code. For CY 2007, we implemented a new methodology for calculating PE RVUs. Under this new methodology, we use the same data sources for calculating PE, but instead of using the ``top-down'' approach to calculate the direct PE RVUs, under which the aggregate direct and indirect costs for each specialty are allocated to each individual service, we now utilize a ``bottom-up'' approach to [[Page 66228]] calculate the direct costs. Under the ``bottom-up'' approach, we determine the direct PE by adding the costs of the resources (that is, the clinical staff, equipment, and supplies) typically required to furnish each service. The costs of the resources are calculated using the refined direct PE inputs assigned to each CPT code in our PE database, which are based on our review of recommendations received from the AMA's Relative Value Update Committee (RUC). For a more detailed explanation of the PE methodology see the Five-Year Review of Work RVUs Under the PFS and Proposed Changes to the PE Methodology proposed notice (71 FR 37242) and the CY 2007 PFS final rule with comment period (71 FR 69629). 1. Current Methodology a. Data Sources for Calculating Practice Expense The AMA's SMS survey data and supplemental survey data from the specialties of cardio-thoracic surgery, vascular surgery, physical and occupational therapy, independent laboratories, allergy/immunology, cardiology, dermatology, gastroenterology, radiology, independent diagnostic testing facilities (IDTFs), radiation oncology, and urology are used to develop the PE per hour (PE/HR) for each specialty. For those specialties for which we do not have PE/HR, the appropriate PE/HR is obtained from a crosswalk to a similar specialty. The AMA developed the SMS survey in 1981 and discontinued it in 1999. Beginning in 2002, we incorporated the 1999 SMS survey data into our calculation of the PE RVUs, using a 5-year average of SMS survey data. (See the Revisions to Payment Policies and Five-Year Review of and Adjustments to the Relative Value Units Under the Physician Fee Schedule for CY 2002 final rule (66 FR 55246, November 1, 2002) (hereinafter referred to as CY 2002 PFS final rule).) The SMS PE survey data are adjusted to a common year, 2005. The SMS data provide the following six categories of PE costs: Clinical payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician clinical personnel. Administrative payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician personnel involved in administrative, secretarial or clerical activities. Office expenses, which include expenses for rent, mortgage interest, depreciation on medical buildings, utilities and telephones. Medical material and supply expenses, which include expenses for drugs, x-ray films, and disposable medical products. Medical equipment expenses, which include expenses depreciation, leases, and rent of medical equipment used in the diagnosis or treatment of patients. All other expenses, which include expenses for legal services, accounting, office management, professional association memberships, and any professional expenses not previously mentioned in this section. In accordance with section 212 of the BBRA, we established a process to supplement the SMS data for a specialty with data collected by entities and organizations other than the AMA (that is, the specialty itself). (See the Criteria for Submitting Supplemental Practice Expense Survey Data interim final rule with comment period, (65 FR 25664, May 3, 2000).) Originally, the deadline to submit supplementary survey data was through August 1, 2001. In the CY 2002 PFS final rule (66 FR 55246), the deadline was extended through August 1, 2003. To ensure maximum opportunity for specialties to submit supplementary survey data, we extended the deadline to submit surveys until March 1, 2005 in the Revisions to Payment Policies Under the Physician Fee Schedule for CY 2004 final rule, (November 7, 2003; 68 FR 63196) (hereinafter referred to as CY 2004 PFS final rule). The direct cost data for individual services were originally developed by the Clinical Practice Expert Panels (CPEP). The CPEP data include the supplies, equipment, and staff times specific to each procedure. The CPEPs consisted of panels of physicians, practice administrators, and nonphysicians (for example, RNs) who were nominated by physician specialty societies and other groups. There were 15 CPEPs consisting of 180 members from more than 61 specialties and subspecialties. Approximately 50 percent of the panelists were physicians. The CPEPs identified specific inputs involved in each physician's service provided in an office or facility setting. The inputs identified were the quantity and type of nonphysician labor, medical supplies, and medical equipment. In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC). From 1999 to March 2004, the PEAC, a multi-specialty committee, reviewed the original CPEP inputs and provided us with recommendations for refining these direct PE inputs for existing CPT codes. Through its last meeting in March 2004, the PEAC provided recommendations for over 7,600 codes which we have reviewed and accepted. As a result, the current PE inputs differ markedly from those originally recommended by the CPEPs. The PEAC has now been replaced by the Practice Expense Review Committee (PERC), which acts to assist the RUC in recommending PE inputs. b. Allocation of PE to Services The aggregate level specialty-specific PEs are derived from the AMA's SMS survey and supplementary survey data. To establish PE RVUs for specific services, it is necessary to establish the direct and indirect PE associated with each service. (i) Direct costs. The direct costs are determined by adding the costs of the resources (that is, the clinical staff, equipment, and supplies) typically required to provide the service. The costs of these resources are calculated from the refined direct PE inputs in our PE database. These direct inputs are then scaled to the current aggregate pool of direct PE RVUs. The aggregate pool of direct PE RVUs can be derived using the following formula: (PE RVUs * physician CF) * (average direct percentage from SMS/(Supplemental PE/HR data)). (ii) Indirect costs. The SMS and supplementary survey data are the source for the specialty-specific aggregate indirect costs used in our PE calculations. We then allocate the indirect costs to the code level on the basis of the direct costs specifically associated with a code and the maximum of either the clinical labor costs or the physician work RVUs. For calculation of the 2008 PE RVUs, we are using the 2006 procedure-specific utilization data crosswalked to 2007 services. To arrive at the indirect PE costs: We apply a specialty-specific indirect percentage factor to the direct expenses to recognize the varying proportion that indirect costs represent of total costs by specialty. For a given service, the specific indirect percentage factor to apply to the direct costs for the purpose of the indirect allocation is calculated as the weighted average of the ratio of the indirect to direct costs (based on the survey data) for the specialties that furnish the service. For example, if a service is furnished by a single specialty with indirect PEs that were 75 percent of total PEs, the indirect percentage factor to apply to the direct costs for the purposes of the indirect [[Page 66229]] allocation would be (0.75/0.25) = 3.0. The indirect percentage factor is then applied to the service level adjusted indirect PE allocators. We use the specialty-specific PE/HR from the SMS survey data, as well as the supplemental surveys for cardio-thoracic surgery, vascular surgery, physical and occupational therapy, independent laboratories, allergy/immunology, cardiology, dermatology, radiology, gastroenterology, IDTFs, radiation oncology and urology. (Note: For radiation oncology, the data represent the combined survey data from the American Society for Therapeutic Radiology and Oncology (ASTRO) and the Association of Freestanding Radiation Oncology Centers (AFROC).) We incorporate this PE/HR into the calculation of indirect costs using an index which reflects the relationship between each specialty's indirect scaling factor and the overall indirect scaling factor for the entire PFS. For example, if a specialty had an indirect practice cost index of 2.00, this specialty would have an indirect scaling factor that was twice the overall average indirect scaling factor. If a specialty had an indirect practice cost index of 0.50, this specialty would have an indirect scaling factor that was half the overall average indirect scaling factor. When the clinical labor portion of the direct PE RVU is greater than the physician work RVU for a particular service, the indirect costs are allocated based upon the direct costs and the clinical labor costs. For example, if a service has no physician work and 1.10 direct PE RVUs, and the clinical labor portion of the direct PE RVUs is 0.65 RVUs, we would use the 1.10 direct PE RVUs and the 0.65 clinical labor portions of the direct PE RVUs to allocate the indirect PE for that service. c. Facility/Nonfacility Costs Procedures that can be furnished in a physician's office, as well as in a hospital or facility setting, have two PE RVUs: facility and nonfacility. The nonfacility setting includes physicians' offices, patients' homes, freestanding imaging centers, and independent pathology labs. Facility settings include hospitals, ambulatory surgical centers (ASCs), and skilled nursing facilities (SNFs). The methodology for calculating PE RVUs is the same for both, facility and nonfacility RVUs, but is applied independently to yield two separate PE RVUs. Because the PEs for services provided in a facility setting are generally included in the payment to the facility (rather than the payment to the physician under the PFS), the PE RVUs are generally lower for services provided in the facility setting. d. Services With Technical Components (TCs) and Professional Components (PCs) Diagnostic services are generally comprised of two components; a professional component (PC) and a technical component (TC), which may be furnished independently or by different providers. When services have TC, PC, and global components that can be billed separately, the payment for the global component equals the sum of the payment for the TC and PCs. This is a result of using a weighted average of the ratio of indirect to direct costs across all the specialties that furnish the global components, TCs, and PCs; that is, we apply the same weighted average indirect percentage factor to allocate indirect expenses to the global components, PC, and TCs for a service. (The direct PE RVUs for the TC and PCs sum to the global under the bottom-up methodology.) e. Transition Period As discussed in the CY 2007 PFS final rule with comment period (71 FR 69674), we are implementing the change in the methodology for calculating PE RVUs over a 4-year period. During this transition period, the PE RVUs will be calculated on the basis of a blend of RVUs calculated using our methodology described previously in this section (weighted by 25 percent during CY 2007, 50 percent during CY 2008, 75 percent during CY 2009, and 100 percent thereinafter), and the CY 2006 PE RVUs for each existing code. PE RVUs for codes that are new during this period will be calculated using only the current PE methodology, and will be paid at the fully transitioned rate. f. PE RVU Methodology The following is a description of the PE RVU methodology. (i) Setup File First, we create a setup file for the PE methodology. The setup file contains the direct cost inputs, the utilization for each procedure code at the specialty and facility/nonfacility place of service level, and the specialty-specific survey PE per physician hour data. (ii) Calculate the Direct Cost PE RVUs Sum the Costs of Each Direct Input Step 1: Sum the direct costs of the inputs for each service. The direct costs consist of the costs of the direct inputs for clinical labor, medical supplies, and medical equipment. The clinical labor cost is the sum of the cost of all the staff types associated with the service; it is the product of the time for each staff type and the wage rate for that staff type. The medical supplies cost is the sum of the supplies associated with the service; it is the product of the quantity of each supply and the cost of the supply. The medical equipment cost is the sum of the cost of the equipment associated with the service; it is the product of the number of minutes each piece of equipment is used in the service and the equipment cost per minute. The equipment cost per minute is calculated as described at the end of this section. Apply a BN Adjustment to the Direct Inputs Step 2: Calculate the current aggregate pool of direct PE costs. To do this, multiply the current aggregate pool of total direct and indirect PE costs (that is, the current aggregate PE RVUs multiplied by the CF) by the average direct PE percentage from the SMS and supplementary specialty survey data. Step 3: Calculate the aggregate pool of direct costs. To do this, for all PFS services, sum the product of the direct costs for each service from Step 1 and the utilization data for that service. Step 4: Using the results of Step 2 and Step 3 calculate a direct PE BN adjustment so that the proposed aggregate direct cost pool does not exceed the current aggregate direct cost pool and apply it to the direct costs from Step 1 for each service. Step 5: Convert the results of Step 4 to an RVU scale for each service. To do this, divide the results of Step 4 by the Medicare PFS CF. (iii) Create the Indirect PE RVUs Create Indirect Allocators Step 6: Based on the SMS and supplementary specialty survey data, calculate direct and indirect PE percentages for each physician specialty. Step 7: Calculate direct and indirect PE percentages at the service level by taking a weighted average of the results of Step 6 for the specialties that furnish the service. Note that for services with a TC and PCs we are calculating the direct and indirect percentages across the global components, PCs and TCs. That is, the direct and indirect percentages for a given service (for example, echocardiogram) do not vary by the PC, TC and global component. Step 8: Calculate the service level allocators for the indirect PEs based on the percentages calculated in Step 7. The indirect PEs are allocated based on the three components: the direct PE [[Page 66230]] RVU, the clinical PE RVU and the work RVU. For most services the indirect allocator is: indirect percentage * (direct PE RVU/direct percentage) + work RVU. There are two situations where this formula is modified: If the service is a global service (that is, a service with global, professional and technical components), then the indirect allocator is: indirect percentage * (direct PERVU/direct percentage) + clinical PE RVU + work RVU. If the clinical labor PE RVU exceeds the work RVU (and the service is not a global service), then the indirect allocator is: indirect percentage * (direct PERVU/direct percentage) + clinical PE RVU. (Note that for global services the indirect allocator is based on both the work RVU and the clinical labor PE RVU. We do this to recognize that, for the professional service, indirect PEs will be allocated using the work RVUs, and for the TC service, indirect PEs will be allocated using the direct PE RVU and the clinical labor PE RVU. This also allows the global component RVUs to equal the sum of the PC and TC RVUs.) For presentation purposes in the examples in Table 1, the formulas were divided into two parts for each service. The first part does not vary by service and is the indirect percentage * (direct PE RVU/direct percentage). The second part is either the work RVU, clinical PE RVU, or both depending on whether the service is a global service and whether the clinical PE RVU exceeds the work RVU (as described earlier in this step.) Apply a BN Adjustment to the Indirect Allocators Step 9: Calculate the current aggregate pool of indirect PE RVUs by multiplying the current aggregate pool of PE RVUs by the average indirect PE percentage from the physician specialty survey data. This is similar to the Step 2 calculation for the direct PE RVUs. Step 10: Calculate an aggregate pool of proposed indirect PE RVUs for all PFS services by adding the product of the indirect PE allocators for a service from Step 8 and the utilization data for that service. This is similar to the Step 3 calculation for the direct PE RVUs. Step 11: Using the results of Step 9 and Step 10, calculate an indirect PE adjustment so that the aggregate indirect allocation does not exceed the available aggregate indirect PE RVUs and apply it to indirect allocators calculated in Step 8. This is similar to the Step 4 calculation for the direct PE RVUs. Calculate the Indirect Practice Cost Index Step 12: Using the results of Step 11, calculate aggregate pools of specialty-specific adjusted indirect PE allocators for all PFS services for a specialty by adding the product of the adjusted indirect PE allocator for each service and the utilization data for that service. Step 13: Using the specialty-specific indirect PE/HR data, calculate specialty-specific aggregate pools of indirect PE for all PFS services for that specialty by adding the product of the indirect PE/HR for the specialty, the physician time for the service, and the specialty's utilization for the service. Step 14: Using the results of Step 12 and Step 13, calculate the specialty-specific indirect PE scaling factors as under the current methodology. Step 15: Using the results of Step 14, calculate an indirect practice cost index at the specialty level by dividing each specialty- specific indirect scaling factor by the average indirect scaling factor for the entire PFS. Step 16: Calculate the indirect practice cost index at the service level to ensure the capture of all indirect costs. Calculate a weighted average of the practice cost index values for the specialties that furnish the service. Note: For services with TC and PCs, we calculate the indirect practice cost index across the global components, PCs and TCs. Under this method, the indirect practice cost index for a given service (for example, echocardiogram) does not vary by the PC, TC and global components. Step 17: Apply the service level indirect practice cost index calculated in Step 16 to the service level adjusted indirect allocators calculated in Step 11 to get the indirect PE RVU. (iv) Calculate the Final PE RVUs Step 18: Add the direct PE RVUs from Step 6 to the indirect PE RVUs from Step 17. Step 19: Calculate and apply the final PE BN adjustment by comparing the results of Step 18 to the current pool of PE RVUs. This final BN adjustment is required primarily because certain specialties are excluded from the PE RVU calculation for rate-setting purposes, but all specialties are included for purposes of calculating the final BN adjustment. (See ``Specialties excluded from rate-setting calculation'' below in this section.) (v) Setup File Information Specialties excluded from rate-setting calculation: For the purposes of calculating the PE RVUs, we exclude certain specialties such as midlevel practitioners paid at a percentage of the PFS, audiology, and low volume specialties from the calculation. These specialties are included for the purposes of calculating the BN adjustment. Crosswalk certain low volume physician specialties: Crosswalk the utilization of certain specialties with relatively low PFS utilization to the associated specialties. Physical therapy utilization: Crosswalk the utilization associated with all physical therapy services to the specialty of physical therapy. Identify professional and technical services not identified under the usual TC and 26 modifier: Flag the services that are PC and TC services, but do not use TC and 26 modifiers (for example, electrocardiograms). This flag associates the PC and TC with the associated global code for use in creating the indirect PE RVU. For example, the professional service code 93010 is associated with the global code 93000. Payment modifiers: Payment modifiers are accounted for in the creation of the file. For example, services billed with the assistant at surgery modifier are paid 16 percent of the PFS amount for that service; therefore, the utilization file is modified to only account for 16 percent of any service that contains the assistant at surgery modifier. Work RVUs: The setup file contains the work RVUs from this final rule with comment period. (vi) Equipment Cost Per Minute = The equipment cost per minute is calculated as: (1/(minutes per year * usage)) * price * ((interest rate/(1-(1/((1 + interest rate) * life of equipment)))) + maintenance) Where: minutes per year = maximum minutes per year if usage were continuous (that is, usage = 1); 150,000 minutes. usage = equipment utilization assumption; 0.5. price = price of the particular piece of equipment. interest rate = 0.11. life of equipment = useful life of the particular piece of equipment. maintenance = factor for maintenance; 0.05. [[Page 66231]] Table 1.--Calculation of PE RVUs Under Methodology for Selected Codes ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ 99213 33533 71020 71020TC 7102026 93000 93005 93010 ------------------------------------------------------------------------------------------------------ CABG, Step Source Formula Office arterial, Chest x-ray Chest x-ray Chest x-ray ECG, ECG, ECG, report visit, est single nonfacility nonfacility nonfacility complete tracing nonfacility nonfacility facility nonfacility nonfacility ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ (1) Labor cost (Lab)........... Step 1............ AMA.............. ................. $13.32 $77.52 $5.74 $5.74 $ $6.12 $6.12 $ (2) Supply cost (Sup).......... Step 1............ AMA.............. ................. $2.98 $7.34 $3.39 $3.39 $ $1.19 $1.19 $ (3) Equipment cost (Eqp)....... Step 1............ AMA.............. ................. $0.19 $0.65 $8.17 $8.17 $ $0.12 $0.12 $ (4) Direct cost (Dir).......... Step 1............ ................. =(1)+(2)+(3)..... $16.50 $85.51 $17.31 $17.31 $ $7.43 $7.60 $ (5) Direct adjustment (Dir Adj) Steps 2-4......... See footnote \1\. ................. 0.592 0.592 0.592 0.592 0.592 0.592 0.592 0.592 (6) Adjusted labor............. Steps 2-4......... =Lab * Dir Adj... =(1) * (5)....... $7.89 $45.89 $3.40 $3.40 $ $3.62 $3.62 $ (7) Adjusted supplies.......... Steps 2-4......... =Sup * Dir Adj... =(2) * (5)....... $1.77 $4.35 $2.01 $2.01 $ $0.71 $0.71 $ (8) Adjusted equipment......... Steps 2-4......... =Eqp *Dir Adj.... =(3) * (5)....... $0.12 $0.39 $4.84 $4.84 $ $0.07 $0.07 $ (9) Adjusted direct............ Steps 2-4......... ................. =(6)+(7)+(8)..... $9.77 $50.62 $10.25 $10.25 $ $4.40 $4.40 $ (10) Conversion Factor (CF).... Step 5............ MFS.............. ................. $34.0682 $34.0682 $34.0682 $34.0682 $34.0682 $34.0682 $34.0682 $34.0682 (11) Adj. labor cost converted. Step 5............ =(Lab * Dir Adj)/ =(6)/(10)........ 0.23 1.35 0.10 0.10 ........... 0.11 0.11 ........... CF. (12) Adj. supply cost converted Step 5............ =(Sup * Dir Adj)/ =(7)/(10)........ 0.05 0.13 0.06 0.06 ........... 0.02 0.02 ........... CF. (13) Adj. equip cost converted. Step 5............ =(Eqp * Dir Adj)/ =(8)/(10)........ 0.00 0.01 0.14 0.14 ........... 0.00 0.00 ........... CF. (14) Adj. direct cost converted Step 5............ ................. =(11)+(12)+(13).. 0.29 1.49 0.30 0.30 ........... 0.13 0.13 ........... (15) Wrk RVU * Wrk Scaler...... Setup File........ MFS.............. 0.8806........... 0.81 29.62 0.19 0.00- 0.19 0.15 0.00 0.15 (16) Dir--pct.................. Steps 6, 7........ Surveys.......... ................. 33.8% 32.6% 40.7% 40.7% 40.7% 37.7% 37.7% 37.7% (17) Ind--pct.................. Steps 6, 7........ Surveys.......... ................. 66.2% 67.4% 59.3% 59.3% 59.3% 62.3% 62.3% 62.3% (18) Ind. Alloc. formula (1st Step 8............ See Step 8....... ................. ((14)/(16)) ((14)/ ((14)/(16)) ((14)/(16)) ((14)/(16)) ((14)/(16)) ((14)/(16)) ((14)/(16)) part). * (17) (16)) * * (17) * (17) * (17) * (17) * (17) * (17) (17) (19) Ind. Alloc. (1st part).... Step 8............ ................. See (18)......... 0.56 3.07 0.44 0.44 ........... 0.21 0.21 ........... (20) Ind. Alloc. formulas (2nd Step 8............ See Step 8....... ................. (15) (15) (15)+(11) (11) (15) (15)+(11) (11) (15) part). (21) Ind. Alloc. (2nd part).... Step 8............ ................. See (20)......... 0.81 29.62 0.29 0.10 0.19 0.26 0.11 0.15 (22) Indirect Allocator Step 8............ ................. =(19)+(21)....... 1.37 32.70 0.73 0.54 0.19 0.47 0.32 0.15 (1st+2nd). (23) Indirect Adjustment (Ind Steps 9-11........ See footnote \2\. ................. 0.362 0.362 0.362 0.362 0.362 0.362 0.362 0.362 Adj). (24) Adjusted Indirect Steps 9-11........ =Ind Alloc * Ind ................. 0.50 11.84 0.26 0.19 0.07 0.17 0.12 0.05 Allocator. Adj. (25) Ind. Practice Cost Index Steps 12-16....... See Steps 12-16.. ................. 0.968 0.942 1.054 1.054 1.054 1.280 1.280 1.280 (PCI). (26) Adjusted Indirect......... Step 17........... = Adj. Ind Alloc =(24) * (25)..... 0.48 11.15 0.28 0.21 0.07 0.22 0.15 0.07 * PCI. (27) PE RVU.................... Steps 18-19....... =(Adj Dir+Adj =((14)+(26)) * 0.77 12.64 0.58 0.51 0.07 0.35 0.28 0.07 Ind) * budn. budn. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \1\ The direct adj = [current pe rvus * CF * avg dir pct] / [sum direct inputs] = [Step 2] / [Step 3]. \2\ The indirect adj = [current pe rvus * avg ind pct] / [sum of ind allocators] = [Step 9] / [Step 10. [[Page 66232]] Comments Related to PE Methodology Comment: Several commenters recommend that the unadjusted work RVUs be used in the allocation of the indirect PE RVUs. Response: The decision to use the budget neutralized work RVUs in the calculation of indirect PEs appropriately maintains the current relationships between the work, PE, and professional liability payments. We also believe it is important to apply the revised, budget neutralized work RVUs consistently within the PFS framework. It would not be consistent to apply one set of work RVUs for work payments, but a different set for purposes of calculating indirect PEs. Therefore, we will base the calculation of both the work payments and the indirect PE payments on the adjusted work RVUs, and maintain the current overall relationships between work, PE, and professional liability. The PE RVUs in Addendum B and throughout the rest of this rule reflect this policy. Comment: Several commenters commended CMS on the bottom up approach to calculating resource based PE RVUs. Commenters expressed gratitude for the transparency and straight forward nature of the revised methodology. Response: We appreciate the support for the revised bottom up practice methodology and agree that the bottom up methodology is a more straight forward methodology then its predecessor. Comment: Some commenters contend that the approach of basing PE calculations on the weighted average of all specialties furnishing a service is flawed and should be replaced with an approach that bases the specialty weighted factors upon specialties that represent 95 percent of the total utilization of each respective service. Response: This issue was fully addressed in the comment and response section of the CY 2007 PFS final rule with comment period (71 FR 69641), and we did not make any further proposals relating to this policy in the CY 2008 PFS proposed rule. Thus, these comments are outside the scope of the CY 2008 PFS proposed rule. Comment: One commenter stated that the use of direct PEs in the allocation of indirect PEs unfairly penalizes PC only billers that do not have any direct costs. Additionally, this commenter contends that the use of only the work RVU in the allocation of indirect PEs for this situation underestimates the indirect PEs for PC only billers. Response: The resource-based PE methodology uses both the work RVU and the direct cost PE RVU in the allocation of indirect PEs. For PC only billers, which do not have any direct costs, indirect costs will only be allocated based upon the work RVUs. There is no provision within the current methodology to allocate the indirect PEs differently, and we made no proposals in the CY 2008 PFS proposed rule regarding this allocation. Additionally, we note that a review of comments on past regulations confirms that the physician community believes that the work RVUs ``over allocate'' the indirect PEs. Thus, there appear to be differing views regarding the effect of this allocation. We will continue to allocate the indirect PEs of PC only services on the work RVUs. Comment: One commenter recommended that, for procedures that have supply costs in excess of 40 to 50 percent of total direct costs, all supply costs be passed through and exempt from the direct adjustment factor. Response: The resource-based PE methodology converts the direct costs for a service, obtained from the direct cost database, into PE RVUs by comparing the service specific aggregate costs to the aggregate pool of costs available for expenditure on direct costs. Because the aggregate direct costs for all services contained in the direct cost database exceed the aggregate pool of available direct dollars, a direct cost adjustment must be applied to scale the database to the pool. Irrespective of the percentage of total direct costs for a specific service represented by supplies, this adjustment will still be applied. If this adjustment were not applied to certain services, the system would either not be budget neutral or RVUs for all other services would have to be reduced to offset these exemptions. We did not make any proposals relating to this adjustment. Moreover, we see no methodological reason to exempt any services regardless of the percentage of their direct costs represented by supplies from the adjustments that apply to all direct costs. g. Discussion of Equipment Usage Percentage In the CY 2008 PFS proposed rule (72 FR 38132), we included a discussion about our use of the equipment usage assumption of 50 percent, and stated that we continue to receive requests that we refine this usage percentage. Some groups and individuals state that this usage percentage should be in the range of 70 to 80 percent while others contend that the current utilization rate is too high at 50 percent and should be refined downward to a lower usage percentage. If the equipment usage percentage is set too high, the result would be insufficient allowance at the service level for the practice costs associated with equipment. If the equipment usage percentage is set too low, the result would be an excessive allowance for the PE costs of equipment at the service level. Although we acknowledged the 50 percent across the board usage rate that we currently apply for all equipment does not capture the actual usage rates for all equipment, we indicated we do not believe that we have sufficient empirical evidence to justify an alternative proposal on this issue. Therefore, we requested that commenters submit information relating to alternative percentages and approaches that differentially classify equipment into mutually exclusive categories with category specific usage rate assumptions. In addition, we requested any empirical data that would assist us in these efforts. h. Equipment Interest Rate As part of our calculation of the PE equipment costs, we consider several factors, for example, the useful life of each piece of equipment and the typical interest that would be incurred in the purchase of the equipment. We updated the assigned useful life for all the equipment in our PE input database in the CY 2005 PFS final rule with comment period. However, we have used the same interest rate of 11 percent since the inception of the resource based PE methodology in 1999. There has been much discussion regarding whether this is still the appropriate interest rate to utilize in the calculation of the equipment costs. The majority of comments on the CY 2007 PFS final rule with comment period requested an interest rate of prime plus 2 percent while a small number of commenters requested an interest rate significantly lower than prime plus 2 percent. In the CY 2008 PFS proposed rule (72 FR 38132), we discussed the basis for the current interest rate of 11 percent and indicated that, based on our analysis of the revised SBA interest rate data, we believe 11 percent continues to be an appropriate assumption; therefore, we stated would retain the interest rate used in the calculation of equipment costs at 11 percent. Comments Concerning Equipment Usage and Interest Rate Comment: Several commenters, including several specialty societies, MedPAC, and the AMA RUC offered recommendations regarding the 11 percent interest rate and the 50 percent utilization rate used to calculate the [[Page 66233]] price per minute for each piece of equipment. The recommendations received regarding the proposed 11 percent interest rate were generally favorable with the majority of commenters recommending that we monitor the interest rate annually to ensure that the appropriate percentage is utilized in the calculation of the equipment costs. The commenters' recommendations about making adjustments to the 50 percent utilization rate varied. Certain commenters recommended we do nothing until stronger empirical evidence is available, while other commenters recommended a decrease in the utilization assumptions, and some commenters recommended an increase in the utilization assumption. The particular changes recommended in the utilization assumptions were, in most cases, directly related to a specific code. Virtually all comments received support an on going process of obtaining reliable empirical data to utilize in the calculation of equipment costs in the future. Response: As discussed in detail in the CY 2007 PFS final rule with comment period (71 FR 69650), we agree with commenters that both the equipment interest rate and the equipment utilization rate should continue to be examined for accuracy. We are committed to working with all interested parties to define the most accurate utilization and interest rate information for equipment used in the provision of physicians' services. Since we did not propose a specific change, we will maintain the assumptions of a 50-percent equipment utilization rate and an 11-percent equipment interest rate in the calculation of the PE RVUs published in Addendum B of this final rule with comment period. We will continue to monitor the appropriateness of these assumptions, and evaluate whether changes should be proposed in light of the data available. Comment: A few commenters recommended that the equipment utilization rate associated with preventive services be reduced since much of the equipment associated with preventive services is procedure specific and thus not utilized at as high a rate as other medical equipment. Response: Similar to our response regarding the equipment utilization rate associated with the entire universe of medical equipment, we do not believe that we have any strong empirical evidence to suggest a change in the current equipment utilization rate associated with preventive services. We are committed to continue working with all interested parties to identify the most accurate utilization rate information for equipment used in the provision of physicians' services. 2. PE Proposals for CY 2008 a. Radiology Practice Expense Per Hour The American College of Radiology (ACR) presented CMS with information regarding the PE/HR that was used in the PE methodology for radiology in the CY 2007 PFS final rule with comment period. ACR suggested that we change our methodology in a way that would weight the survey data to provide an alternative method of representing large and small practices. We agreed to take their approach to our contractor, the Lewin Group, for further analysis. (We note that the Lewin Group, in its initial analysis of the ACR survey data, had also raised concerns about the representation of small high cost entities in the ACR survey data.) The Lewin Group reviewed ACR's approach and concluded that weighting the ACR survey by practice size more appropriately accounts for the small high cost entities in the final PE/HR. After reviewing both the ACR inquiry and the Lewin response, we also agreed that ACR's approach more appropriately identifies the PE/HR for radiology. For these reasons, we proposed to revise the PE/HR associated with radiology using the survey data weighted by practice size and included this revised PE/HR in Table 2 of the CY 2008 PFS proposed rule which identified the PE/HR for all specialties. Comment: Several commenters, including the AMA's RUC, expressed concern over the proposed increase in the PE/HR for radiology whereby the PE/HR associated with this specialty would be developed based upon a revised practice size weighting methodology. Commenters believed that it is inappropriate to refine the current weighting methodology because: (1) This weighting methodology was not done for all specialties; and (2) some specialties requested to survey their memberships after the deadline to submit supplemental survey data and were denied this opportunity by CMS. Several other commenters commended CMS on their ability to review this potential problem and offer a timely resolution to the affected specialty. Response: The American College of Radiology approached CMS with questions regarding the weighting methodology that were used in the development of their PE/HR. Specifically, ACR believed that small high cost practices that primarily furnish professional only services were severely underrepresented in the published PE/HR. Therefore, we forwarded ACR's concerns to our contractor for further review. Upon review of ACR's concerns, our contractor concluded that their initial PE/HR recommendation to CMS was not fully representative of these smaller high cost practices. For this reason, our contractor recommended a revised weighting approach that would fairly represent these small high cost practices. We agree with both the ACR and our contractor and will finalize our proposal to use the revised PE/HR for radiology. Additionally, we do not believe that these revisions to the PE/HR for radiology constitute a submission of data after the deadline. No new data were submitted. Rather, we view this as a revision to the weighting methodology in order to address a unique situation. Comment: Several commenters recommended that all pain management services be crosswalked to the interventional pain management specialty as opposed to using the actual data which currently report the anesthesiology specialty furnishing a significant portion of the pain management services. According to the comments received, anesthesiology is listed as the primary specialty on many pain management services and since the PE/HR associated with anesthesiology is lower than interventional pain management, pain management services are being inappropriately valued. Response: Physicians self-designate their respective specialty for purposes of Medicare enrollment. If commenters believe that physicians are incorrectly self-designating their specialty as anesthesiology when it would be more appropriate for them to designate interventional pain management, commenters should work with their respective specialty organizations to ensure physicians appropriately designate the correct specialty. If the specialty of a certain percentage of the physicians furnishing the pain management service is actually anesthesiology, we believe that weighting the various PE/HR for all specialties that furnish these services, as we currently do, is the appropriate methodology to establish the final PE/HR for pain management services. Comment: One commenter recommends that only the PE/HR associated with ophthalmology be used in the establishment of RVUs for CPT code 66984, Extracapsular cataract removal with insertion of intraocular lens prosthesis (one stage procedure), manual or mechanical technique (e.g., irrigation and aspiration or [[Page 66234]] phacoemulsification). The commenter contends that the 14 percent of the utilization that is associated with optometry is in error as optometrist would only be involved in the post-operative care of these patients and not the surgical procedure. Response: Although we did not make any proposals in the CY 2008 PFS proposed rule regarding this issue, we agree that, generally, optometrists will not be involved in the surgical procedure. As stated by the commenter, and supported by the utilization data, there are a significant number of services for which optometrists are involved in the post-operative care of CPT code 66984. The resource-based PE methodology appropriately adjusts for those services identified with modifier 55 (post-operative care only). Since there are PEs associated with the post-operative care of CPT code 66984, and since we adjust the utilization for those services that are identified as the post- operative care only of CPT code 66984, we believe the current methodology appropriately reflects the correct weighted specialty mix associated with this service. Comment: One commenter recommended that the PE/HR for CPT codes 22862, Revision including replacement of total disc arthroplasty (artificial disc) anterior approach, lumbar, single interspace, and 22865, Removal of total disc arthroplasty (artificial disc) anterior approach, lumbar, single interspace, be crosswalked to orthopedic surgery as opposed to the all physician PE/HR. The commenter contended this is similar to the crosswalk change from all physicians to orthopedic surgery that was reflected in the PE methodology in the proposed rule for CPT code 22857, Total disc arthroplasty (artificial disc), anterior approach, including discectomy to prepare interspace (other than for decompression), lumbar, single interspace. Response: CPT codes 22862 and 22865 were new for CY 2007 and absent specific information with respect to the specialty performing the services, we had crosswalked these codes to the all physician PE/HR. We agree with the commenter that these codes are of a similar nature to CPT code 22857. They are part of the same orthopedic family of codes and should be treated consistently when applying the PE methodology. Therefore, we will assign the orthopedic surgery PE/HR to CPT codes 22862 and 22865 as opposed to the all physician PE/HR. Comment: Several commenters conveyed support for the Physician Practice Information Survey which is currently being administered throughout the nation and encouraged CMS to use this practice cost information to update the current PE/HR data that is being utilized in the development of resourced-based PE RVUs. Response: The Physician Practice Information Survey is a practice cost survey that is being conducted by the AMA with support from various specialty societies and CMS. We look forward to analyzing the results of the AMA data collection efforts for possible inclusion in the resource-based PE methodology in future rulemaking cycles. b. RUC Recommendations for Direct PE Inputs and Other PE Input Issues In the CY 2008 PFS proposed rule (72 FR 38133), we proposed the following concerning direct PE inputs. (i) RUC Recommendations In 2004, the AMA's Relative Value Update Committee (RUC) established a new committee, the Practice Expense Review Committee (PERC), to assist the RUC in recommending direct PE inputs (clinical staff, supplies, and equipment) for new and existing CPT codes, a process that was previously accomplished by the Practice Expense Advisory Committee (PEAC). The PERC reviewed the PE inputs for nearly 300 existing codes at its meetings held in February 2007 and April 2007. (A list of these reviewed codes can be found in Addendum C of the CY 2008 PFS proposed rule.) In the CY 2007 PFS final rule with comment period, we addressed several issues concerning direct PE inputs and encouraged specialty societies to pursue further review of these inputs through the RUC/PERC process. The following discussions summarize the PERC recommendations regarding these issues: Cardiac Catheterization Procedures As discussed in the CY 2008 PFS proposed rule, the PERC considered recommendations for new or updated PE inputs for the family of CPT codes 93501 through 93556 for cardiac catheterization. The American College of Cardiology (ACC), in cooperation with the Society of Cardiac Angiography and Interventions (SCA&I) and the Cardiovascular Outpatient Center Alliance (COCA), developed PE inputs for the nonfacility setting for 13 of the 28 CPT codes in this family. We proposed to accept the PERC recommendations for the direct PE inputs for the nonfacility setting for the CPT codes 93501, 93505, 93508, 93510, 93526, 93539, 93540, 93542, 93543, 93544, 93545, 93555, and 93556. In addition, we proposed that the PE for the following CPT codes will not be valued or applicable to the nonfacility setting: 93503, 93511, 93514, 93524, 93527, 93528, 93529, 93530, 93531, 93532, 93533, 93561, 93562, 93571, and 93572. Comment: We received comments from the ACC and the SCA&I thanking us for our consideration of the PERC recommendations for 13 CPT codes for cardiac catheterization procedures performed in the nonfacility setting and for accepting their request not to establish nonfacility PE RVUs for the remaining 15 procedures in the cardiac catheterization family. Response: We appreciate the commenters' support and have accepted the PERC recommendations for the 13 cardiac catheterization procedures and have changed our PE database to reflect the PE inputs. For the 15 remaining codes, we will finalize the proposal and attach the ``NA'' indicator to them. Comment: We received comments from COCA, a national organization representing nonfacility medical cardiology practices that conducted a ``Direct Cost Study'' purporting to demonstrate that the major problem with the 2006 RUC estimates of direct PE costs for nonfacility outpatient cardiac catheterization was an inadequate list of direct patient care activities. In addition, COCA contends that the total RUC estimates of clinical labor time were so low as to lack credibility. The commenter contends that a significant amount of the data from its Direct Cost Study were not incorporated into the PE recommendations that were jointly prepared and presented at the April 2007 RUC meeting with ACC and SCA&I for the cardiac catheterization procedures. In addition to the inadequate clinical labor inputs, the commenter believes that the RUC process does not allow for the inclusion of safety devices, such as crash carts, as direct PE inputs because these are not used in the typical case; rather, these are considered indirect PE. COCA has requested that we review the data from the Direct Cost Study and revise the current proposed PE RVUs for these procedures to values that reflect more appropriately the direct and indirect costs of providing these services. As an alternative solution, COCA asks that we tie reimbursement for these services to a reasonable percentage of the hospital APC. We also heard from many cardiology practices that provide cardiac catheterizations in the nonfacility [[Page 66235]] setting. They had similar comments and indicated their support for COCA's request that we review the cost study data and revise the PE RVUs to more appropriately value the cardiac catheterization procedures when performed in the nonfacility setting. Response: While we understand COCA's and the other commenters' concerns about the decrease in the PE RVUs for the cardiac catheterization procedures, we want to clarify that the PE inputs for these procedures were fully considered by the RUC process. The RUC has identified standard descriptions of clinical staff activities that the specialty societies follow as they prepare their recommendations for direct PE inputs believed to be typical to a service and the RUC has established standard values for some of these clinical activities. The RUC does not deviate from accepted standard unless the specialty society presents compelling evidence to substantiate that the variance is typical to the practice for each procedure. In the past, the RUC has recommended, and we agreed, that the crash cart would be included as equipment necessary to perform the services of cardiopulmonary resuscitation, CPT 92950, but is not necessary to perform other services, even though many physicians have purchased and maintain crash carts as part of their medical practices. Since the crash cart is only specified as required for use in CPT 92950, it is considered as indirect PE for all other procedures. We note that COCA's request in the alternative to make payment for these procedures based on a percentage of the OPPS APC is not feasible. The PFS and the OPPS APC payment amounts are determined by different payment methodologies that are specified in the statute. We rely on the RUC process to assist us in establishing the typical PE inputs that are necessary to provide physician services. This is because the specialty-developed PE recommendations that are presented to the RUC are all subject to the same multi-specialty scrutiny. We agree with the PERC's direct PE recommendations for the 13 cardiac catheterization codes in the nonfacility setting and we will accept the RUC PE recommendations for these 13 procedures. However, we are sympathetic to the concerns raised by COCA and echoed by other commenters about the extent to which the data from the Direct Cost Study were considered in the RUC process and we ask that the RUC provide another opportunity for the review of the direct PE inputs for these cardiac catheterization procedures to ensure that the data from the COCA Direct Cost Study is afforded appropriate and adequate consideration. Obstetric/Gynecologic PE As discussed in the CY 2008 PFS proposed rule, we agreed with the PERC recommendation to add a non-sterile sheet (drape) 40 in by 60 in (supply code SB006) priced at $0.222 to the pelvic exam pack resulting in the new price of $1.172. This change affected 236 CPT codes for obstetric/gynecologic services containing the pelvic exam pack. We also proposed to accept the PERC recommendations to standardize the equipment used in post-operative visits to include both a power table and fiberoptic light in the PE database for 70 obstetric/gynecologic codes. Comment: We received a comment from the society representing gynecologic oncologists commending us for making the above changes to the pelvic exam pack and for standardizing the equipment used in follow-up visits. The society believes these changes enable gynecologic oncologists to account for the additional costs incurred in their practice specialty. Response: We appreciate the specialty society's comments and we will adopt the PERC recommended inputs as proposed. Dual Energy X-Ray Absorptiometry (DEXA) The PERC recommended revisions to the direct PE inputs for CPT codes 77080, 77081, and 77082 to comply with established PERC standards, and more appropriately reflect the resources used to furnish these services. We agreed with these PERC recommendations. Comment: We received several comments thanking us for accepting the RUC's PE recommendations for the DEXA codes. We also received comments from several device manufacturers and specialty societies representing gynecologists, endocrinologists, rheumatologists, and radiologists informing us that the PE recommendations passed by the RUC, which we had proposed to accept in the proposed rule, contained a mistake as to the correct DEXA equipment that is typically used to perform the procedure represented by CPT code 77080. The RUC's PE recommendations listed the DEXA equipment as that using a ``pencil beam'' technology, priced at $41,000. However, the correct DEXA equipment used for CPT 77080 uses the ``fan-beam'' technology and is priced at $85,000. Response: We were sympathetic to the concerns expressed by the commenters about the listing of the incorrect DEXA equipment, and we worked with the RUC staff to arrange for this equipment error to be reconsidered by the RUC at its September 2007 meeting. The RUC agreed to the specialty society's recommended change in the DXA equipment for CPT 77080. We agree with the recommendations from the specialty societies and the RUC and we have corrected our PE database to reflect that the fan-beam DEXA equipment is typically used for CPT 77080. In addition, a price of $3,000, with documentation, was presented for the spinal phantom used in this procedure. We have also accepted this price and have changed the PE database accordingly. Comment: We received many comments expressing concerns about the cuts to the PE RVUs for these DEXA services. These commenters believe the cuts are a result of the new PE methodology and may result in access problems for patients because physicians will no longer be able to afford to provide these services in the office setting. One commenter asked us to identify and make available to the public the inputs used to derive the indirect PE RVUs. Response: We are aware that the PE RVUs for these DEXA services were negatively impacted by the change in the PE methodology, as were those for many other services in which the previous PE RVUs were not based on the PE resources used to furnish the service. Because the new PE methodology now utilizes these resources, it is important to make certain that the PE direct inputs actually reflect the typical resources that are used to provide each service. The methodology for determining the indirect PE RVUs, including a description of each step in the calculation, is detailed earlier in this section. We share the commenters concerns about beneficiary access to DEXA services and will continue to monitor this issue. Computer-Aided Detection (CAD) Codes The specialty society for radiological services reviewed the direct inputs for CPT codes 77051 and 77052 and recommended that no changes to the PE inputs were needed. The PERC concurred with this decision and we are in agreement. Comment: We received a comment from the society representing radiologists conveying their appreciation for accepting the unchanged direct PE inputs for CAD services. Response: We appreciate the commenter's support and will maintain the PE inputs as proposed. [[Page 66236]] Nuclear Medicine Services The specialty society representing nuclear medicine and the PERC recommended that the direct PE inputs for 2 CPT codes contained CPEP inputs and needed to be updated to agree with 2004 PEAC-approved inputs. However, in reviewing the PE database, we discovered that there were 4 other related codes which also had CPEP inputs which should be updated. We made the appropriate adjustments to substitute the PEAC inputs for the CPEP for CPT codes 78600, 78607, 78206, 78647, 78803 and 78807. The specialty society also noted that for 7 CPT codes, revision of x-ray related supplies was required, including the number of x-ray films, developer solution, and film jackets. The PERC forwarded these recommendations and we made the appropriate changes to the PE database for the following CPT codes: 78600, 78601, 78605, 78606, 78607, 78610 and 78615. Comment: The specialty society representing nuclear medicine expressed appreciation for acceptance of their recommended inputs and indicated it will continue to monitor the nuclear medicine codes and provide inputs and refinements as necessary and appropriate. Response: We appreciate the specialty society's comments and we will adopt the PERC recommended inputs as proposed. Transcatheter Placement of Stent(s) At the request of the specialty societies representing radiology and interventional radiology, the PERC considered and approved direct PE inputs for the nonfacility setting for 3 CPT codes, 37205, 37206, and 75960, for transcatheter placement of stent(s). Among the supplies, a ``vascular stent deployment system'', valued at $1,645, was noted by the society as the typical stent used for CPT codes 37205 and 37206 requiring 2 such stents for the placement in the initial vessel and 1 stent for each subsequent vessel, respectively. We reviewed a published clinical research study that was forwarded by the specialty society. The study indicated that 1 stent was typical for the procedure of CPT code 37205. As discussed in the CY 2008 PFS proposed rule (72 FR 38134), absent any further verification from the specialty, we included only 1 stent in the PE database for this code. Comment: Commenters, representing specialty societies for radiology, interventional radiology and vascular surgery appreciated the proposal assigning direct PE inputs for the nonfacility setting for these three CPT codes. However, these commenters expressed concern that the number of stents had been reduced. One commenter agreed that two stents may not be typical but requested guidance on how the cost of the additional stent could be billed; another of the commenters asked that we reconsider this decision or at a minimum include the ``average'' of 1.5 stents. One of the commenters also noted that several studies clearly establish that these peripheral stent services are safely performed in the nonfacility environment, with nearly all of the procedures in the studies resulting in short observation stays, typically of less than 4 hours. Response: Based on a review of the literature and other information provided by the commenters we will revise the PE database for CPT code 37205 to reflect 1.5 stents. Comment: Two commenters, representing manufacturers, expressly urged us to consider the safety issues surrounding the proposal to value these procedures in the nonfacility setting and believe that this conflicts with the decision to exclude these procedures from the ambulatory surgical center (ASC) list. One of these commenters acknowledged that, while we have no specific policy to identify which procedures can be safely performed in a physician's office, we do have some safety standards for ASCs. The commenter requested that the ASC standards be extended to the physician office. This commenter also referenced studies that demonstrate complications can be associated with these procedures, and suggested that these risks need to be addressed by appropriate safety or quality standards. Response: We appreciate the commenters' viewpoint. However, as the commenters acknowledged, we have no established policy to designate procedures that can be ``safely'' performed in the physician office setting. The purpose of the PFS is to establish proper payment for procedures furnished by physicians and other health professionals. Several medical specialty societies recommended the valuation of these services in the nonfacility setting, which suggests to us that these procedures are being furnished in nonfacility settings on a regular basis. These societies provided the recommended PE inputs involved in furnishing the typical service in a nonfacility setting, and these inputs were reviewed, accepted and recommended by the RUC. We also note that, as indicated in the previous comment, one commenter provided literature from studies to support that these services are safely performed in the nonfacility environment. Because it appears these procedures are being furnished regularly in nonfacility settings, we believe it is appropriate to value them for payment in those settings. Therefore, we will value these procedures in the nonfacility setting as proposed. Comment: One commenter noted that payment for CPT code 75960, the supervision and interpretation service associated with the 2 CPT codes discussed above for the transcatheter placement of stent(s), is still shown as carrier-priced in the Addendum of the proposed rule. Response: We regret the error. The Addendum and PFS database have been corrected to reflect the appropriate RVUs. (ii) Remote Cardiac Event Monitoring In the CY 2007 PFS final rule with comment period, direct PE inputs for remote cardiac event monitoring (CEM) services represented by CPT codes 93012, 93225, 93226, 93231, 93232, 93270, 93271, 93733, and 93736 were revised on an interim basis to reflect the unique circumstances surrounding the provision of these services. Unlike most physicians' services, CEM services are furnished primarily by specialized IDTFs that, due to the nature of CEM services, must operate on a 24/7 basis. The specialty group representing suppliers that furnish CEM services believes that these services require additional direct PE inputs, such as telephone line charges associated with trans-telephonic transmissions and fees associated with providing Web access for storage and transmission of clinical information to the patient's physician. We continue to work with the specialty group regarding the specific direct PE inputs, as well as the components for the indirect PE allocation, based on surveys conducted by the specialty group. To clarify and further the results of our discussions with and information provided by, the specialty group, we requested comments in the CY 2008 PFS proposed rule on the appropriateness of the above-mentioned direct PE inputs. In addition, we invited comments on any additional direct inputs and components of the indirect PE allocations which would be appropriate for these services, along with supporting documentation to justify their inclusion for PE purposes. Comment: We received comments from medical societies, provider organizations and a device manufacturer thanking us for working with these organizations to develop direct PE for [[Page 66237]] these services that do not fit the typical physician service model. Several comments supported the specific PE proposals supplied by the specialty group representing providers that furnish CEM services, and urged us to adopt them. A medical society representing cardiologists requested to work with us and the remote CEM provider groups to gather and review any additional necessary data prior to adoption of additional direct PE inputs. The CEM provider group specifically proposed that we add telephone transmission costs to the direct PE inputs for CPT codes for CEM, 93012 and 93271 and the CPT codes for pacemaker monitoring, 93733, and 93736. The group also identified expenses for Web-based storage, maintenance and access to clinical information to be allocated to the CEM and pacemaker monitoring CPT codes, as well as the holter monitoring CPT codes 93226 and 93232. In addition to these supply PE recommendations, the CEM provider group proposed equipment time-in-use increases for the holter monitors, cardiac event monitors and for INR monitors (which are discussed later in this section). Response: We carefully reviewed the information supplied by all of the commenters and believe that it would be valuable for the commenters to work together, including the cardiology specialty society, before we establish further direct PE inputs for these cardiac monitoring services. In addition, we would like to make the CEM providers aware that it appears the assignment we made in CY 2007 of 43,200 time-in-use minutes for the looping CEM monitor used in CPT code 93271 (typically used for a 30-day period) pays back the cost of this CEM monitor, that is valued at $995, in less than 5 months, even though the CEM monitor has an established 4-year useful life. As we discuss later in the Prothrombin Time, International Normalized Ratio (PT/INR) section, we believe that the time-in-use assigned to any one device should not exceed its useful life. We will review this time-in-use assignment for CEM monitors during our CY 2009 rulemaking. (iii) Prothrombin Time, International Normalized Ratio (PTI/NR) As discussed in the CY 2008 PFS proposed rule, based on comments received and subsequent discussions with entities that furnish these PT/INR services, we adjusted the time in use for the home monitor equipment for G0249 Provision of test materials and equipment for home INR monitoring to patient with mechanical heart valve(s) who meets Medicare coverage criteria; includes provision of materials for use in the home and reporting pwiof [prothrombin] test results to physician; per four tests to 1440 minutes to reflect that the monitor is dedicated for use 24 hours a day and unavailable for others receiving this service. We invited comments on this change, as well as comments on any additional direct inputs which would be appropriate to this service, along with supporting documentation to justify their inclusion for PE purposes. Comment: We received comments from specialty societies, provider groups, and individuals expressing their appreciation of our attempt to correct the problem concerning the application of PE methodology for the PT/INR service, but noted their concern that changing the INR home monitor time-in-use minutes from 32 to 1440 does not have a rational basis nor does it provide for an adequate recoupment of the cost of the device. These commenters requested that we assign a more realistic figure to capture the 28-day period that the patient is required to use the monitor. One commenter noted that using the current 1440 minutes, it would take 11.7 years to recoup the $2000 price of the equipment which has an assigned life of 4 years. The commenters suggested several alternative methodologies to calculate the time-in-use for the INR monitor. One method suggests multiplying the 1-day time, 1440 minutes, by 4, which represents the number of tests conducted in the 28-day period, to equal 5,760 minutes. This method would take 3 years to get back the $2000 value of the INR monitor. Another proposal suggests multiplying the 1-day 1440 minutes by 28 days which is the actual time the patient has the equipment. This method yields 40,300 minutes and the commenter admittedly states this method greatly overestimates the value of the INR monitor because it would take just 5 months to recoup the $2000 price. One commenter suggested that we simply amortize the price of the equipment, $2,000, over the useful life of 4 years. Another commenter's suggestion uses the annual minutes figure of 150,000 that we use in our formula for deriving per minute equipment costs, and divides it by 28 (days) to arrive at 5,753 minutes. This method recoups the INR monitor price in 3 years. Other commenters voiced concerns about the valuation of the INR home monitor and offered alternatives to capture the cost of the device. One commenter suggested that we treat the cost of the INR home monitor as a one-time upfront cost and include this price in HCPCS code G0248 that is used to report the demonstration of the INR monitor to the patient, at the initial use. Another commenter recommended that the INR home monitor be removed from the PE for both G0248 and G0249 and be considered under the DME benefit. Response: We understand the concerns expressed by the commenters and appreciate their suggested alternatives that we could use to more appropriately cover the costs of the INR home monitor. Further, we agree that the 1440 minutes we assigned for CY 2007 seems too low considering that the patient uses the INR home monitor for 28 days, not just one. After reviewing all of the suggested alternatives, we eliminated the two proposals asking us to change the mechanism of payment for the INR home monitor. We, therefore, considered the various suggestions for establishing a more appropriate time-in-use value for the INR home monitor. We believe the proposal that best reflects the policy we use to determine the time-in-use for equipment items where the actual minutes-in-use exceed the assigned useful life is the commenter's suggestion to amortize the $2000 INR monitor over its 4- year life. Using this method, 4,315 minutes is the necessary time-in- use figure to recover the purchase price of the equipment in 4 years. We will replace the 1440 minutes assigned for CY 2007 with 4,315 minutes as the time-in-use for the INR home monitor and will change the PE database accordingly. (iv) Positron Emission Tomography (PET) Codes Clinical Labor Time We received comments from the specialty society representing nuclear medicine regarding a discrepancy in the clinical labor time for CPT codes 78811, 78812, and 78813 which are PET codes for tumor imaging. The specialty noted that the clinical labor time indicated in the PE database differs by 7 minutes from the time that was previously recommended by the PERC in April 2004. We agreed with the specialty society that the PE database labor inputs for these 3 PET codes are incorrect and we made the appropriate adjustments to the PE database. Comment: The specialty society representing nuclear medicine expressed appreciation for acceptance of its recommended inputs and indicated it will continue to monitor the nuclear medicine codes and provide inputs and refinements as necessary and appropriate. Response: We thank the specialty society for reviewing the direct inputs for their related procedures in the PE [[Page 66238]] database that we post as a download with each proposed and final rule on our Web site (http://www.cms.hhs.gov/PhysicianFeeSchedule/PFSFRN). We will adopt the recommended inputs as proposed. (v) Nuclear Medicine PE Supplies The specialty society representing nuclear medicine commented that the PE database currently contains supply items that are inappropriate for certain procedures and provided the information to make the corrections. For respiratory imaging procedures represented by CPT codes 78587, 78591, 78593, 78594, 78630, 78660, 78291, and 78195, the specialty society noted specific IV supply items to be deleted from procedures where they are not required. For a thyroid imaging procedure represented by CPT code 78020, x-ray supply items were recommended for deletion. In addition, the society recommended adding supply items for respiratory imaging procedures, including nose clips, masks, and nebulizer kits, as appropriate, to CPT codes 78584, 78585, 78591, 78593, 78594, 78586, 78587, 78588, and 78596. For a kidney function study represented by CPT code 78725, injection supply items were noted as missing and the specialty society requested that these be added. We proposed to accept these direct PE input corrections and revised our PE database accordingly. Comment: The specialty society voiced its gratitude for the acceptance of their recommended inputs. Response: We thank the specialty society for its interest in assuring the accuracy of the PE inputs in the procedures provided by their members. We will adopt the PERC recommended inputs as proposed. (vi) Arthroscopic Procedure Nonfacility Inputs In the CY 2008 PFS proposed rule (72 FR 38135), we included a discussion about the establishment of nonfacility direct PE inputs for the arthroscopic procedures represented by CPT codes 29805, 29830, 29840, 29870, and 29900. Absent specific recommendations from the RUC and because some physicians are already performing these procedures in the office setting, we specifically requested comments regarding the appropriateness of establishing nonfacility PE inputs for these arthroscopic procedures when they are provided in the office setting. We also invited comments as to the specific direct PE inputs, following the RUC approved standardized format, that are typical in the provision of each above listed arthroscopic procedure furnished in the physician's office. We indicated we will review these comments to determine whether or not it is appropriate to propose on an interim basis PE inputs for these codes in the nonfacility setting in our final rule. Comment: We received comments from the specialty society representing orthopedic surgeons in opposition to the establishment of nonfacility PE for the arthroscopic procedures because they believe these procedures are not safely performed in the office setting. The specialty society indicated that one of these codes, CPT 29900, Arthroscopy, metacarpophalangeal joint, diagnostic, includes synovial biopsy, was surveyed by the RUC in April 2001 and, at that time, the RUC recommended this service only as a facility-based procedure. The RUC supported the AAOS concerns and recommended that the PE RVUs for the nonfacility setting remain designated as ``NA.'' The specialty society believes that if the arthroscopic procedures were valued in the nonfacility setting, untrained physicians may begin to perform them and, as a result, patients will face significant risks. The specialty society believes that only credentialed physicians should perform these procedures and that this process can only be ensured in the facility- based setting. The specialty society also asserts the facility-based setting is the safest setting for these procedures because it affords the physician more clinical options for dealing with any complications that may arise. In addition, if the procedure is furnished in the nonfacility setting, there would be no way to address any treatable lesion that is found and a patient would need to be seen in the facility setting to undergo a second procedure. Because the specialty society's position was established by an expert panel, the society states that it will reconsider its position if evidence is presented establishing the safety and efficacy of these procedures in the office setting and if a method is established to ensure that only qualified physicians perform these procedures in the office setting. We also received comments from orthopedic practices and individual physicians--the majority of which indicated they are members of the orthopedic specialty society--all stating that they are currently performing these procedures in the nonfacility setting. These comments requested that we establish PE inputs for the arthroscopic procedures because this would allow patients greater access to these services in more convenient settings and, because it would establish payment that would more fairly compensate them for the resources they use to provide these services in the office location. A product manufacturer supported the views of the physicians who requested the establishment of nonfacility PE for the nonfacility setting. These physicians note that the safety of the in-office procedures is well documented in the literature, and provided us with citations of articles going back to the mid-1990s. We also received suggested PE inputs including clinical labor, supplies and equipment that are typically used when these procedures are provided in the nonfacility setting. Response: We appreciate the concern expressed by the commenters opposing the establishment of PE for the office setting and are sympathetic to those supporting the assignment of PE for these codes. We are also dismayed that the parties involved on each side of this issue have not been able to resolve these issues to date. We have decided that the most prudent course of action is to defer proposing nonfacility inputs for these arthroscopic procedures in this final rule. We are hopeful that the specialty society and its physician colleagues who provide these services in the nonfacility setting will be able to discuss the issues of mutual concern regarding the safety of performing these procedures in the office setting. We are hopeful that this issue can be resolved and that the physicians performing these services in the nonfacility setting will be given the opportunity to have a multi-specialty review by the RUC. We are aware that this decision to refer this issue back to the specialty society and the RUC postpones the establishment of nonfacility PE values for these procedures until CY 2009, at the soonest, and that a review by the RUC process is not guaranteed. However, given the apparent level of dissension within the specialty, we believe that the specialty society, its physician colleagues, and the RUC should first be given an opportunity to resolve these important issues. (vii) Nonfacility Inputs for CPT Code 52327 As discussed in the CY 2008 PFS proposed rule we indicated that the society representing urologists requested that we remove all of the nonfacility PE inputs for CPT code 52327, Cystourethroscopy (including ureteral catheterization); with subureteric injection of implant material. The specialty society reasoned that the nonfacility PE value is inappropriate since the procedure is never performed in the physician office; [[Page 66239]] it is specific to the pediatric population; and, as such, is always performed with general anesthesia. We agreed with the specialty society that this procedure is incorrectly valued for the nonfacility setting and proposed to accept its recommendation to remove the nonfacility direct PE inputs, revising the PE database accordingly. Comment: The specialty society thanked us for accepting its recommendation to remove the nonfacility PE for this procedure. However, the society indicated that a review of the PE database on our Web site indicated that these inputs were still included and suggested that they be deleted. Response: We appreciate the commenter's attention to detail and have removed the PE inputs from the PE database. (viii) Maxillofacial Prosthetics We have been working with the society representing maxillofacial prosthetists since 2005 to establish nonfacility direct inputs for the prosthetic services represented by the CPT code series, 21076 through 21087. The current PE database reflects the labor, supplies, and equipment needed to perform each procedure. However, we do not have pricing information and documentation for many supply items. The society provided information and documentation for equipment prices, but because specific time-in-use information was not provided, we developed time in use in 2006 for each equipment item in each procedure. For CY 2007, these equipment inputs were utilized under the new PE methodology to calculate the nonfacility PE RVUs for these procedures. Although we have asked the specialty society to provide the supply pricing information and time in use data for each equipment item for each procedure, we have not received the requested information to date. Consequently, unless such information is provided, the PE database will continue to have no prices associated with these supplies. Therefore, in the CY 2008 PFS proposed rule, we proposed to cap the time in use for each equipment item at 25 minutes until specific information is received regarding the actual time in use. Tables listing the needed information for were included in the proposed rule. Comment: The specialty society representing the maxillofacial prosthetists supplied us with some of the requested information. The society provided us with the time-in-use data for every piece of equipment for each of the procedures in the CPT code series 21076 through 21087. The specialty also provided prices for the supply items used in this code series; however, it did not provide any documentation to support these prices. Response: We appreciate the information provided by the specialty, especially that in relation to the equipment time-in-use. The recommended equipment times were compared with the total clinical labor time for each procedure and times that were greater were reduced to equal the labor time, in accordance with our usual allocation policy. Capping the equipment time-in-use to match the labor time affected 4 pieces of equipment in every procedure including: the dental chair, ceiling light, air compressor, and delivery unit. For 3 of these codes, the time-in-use for a 5th piece of equipment, the washout and curing unit, was also capped. We will accept the specialty's equipment time- in-use information, with the aforementioned variances, and have changed the PE database accordingly. We regret that documentation for the supply prices was not forwarded. We did, however, receive a catalog documented pricing for articulating paper/ribbon that was submitted by a different specialty in reference to another CPT code, and have entered this price in the PE database for 8 of the 10 codes in this family, as appropriate. The specialty is reminded that our policy for accepting prices for supplies or equipment in the PE database requires the submission of acceptable documentation, the definition of which is specified below the table that appeared in the proposed rule listing the outstanding prices for supply items needing documentation. We will continue to work with the specialty as it collects and forwards this important information. (ix) Requests for Increases in Supply Prices We received a request from the specialty society for obstetrics and gynecology to increase the price of supply item (kit, hysteroscopic tubal implant for sterilization) for CPT code 58565, Hysteroscopy, surgical; with bilateral fallopian tube cannulation to induce occlusion by placement of permanent implants for this code which was created for CY 2005. This hysteroscopic implant kit is priced at $980 and the specialty is now requesting a price of $1,245, providing an invoice for documentation. The specialty reports that the higher price is attributed to a manufacturer change in design and materials, and submitted the manufacturer's documents supporting these changes that were used to secure FDA approval. Therefore, we proposed to accept the new price of $1,245 for the hysteroscopic implant kit due to the changes made in the modified model. Comment: We did not receive comments on this proposal. Response: We will finalize our proposed price of $1,245 for the hysteroscopic implant kit and will amend our PE database, as appropriate. (x) Supply and Equipment Items Needing Specialty Input We have identified certain supply and equipment items for which we were unable to verify the pricing information (see Table 2: Supply Items Needing Specialty Input for Pricing and Table 3: Equipment Items Needing Specialty Input for Pricing). In our CY 2008 PFS proposed rule, we listed both supply and equipment items for which pricing documentation was needed from the medical specialty societies and, for many of these items, we received sufficient documentation containing specific descriptors and pricing information in the form of catalog listings, vendor Web pages, invoices, and manufacturer quotes. We have accepted the documented prices for many of these items and these prices are reflected in the PE RVUs in Addendum B of this final rule with comment period. For the items listed in Tables 2 and 3, we are requesting that commenters provide pricing information on items in these tables along with acceptable documentation, as noted in the footnote to each table, to support recommended prices. For supplies or equipment that have previously appeared on this list, and for which we received no or inadequate documentation, we proposed to delete these items unless we receive adequate information to support current pricing by the conclusion of the comment period for this proposed rule. In Tables 4 and 5, we have listed new supplies and equipment from the new CPT codes for CY 2008 that are discussed elsewhere in this final rule with comment period. These items have been added to the PE database and, where priced, are reflected in the PE RVUs in Addendum B. [[Page 66240]] Table 2.--Supply Items Needing Specialty Input for Pricing ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Unit Primary associated Associated *CPT Prior item Commenter response 2008 item status Code 2006/7 Description Unit price specialties code(s) status on table and CMS action refer to note(s) ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ SC088............................ Fistula needle, Item................ ......... Dermatology......... 36522.............. Yes.............. Documentation C dialysis, 17g. received. Revised description per specialty's comments. Price accepted at $1.62. Gas, argon, .................... ......... Urology, Radiology, 50395.............. No............... New Item........... A, E cryoablation. Interventional Radiology. Gas, helium, .................... ......... Urology, Radiology, 50395.............. No............... New Item........... A, E cryoablation. Interventional Radiology. SD140............................ Pressure bag........ item................ 8.925 Cardiology.......... 93501, 93508, Yes.............. Documentation C 93510, 93526. received. Price accepted at $19.00. SL119............................ Sealant spray....... oz.................. ......... Radiation Oncology.. 77333.............. Yes.............. No comments B received. SD213............................ Tubing, sterile, non- item................ 1.99 Cardiology.......... 93501, 93508, Yes.............. Documentation C vented (fluid 93510, 93526. received. Price administration). accepted at $0.949. Stent, vascular, Kit................. $1,645 Radiology, 37205, 37206....... Yes.............. Documentation C deployment system. Interventional received. Price Radiology. retained at $1,645. Catheter, Kumpe..... Item................ ......... Radiology, 50385, 50386....... No............... New item........... A, E Interventional Radiology. Disposable .................... ......... Oral and 21073.............. No............... New item........... A, E aspirating syringe. Maxillofacial Surgery. Guidewire, angle tip .................... ......... Radiology, 50385, 50386....... No............... New item........... A, E (Terumo), 180 cm\1\. Interventional Radiology. Snare, Nitinol Item................ ......... Radiology, 50385, 50386....... No............... New item........... A, E (Amplatz). Interventional Radiology. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \*\ CPT codes and descriptions only are copyright 2008 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply. Note: Acceptable documentation includes--Detailed description (including system components), source, and current pricing information, such as copies of catalog pages, hard copy from specific Web pages, invoices, and quotes (letter format okay) from manufacturer, vendors or distributors. Unacceptable documentation includes--phone numbers and addresses of manufacturer, vendors or distributors, Web site links without pricing information, etc. Note A: Additional documentation required. Need detailed description (including kit contents), source, and current pricing information (including pricing per specified unit of measure in database). Accept copies of catalog pages or hard copy from specific Web pages. Phone numbers or addresses of manufacturer, vendors or distributors are not acceptable documentation. Note B: No/Insufficient received. Retained price in database on an interim basis. Forward acceptable documentation promptly. Note C: Submitted price accepted. Note D: Deleted per comment or CMS. Note E: 2007/8 price retained on an interim basis. Forward acceptable documentation promptly. Table 3.--Equipment Items Needing Specialty Input for Pricing and Proposed Deletions -------------------------------------------------------------------------------------------------------------------------------------------------------- Primary specialties *CPT code(s) Code 2006/7 Description 2007/8 associated with associated with Prior status on Commenter response 2008 Item status Price item item table and CMS action refer to note(s) -------------------------------------------------------------------------------------------------------------------------------------------------------- EQ269.......... Ambulatory blood 3000 Cardiology......... 93784, 93786, 93788 Yes.............. Documentation C pressure monitor. provided. Price accepted is $1525 (Did not accept $395 warranty cost.). Camera mount--floor 2300 Dermatology........ 96904.............. Yes.............. Specialty to A, E submit, asap. Cross slide 500 Dermatology........ 96904.............. Yes.............. Specialty to A, E attachment. submit, asap. Dermal imaging 4500 Dermatology........ 96904.............. Yes.............. Documentation C software. provided. Price accepted at $4500. Dermoscopy 650 Dermatology........ 96904.............. Yes.............. Documentation C attachments. provided. Price accepted at $650 ( average of the cost of the two items provided). [[Page 66241]] EQ008.......... ECG signal 8,250 Cardiology, IM..... 93278.............. Yes.............. Documentation A, E averaging system w- provided. Revised P waves and late description to potentials better describe software. system. Price accepted at 17,900. Instrument, .......... Pathology.......... 88380.............. No............... New Item........... A, E microdissection. Lens, macro, 35- .......... Dermatology........ 96904.............. Yes.............. Deleted item as D 70mm. price is less than $500 per documentation received. Plasma pheresis 37,900 Radiology, 36481, G0341....... Yes.............. Revised description B machine. Dermatology. based on comments received that light source was not part of item. Documentation requested. ED039.......... Psychology Testing .......... Psychology......... 96101, 96102....... Yes.............. Specialty to B Equipment. submit, asap. ER070.......... Portal imaging 377,319 Radiation oncology. 77421.............. Yes.............. Documentation C system (w/PC work provided. Price station and accepted at software). $489,940 ( average of the cost of the two items provided). Strobe, 400 watts 1500 Dermatology........ 96904.............. Yes.............. Documentation B (Studio) (2). requested. Cryosurgery system .......... Urology, Radiology, 50593.............. No............... New item........... A, E (for tumor Interventional ablation)\1\. Radiology. -------------------------------------------------------------------------------------------------------------------------------------------------------- * CPT codes and descriptions only are copyright 2008 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply. Note: Acceptable documentation includes--Detailed description (including system components), source, and current pricing information, such as copies of catalog pages, hard copy from specific Web pages, invoices, and quotes (letter format okay) from manufacturer, vendors or distributors. Unacceptable documentation includes--phone numbers and addresses of manufacturer, vendors or distributors, Web site links without pricing information, etc. Note A: Additional documentation required. Need detailed description (including kit contents), source, and current pricing information (including pricing per specified unit of measure in database). Accept copies of catalog pages or hard copy from specific Web pages. Phone numbers or addresses of manufacturer, vendors or distributors are not acceptable documentation. Note B: No/Insufficient received. Retained price in database on an interim basis. Forward acceptable documentation promptly. Note C: Submitted price accepted. Note D: Deleted per comment or CMS. Note E: 2007/8 price, where specified, retained on an interim basis. Forward acceptable documentation promptly. Table 4.--Practice Expense Supply Item Additions for CY 2008 ---------------------------------------------------------------------------------------------------------------- *CPT code(s) Equip code Supply description Unit Unit price associated with item Supply category ---------------------------------------------------------------------------------------------------------------- NA............. Blade, sharp pointed item........... 0.73 88381............... Cutters, closures. surgical. NA............. Buffer, lysis....... ml............. 0.46 88381............... Lab. NA............. Caps, Capsure Macro ml............. 4.54 88380............... Lab. LCM. NA............. Catheter, balloon, item........... 306 68816............... Accessory. lacrimal. NA............. Catheter, Kumpe \1\. item........... ............ 50385, 50386........ Accessory. NA............. Disposable ............... ............ 21073............... .................... aspirating syringe \1\. NA............. Ethanol, 95%........ ml............. 0.0033 88380, 88381........ Lab. NA............. Fee, image analysis. item........... 18 99174............... Office supply. NA............. Gas, argon, ............... ............ 50593............... Accessory. cryoablation. Gas, helium, ............... ............ 50593............... Accessory. cryoablation. NA............. Gastrostomy. Low item........... 5 43760............... Accessory. profile replacement button (Mic-Key). NA............. Gastrostomy. Stoma item........... 10 43760............... Accessory. measuring device (Mic-Key). NA............. Glycerol, 3%........ ml............. 0.001 88380, 88381........ Lab. NA............. Guidewire, angle tip item........... ............ 50385, 50386........ Accessory. (Terumo), 180 cm \1\. NA............. IV infusion set, Sof- item........... 11.50 90769, 90771........ Hypodermic, IV. set (Minimed). NA............. Methylene blue stain ml............. 0.178 88380............... Lab. NA............. Probe, cryoablation, item........... 1175 50593............... Accessory. renal. NA............. Rnase-free water.... ml............. 0.85 88381............... Lab. NA............. Slide, microscope, item........... 1 88380, 88381........ Lab. sterile. NA............. Snare, Nitinol item........... ............ 50385, 50386........ Accessory. (Amplatz) \1\. NA............. Swab, patient prep, item........... 1.04 36592............... Pharmacy, NonRx. 1.5 ml (chloraprep). [[Page 66242]] NA............. Tube, jejunsostomy.. item........... 195 49441, 49446, 49451 Accessory. and 49452. ---------------------------------------------------------------------------------------------------------------- * CPT codes and descriptions only are copyright 2008 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply. \1\ Price verification needed. Item(s) added to table of supplies requiring specialty input. Table 5.--Practice Expense Equipment Item Additions for CY 2008 ---------------------------------------------------------------------------------------------------------------- *CPT code(s) Equip code Equipment description Life Unit price associated with item Equipment category ---------------------------------------------------------------------------------------------------------------- NA............... Cryosurgery system 10 ........... 50593................ Other Equipment. (for tumor ablation) \1\. NA............... Cardiac coil, 1.5T 8- 5 35400 7557, 7558 and 75559. Imaging Equipment. channel (MR). Instrument, 7 ........... 88381................ Laboratory. Microdissection. NA............... Pressure sensor, 5 25000 93982................ Documentation. wireless (for implanted AAA sac sensor). NA............... Camera, ocular 5 7000 99174................ Documentation. photoscreening, w- laptop and software. ---------------------------------------------------------------------------------------------------------------- * CPT codes and descriptions only are copyright 2008 American Medical Association. All Rights Reserved. Applicable FARS/DFARS apply. \1\ Price verification needed. Item(s) added to table of equipment requiring specialty input. (xi) Additional PE Issues Raised By Commenters Comment: One commenter recommends that the direct inputs associated with all fee schedule services be made available to the public. Response: Since the inception of resource based PEs, all direct input data has been made available to the public on the CMS Web page. The direct inputs associated with this final rule with comment period are also available to the public at the following Web site under CMS- 1385-IFC: http://www.cms.hhs.gov/PhysicianFeeSched/PFSFRN/list.asp#TopOfPage . Comment: Several commenters recommend that we reprice supply items over $200 in the PE direct input database annually. Additionally, commenters also requested that we establish individual J codes for these high cost supplies. Alternatively, several other commenters expressed concerns over this recommendation stating that utilization guidelines must be set up that would trigger repricing or an undue burden would be placed upon those specialties using these high cost supplies. Response: Using an individual HCPCS code for each of these supplies would be difficult as there are multiple manufacturers, with multiple prices, associated with the majority of these codes. Having multiple manufacturers, and thus multiple prices, also makes it difficult to reprice these supplies within the PE methodology, which is why we continue to work with the AMA RUC to establish direct cost input data. Additionally, all direct inputs need to be budget neutralized within the PE methodology. Removing these high cost supplies from the standard PE methodology would unfairly advantage procedures that contain these supplies as they would not be subject to the same budget neutrality adjustments as would other supplies. Finally, we agree with those commenters that state that any annual repricing of these supplies would place undue burden on specific physician groups. For these reasons, we will continue to price these high cost supplies within the standard PE methodology. Comment: A few comments were received that recommended that desktop computers be included as a direct PE cost. Response: The direct PE database includes desktop computers with monitor when this computer is identified as being dedicated to a specific procedure. The costs associated with computers that are used for non-clinical purposes assigned to a specific procedure, for example, used for administrative procedures, are more appropriately captured in the indirect cost category. Comment: One commenter representing home care physicians requested that travel time and other inherent costs related to mobile medical services such as vehicle operation and mobile communication should be accounted for in the PE calculation. Response: To the extent that travel time is necessary to furnish physician services outside of the office setting, these expenses are not considered direct costs under the PE methodology. Although the mobile communication devices are not specifically included as direct PE inputs, 12 minutes of clinical labor time is assigned for each of the home visit E/M services, 6 minutes in the pre-time period and 6 minutes in the post time period. Phone calls are standardized at 3 minutes each for purposes of the direct PE inputs and would be included as part of this clinical labor time. Comment: One commenter stated that adjustments need to be made to the PE database for certain dialysis codes and requested that for G0393 and G0392 an angioplasty balloon be added to the PE database and that for CPT code 36870 the PE database should be revised to include an angiographic room and a power table. Response: The balloon catheters are reflected in the PE database, as supply number SD152, and the angiographic room and an exam table are included in the equipment for CPT code 36870. Comment: Commenters expressed concern about the level of reimbursement for intrathecal pump management services for chronic pain patients and believe that the refill kit is not accounted for in the PE. In addition, commenters expressed concern that reimbursement did not cover the leasing costs for the equipment. Response: We reviewed the PE database and have verified that a refill kit, priced at $28, is included as a supply in CPT codes 95990 and 95991. In our PE database, equipment costs are assigned based on the purchase price for each piece of equipment, regardless of whether the equipment is owned, rented or leased. Comment: A manufacturer expressed concern that the PE RVUs for intranasal administration of vaccines (CPT codes 90467/8 and 90473/4) are inappropriately low and should be equalized to the injectable immunization administration PE RVUs. [[Page 66243]] The commenter stated that when the codes were reevaluated in 2004 there was not enough experience in the office to fully understand the time associated with providing an intranasal vaccine. The commenter stated that specialty organizations have indicated that this issue is worth reexamining and indicated that they had been encouraged to communicate with the RUC in support of equalizing payment for the codes. Response: We appreciate the commenter's concerns about the disparity in the PE RVUs for the intranasal and injectable immunization administration procedures. To the extent that these concerns relate to the direct PE inputs, we would encourage the commenter to work with the specialty organizations to determine if it is appropriate to bring these codes forward for further RUC review. Comment: One commenter requested that we publish the RUC approved RVUs for all noncovered and carrier priced services, particularly for the positron emission tomography (PET) and PET/CT procedures. Response: We have made it our policy to publish work and PE RVUs for services in instances where the information has been forwarded to us, with a few exceptions. One exception to this policy is for carrier priced codes. Our rationale for this policy is simply that any published values for carrier-priced codes would be in direct contradiction of our intentions with respect to this designation. As we state in Addendum A, a ``C'' status indicator means that carriers price this code establishing RVUs and payment amounts without direct guidance from CMS. Because the commenter did not provide us with information about specific noncovered services that do not have published RVUs, we are not able to address this particular aspect of the comment. Comment: Commenters representing radiation oncologists expressed concern about the significant PE reductions in CPT code 77336 for continuing medical physics consults. The commenters noted this code was last reviewed by the PEAC in 2002 and the practice standard has changed significantly. Commenters recommended that the direct PE inputs for this code be reviewed and refined so that accurate PE data is reflected for this code. Response: While we appreciate that the commenters expressed their concerns to us regarding a change in the practice standards for the services of CPT code 77336 which they believe results in the need to change the direct PE inputs, we believe that the appropriate course of action for the commenters is to work together with the RUC affiliated specialty society in order to determine if these concerns can be appropriately addressed by the RUC. Comment: We received comments from individuals and associations with concerns about the new bottom-up PE methodology and the resulting effect of decreases in the PE RVUs for various services including, but not limited to the following: chemotherapy administration, endovenous ablation procedures, brachytherapy treatments, 3-D imaging services, and procedures for photopheresis and plasma pheresis. Response: As we noted earlier in this section, we are aware that the PE RVUs for some services were negatively impacted by the change in our PE methodology. However, we will reiterate here that it is our policy to make certain, to the maximum extent possible, that the direct PE inputs used in the PE RVU calculation actually reflect the typical resources used to provide each service. To the extent that the current PE RVUs are lower than those determined under our previous methodology, the difference is likely attributable to a previous PE RVU that was based on charges that overvalued the service. Because the current methodology uses the direct PE inputs that are inherent and typical to each procedure, the resulting PE RVUs more accurately reflect the resources that are used to provide the service. Comment: One commenter explained that, in the CY 2004 PFS final rule, we decided to set the values for the monthly ESRD-related services for home dialysis patients (for example, G0323) at the same rate as the monthly ESRD related services with 2 or 3 visits per month (for example, HCPCS code G0318) to provide an incentive for the increase use of home dialysis (as authorized under 1881(b)(3)(B) of the Act). The commenter notes that the current payment rate for ESRD related services, with 2 or 3 face-to-face visits per month is higher than ESRD related services for home dialysis patients, (due to a difference in PE). As such, the commenter is concerned that the differential in payment rates mitigates the incentives that we previously attempted to establish. The commenter suggested that incentives for using home dialysis should be strengthened by using a consistent PE value for MCP codes G0323 and G0318. However, the commenter prefers that we establish a new payment rate for the monthly management of home dialysis patients based on the weighted average of the MCP for patients who dialyze in a dialysis center or other outpatient facility. Response: We appreciate the suggestions regarding our payment policy for the monthly management of home dialysis patients. We intend to consider the commenters suggestions as we continue to evaluate payment rates for the monthly management of patients on home dialysis. Note: We received comments regarding certain items and services that are not germane to the PE RVUs or other components of the PFS. These issues include comments regarding: revisions to the definition of pre-service work and time for certain global services; inadequate pricing of HCPCS code A4562 for pessaries, requests for payment adjustments for certain services under PFS to approximate payment amounts for these services established under OPPS and ASCs, inadequate payment for pharmacy costs and nursing services for drug administration codes, and concerns about the reduction of PE RVUs in the nonfacility setting due to the changes in the PE methodology along with requests to freeze payment amounts at the level of the CY 2006 transitional PE RVUs. Because these comments are outside the scope of the issues raised in the CY 2008 PFS proposed rule, we will not respond to these issues in this final rule with comment period. B. Geographic Practice Cost Indices (GPCIs) We are required by section 1848(e)(1)(A) and (C) of the Act to develop separate Geographic Practice Cost Indices (GPCIs) to measure resource cost differences among localities; and to review and, if necessary, adjust the GPCIs at least every 3 years. In the CY 2008 PFS proposed rule, we published the proposed GPCIs for CY 2008 in Addendum E, noting that the proposed GPCIs do not reflect the 1.000 floor that was in place during CY 2006 and CY 2007. This floor expires as of January 1, 2008 in accordance with section 102 of the MIEA-TRHCA. In developing a GPCI, section 1848(e)(1)(A)(i) and (ii) of the Act require that the PE and malpractice (MP) GPCIs reflect the full relative cost difference while section 1848(e)(1)(A)(iii) of the Act requires that the physician work GPCIs reflect only one quarter of the relative cost differences. Section 1848(e)(1)(C) of the Act also specifies that if more than 1 year has elapsed since the last GPCI revision, we must phase in the adjustment over 2 years, applying only one half of any adjustment in each year. All GPCIs are developed through a comparison to a national average for each component, and the RVUs for different services uniformly weight each component. [[Page 66244]] 1. GPCI Update A detailed description of the methodology used to develop and update the GPCIs can be found in the CY 2004 PFS proposed rule (68 FR 49039, August 15, 2003). There are three components of the GPCIs (physician work, PE, and MP) and each relies on its own data source. a. Physician Work The physician work GPCI is developed using the median hourly earnings from the 2000 Census of workers in six professional specialty occupation categories which we use as a proxy for physician wages and calculate to reflect one quarter of the relative cost differences. Physician wages are not included in the occupation categories because Medicare payments are a key determinant of physicians' earnings; therefore, including physician wages in the physician work GPCI would, in effect, make the index dependent upon Medicare payments. The physician work GPCI was updated in 2001, 2003, and 2005 using data from the 2000 Census; the proposed CY 2008 physician work GPCI is also based on the 2000 Census data. Because all updates since 2001 have relied on the 2000 Census data, the changes observed in the physician work GPCI in the update years are due to minor changes in utilization and budget neutrality factors; for CY 2008, Addendum E shows that there have been small changes in the physician work GPCI. Section 102 of the MIEA-TRHCA required application of a 1.000 floor on the work GPCI in payment localities where the work GPCI was less than 1.000. This provision expires on December 31, 2007. The CY 2008 proposed physician work GPCI reflects the removal of this floor. b. Practice Expense The PE GPCI is developed from three data sources: (i) Employee Wages: We use 2000 Census median hourly earnings of four occupation categories. The physician work GPCI was updated in 2001, 2003, and 2005 using data from the 2000 Census. (ii) Office Rents: We use residential apartment rental data produced annually by the Department of Housing and Urban Development (HUD) as a proxy for physician office rents. In 2001, 2003, and 2005, we used rents in the HUD 40th percentile. For CY 2008, we have calculated the GPCI using rents in the 50th percentile for the physician office rent proxy. We proposed to use the 50th percentile because although HUD generally allows payment for subsidized housing up to the 40th percentile, in some areas it allows payment up to the 50th percentile. We made this change to reflect the trend toward higher rents across the country. Fair Market Rents (FMRs) are gross rent estimates including rent and utilities. HUD calculates the FMRs annually using: (1) Decennial Census data; (2) American Housing Surveys conducted by the Census Bureau for HUD to enable HUD to develop revisions between Census years; and (3) random digit dial surveys to enable HUD to develop gross rent change factors. The American Housing Surveys cover 11 areas annually, rotating among the 44 largest metropolitan areas. The random digit dial component surveys 60 FMR areas annually. The FMR is set as a percentile point in the distribution of rents for standard housing occupied by people who moved within the previous 15 months. The current FMR definition is the 40th percentile rent (the amount below which 40 percent of units are rented). Each year, the 50th percentile rent is also calculated by HUD and available through the HUDUSER Web site. In 2000, HUD changed its FMR policy to increase access to housing for families receiving Section 8 rent subsidy vouchers (65 FR 58870). To do so, HUD increased FMRs from the 40th percentile to the 50th percentile in areas where subsidized families were highly concentrated in certain census tracts, given evidence that affordable housing was not well distributed. Only metropolitan areas with more than 100 census tracts are considered for possible increase to the 50th percentile rent. FMRs can be moved from 40th to 50th percentile or back from 50th to 40th percentile. In the case of the office rent index for the PE GPCI, FMRs have been used to capture geographic differences in rental costs, in the absence of a consistent commercial rent index that covers all metropolitan and nonmetropolitan areas in the U.S. It has been used as a measure of the ``average rent'' in a market. However, since 2000, the FMRs have been a mixture of the 40th percentile and 50th percentile rents. FMR areas move between the two cutoffs. For example, in California, 9 counties had FMRs set at the 50th percentile in 2004. In 2007, only 2 of these 9 counties were still at the 50th percentile level for the FMR, out of 4 total counties at the 50th percentile level. As described above in this section (and as detailed in 65 FR 58870), the criteria for setting the FMR at the 40th or 50th percentile are based on concentrations of subsidized households. There is no reason to assume that commercial rents would follow the same patterns. Therefore, we believe the 50th percentile, or median, rents calculated by HUD will be a more consistent, fair measure of geographic differences for the purpose of proxying for commercial rents. Rent data produce the most significant changes because they are based on annual changes in HUD rents, and therefore, are more volatile than the wage (Census) data. While it has been suggested that we explore sources of commercial rental data for use in the GPCI, we do not believe there is a national data source better than the HUD data. (iii) Equipment and Supplies: We assume that items such as medical equipment and supplies have a national market and that input prices do not vary among geographic areas. As mentioned in previous updates, some price differences may exist, but we believe these differences are more likely to be based on volume discounts rather than on geographic market differences. Equipment and supplies are factored into the GPCIs with a component index of 1.000. c. Malpractice The MP GPCI is calculated based on insurer rate filings of premium data for a $1 million to $3 million mature ``claims made'' policy along with premium or surcharge data for mandatory patient compensation funds (PCFs). The MP GPCI is the most volatile of the GPCIs. This GPCI was updated in 2001 and 2003 as scheduled with the physician work and PE GPCIs; but, there was an unscheduled update of the MP GPCI in 2004 (68 FR 49043) to reflect increases in MP premiums nationwide. The proposed CY 2008 MP update reflects the most recent premium data available. The physician work and PE GPCIs are being updated at the same time. We received the following comments about our proposed GPCIs: Comment: We received several comments expressing the concern that San Benito County in California was placed in the wrong payment locality. Response: In 2003, the U.S. Census Bureau moved San Benito County from the Rest of State Census category and placed it in the San Jose MSA. Our data and methodology do not accommodate mid-decennial changes in Census data, and therefore, our 2008 update reflects that San Benito County remains in the Rest of California payment locality. [[Page 66245]] Comment: We received several comments about the PE GPCI for Santa Clara County, California. In the proposed rule, the PE GPCI was lower for Santa Clara than it has been in previous years and commenters were concerned about why this happened. Response: We recognize that there was a decrease in the proposed Santa Clara County PE GPCI. We have studied this issue including examining both the source data and the methodology for obtaining the PE GPCI in case there was a mistake in the proposed values. However, a close examination of the data showed that the GPCI is accurate and reflects a decrease in the value of HUD rentals in Santa Clara County. Comment: One commenter suggested that a GPCI adjustment should not be applied to physician work, or that the physician work GPCI should be 1.000 for all localities. Response: We are required to apply a GPCI adjustment to physician work in accordance with section 1848(e) of the Act. Therefore, we will continue to apply the physician work GPCI. Comment: We received several comments suggesting that the PE GPCI is inaccurate due to our continued use of HUD rental data as a proxy for medical office space. Response: Because Medicare is a national program, we believe it is important to use the best data that is available on a nationwide basis. We believe the HUD rental data is the most comprehensive and valid indicator of the national real estate rental market that is available. Additionally, as we stated most recently in the CY 2007 PFS final rule with comment period (71 FR 69656), we believe the HUD rental data remains the best data source to fulfill our requirements that the data be available for all areas, be updated annually, and retain consistency area-to-area and year-to-year. In the past, we have had both the GAO and the Research Triangle Institute examine available data sources for use in the PE GPCI, and both have found that available commercial data sets either have insufficient coverage nationally or are developed by suspect methodology. Therefore, we continue to believe the HUD rental data is the best nationally available data source to use as a proxy for physician office rents. Comment: We received several comments suggesting that the GPCIs of Hawaii/Guam and Alaska need to be adjusted to accommodate the higher costs of transportation of supplies and equipment to these localities. Response: The GPCIs are a proxy for costs associated with providing services to beneficiaries, not costs associated with living in a particular place. However, we will consider these comments as we evaluate possible changes to our methodology. Comment: We received comments from the Medicare Payment Advisory Commission (MedPAC) suggesting an alternative method for calculating the PE GPCI. This alternative PE GPCI method excludes cost measures for equipment and supplies. Response: We appreciate MedPAC suggesting an alternative method. We intend to evaluate the suggested change to the PE GPCI methodology and will propose any changes in future rulemaking. We will finalize the GPCIs shown in Addendum E. The GPCI values shown represent the first year of the two-year GPCI update transition and have been budget neutralized to ensure that nationwide total RVUs are not impacted by changes in locality GPCIs. Specifically, this is done by applying a weight that is derived from the difference between payments using the ``old'' GPCIs and the ``new'' GPCIs to the proposed GPCIs that insures that total payments would not be different. As we indicated above in this section, there is no 1.000 floor on the physician work GPCI in 2008. The GAFs are shown in Addendum D. 2. Payment Localities a. Background The Medicare statute requires that PFS payments be adjusted for certain differences in the relative costs among areas. The statute requires an adjustment which reflects differences among areas for the relative costs of the mix of goods and services comprising PEs (other than Malpractice expenses) compared to the national average. The statute also requires adjustment for the relative costs of MP expenses among areas compared to the national average. Finally, the statute requires adjustment for one quarter of the difference between the relative value of physicians' work effort among areas and the national average of such work effort. The physician work component represents 52.466 percent of the national average fee schedule payment amount. Thus, the statutory requirement for geographic adjustment of only one-quarter of the differences in the physician work component means that, on average, only 13.117 percentage points of physician work are geographically- adjusted, and, on average 39.349 percentage points of the physician work component are not adjusted and represent a national fee schedule amount. In addition, the PE component represents 43.669 percent of the national average fee schedule payment amount. PEs are comprised of nonphysician employee compensation, office expenses (including rent), medical equipment, drugs and supplies, and other expenses. As explained above in this section, we do not make a geographic adjustment relating to medical equipment, drugs, and supplies because there is a national market for these items. Thus, only the categories of nonphysician employee compensation and rents are geographically adjusted. These categories represent, on average, 30.862 percentage points of the total PE, and 12.807 percentage points of PEs are not geographically- adjusted. In total, more than half (52.156 percent) of the average PFS amount is a national payment that is the same in all areas of the country; that is, 52.156 percent of the average fee is not geographically- adjusted. There are two additional points about the geographic indices that are important to note. First, as described above in this section, the data used to measure cost differences among localities are proxies for physician work, employee compensation and office rents. That is, wage data for various categories of employees are used to proxy the actual wages of physician employees. Second, the data used for such proxies are based on actual Census data only for a limited number of counties. The geographic adjustment factors (GAFs) for more than 90 percent of counties are developed using proxies based on larger geographic areas (for example, data for all rural areas in a State are combined and used to proxy the values for each rural county in a State). This aggregation is necessary for areas where country level data are not available. Thus, the underlying data are proxies for actual costs, and the resulting GPCIs do not measure perfectly the cost differences among localities. Currently, there are 89 Medicare physician payment localities to which GPCIs are applied. The payment locality structure under the PFS was established in 1996 and took effect January 1, 1997. The development of this structure is described in detail in both the CY 1997 PFS proposed (61 FR 34615) and final rules (61 FR 59494). b. Revision of Payment Localities Over time, changing demographics and local economic conditions may lead to increased variations in practice costs within payment locality boundaries. We are concerned about the potential impact of these variations and have [[Page 66246]] been studying this issue and potential alternatives for a number of years. However, because changes to the GPCIs must be applied in a budget neutral manner (and under the current locality system, budget neutrality results in aggregate payments within each State remaining the same), there are significant redistributive effects to any change. Therefore, we are also concerned about the potential impact of locality revisions. For the past several years, we have been involved in discussions with California physicians and their representatives about recent shifts in relative demographics and economic conditions among a number of counties within the current California payment locality structure. The California Medical Association (CMA) suggested that we use our demonstration authority to adopt an alternative locality configuration and avoid certain redistributive effects, but such an approach was not feasible (as discussed in the CY 2005 PFS final rule with comment period (70 FR 70151)). In the CY 2006 PFS proposed rule (70 FR 45784), we proposed to remove two counties from the ``Rest of California'' payment locality and create a new payment locality for each county. These two counties were the ones with the largest difference between the county and locality GAFs. However, there was much more opposition than support for this proposal, in large part because of its negative effect on payments for the counties that would have remained in the ``Rest of California'' locality. For example, the CMA commented on this proposal stating, ``a nationwide legislative solution that would provide additional funding * * * is the only solution we are supporting at this time.'' We did not finalize the proposal and described our reasons in the CY 2006 PFS final rule with comment period (70 FR 70151). As indicated previously, we recognize that changing demographics and local economic conditions may lead to increased variations in practice costs within payment locality boundaries. We are concerned about the potential impact of these variations. In considering potential changes in payment localities, we believe it is important to evaluate both the potential impact of intralocality practice cost variations and the redistributive impacts that would result from any revisions to the localities. We also indicated that we are concerned about the considerable administrative issues in making locality changes, particularly if such changes involve a transition, and if they occur when new GPCI data are being phased-in. As we noted in the response to the June 2007 General Accountability Office report on localities (GAO-07-466), changing localities requires reprogramming systems and extensive provider education, both of which are expensive and burdensome administrative activities that can last for a significant period of time. We receive claims for payment that cross calendar years and carriers must maintain payment files for the 2 different years. In the proposed rule we solicited comments on three possible locality reconfigurations. We indicated that because of the importance of striking an appropriate balance between intralocality variations and redistributive impacts with any such locality revisions, we wanted to be cautious and evaluate the impacts in California before considering applying the policy more broadly in the future. The three options from the proposed rule are described as follows: Option 1: Using the existing locality structure, apply a rule whereby if a county GAF is more than 5 percent greater than the GAF for the locality in which the county resides it would be removed from the current locality. A separate locality would be established for each county that is removed. Based on the new fully phased-in GPCI data (that is, for CY 2009), application of this approach in California would remove three counties (Santa Cruz, Monterey, and Sonoma) from the Rest of California payment locality and Marin county from the Marin/ Napa/Solano payment locality and create separate payment localities for each of these four counties. This approach focuses on counties for which there is the biggest difference between the county GAF and the locality GAF. This proposal is similar to the policy we previously proposed in the CY 2006 PFS proposed rule (70 FR 45784) but did not adopt to address the counties with GAFs that are most different from their current locality designation. Implementation of this option would lead to an increase in payment of 7.6 percent for Santa Cruz County (and average increase of 5 percent for the other counties involved) and a decrease in payment of 4.3 percent for Napa and Solano Counties. Option 2: This approach is similar to option 1, but the new localities would be structured differently. We would use the same 5 percent threshold methodology but instead of creating four new localities in which each county becomes its own new locality, the three counties that are removed from the Rest of California locality would become one new locality. Marin County would still be removed from the Marin/Napa/Solano locality to become its own locality. Application of this approach would remove three counties (Santa Cruz, Sonoma, and Monterey) from the Rest of California payment locality, and Marin County from the existing Marin/Napa/Solano payment locality. This approach groups together counties from the Rest of California locality that have the greatest difference between the county and locality GAF. (This option would lead to an increase of 6 percent for the new 3- county payment locality.) These counties have similar cost structures and grouping them together into one new locality is consistent with our goal of homogeneous resource costs within a locality. Option 3: Apply a methodology similar to that used in the 1997 locality revisions (61 FR 59495), but applied at the county level rather than the ``existing locality'' level. That is, we sorted the counties by descending GAFs and compared the highest county to the second highest. If the difference is less than 5 percent, the counties were included in the same locality. The third highest is then compared to the highest county GAF. This process continues until a county has a GAF difference that is more than 5 percent. When this occurs, that county becomes the highest county in a new payment locality and the process is repeated for all counties in the State. This approach would group counties within a State into localities based on similarity of GAFs even if the counties were not geographically contiguous. This organizes payment localities based on costs, which would reduce the number of payment localities in California from 9 to 6 localities. This option alleviates the greatest variations in cost between counties in California. This proposal is unique in that the new localities are not contiguous. Currently, all localities encompass adjacent geographic areas. The impacts associated with this option are significant. Depending on the tier, changes could reflect increases of as much as 7.6 percent or decreases of as much as 7.3 percent. We received numerous comments on these options as discussed below: We received similar comments from a number of individuals, State and local medical societies, and organizations, including the California Medical Association, on several significant issues and are addressing these together: Comment: Santa Cruz County should be removed from the Rest of California payment locality due to its higher costs. Response: We recognize that Santa Cruz County has higher costs than other [[Page 66247]] counties within the Rest of California locality, and the methodologies we presented in each of the options would result in Santa Cruz County being removed from the Rest of California payment locality. Comment: Many commenters were concerned about the description of the methodology used for Options 1 and 2. Specifically, these comments directed us to adopt a methodology suggested by the California Medical Association. The methodology compares the highest GAF county to the weighted average (GAF) of the remaining counties of the locality. Response: To clarify, the methodology we used identified counties where the county GAF was at least 5 percent higher than the GAF of the locality and then we either left that county as a payment locality itself or joined it with other counties into a payment locality. In Option 1, each of these counties became a separate locality; in Option 2, we combined several of these counties into a single payment locality. This approach is not the ``iterative methodology'' that some commenters suggested we should follow. We recognize that there are alternative methodologies that can be used to consider reconfigurations to locality structures. We will consider the suggestions of the commenters in the future. Comment: There were concerns that combining several counties into a single payment locality in Option 2 was arbitrary and led to lower payments for these counties. Response: As we stated in the proposed rule, there are trade-offs involved in making any changes to localities, and we recognize the importance of trying to achieve a reasonable balance among competing priorities. One of our goals was to keep the number of payment localities manageable. Although we recognize that there are effects on each of the individual counties, combining counties with very similar costs was a reasonable way to meet this goal. Comment: Numerous commenters from California recommended that we implement Option 3 but suggested that we erred in describing the methodology used in the development of Table 9 of the proposed rule and recommended that if we implement it, we should use their suggested methodology. Commenters suggested that we really meant to insert a hierarchical approach and discussed how these are both acceptable ways to accomplish the restructuring of the counties. Other State societies expressed interest in this option as long as we use the alternative methodology suggested by the California commenters. Response: In Option 3 in the proposed rule, we ranked the counties by GAF from highest to lowest. We then combined into a new payment locality the county with the highest GAF and the other counties that have a GAF within 5 percent of the highest GAF county. Then, we found the county with the highest GAF among the remaining counties. We combined that county and all the counties that have a GAF within 5 percent of the new highest GAF county into a payment locality. We continued this method until all counties were included in a locality. As previously mentioned, there are multiple approaches to reconfiguring the localities that result in similar outcomes. We will further study the suggestions provided by the commenters. Comment: We received a number of comments requesting that we provide a wide variety of data, at the county level, from numerous sources covering the years 1999 through 2006. Response: We believe we provided commenters sufficient information to fairly evaluate our proposals. We note that many of these requests involved county level data. There is very little county level data available nationwide. Most of our data sources are collected at the MSA or Consolidated MSA, or Non-Metropolitan Area level, and our methodology was designed to be used to develop GPCIs within a payment locality analysis, not a county level analysis. We do our best to provide requestors with sources for publicly available data and to provide any other data that is requested of CMS. However, we often simply do not have data available at other than the locality level. Comment: Several commenters are concerned that the data used to develop the latest GPCI update are out of date or inaccurate. Response: We used the most up-to-date data available for the GPCIs used in the calculation of the proposed options. Descriptions of the data sources we use can be found in previous regulations (69 FR 66261) but we will reiterate them here. For the physician work GPCI, we use data files from the latest decennial census (currently 2000) supplied to CMS by the Census Bureau. These data are available to any individual or group interested in obtaining them from the Census Bureau. Data for the rental portion of the PE GPCI update come from HUD rental files, and these data are available online to anyone wishing to obtain them. Wage data for the PE GPCI come from the 2000 Census files which are available from the Census Bureau. Data for the malpractice GPCI come from premium data that are filed by companies writing Professional Liability Insurance in each state. These filings are provided, upon request by our contractor, to CMS by each State Department of Insurance. Our latest update covers premium data for 2004, 2005 and 2006. Comment: We received comments from certain physicians in Ohio requesting that we examine Ohio for a possible change in the current Statewide payment locality. Response: We are currently examining alternatives to the current locality structure. As a part of our study we will revisit Statewide localities to determine if revisions are appropriate. Comment: We received a number of comments from ambulance suppliers throughout the mid-West requesting that we make no changes that would have a negative impact on the GPCIs in rural areas. Other commenters expressed similar concerns about the impact of locality changes on rural physicians and beneficiaries. Response: The vulnerability of rural areas to decreases in relative payments as a result of locality revisions is an issue that is of considerable concern to us and something we take very seriously. However, as previously noted we must find an acceptable balance between the multiple competing concerns when making changes in localities in order to best meet the needs of the entire program and this generally cannot be done without having any impact on rural areas. Comment: MedPAC provided comments outlining two possible mechanisms for developing changes in the payment localities of the States. These methods are similar but differ in that one method begins at the locality level and the other starts with MSA level data. MedPAC also suggests that we determine whether those States that are currently single payment localities wish to remain single payment localities. Response: As always, we value the input of MedPAC and we intend to analyze their suggested methods carefully as we discuss possible national policy changes. Comment: Comments regarding changes in the payment localities in California were universally accompanied with a belief that we should implement these changes, without decreasing payments to any counties. Response: We understand the desire to avoid the negative impact implementing any of these options might have on certain areas. However, [[Page 66248]] the statute requires that geographic adjustments be established based upon an index of costs that is tied to national averages. As a result, when the average increases in one locality because of the addition of a higher cost county, the average in the locality that previously contained the higher cost county will necessarily decrease. Any changes in localities will necessarily produce changes in the underlying GPCIs, and we have no authority to assign or retain GPCIs that do not represent the actual values for a locality. Comment: Many commenters suggested that we consider a national solution to payment locality structure problems, not focus on a single state. Response: Our proposals attempted to address locality issues in an area of the country where the incongruity of certain GAFs within localities is particularly evident. In addition, these issues have been brought to our attention regularly over the past several years, and the California Medical Association has demonstrated its desire and willingness to work with us to develop ideas for resolving them. We viewed these proposals relating only to California as a starting point and, as we indicated in the proposed rule, we would consider applying any changes to additional States in the future. Decision: We appreciate the thoughtful comments we received in response to the three options we included in the proposed rule. As mentioned above, we recognize that changing the locality structure is a complex undertaking and there are competing concerns, including budget neutrality that results in payments in certain areas decreasing whenever payments in other areas are increased, that must be carefully balanced to achieve the most appropriate results. Historically, to help us find the best balance in a particular state, we have looked to State medical societies to work with us to provide leadership and support on preferred approaches to locality reconfiguration in that particular State. The comments we received from California physicians, including the California Medical Association's indication that it does not support any of the options, and interested parties from other States have convinced us that this issue requires further study and analysis. Therefore, we will not be finalizing any of the three proposed options in this rule. Commenters have suggested some other methodologies that we find worthy of further exploration, including the use of Metropolitan Statistical Areas (MSAs). We do not necessarily believe that the county is the appropriate geographic unit on which we should be focusing for locality revisions. Commenters also made strong arguments for why any locality reconfiguration should be done on a nationwide basis and not just one State at a time. Therefore, we intend to conduct a thorough analysis of approaches to reconfiguring localities and will address this issue again in future rulemaking. C. Malpractice RVUs (TC/PC Issue) In the CY 2008 PFS proposed rule (72 FR 38142), we included a discussion about the radiology codes for which the technical component malpractice RVUs are higher than the professional component malpractice RVUs. In the past, several organizations have requested that we examine these codes and make changes to this assignment of malpractice RVUs. We asked for information about how we could address this issue and obtain data on malpractice costs associated with these radiology codes. We received the following comments on this issue. Comment: The Professional Liability Insurance (PLI) workgroup of the AMA/Specialty Society RVU update committee (RUC) supported by several other organizations recommended that we reduce the PLI technical component for these codes to zero. They suggest that there are no identifiable separate costs for professional liability for technical components. They also recommend that the PLI RVUs be redistributed across all physicians' services. The RUC is concerned that the Deficit Reduction Act of 2005 (Pub. L. 109-171) (DRA) cap on the TC payment for imaging services will remove an estimated $200 million from the Part B pool (as a result of the exemption of the reduced expenditures from the budget neutrality requirement at section 1848(c)(2)(B)(v)). The RUC believes that making the recommended changes will keep money that would be lost due to the DRA cap in the Part B pool. The RUC wants CMS to implement this change immediately and consider other changes to the PLI RVU assignment later. Response: In the CY 2008 PFS proposed rule, we explained that these codes had not been reviewed due to a lack of suitable data on the cost of PLI for technical staff or imaging centers. The RUC believes that no such data are available because there are no identifiable separate costs. At this point in time, we are not able to evaluate whether sufficient data exists or to make a judgment on the RUC's assertion that such data are not available because there are no identifiable costs. We will continue to explore possible sources of information about these costs. We made no proposal regarding malpractice RVU assignment and we are still considering possible changes. If we identify in the future what we believe is a more appropriate way to pay for these services, we will propose changes through notice and comment rulemaking. Comment: Some commenters stated that the malpractice RVUs in the technical component should not be zero. These commenters suggested that we either ``flip'' the malpractice RVU assignment between the professional and technical components or make them equal. Response: As we stated in the CY 2008 PFS proposed rule, we do not believe it would be appropriate to ``flip'' the PC and TC RVU values because the professional part of the MP RVUs has undergone a resource based review, is derived from actual data, and is consistent with the resource based methodology for PFS payments. Further, we will not simply equalize the PC and TC RVU values because at this time we have no data to demonstrate that the malpractice costs for the technical portion of these services are the same as the professional portion. We will continue to study this issue and will propose any changes in future rulemaking. Comment: We received several comments recommending that we make the PLI RVUs resource based for all codes and that we should continue to collect and analyze appropriate malpractice premium data before making changes to the RVU assignment. Response: We will continue to solicit, collect, and analyze appropriate data on this subject. Once we have sufficient information, we will be better able to make a determination as to what, if any, changes should be made, and we will propose any changes in future rulemaking. D. Medicare Telehealth Services 1. Requests for Adding Services to the List of Medicare Telehealth Services As discussed in the CY 2008 PFS proposed rule (72 FR 38143), section 1834(m)(4)(F) of the Act defines telehealth services as professional consultations, office visits, and office psychiatry services, and any additional service specified by the Secretary. In addition, the statute required us to establish a process for adding services to or deleting services from the list of telehealth services on an annual basis. [[Page 66249]] In the CY 2003 PFS final rule with comment period (67 FR 79988), we established a process for adding services to or deleting services from the list of Medicare telehealth services. This process provides the public an ongoing opportunity to submit requests for adding services. We assign any request to make additions to the list of Medicare telehealth services to one of the following categories: Category 1: Services that are similar to office and other outpatient visits, consultation, and office psychiatry services. In reviewing these requests, we look for similarities between the proposed and existing telehealth services for the roles of, and interactions among, the beneficiary, the physician (or other practitioner) at the distant site and, if necessary, the telepresenter. We also look for similarities in the telecommunications system used to deliver the proposed service, for example, the use of interactive audio and video equipment. Category 2: Services that are not similar to the current list of telehealth services. Our review of these requests includes an assessment of whether the use of a telecommunications system to deliver the service produces similar diagnostic findings or therapeutic interventions as compared with the face-to-face ``hands on'' delivery of the same service. Requestors should submit evidence showing that the use of a telecommunications system does not affect the diagnosis or treatment plan as compared to a face-to-face delivery of the requested service. Since establishing the process, we have added the following to the list of Medicare telehealth services: psychiatric diagnostic interview examination; ESRD services furnished under the monthly capitation payment (MCP) with two to three visits per month and four or more visits per month (although we require at least one visit a month, in person ``hands on'', by a physician, Certified Nurse Specialist, NP, or PA to examine the vascular access site); and individual medical nutrition therapy. Requests to add services to the list of Medicare telehealth services must be submitted and received no later than December 31 of each calendar year to be considered for the next rulemaking cycle. For example, requests submitted before the end of CY 2006 are considered for the CY 2008 proposed rule. For more information on submitting a request for an addition to the list of Medicare telehealth services, visit our Web site at http://www.cms.hhs.gov/telehealth/. We received the following requests for additional approved services in CY 2006: (1) Subsequent hospital care (as represented by HCPCS codes 99231 through 99233); (2) neurobehavioral status exam (HCPCS code 96116); and (3) neuropsychological testing (HCPCS codes 96118 through 96120). After reviewing the public requests, we proposed to add neurobehavioral status exam as described by HCPCS code 96116 to the list of Medicare telehealth services in the CY 2008 PFS proposed rule. We also proposed to revise Sec. 410.78 and Sec. 414.65 to include neurobehavioral status exam as a Medicare telehealth service. We did not propose to add subsequent hospital care or neuropsychological testing but requested comments as to how we could determine when subsequent hospital care is actually a follow-up inpatient consultation and specific information on neuropsychological testing. For further information on our proposals, see the CY 2008 PFS proposed rule (72 FR 38143). Subsequent Hospital Care The following is a summary of the comments we received regarding subsequent hospital care. Comment: We received two comments regarding the conditions (or requirements) we could apply to subsequent hospital care so that subsequent hospital care reflects a follow-up inpatient consultation. One commenter suggested that follow-up inpatient consultation should be approved as a telehealth service only if the initial inpatient consultation was performed via telehealth. The commenter does not believe we should approve a follow-up inpatient consultation for telehealth if the initial inpatient consultation was furnished in- person (because it might lead to a reduction in follow-up consultations furnished face-to-face). The commenter also agreed with our proposal not to approve subsequent hospital care for telehealth. Another commenter noted that follow-up inpatient consultation was previously on the list of Medicare telehealth services and asserts that the AMA's deletion of follow-up inpatient consultation (as described by CPT codes 99261 through 99263) created the need to approve the addition of subsequent hospital care to the list of Medicare telehealth services when used for follow-up inpatient consultation care. The commenter suggested that we create a special modifier to report follow-up inpatient consultation via telehealth. Response: We appreciate the comments on the conditions (or requirements) we could apply to subsequent hospital care so that subsequent hospital care reflects a follow-up inpatient consultation. We intend to consider the suggestions raised by the commenters as we continue to evaluate whether subsequent hospital care should be approved for telehealth when it is used to furnish a follow-up inpatient consultation. With regard to the commenter who suggested the creation of a special modifier, we will assess whether it would be appropriate to use a modifier(s) to identify when a subsequent hospital care service is actually a follow-up inpatient consultation. Comment: One commenter who supports approving subsequent hospital care for telehealth explained that recruiting specialists to North and South Dakota is difficult and that telehealth has helped hospital inpatients in these States to obtain access to various types of specialty care including pulmonology, endocrinology, pediatric gastroenterology, pediatric cardiology, and infectious disease specialties. The commenter also mentioned that inpatient consultations are frequently provided by infectious disease specialists for patients in the intensive care unit (ICU) and explained that once the patient has made progress and is moved from the ICU, the infectious disease specialist at the distant site continues to ``follow'' the patient until the patient is discharged from the hospital. The commenter recognized that access to on-going specialty care for outpatients is important but believes that obtaining access to specialty subsequent inpatient ``follow-up'' care is even more critical. Commenters submitted a comparative study between subsequent hospital care furnished as a telehealth service and furnished in-person. Response: As discussed in the CY 2008 PFS proposed rule, given the potential acuity level of the patient in the hospital setting, we believe that many services furnished within the scope of the subsequent hospital service codes are not similar to the current telehealth services. As such, we indicated that subsequent hospital care is a category 2 service (which requires sufficient comparative analyses before approving it for telehealth). The commenters did submit one comparative analysis between subsequent hospital care furnished as a telehealth service and subsequent hospital care furnished in-person. However, the study submitted involved only continuing specialist care (for one specialty), not continuing inpatient care by the primary attending physician. In [[Page 66250]] addition, the sample size was extremely small. Thus, the study findings are not generalizable. As such, we continue to have concerns about using a telecommunications system as a substitute for the on-going, day-to-day (in-person) evaluation and management of a hospital inpatient and believe further study is necessary. In the absence of sufficient, well- designed comparison studies showing that the use of a telecommunications system is an adequate substitute for the in-person delivery of subsequent hospital care, we are not adding subsequent hospital care to the list of Medicare telehealth services. As discussed above in this response, we will work with the industry organizations and groups to learn more about hospital care as a telehealth service when it is used for follow-up inpatient consultations. Comment: One commenter (who submitted the request to approve subsequent hospital care for telehealth) stated that the original request to add subsequent hospital care to the list of Medicare telehealth services was a request to ``re-establish'' subsequent inpatient visits (as a Medicare telehealth service). The commenter described two scenarios in which subsequent hospital care could be furnished as a telehealth service. The first scenario would involve a specialty physician who furnishes an inpatient consultation as a telehealth service (as requested by the attending physician). The second scenario involves an attending or admitting physician who furnishes initial hospital care in-person (not as telehealth) and provides subsequent hospital care as a telehealth service. The commenter believes that access to telehealth care is better than not having access to any care and that studies have shown that telehealth care provides better clinical outcomes than no care at all. Additionally, the commenter asserts that tertiary care trauma surgeons, neurologists (for initial and follow-up stroke evaluation), psychiatrists (for initial assessment and prescriptive safety orders), infectious disease physicians, and cardiologists can be made available through telehealth when these specialties are not available on-site. The commenter believes that not approving subsequent hospital care for telehealth will severely hinder access to specialty care in the inpatient hospital setting and will lead to grave consequences for patients when no specialists are available on-site (at the hospital). Response: We agree that telehealth services may help provide greater access to specialty care, and therefore, better clinical outcomes where a shortage of medical professionals exist (or in situations when no care is available). As discussed in the CY 2008 PFS proposed rule, we are considering approving subsequent hospital care for telehealth when it is used for follow-up inpatient consultation. We believe that permitting follow-up inpatient consultations via telehealth will help provide greater access to specialty care in the inpatient hospital setting. Additionally, we note that, contrary to the commenter's assertion, subsequent inpatient hospital visits were not previously on the list of Medicare telehealth services. As mentioned by a previous commenter, the AMA deleted the codes for follow-up inpatient consultation (as described by CPT codes 99261 through 99263). Effective January 1, 2006, these CPT codes no longer exist and were removed from the PFS, and a conforming change was made to the list of Medicare telehealth services. Prior to January 1, 2006, the physician (or practitioner) at the distant site could have used these CPT codes to bill for follow-up inpatient consultations as a telehealth service. However, subsequent inpatient hospital visits were not on the list of Medicare telehealth services. Comment: One commenter cited the concerns we raised in the proposed rule regarding the acuity level of a hospital inpatient and the use of a telecommunications system to furnish on going evaluation and management services in the inpatient hospital setting. The commenter believes that patients in the emergency department typically have a higher acuity level, are in a more precarious physical state (as compared to a hospital inpatient) and may not have a diagnosis. The commenter explains that hospitalized patients have already been seen and admitted by a physician on site and have at least a preliminary diagnosis. Despite the higher acuity level of a patient in the emergency department, the commenter asserts that we reimburse for telehealth care in the emergency department (but not for inpatients). Additionally, the commenter discussed various scenarios involving the examination of acute stroke patients via telehealth in the emergency room and ICU. For example, the commenter provided a summary of a study that tested whether the use of an audio and video multimedia telecommunications system is a feasible and reliable means for delivering emergency stroke care (using the National Institute of Health Stroke Scale). This study concluded that ``remote examination of acute stroke patients with a computer based telesupport system is feasible and reliable when applied in the emergency room''. The commenter also explained how telehealth is being used to provide 24 hour access to acute stroke care expertise for a number of hospitals in Massachusetts and that similar programs are being established throughout the United States, Canada, the United Kingdom, Scandinavia, and other parts of the world. The commenter also provided a discussion of a study that examined the fiscal impact of providing telehealth consultation (for acutely ill and injured children in the ICU) on rural hospitals. The study found that as a result of greater access to pediatric consultations, savings are realized from a reduction in patient transfers (to larger hospitals) and increased revenue for rural hospitals. Response: We appreciate the information the commenter has submitted on the remote evaluation of stroke patients and pediatric telehealth consultations in the emergency department or ICU. We intend to consider this information as we evaluate whether to approve subsequent hospital care for telehealth when it is used for follow up inpatient consultation. We would also mention that the nature of the comment indicates a misconception that we pay for emergency department services as a telehealth service. We note that only outpatient consultations (not visits) are approved as a Medicare telehealth service for a patient in the emergency department. If guidance or advice is needed in the emergency department (for example, for acute stroke care), an outpatient consultation may be requested from an appropriate source and may be furnished as a telehealth service. However, emergency department services (as described by CPT codes 99281 through 99285) are not on the list of Medicare telehealth services. Comment: One commenter mentioned that we previously approved the psychiatric diagnostic interview examination and subsequent ESRD related visits furnished under the monthly capitation payment (MCP) for telehealth without comparative analyses and data showing patient satisfaction (which implies that subsequent hospital care could be approved for telehealth on the same basis). The commenter also cited the proposed regulatory impact analysis for telehealth stating that previous additions to the list of Medicare telehealth services have not resulted in a significant increase in Medicare program expenditures. Response: In approving the psychiatric diagnostic interview examination for telehealth, we considered this service to be comparable [[Page 66251]] to an initial office visit, or consultation service, which are currently Medicare telehealth services. Likewise, we considered the outpatient dialysis visits furnished under the MCP (except for one visit to examine the vascular access site) to be comparable to office and other outpatient visits currently on the list of Medicare telehealth services. Therefore, we considered these services to be category 1, and therefore, we were able to review and approve them for telehealth without reviewing additional research studies to support their approval. However, as discussed above in this section, because of the potential acuity of a hospital inpatient, we were not able to conclude that the entire scope of services described by the subsequent hospital care codes is similar to the existing list of telehealth services (for example, an office visit, office psychology service, or consultation). Therefore, we considered subsequent hospital care to be a category 2 service (which requires sufficient comparative analyses before approving for telehealth). For more information on the addition of the psychiatric diagnostic interview examination see the CY 2003 PFS proposed rule (67 FR 43863). For more information on the addition of ESRD-related visits furnished under the MCP, see the CY 2005 PFS proposed rule (69 FR 47511). Neurobehavioral Status Exam Comment: Several commenters expressed support for our proposal to add the neurobehavioral status exam to the list of Medicare telehealth services. Commenters agreed that because the neurobehavioral status exam is primarily a clinical interview (similar to the psychiatric diagnostic interview which is currently a Medicare telehealth service), it is logical and consistent to approve this service for telehealth. Response: We agree with the commenters. As discussed in the proposed rule, the neurobehavioral status exam is furnished by a physician or psychologist and includes an initial assessment and evaluation of mental status for a psychiatric patient. In this regard, we believe the neurobehavioral status exam is similar to psychiatric diagnostic interview examination (which is currently approved as a Medicare telehealth service). Comment: One commenter who supported our proposal to approve the neurobehavioral status exam for telehealth, stated that HCPCS code 96116 is a new code that replaced HCPCS code 96115 (the predecessor to HCPCS code 96116) in the 2006 CPT compendia. The commenter believes that neurobehavioral status exam (as described by HCPCS code 96115) was previously on the list of Medicare telehealth services and considers our proposal to add neurobehavioral status exam (as described by CPT code 96116) to be a restoration of the neurobehavioral status exam as a telehealth service. Response: The commenter's assertion that our proposal to add the neurobehavioral status exam to the list of Medicare telehealth services is a restoration of the neurobehavioral status exam as a telehealth service is not correct. The neurobehavioral status exam (as previously described by CPT code 96115) was not on the list of Medicare telehealth services. The proposed addition of neurobehavioral status exam is a new proposal. Comment: One commenter stated that the neurobehavioral status exam appears to require that the service be provided face to face (in person). Therefore, the commenter requested us to clarify that face to face services may qualify as telehealth services. Response: As discussed in the CY 2005 PFS final rule with comment period, only services that traditionally require a face-to-face (in- person) physician or practitioner encounter are candidates for the list of Medicare telehealth services. Services not requiring a face-to-face encounter with the patient that may be furnished through the use of a telecommunications system are already covered under Medicare. For more information see the CY 2005 PFS final rule (69 FR 66278). Neuropsychological Testing Comment: We received conflicting comments regarding neuropsychological testing. For example, one commenter agreed with the requestor that neuropsychological testing furnished via telehealth is not significantly different from being furnished in-person (especially when administered by a computer). Additionally, the commenter stated that existing telehealth services for psychiatric patients include office visits, consultation, and office psychiatry. The commenter believes that the patient-provider dynamics of these services would not appear to be so significantly different from those for neuropsychological testing as to justify not approving the services for telehealth. The commenter also believes that testing dynamics, such as the patient being blindfolded or having numbers assigned to his or her fingers, could be easily reproduced with the help of someone at the originating site. The same commenter also provided a discussion of the importance of early detection of dementia through neuropsychological testing. The commenter included a letter from the Armed Forces Epidemiological Board about brain injury in military service members with recommendations on handling these injuries. The commenter stated that although the Epidemiological Board addressed military patients, the principles of its findings apply to civilian assessment and treatment of brain injuries; that is, appropriate testing at earlier stages of brain injury or disease is likely to elicit a more accurate patient profile, leading to more targeted interventions and better patient outcomes. In addition, the commenter stated that the administration of neuropsycho- logical testing may be more difficult for some patients than others; however, this is true in both the in-person and telehealth setting. The commenter believes that if the patient requires immediate in-person assistance, a telepresenter could be used to facilitate the testing and that the determination of patient suitability for testing should be up to the physician or practitioner at the distant site. Two commenters agreed that a telepresenter could assist the physician or psychologist at the distant site with the testing and that the physician or psychologist should determine which patients (and tests) are appropriate for telehealth. Another commenter who provides neuropsychological testing via telehealth explained that many standardized neuropsychological tests are available (literally hundreds) to the physician or psychologist (or technician) and that tests vary widely in terms of administrative procedure and the level of interaction between the patient and practitioner responsible for administering the test. The commenter believes that many tests could be effectively administered via telehealth and that it is not appropriate for us to issue a ``global denial'' of neuropsychological testing. For example, the commenter believes that neuropsychological testing administered via a computer should be approved for telehealth and that testing administered by a physician, psychologist, or qualified technician should be re- evaluated. The commenter also explained that an RN is often used as a telepresenter to assist the neuropsychologist or technician with testing. When testing cannot be administered in a ``standardized fashion'' via telehealth, a qualified technician could be present on- site with the patient to assist a psychologist who [[Page 66252]] furnishes the test at the distant site. However, the commenter believes that some testing measures may not be appropriate for telehealth. The commenter estimated that ``fewer than 35 percent of the hundreds of available measures do not lend themselves to standardized administration via telehealth''. The commenter also cited the American Psychological Association's Ethical Principles of Psychologists and Code of Conduct and stated these guidelines would prohibit administration of certain individual tests via telehealth. Other commenters believe that further study is necessary. The commenters urged us to seek additional information concerning the provision of neuropsychological testing before making a determination about these services for telehealth. One commenter believes that neuropsychological testing should be considered for telehealth approval stating, ``however it is unclear whether the technology has advanced far enough to allow all neuropsychological testing to be provided via telehealth without compromising the quality of care''. Additionally, the commenter stated that more time is needed to assess how neuropsychological testing could be provided via telehealth and listed the following issues that need further consideration: The variety of disorders and diagnoses appropriate via telehealth; The physical assistance that patients may need to complete tests; and The impact of face-to-face interactions with a psychologist or trained psychological technician during testing on the interpretation of test results. Response: We appreciate the comments regarding the use of an interactive audio and video telecommunications system in furnishing neuropsychological testing services. Based on the comments received, we believe that further study is necessary before making a determination about neuropsychological testing for telehealth. As discussed above in this section, we received conflicting comments as to whether the administration of a neuropsychological test could be furnished adequately when the practitioner who is responsible for administering the test is not physically present with the patient. For example, some commenters believe that neuropsychological testing furnished via telehealth is not significantly different than when furnished in-person and that a telepresenter could be used to assist the physician or psychologist at the distant site if necessary. Other commenters believed that further study is necessary before approving neuropsychological testing for telehealth. One commenter believed that it is unclear whether the use of a telecommunications system for administering neuropsychological testing would compromise quality of care and listed specific issues that need greater exploration. Even a commenter who supports approving neuropsychological testing for telehealth indicated that many neuropsychological testing measures would not be appropriate for telehealth. As such, we continue to have concerns about using an interactive audio and video telecommunications system as a substitute for the face-to-face (in- person) requirements of neuropsychological testing. Comment: Two commenters believe that sufficient empirical evidence exists to support the approval of neuropsychological testing for telehealth. The commenters submitted summaries of two comparative analyses between neuropsychological testing furnished via an interactive audio and video telecommunications system and neuropsychological testing furnished in-person. Response: As discussed above in this section, we believe that further study is necessary before approving neuropsychological testing for telehealth. Although the commenters did submit comparative analyses, in one of the studies cited, the same psychologist furnished neuropsychological testing in both conditions (face-to-face and via telehealth). In another study cited, study participants without neuropsychological or psychiatric disturbance were tested. Additionally, the studies cited had extremely small samples. As such, we believe it would be difficult to generalize any findings to a broader population. Comment: One commenter questioned whether the regulatory impact analysis for telehealth was intended to provide a rationale to make reductions in Medicare payment for telehealth services in the future. The commenter urged us to continue to fund a wide variety of telehealth services. Response: The regulatory impact analysis was not intended to be used as a rationale for making reductions in Medicare payment for telehealth services. The intent of the regulatory impact analysis on telehealth was to illustrate that the proposed addition of neurobehavioral status exam to the list of Medicare telehealth services should not have a significant budgetary impact on the Medicare program. For more information on our regulatory impact analysis for the proposed addition of neurobehavioral status exam to the list of Medicare telehealth services, see the CY 2008 PFS proposed rule (72 FR 38216). Comment: One commenter stated that neuropsychological testing is ancillary to a neurobehavioral status exam and that neuropsychological testing would have little additional budgetary impact (beyond the impact of adding neurobehavioral status exam). To support this assertion, the commenter cited our proposed regulatory impact analysis on the addition of neurobehavioral status exam (as described by CPT code 96116). Response: As discussed above in this section, we believe that further study is necessary before approving neuropsychological testing for telehealth. Comment: A few commenters requested that we approve additional services for telehealth (for example, standardized performance testing as described by CPT code 96125). Response: Requests for additions (including any supporting data analyses) should be submitted through our process for adding services and must be received by December 31 of each calendar year to be considered for the next proposed rule. For more information on how to submit a request for addition, please visit our Web site at http://www.cms.hhs.gov/telehealth . Results of Evaluation of Comments We are adding the neurobehavioral status exam as represented by HCPCS code 96116 to the list of Medicare telehealth services. Additionally, we are revising Sec. 410.78 and Sec. 414.65 to include neurobehavioral status exam as a Medicare telehealth service. As discussed above, only services that traditionally require a face-to-face (in person) physician or practitioner encounter are candidates for the list of Medicare telehealth services. Services not requiring a face-to-face encounter with the patient that may be furnished through the use of a telecommunications system are already covered under Medicare. As discussed in chapter 15, section 30 of the Medicare Benefit Policy Manual, payment may be made for physicians' services delivered via a telecommunications system for services that do not require a face-to-face patient encounter. The interpretation of an x-ray, electrocardiogram, electroencephalogram and tissue samples are listed as examples of these services. [[Page 66253]] After further review of the requested services for addition, neuropsychological testing administered by a computer (as described by HCPCS code 96120) is not a candidate for the list of Medicare telehealth services. Neuropsychological testing administered by a computer (HCPCS code 96120) does not require a face-to-face (in person) encounter between the patient and the physician or psychologist (or qualified technician) responsible for the administration and interpretation of the test results (for example, the patient is interfacing with the computer, not a physician or psychologist). As such, a telecommunications system may be used to facilitate neuropsychological testing administered by a computer (as described by HCPCS code 96120); for example, Web-based computer neuropsychological testing, and/or transmission of neuropsychological test results to an interpreting physician or psychologist via telecommunications system. E. Specific Coding Issues Related to the PFS 1. Reduction in the Technical Component (TC) for Imaging Services Under the PFS to the Outpatient Department (OPD) Effective January 1, 2007, section 5102(b)(1) of the Deficit Reduction Act of 2005 (Pub. L. 109-171) (DRA) amended section 1848 of the Act to require that, for imaging services, if-- ``(i) The technical component (including the technical component portion of a global fee) of the service established for a year under the fee schedule* * * without application of the geographic adjustment factor * * *, exceeds (ii) The Medicare OPD fee schedule amount established under the prospective payment system for hospital outpatient department services* * * for such service for such year, determined without regard to geographic adjustment * * *, the Secretary shall substitute the amount described in clause (ii), adjusted by the geographic adjustment factor [under the PFS], for the fee schedule amount for such technical component for such year.'' As required by the statute, for imaging services (described in this section) furnished on or after January 1, 2007, we cap the TC of the PFS payment amount for the year (prior to geographic adjustment) by the Outpatient Prospective Payment System (OPPS) payment amount for the service (prior to geographic adjustment). We then apply the PFS geographic adjustment to the capped payment amount. Section 5102(b)(1) of the DRA defines imaging services as ``imaging and computer-assisted imaging services, including X-ray, ultrasound (including echocardiography), nuclear medicine (including PET), magnetic resonance imaging (MRI),computed tomography (CT), and fluoroscopy, but excluding diagnostic and screening mammography.'' To apply section 5102(b) of the DRA, we needed to determine the CPT and alpha-numeric HCPCS codes that fall within the scope of ``imaging services'' defined by the DRA provision. In the CY 2008 PFS proposed rule, we explain in detail the process we used for establishing the list of codes that fall within the scope of this DRA provision. We also stated that upon further review, we have determined that certain ophthalmologic procedures meet the DRA definition of imaging procedures, but were not included in the original list of imaging services subject to the OPPS cap. Therefore, we proposed to add the following procedures to the list of procedures subject to the OPPS cap, effective January 1, 2008: 92135, Scanning computerized ophthalmic diagnostic imaging (e.g., scanning laser) with interpretation and report. 92235, Fluorscein angioscopy (includes multiframe imaging) with interpretation and report. 92240, Indocyanine-green angiography (includes multiframe imaging) with interpretation and report. 92250, Fundus photography with interpretation and report. 92285, External ocular photography with interpretation and report for documentation of medical progress (e.g., close-up photography, slit lamp photography, goniophotography, stereo- photography). 92286, Special anterior segment photography with interpretation and report; with specular endothelial microscopy and cell count. A complete list of CPT codes that identify imaging services as defined by the DRA OPPS cap provision, amended to include these ophthalmologic procedures, was also published in Addendum F of the CY 2008 PFS proposed rule (72 FR 38369 through 38372). Payment for an individual service on this list will only be capped if the PFS TC payment amount exceeds the OPPS payment amount. Comment: Several commenters indicated that none of the six ophthalmologic CPT codes proposed for addition to the list of procedures subject to the OPPS cap meet the statutory definition of imaging under the DRA, that is, none of the procedures codes fall under the categories of x-rays, ultrasound, MRI, PET, CT or fluoroscopy. Specifically, they noted that CPT code 92250 utilizes a wide angle camera used primarily for detecting retinopathy in diabetics. Likewise, CPT codes 92235, 92240, and 92285 are all photos, using photographic equipment, or an angioscope. The commenters concluded that the Congress did not intend for any service that uses a camera or microscope, takes photographs, and produces negatives to be included in the DRA definition of imaging services. Another commenter indicated that CPT codes 92250 and 92285 do not meet our criterion for including a procedure under the DRA provision, that is, services that provide visual information regarding areas of the body that are not normally visible, thereby assisting in the diagnosis or treatment of injury. The commenter noted that the subject procedures take traditional pictures of parts of the eye that are normally visualized with the naked eye. One commenter noted that the six CPT codes have not experienced dramatic increases in utilization, but rather, utilization has remained stable or decreased. Response: The DRA provision describes imaging services broadly as ``imaging and computer-assisted imaging services,'' and does not provide for the type of distinctions the commenters suggested. While it specifically includes certain imaging modalities (x-ray, ultrasound, MRI, PET, CT, and fluoroscopy), it does not exclude other imaging modalities. In fact, the DRA provision excludes only one imaging service, that is, diagnostic and screening mammography. Concerning CPT codes 92250 and 92285, we believe the images generated by these services may include information that requires the use of photographic or imaging equipment and is not normally visible by the unaided human eye. Finally, the description of imaging services to which the DRA provision applies is not limited to procedures that have experienced dramatic increases in utilization. We believe the six procedures meet the DRA definition of imagining services and are similar to other procedures already subject to the DRA provision. Therefore, we will include these CPT codes on the list of procedures subject to the OPPS cap. (Note: This list of procedures is published in Addendum F of this final rule with comment period.) Comment: Many comments requested clarification of the application of the OPPS cap when there is no OPPS payment for comparison; where the code is bundled under OPPS; or where [[Page 66254]] the OPPS payment includes items (for example, contrast agents or radiopharmaceuticals) that are paid separately under the PFS. Response: Where there is no OPPS payment for a procedure or where the OPPS for a procedure is bundled, there is no OPPS amount for the comparison with the PFS payment. Therefore, it is infeasible to apply an OPPS cap. The codes will remain on the list of codes subject to the OPPS cap, but will not be affected by the cap. Where the OPPS payment includes packaged services or items that are paid separately under the PFS, we can and do apply an OPPS cap. The physician can continue to bill separately for such services or items when furnished in a place of service, for example, a physician's office, where the item is paid separately. 2. Application of Multiple Procedure Reduction for Mohs Micrographic Surgery (CPT Codes 17311 Through 17315) Under the multiple procedure payment reduction policy, reimbursement for subsequent surgical procedures performed during the same operative session by the same physician is reduced by 50 percent. The Mohs surgery codes have been exempt from the multiple procedure payment reduction rules since the inception of the PFS (56 FR 59602, November 25, 1991). The CPT Editorial Panel reviewed all of the codes on the list of codes exempt from the multiple procedure payment reduction (the ``-51 modifier exempt list'') to identify which codes should be exempt from the multiple procedure payment reduction rules. Based on the revisions to the code descriptors and a clearer understanding regarding the technical elements of the procedure, in CY 2007, the CPT Editorial Panel removed the Mohs procedure from the -51 modifier exempt list. The codes for Mohs surgery were revised to take into account the different level of physician work intensity involved based on anatomic site. The RVUs associated with the codes for each anatomic location were recommended by the RUC, as they are for other procedures, after a thorough discussion by the RUC of all aspects of the service. Work RVUs were developed for each Mohs surgery base code based on an assumption that each code is performed separately. Because the work RVUs for these services do not take into account the efficiencies that occur when multiple procedures are performed in one session, we do not believe that these codes should continue to be exempt from the multiple procedure payment reduction. Therefore, we proposed to eliminate the modifier 51 exemption and apply the multiple procedure payment reduction rules to these codes. Comment: We received comments supporting our proposal and expressing the belief that our proposal is fair and consistent with our multiple procedure payment policies already affecting a wide range of procedures with codes in the Surgery/Integumentary System of CPT. Many commenters opposed our proposal to eliminate the modifier -51 exemption and apply the multiple procedure payment reduction to these codes. These commenters believed that eliminating these codes from the modifier -51 exempt list would negatively impact Medicare beneficiaries'' access to timely and quality care, and could lead to increases in pathology charges and increase the amount spent on multiple facility fees, thereby raising the overall cost of treating an individual with skin cancer. In addition to these concerns, many of the commenters do not believe we have sufficient justification to make the change, and suggest that this is an arbitrary decision. Further, the commenters asserted that the AMA-RUC and CPT decisions were in error and should not be followed. Response: We verified with the CPT Editorial Panel that the application of the modifier -51 exempt status indicator, and subsequently, the inclusion of this series of codes (CPT codes 17311 through 17315) in Appendix E, Summary of CPT Codes Exempt from Modifier -51, of the 2008 CPT codebook would not be carried forward with the new series of codes created in 2007. The CPT panel confirmed with us that the exclusion of these codes from Appendix E was not an error. The AMA RUC reviewed and valued the new and existing codes for Mohs surgery. Upon completion of a thorough review and discussion of the Mohs codes, the RUC valued these codes with the full understanding these codes were removed from the modifier -51 exempt list and would be subject to the multiple procedure payment reduction as well. We believe the CPT Editorial Panel and the Mohs workgroup on the CPT Editorial Panel gave considerable time, effort and discussion in the creation of the new and existing codes for Mohs surgery. We also believe the AMA-RUC carefully reviewed the rationale and deliberations which lead to the creation of new Mohs surgery codes. In addition, we believe the specialty society had ample time and opportunity to express its point of view to both the CPT Panel and the AMA-RUC. As a result of the revisions to these codes and their respective valuation, we do not believe they should continue to be treated differently from other codes in the Surgery/Integumentary System section of the CPT book and see no reason not to accept the recommendations provided by the CPT Panel and AMA-RUC. Therefore, we are finalizing our proposal to eliminate the modifier -51 exemption and apply the multiple surgery procedure payment reduction rules to these codes. 3. Payment for Intravenous Immune Globulin (IVIG) Add-On Code for Preadmission Related Services Intravenous immune globulin (IVIG) is a unique product derived from blood plasma. This drug is paid for under the ASP methodology and the administration of this drug is reported using the first hour and second hour infusion codes for therapeutic, prophylactic and diagnostic services under CPT. We recognize the importance of IVIG to patients who require it and are concerned about reports of problems with IVIG access and availability. We have initiated several actions in response to concerns about the supply of IVIG. In July 2007, we implemented new codes for reporting IVIG for liquid non-lyophilized IVIG. In CY 2006 and 2007, we established payment, through the creation of a special G-code, G0332, for preadministration services furnished in connection with the procurement of IVIG in the physician's office. This code is designed to compensate physicians for the extra resources required to be expended due to market conditions to locate and obtain the appropriate IVIG products and to schedule patient infusions. Comment: We received several comments regarding our proposal to continue in CY 2008 the preadministration payment under the PFS for patients treated with IVIG in a physician's office. The majority commenters supported our proposal and recommended that it be finalized, and recommended that this policy be made permanent. Commenters stated that if this code and payment are not made permanent, we would need to present a convincing evidence to terminate this payment. Commenters indicated that without continuation of the add on payment, access problems for Medicare beneficiaries in need of IVIG would be more severe. Many commenters indicated problems with the ASP payment methodology for IVIG stating that IVIG is a unique [[Page 66255]] product for which market conditions are unlike all other drugs paid under ASP. Other commenters remarked that the addition of the four new billing codes for liquid IVIG adopted in July 2007 should improve market conditions and beneficiary access to IVIG. Some commenters asked that we consider making the liquid IVIG codes permanent J-codes. A few commenters asked that CMS consider establishing an add on payment for IVIG similar to the add on payment for clotting factor. Two commenters indicated that Addendum B did not include the G-code for preadministration services and recommended that the code be included in Addendum B for the final rule. Response: Comments regarding the ASP pricing methodology for IVIG, the adoption of new drug codes for liquid IVIG in CY 2007, and the consideration of an add-on payment for IVIG similar to the add-on payment for blood clotting factor are beyond the scope of our proposal which focuses on payment for a service under the PFS. We will consider these comments in context of any proposed policies for drug payments made as part of the CY 2009 PFS proposed rule. In terms of the preadministration service for IVIG, we will continue the CY 2007 payment policy for code G0332 through CY 2008. We will carefully consider all relevant information including the conditions of the IVIG drug market during CY 2008 when we address whether it would be appropriate to continue the payment policy as part of the CY 2009 PFS. We appreciate the commenters alerting us that G0332 was omitted from Addendum B in the proposed rule and we will ensure that this code is listed in Addendum B of this final rule with comment period. Therefore, we are finalizing the proposal to continue to recognize payment for preadministration services for IVIG furnished to patients in a physician's office in CY 2008. Payment for this service will be made based on the PE RVUs previously established for this service in CY 2007. Payment for preadminstration services for IVIG furnished to hospital outpatients is paid under the outpatient PPS (OPPS) and is addressed as part of that final rule. 4. Reporting of Cardiac Rehabilitation Services For CY 2008, we proposed to assign a status indicator of ``I'' (invalid for Medicare purposes, Medicare recognizes another code for the billing of this service) to the current CPT codes for cardiac rehabilitation services, CPT codes 93797, Physician services for outpatient cardiac rehabilitation; without continuous ECG monitoring (per session), and 93798, Physician services for outpatient cardiac rehabilitation; with continuous ECG monitoring (per session) and proposed to establish two new Level II HCPCS codes that we believe are more appropriate for specifically reporting cardiac rehabilitation services under the PFS. The proposed HCPCS codes are: GXXX1, Physician services for outpatient cardiac rehabilitation; without continuous ECG monitoring (per hour), and GXXX2, Physician services for outpatient cardiac rehabilitation; with continuous ECG monitoring (per hour). We also proposed to crosswalk the current RVUs associated with CPT codes 93797 and 93798 to HCPCS Codes Gxxx1 and Gxxx1. Comment: Many commenters, including physicians and providers of cardiac rehabilitation services, were generally supportive of the proposal for the specific G-codes. Commenters believed that this proposed coding change would allow for more appropriate coding and payment for cardiac rehabilitation services in those cases where intensive programs provide multiple sessions each day. In addition, commenters requested that we explicitly state that multiple sessions of cardiac rehabilitation can be paid for the same date of service when modifier 59 is reported. They also requested that we crosswalk the payments for both of the proposed G-codes to the higher cost CPT code 93798 to ensure that the full range of modalities provided in certain intensive cardiac rehabilitation programs are available. Several of these commenters also requested that we provide additional guidance related to reporting of the cardiac rehabilitation G-codes, such as: (1) Explaining that it is likely to be reasonable and necessary to cover 72 cardiac rehab sessions when multiple sessions are provided in one day; (2) encouraging contractors to factor the ``proven results'' of a program into coverage decisions and that 72 sessions should be ``presumptively covered'' when they are furnished by a certain intensive cardiac rehabilitation program; and (3) providing further clarification and expansion of nutritional counseling by registered dieticians, indicating that they could independently bill for nutritional counseling within cardiac rehabilitation programs using the medical nutrition therapy codes because the NCD does not specifically mention these services. Alternatively, a few commenters, including physician specialty groups, questioned the need for the proposed G-codes, indicating that no new data would be gained by a coding shift that changes a unit from a session to an hour. Commenters also suggested that we work with the AMA to address the issue of whether it would be appropriate to modify the CPT definition for this code from a per session to per hour basis. Many commenters also expressed concern that the use of the term ``physician services'' and ``MD services'' in the G-code descriptors could be misinterpreted by Medicare contractors as requiring a physician to directly deliver the care or be in attendance during each service episode and requested that the code descriptor be revised. Response: We are aware of several intensive cardiac rehabilitation programs that provide multiple sessions in a day, lasting several hours total. The NCD for cardiac rehabilitation currently states that cardiac rehabilitation programs are covered for certain categories of patients and that the programs must be comprehensive. To be comprehensive the programs must include a medical evaluation, a program to modify cardiac risk factors (for example, nutritional counseling), prescribed exercise, education, and counseling. The NCD does not distinguish between different approaches to the delivery of cardiac rehabilitation services, whether the more common practice of two sessions per week or the more intensive programs of several sessions per day. In order to allow for flexibility and tailoring of cardiac rehabilitation programs based on patient needs, we have not been prescriptive regarding the precise amount of time that must be spent on each component of the program. Regarding intensity, we expect the intensity of cardiac rehabilitation programs to vary by patient and by program. We believe it is important that our payment policy provides appropriate payment for cardiac rehabilitation services. In order to minimize the administrative burden to physicians and providers, but permit accurate reporting and payment for cardiac rehabilitation programs that provide more than one session per day, we believe that continuing the use of CPT codes 93797 and 93798 and allowing physicians and providers to bill more than one session per day under some circumstances would be the most appropriate course. Therefore, based upon the comments received and upon further review of this issue, for CY 2008, we will allow physicians and providers to report more than one unit for a date of service if [[Page 66256]] more than one cardiac rehabilitation session lasting at least 1 hour each is provided on the same day. With respect to commenters' concerns about the use of the term ``physician services'' in the proposed G-code descriptors, we note that the descriptors for these codes were proposed to be parallel to the descriptors of the CPT codes for cardiac rehabilitation sessions which contain the term ``physician services'' in their descriptors. We are not aware that physicians and providers have problems with Medicare contractors'' interpretation of the CPT code descriptors. After consideration of all public comments received, we are not finalizing our proposal to establish two new G-codes for reporting cardiac rehabilitation services. Instead, we will continue to use the CPT codes 93797 and 93798 to report cardiac rehabilitation services under the CY 2008 PFS. We will provide further guidance on coding and payment instructions for the cardiac rehabilitation services codes through program instructions. We will not provide the additional coverage-related guidance requested by some commenters, such as the presumptive coverage and independent billing for registered dieticians. These recommendations effectively request changes to the NCD, and therefore, are outside of the scope of this final rule with comment period. F. Part B Drug Payment 1. Average Sales Price (ASP) Issues Medicare Part B covers a limited number of prescription drugs and biologicals. For the purposes of this proposed rule, the term ``drugs'' will hereafter refer to both drugs and biologicals, unless otherwise specified. Medicare Part B covered drugs not paid on a cost or prospective payment basis generally fall into the following three categories: Drugs furnished incident to a physician's service. DME drugs. Drugs specifically covered by statute (certain immunosuppressive drugs, for example). Beginning in CY 2005, the vast majority of Medicare Part B drugs not paid on a cost or prospective payment basis are paid under the ASP methodology. The ASP methodology is based on data submitted to us quarterly by manufacturers. In addition to the payment for the drug, Medicare currently pays a furnishing fee for blood clotting factors, a dispensing fee for inhalation drugs, and a supplying fee to pharmacies for certain Part B drugs. In January 2006, the drug coverage available to Medicare beneficiaries expanded with the implementation of Medicare Part D. The Medicare Part D program does not change Medicare Part B drug coverage. In this section, we discuss changes and issues related to the determination of the payment amounts for covered Part B drugs and furnishing blood clotting factor. This section also discusses changes to how manufacturers calculate and report ASP data to us. a. ASP Payment Section 303(c) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) (MMA) amended Title XVIII of the Act by adding section 1847A. This section revised the payment methodology for the vast majority of drugs and biologicals not paid on a cost or prospective payment basis furnished on or after January 1, 2005. The ASP reporting requirements are set forth in section 1927(b) of the Act. Manufacturers must submit ASP data by 11-digit National Drug Code (NDC) to us quarterly. The manufacturers' submissions are due to us not later than 30 days after the last day of each calendar quarter. The methodology for developing Medicare drug payment allowances based on the manufacturers' submitted ASP data is specified in 42 CFR, part 414, subpart K. We update the Part B drug payment amounts quarterly based on the data we receive. In this section of the preamble, we discuss certain aspects of the calculation of manufacturers' ASP data, issues related to bundled price concessions, and other Part B drug payment issues. Further information on manufacturers' submission of ASP data for Medicare Part B drugs and biologicals is contained in prior rulemaking documents and other guidance accessible on the CMS Web page at (http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/ ). Specifically refer to the April 6, 2004 ASP interim final rule with comment period (IFC) (69 FR 17935) and the CY 2007 PFS final rule with comment period (71 FR 69624), which finalized the ASP calculation and reporting requirements of the April 6, 2004 IFC, and the Frequently Asked Questions available on the CMS Web page. b. Bundled Price Concessions In the CY 2007 PFS proposed rule and final rule with comment period, we solicited and responded to comments regarding the issue of how to allocate price concessions across drugs that are sold under bundling arrangements for purposes of calculating the ASP. We did not establish a specific methodology that manufacturers must use for the treatment of bundled price concessions for purposes of the ASP calculation in the CY 2007 PFS final rule with comment period. In the absence of specific guidance, we maintained existing guidance that manufacturers may make reasonable assumptions in their calculation of ASP, consistent with the general requirements and the intent of the Act, Federal regulations, and their customary business practices. We also indicated that we would be closely monitoring this issue and may provide more specific guidance in the future if we determine it is warranted. As stated in the CY 2008 PFS proposed rule (72 FR 38150), in its January 2007 Report to Congress, ``Impact of Changes in Medicare Payments for Part B Drugs,'' the MedPAC discussed the issue of allocation of bundled price concessions for purposes of calculating the ASP, noting that ``some manufacturers offer provider discounts for one of their products contingent on purchases of one or more other products.'' This report discusses two approaches for allocating bundled price concessions. According to MedPAC, one option would be to require manufacturers to allocate bundled discounts in proportion to the sales of each drug sold under the bundled arrangement. For example, Drug A and Drug B are sold under a bundled arrangement and have a combined bundled discount equal to $200,000 on total sales of $1 million. If Drug A has sales of $600,000, the manufacturer would allocate 60 percent of the bundled discount to that drug when calculating ASP. Forty percent of the bundled discount would be allocated to Drug B. MedPAC states that this approach would parallel bundling requirements under Medicaid and would be simpler to administer. However, MedPAC notes that this method might not capture contingent discounts. The other approach discussed by MedPAC would be to require manufacturers to allocate bundled discounts to reflect the contingencies in the contract. That is, manufacturers would allocate any additional (or increased) discount to the sales of the drug (or drugs) that the discount is meant to increase. This approach would result in an ASP that more accurately reflects the transaction price of drugs when a discount for one drug or drugs is contingent in whole or in part on the purchase of another drug. For example, if a greater discount on the purchase price of Drug A is contingent on the [[Page 66257]] purchase (or purchases) of Drug B, this additional discount would be allocated to sales of Drug B in the calculation of ASP. In its discussion of bundling, MedPAC states that the goal should be to ensure that ASP reflects the average transaction price for drugs. To that end, MedPAC recommends that the Secretary clarify the ASP reporting requirements for bundled products to ensure that ASP calculations allocate discounts to reflect the transaction price for each drug. Further, MedPAC states that we should ensure that the reporting requirements for allocating discounts are clear and that they can be implemented by manufacturers in a timely fashion. In the CY 2008 PFS proposed rule (71 FR 77176), we also discussed the Medicaid Program: Prescription Drugs proposed rule published in the December 22, 2006 Federal Register (hereinafter referred to as the December 22, 2006 proposed rule) concerning the calculation of manufacturers' average manufacturer price (AMP). In the December 22, 2006 proposed rule, we proposed that discounts associated with a bundled sale would be allocated proportionately according to the dollar value of the units of each drug sold under the bundled arrangement. For bundled sales where multiple drugs are discounted, the aggregate value of all the discounts would be proportionately allocated across all of the drugs in the bundle. For AMP purposes, a bundled sale would mean an arrangement regardless of physical packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug or drugs of different types (that is, at the nine-digit NDC level) or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary), or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs been purchased separately or outside of the bundled arrangement. In the December 22, 2006 proposed rule, we further proposed that the AMP should be adjusted for bundled sales by determining the total value of all the discounts on all drugs in the bundle and allocating those discounts proportionately to the respective AMP calculations. The aggregate discount is allocated proportionately to the dollar value of the units of each drug sold under the bundled arrangement. Where discounts are offered on multiple products in a bundle, the aggregated value of all of the discounts should be proportionately allocated across all of the drugs in the bundle. We received many comments on the many aspects of the December 22, 2006 proposed rule. However, the review of those comments and development of the final AMP calculation policies and rule were not complete at the time the CY 2008 PFS proposed rule was developed. In light of MedPAC's recommendation that we clarify the ASP reporting requirements for bundled products and our discussion of bundled price concessions in the CY 2007 PFS rulemaking, we stated in the CY 2008 PFS proposed rule that we believe specific guidance in the ASP context is warranted to provide for greater consistency in ASP reporting across manufacturers and to enhance the accuracy of the ASP payment system. We stated that we found MedPAC's suggestion not to defer further guidance in this area compelling with respect to the potential that manufacturers may make differing assumptions in the absence of specific guidance on how to allocate bundled price concessions in the context of ASP. In addition, we stated that we believe it is appropriate at this time to establish a specified method for treating bundled price concessions in the calculation of ASP that is consistent with the treatment of such discounts for purposes of the AMP calculation, and that appropriate consistencies across the calculations of ASP and AMP will result in a lower potential for error and more accurate calculations of both prices. As we noted in the CY 2008 PFS proposed rule, although ASP and AMP serve similar, but not identical, purposes, differences between these calculations provide a rationale for, and in some instances may require, minor differences between the final policies adopted in Medicaid and Medicare regulations. We believe any differences would be necessary to clarify certain aspects of a consistent approach for treatment of bundling, and would not result in significant policy differences on how bundling is addressed in the context of AMP and in the context of ASP. Therefore, for purposes of calculating the ASP (beginning with the reporting period for the first calendar quarter of 2008 and thereafter), we proposed that the manufacturer must allocate the total value of all price concessions proportionately according to the dollar value of the units of each drug sold under a bundled arrangement to ensure that the ASP is adjusted for bundled arrangements as defined at proposed Sec. 414.802. For a bundled arrangement, where multiple drugs are discounted, the aggregate value of all the discounts would be proportionately allocated across all of the drugs sold under the bundled arrangement. We proposed that a bundled arrangement, for ASP purposes, would mean an arrangement, regardless of physical packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug or biological or other drugs or biologicals or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary, purchasing patterns, prior purchases), or where the resulting discounts or other price concessions are greater than those that would have been available had the drugs or biologicals sold under the bundled arrangement been purchased separately or outside of the bundled arrangement. We proposed to specify at proposed Sec. 414.804(a)(2)(iii) that all price concessions on drugs sold under a bundled arrangement must be allocated proportionately to the dollar value of the units of each drug sold under the bundled arrangement. In the CY 2008 PFS proposed rule, we also stated our intention to remain consistent, as appropriate, with the final policy adopted in the Medicaid Program: Prescription Drugs final rule with comment period published in the July 17, 2007 Federal Register (72 FR 39142) (hereinafter referred to as the July 17, 2007 final rule with comment period), which was still under development at that time. We stated that the Medicaid policies on bundled sales may ultimately differ from our discussion of the topic in the CY 2008 PFS proposed rule as a result of the final policy adopted in the July 17, 2007 final rule with comment period and that our policies for ASP in this final rule with comment period may reflect the final Medicaid policy on bundled sales, but only to the extent that it is appropriate for ASP and the public has had the opportunity to comment on how the final Medicaid policy for bundled sales, if appropriately adopted for ASP purposes, would effect the calculation of ASP. The final Medicaid policy on bundled sales adopted in the July 17, 2007 final rule with comment period was consistent with the discussion of this issue in the December 22, 2006 proposed rule with certain clarifications. Comment: We received many comments on this issue. Most of these commenters noted that our proposal for the treatment of bundled price concessions in the ASP context was similar to the language finalized in the July 17, 2007 final rule with comment period. In general, most of the [[Page 66258]] commenters supported an appropriately consistent approach for the treatment of bundled price concessions within both the AMP and ASP calculations. However, several commenters indicated that they were still reviewing the July 17, 2007 final rule with comment period and believe additional time may be needed to better understand how the proposed Medicare bundled arrangement definition is to be applied. Several commenters had questions about how the proposed bundling policies may apply to certain contracting arrangements, and because of these questions, recommended that we cease or delay implementation of our proposed method for treatment of bundled price concessions for purposes of ASP. Response: Based on comments recommending a delay and to better understand the concerns stated by the commenters, we are not finalizing the regulatory language changes we proposed in the CY 2008 PFS proposed rule at this time. Although we are not establishing a specific methodology that manufacturers must use for the treatment of bundled price concessions for purposes of calculating ASP at this time, we are clarifying that, in the absence of specific guidance, manufacturers may make reasonable assumptions in their calculation of ASP, consistent with the general requirements and the intent of the Act, Federal regulations, and their customary business practices. In making reasonable assumptions for purposes of calculating ASP, one method manufacturers could use is to reallocate price concessions that are conditioned upon other purchases or a performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary) so that the total value of all such price concessions are allocated proportionately according to the dollar value of the units of each drug sold. However, manufacturers may have other methods they could use to report bundled price concessions, so long as manufacturers apply reasonable assumptions consistent with the general requirements and the intent of the Act, Federal regulations, and their customary business practices. Manufacturers' reasonable assumptions consistent with our requirements, guidance and manufacturer's customary business practices remain an important aspect of ASP reporting. These assumptions should be submitted along with the ASP data and the signed certification form. Recognizing that the treatment of bundled price concessions in the ASP calculation has implications for the integrity of the ASP payment methodology, we will continue to monitor this issue, will consider the comments on this issue, and may provide more specific guidance in the future through rulemaking or through program instruction or other guidance (consistent with our authority under section 1847A(c)(5)(C) of the Act) if we determine it is warranted. As we continue to review these issues, we want to be sure we are aware of concerns from all stakeholders, and thus we encourage the public to provide additional information or concerns to us on this issue as they may arise. c. Clotting Factor Furnishing Fee Section 303(e)(1) of the MMA added section 1842(o)(5) of the Act which requires the Secretary, beginning in CY 2005, to pay a furnishing fee in an amount the Secretary determines to be appropriate to hemophilia treatment centers and homecare companies for the items and services associated with the furnishing of blood clotting factor. Section 1842(o)(5)(C) of the Act specifies that the furnishing fee for clotting factor for CY 2006 and subsequent years will be equal to the fee for the previous year increased by the percentage increase in the consumer price index (CPI) for medical care for the 12 month period ending with June of the previous year. The furnishing fee for CY 2007 is $0.152 per unit clotting factor. The percent increase in the CPI for medical care for the 12-month period ending in June 2007 is 4.0 percent. Consequently, the furnishing fee will be $0.158 per unit of clotting factor for CY 2008. While the furnishing fee payment rate is calculated at 3 digits, the actual amount paid to providers and suppliers is rounded to 2 digits. In the CY 2008 PFS proposed rule, we proposed to announce the annual update of the blood clotting factor furnishing fee, as specified in section 1842(o)(5)(C) of the Act, by issuing program instructions and postings on the CMS Web site in lieu of including a discussion of this issue in PFS rulemaking for CY 2009, and thereafter, until such time as the update methodology may be modified. We made our proposal because the update is statutorily determined, is based on an index not affected by administrative discretion or public comment, is based on the percentage increase in the CPI for medical care for the 12-month period ending with June of the previous year, and is not released by the Bureau of Labor Statistics until after our proposed rule is published. As stated in the CY 2008 proposed rule, we believe that including a discussion of the furnishing fee update in annual rulemaking does not provide an advantage over other means of announcing this information, so long as the current statutory update methodology continues in effect. We believe that the public's need for information and adequate notice regarding the updated furnishing fee can be better met by issuing program instructions which will eliminate the discussion of the furnishing fee update annually in rulemaking. In addition, by communicating the updated furnishing fee in program instruction, the actual figure for the percent change in the applicable CPI and the updated furnishing fee calculated based on that figure can be announced more timely than when included as part of the PFS final rulemaking process. Comment: We received comments in support of our proposal to announce the update furnishing fee via program instructions beginning in CY 2009, and to continue updating the furnishing fee according to the consumer price index for medical care. Comments supported the continued use of our proposed approach until such time as the methodology is changed. Response: After consideration of the public comments, beginning for CY 2009, we will announce the updated blood clotting factor furnishing fee via program instructions and via a Web posting. In addition, we may include the updated blood clotting factor furnishing fee in the annual PFS final rules to promote broader dissemination of the announcement. d. Widely Available Market Prices (WAMP) and AMP Threshold Section 1847A(d)(1) of the Act states that ``the Inspector General of HHS shall conduct studies, which may include surveys to determine the widely available market prices (WAMP) of drugs and biologicals to which this section applies, as the Inspector General, in consultation with the Secretary, determines to be appropriate.'' Section 1847A(d)(2) of the Act states that, ``Based upon such studies and other data for drugs and biologicals, the Inspector General shall compare the ASP under this section for drugs and biologicals with-- The widely available market price (WAMP) for these drugs and biologicals (if any); and The AMP (as determined under section 1927(k)(1) of the Act for such drugs and biologicals.'' Section 1847A(d)(3)(A) of the Act states that, ``The Secretary may disregard the ASP for a drug or biological that exceeds the WAMP or [[Page 66259]] the AMP for such drug or biological by the applicable threshold percentage (as defined in subparagraph (B)).'' The applicable threshold is specified in the statute as 5 percent for CY 2005. For CY 2006 and subsequent years, section 1847A(d)(3)(B) of the Act establishes that the applicable threshold is ``the percentage applied under this subparagraph subject to such adjustment as the Secretary may specify for the WAMP or the AMP, or both.'' In CY 2006 and CY 2007, we specified an applicable threshold percentage of 5 percent for both the WAMP and AMP. We based this decision on the limited data available to support a change in the current threshold percentage. For CY 2008, we proposed to specify an applicable threshold percentage of 5 percent for the WAMP and the AMP. At present, the OIG is continuing its comparison of both the WAMP and the AMP. Furthermore, information on how recent changes to the calculation of the AMP may affect the comparison of AMP to ASP is not available at this time. Since we do not have data that suggest another level is more appropriate at this time, we believe that continuing the 5 percent applicable threshold percentage for both the WAMP and AMP is appropriate for CY 2008. As we noted in the CY 2007 PFS final rule with comment period (71 FR 69680), we understand that there are complicated operational issues associated with potential payment substitutions and will continue to proceed cautiously in this area and provide stakeholders, particularly manufacturers of drugs impacted by potential price substitutions, with adequate notice of our intentions regarding such, including the opportunity to provide input with regard to the processes for substituting the WAMP or the AMP for the ASP. As part of our approach, we intend to develop a better understanding of the issues that may be related to certain drugs for which the WAMP and AMP may be lower than the ASP over time. Comment: We received several comments regarding our proposal to maintain the threshold at 5 percent. Most commenters supported maintaining this threshold. One commenter suggested increasing the threshold but did not specify a percentage to which it should be increased. Another commenter suggested increasing the threshold for AMP to 10 percent while maintaining the 5 percent threshold for WAMP. Response: We recognize the public's concern regarding the establishment of an appropriate threshold for making price substitutions. We disagree with the commenter who recommended different thresholds for WAMP comparisons and for AMP comparisons because of current operational difficulties associated with maintaining and communicating different thresholds. At the current time, we also believe that maintaining two thresholds lessens stakeholders' ability to accurately predict the potential risk for price adjustments. After considering public comments on this issue, and as required by statute, we are finalizing our proposal to establish the WAMP/AMP threshold at 5 percent for CY 2008. Comment: We received many comments suggesting that caution be exercised in the determination of price substitutions and that we develop a formal process and criteria to be used to determine when substitutions are necessary. Commenters also recommended that we assure adequate notice is provided prior to making a price substitution. Several commenters indicated recent policy changes made to the Medicaid AMP calculation could impact the accuracy of the comparisons between AMP and ASP and stated that these changes should be carefully studied and considered before implementing any pricing changes. Additionally, several commenters opposed any price substitutions for certain classes of providers or for certain specific drugs. The commenters noted that certain classes of providers may be subject to different cost structures making wholesale substitution of prices impractical. Some commenters asserted that certain drugs experience unique market forces that may be adversely affected by pricing substitutions. Response: We understand that complex operational issues, both within CMS and externally could impact potential payment rate substitutions. We acknowledge the recent changes to the AMP regulations and are studying such changes carefully. Furthermore, we recognize the variety of providers and the marketplace forces that impact drug pricing decisions under ASP. Therefore, we will proceed cautiously and provide stakeholders, particularly manufacturers of drugs impacted by potential price substitutions, with adequate notice of our intentions regarding such, including the opportunity to provide input with regard to the processes for substitution. e. Other Issues Comment: A few commenters noted that we did not discuss the payment for separately billable ESRD drugs in the CY 2008 PFS proposed rule. These commenters supported continuation of the current policy of basing the payment on the ASP+6 percent. Response: We did not propose any policy changes to the approach that we currently use to pay for separately billed ESRD drugs. Therefore, for CY 2008 payment for separately billable drugs furnished by ESRD facilities will continue at ASP+6 percent in accordance with section 1847A of the Act. Comment: Several commenters noted that the billing and payment codes recently established for liquid IVIG to implement separate payment under section 1847A(b)(4) of the Act should improve beneficiary access to these products. Response: We thank the commenters for communicating their support. Comment: We received a few comments expressing concern that, because ASP based payment limit updates lag time by at least 2 calendar quarters, increases in market prices may not be reflected in a drug's payment limit for at least 6 months after a pricing adjustment. One commenter suggested that current technology should enable CMS to decrease the lag time from 6 months to 2 to 3 months. Response: By statute, the ASP based payment allowances are determined on a quarterly basis and are based on ASPs reported by manufacturers quarterly. Manufacturers must report to us no later than 30 days after the close of the calendar quarter. There is a necessary time frame after the close of a calendar quarter for manufacturers to calculate and submit the ASP data to CMS, for CMS to prepare and issue the payment rates, and for the claims processing contractors to implement the updated payment files. We implement these new payment limits through program instructions or otherwise at the first opportunity after we received the data, which is the calendar quarter after receipt. Comment: One commenter suggested that we modify the formula we use to calculate the payment amounts based on manufacturers' ASP data so that the formula is volume weighted as suggested by the OIG. Response: We discussed our formula for determining the payment amounts based on manufacturers' ASP data in the CY 2006 PFS final rule (70 FR 70217). As we stated in the CY 2006 PFS final rule, in establishing the formula used to calculate the payment amounts based on manufacturers' ASP data, we considered various approaches, including the alternative suggested by this commenter. If appropriate, we may consider revising the methodology in the future. We did not propose to change our current formula, and are not [[Page 66260]] implementing changes to our formula at this time. Comment: We received a few requests to increase the pharmacy supplying fee for immunosuppressive, oral anticancer, and oral anti- emetic drugs for CY 2008 to reflect actual supplying costs. We also received comments expressing concerns that primarily because of the labor intensive Medicare Part B claims processing services provided by specialty transplant pharmacies, the current supplying fee payment for immunosuppressive drugs is substantially lower than reported actual supplying costs. One commenter requested that we eliminate the two- tiered pharmacy supplying fee for prescriptions filled within a 30-day period. Response: We are committed to assuring that our claims systems process claims as timely and accurately as possible and that their payment methodologies result in the determination of accurate payment amounts. We recognize the operational complexities under which certain providers operate and strive to develop systems and processes to minimize such complexities. We appreciate the comments that were provided and may consider the issue in future rulemaking if appropriate. Since we did not propose a change to these rates for CY 2008, they will continue to be in effect in CY 2008. We received several other comments on the use and potential impacts of the ASP payment methodology and other issues related to Part B drugs that are also outside the scope of this rulemaking and will not be addressed in this final rule with comment. These topics include the following: Requests for billing codes for specific products; Whether alternative payment methodologies or exceptions to the ASP based payment should be considered; Variation in local coverage and payment policies, including use of least costly alternative policies and invoice pricing for compounded drugs; Excluding prompt pay discounts from the calculation of ASP; and Whether coverage under Part B should be expanded to include certain vaccines. 2. Competitive Acquisition Program (CAP) Issues Section 303(d) of the MMA required the implementation of a CAP for certain Medicare Part B drugs and biologicals not paid on a cost or PPS basis. The provisions for acquiring and billing drugs under the CAP were described in the Competitive Acquisition of Outpatient Drugs and Biologicals Under Part B proposed rule (published in the March 4, 2005 Federal Register; hereinafter referred to as the March 4, 2005 proposed rule) and interim final rule with comment period (published in the July 6, 2005 Federal Register; hereinafter referred to as the July 6, 2005 IFC) (70 FR 10746 and 70 FR 39022, respectively). Certain provisions were finalized in the CY 2006 PFS final rule with comment period (70 FR 70116). We specified a single CAP drug category to include a defined list of drugs furnished incident to a physician's service. In this final rule with comment period, we discuss the impact of provisions in section 108 of the MIEA-TRHCA on administrative and operational aspects of the CAP. Topics include the implementation of a post-payment review process and the corresponding changes to claims processing procedures, and changes to other operational aspects of the CAP. This final rule with comment period implements conforming changes to the CAP regulations to reflect these provisions that made changes to the payment process of the CAP for Part B Drugs. When the CAP program began on July 1, 2006, physicians were given a choice between obtaining these drugs from vendors selected through a competitive bidding process and approved by CMS, or directly purchasing these drugs and being paid under the ASP system. In this final rule with comment period, we discuss areas related to transporting CAP drugs and the administrative burden of the CAP submitted in response to the July 6, 2005 IFC. In addition, we are finalizing portions of the July 6, 2005 IFC that were not finalized in the CY 2006 PFS final rule with comment period and responding to the other timely comments we received on the July 6, 2005 IFC that we have not responded to previously. a. MMA Operational Provisions Prior to the enactment of the MIEA-TRHCA, section 1847B(a)(3)(A) of the Act set forth specific requirements that have a direct impact on the administrative and operational parameters for instituting a CAP. This section of the statute required the following: (1) Approved CAP vendors bill the Medicare program for the drug or biological supplied, and collect any applicable deductibles and coinsurance from the Medicare beneficiary. (For purposes of the preamble, the term ``approved CAP vendor'' means the term ``contractor'' as referred to in the statute.) (2) Any applicable deductible and coinsurance may not be collected unless the drug was administered to the beneficiary. (For purposes of the preamble, the term ``drug'' refers to drugs and biologicals furnished under the CAP, unless the context specifies otherwise.) (3) Medicare can make payments only to the approved CAP vendor, and these payments are conditioned upon the administration of the drug. Section 108 of the MIEA-TRHCA amended this third element. b. MIEA-TRHCA Section 108 of the MIEA-TRHCA made changes to the CAP payment methodology. Section 108(a)(1) of the MIEA-TRHCA amended section 1847B(a)(3)(A)(iii) of the Act by adding new language that requires that payment for drugs and biologicals be made upon receipt of a claim for a drug or biological supplied for administration to a beneficiary. This statutory change took effect on April 1, 2007. Section 108(a)(2) of the MIEA-TRHCA requires the Secretary to establish (by program instruction or otherwise) a post-payment review process (which may include the use of statistical sampling) to assure that payment is made for a drug or biological only if the drug or biological has been administered to a beneficiary. The Secretary shall recoup, offset, or collect any overpayments determined by the Secretary under this process. Section 108(b) of the MIEA-TRHCA states that nothing in this section shall be construed as requiring the conduct of any additional competition under section 1847B(b)(1) of the Act; or requiring an additional physician election process. Section 108(c) of the MIEA-TRHCA states that the amendments of this section apply to payments for drugs and biologicals supplied: (1) On or after April 1, 2007; and (2) on or after July 1, 2006 and before April 1, 2007, for claims that are unpaid as of April 1, 2007. Comment: Some commenters suggested that any changes to the CAP be made only after the expiration of the current vendor contract. The commenters stated that implementation of changes before the next vendor contract would be unfair to bidders who chose not to participate in the CAP because of previously issued guidance. The commenters cited the CAP statutory reference about waiving the FAR in order to promote competition. The commenters believe that such changes would inappropriately favor the single [[Page 66261]] existing vendor, and therefore, hurt competition. Response: We do not have the authority to delay implementing the claims processing changes required by the MIEA-TRHCA, which were effective April 1, 2007. Although some of our changes were not expressly required by the statute, we believe these conforming changes are necessary to allow the program to function in a manner that is consistent with, and required by, the statutory changes. Further, because the CAP is a new payment program, change that is consistent with operational experience and improves efficiency for participants is to be expected. Finally, we disagree that the FAR affects our ability to make changes in the program while the current contract is in force. Because these changes do not modify an approved CAP vendor's responsibilities under its contract with us, we do not believe the FAR is implicated. Further, as we have discussed in prior rulemaking, the CAP statute authorizes the waiver of provisions of the FAR (other than provisions relating to confidentiality of information and such other provisions as the Secretary determines appropriate) as necessary for the efficient implementation of Section 1847B of the Act, in order to promote competition. We have discussed our approach to conforming to the confidentiality provisions in the July 6, 2005 IFC (70 FR 39077), and we intend to comply with this approach during future vendor bidding periods. In implementing the CAP, we have waived all of the FAR except for the confidentiality and the conflict of interest provisions to promote competition and the efficient implementation of the program. We made the decision to waive the FAR (other than the provisions on confidentiality and conflict of interest) in order to increase the pool of qualified vendors available to participate in the program. It is our understanding that compliance with the FAR is not normally required of the companies that make up the pool of potential CAP vendors. It is also not required of other Medicare suppliers. We waived these provisions in order to structure CAP bidding in a manner consistent with established vendor bidding practices. The FAR's confidentiality provisions, as well as the conflict of interest standards and requirements found in FAR subsection 9.5, apply to approved CAP vendors and applicants. All other provisions of the FAR have been waived for purposes of the CAP. However, we have used certain provisions of the FAR for guidance in implementing the CAP, and we may from time to time used other FAR provisions as a guide, even though they have been waived. For example, as we discussed in the July 6, 2005 IFC (70 FR 39063), we look to the provisions of the FAR to guide our assessment of bidder's financial solvency. However, even if the FAR were implicated, we believe these changes promote competition because they make the program a more attractive option for physicians, which will provide physicians who compete among one another a more meaningful choice between the CAP and the ASP methodology. We further believe the changes we are implementing here are designed to improve the flexibility and administrative ease of the CAP. Therefore, we will proceed with implementing the provisions we are finalizing as indicated in this final rule with comment period. c. CAP Claims Processing In the July 6, 2005 IFC (70 FR 39042), we initially implemented a claims processing system that enables selected approved CAP vendors to bill the Medicare program directly, and to bill the Medicare beneficiary and his or her third party payer after verification that the physician has administered the drug. When a participating CAP physician elects to join the program, he or she must agree to obtain all drugs on the CAP drug list from the approved CAP vendor, with only a few exceptions. For example in furnish as written (FAW) situations (that is, where a beneficiary needs a particular formulation of a drug not available from the approved CAP vendor) the participating CAP physician would be allowed to obtain that drug outside of the CAP. In the case of Medicare Secondary Payer (MSP) (that is, where a Medicare beneficiary may have another payer primary to Medicare), the participating CAP physicians must obtain physician administered drugs from entities approved by the primary plan and bill the primary payer. Detailed MSP instructions have been issued by CMS that allow the physician to bill under the ASP methodology for the portion of the drug not covered by the primary payer in this situation. Prior to the MIEA-TRHCA, the claims processing procedures for the approved CAP vendor and the participating CAP physician were as follows: Once a shipment is received from the approved CAP vendor, the participating CAP physician stores the drug until the date of drug administration. When the drug is administered to the beneficiary, the participating CAP physician places the prescription order number for each drug administered on the claim form submitted to his or her regular Part B carrier. Similarly, when the approved CAP vendor bills Medicare for the drug it shipped to the participating CAP physician, it places the relevant prescription order number on the claim form submitted to the designated carrier. The use of the prescription order number on both the participating CAP physician's claim and the approved CAP vendor's claim is intended to indicate drug administration to the beneficiary. The participating CAP physician's claim and the approved CAP vendor's claim are matched in the Medicare claims processing system so that drug administration can be verified and payment to the approved CAP vendor can be made. d. Required Changes to CAP Claims Processing As originally implemented, the claims matching process described above in this section was completed before payment was made. However, as of April 1, 2007, section 108 of the MIEA-TRHCA requires payment to be made to the CAP vendor for claims upon receipt. The statute also requires us to establish a post-payment review process to assure that payment is made for a drug only if the drug has been administered to a beneficiary. We are authorized under the statute to recoup, offset, or collect any overpayments by the Secretary. We are also authorized to conduct post-payment review using statistical sampling and to implement the post-payment review process by program instruction or otherwise. We implemented the necessary changes to our claims processing system and initiated the post-payment review process on April 1, 2007 via instructions to the CAP-designated claims processing contractor and Questions and Answers posted on the CMS competitive bidding Web site at http://www.cms.hhs.gov/CompetitiveAcquisforBios/15_Approved_Vendor.asp#TopOfPage . Under the post-payment review process, the CAP-designated carrier will use the CMS claims processing system to look for a match between the CAP prescription order number on the participating CAP physician's claim and the same prescription order number on the approved CAP vendor's claim to track drug administration on a dose by dose basis. If the CAP-designated carrier is able to find a match between the two claims, the carrier makes a determination that the beneficiary did receive the drug being billed for by the CAP physician. The participating CAP [[Page 66262]] physician claim may also contain information on any determination of medical necessity and coverage made by the local carrier. We will also use statistical sampling under the post-payment review process to determine whether drugs were medically necessary. All Medicare claims are subject to medical necessity determinations; however, under the changes required by the MIEA-TRHCA, CAP claims may not all have a chance to be reviewed for medical necessity before they are paid. Therefore, the post-payment review includes both verification of drug administration and a medical necessity review of a statistically valid sample of CAP claims. In conducting the post- payment review, we will continue to monitor for fraud, waste, and abuse. All CAP claims will remain eligible for review for medical necessity and verification of drug administration. We anticipate that the post-payment review process will provide us with additional opportunities to monitor for the appropriate payment of drugs furnished under this program. To conduct post-payment review of claims, we may also ask for documentation of administration from the approved CAP vendor and for medical records from the participating CAP physician for any claim that is identified for review. While it is standard practice for CMS to require Medicare providers to submit medical records as part of claims review, we reserve the right to also specifically request any other records that verify the administration of a CAP drug. Furthermore, we want to make it very clear to the participating CAP physician that when electing to join the program that the physician may be asked to supply medical records for post-payment review. Therefore, in the CY 2008 PFS proposed rule (72 FR 38153), we proposed to revise Sec. 414.908(a)(3)(xi) and the physician election agreement form to clarify that medical records and certain other information may be requested from the CAP physician during the post-payment review process. The procedures used to verify valid claims and ensure proper payment for drugs supplied under the CAP are based on established post- payment review processes used in other parts of the Medicare program. The request for medical records as part of the claims payment process during CAP post-payment review is intended to work in conjunction with Item 12 on the Health Insurance Claim Form CMS-1500 which, when signed by a beneficiary, authorizes the release of ``any medical information necessary to process a claim.'' When a claim is selected for review we notify the approved CAP vendor and request its records to verify administration. We also notify the approved CAP vendor that we will be requesting medical records from the participating CAP physician. If the medical record is not received within 30 days, the claim is denied because we will not have sufficient information to verify drug administration and medical necessity. This review process is similar to those used elsewhere in the Medicare program such as clinical laboratory payment review or payment of radiology services. As we specified in the July 6, 2005 IFC (70 FR 39038), the local carrier's medical review policies and coverage determinations will continue to apply in the CAP. Under our previous claims processing methodology, the local carrier made the coverage determination on the drug ordered by the participating CAP physician and furnished by the approved CAP vendor as part of the claim matching process prior to payment of the approved CAP vendor's claim. Under the new methodology, the drug claim will be paid upon receipt unless the local carrier has already made a coverage or medical necessity determination on the drug, and the match has already occurred showing that the drug claim should be denied. As part of the post-payment review process, the CAP-designated carrier checks the CMS central claims processing system to determine whether the local carrier has made a coverage or medical necessity determination on the CAP drug indicated on the participating CAP physician's drug administration claim. If a coverage determination has been made, the CAP-designated carrier reflects the local carrier's decision in its post-payment review of the claim. If the local carrier has not reviewed the drug administration portion of the participating CAP physician's claim as of the date that the designated carrier processes the approved CAP vendor's drug claim, the CAP-designated carrier uses the local carrier's coverage determination policies when conducting medical review of the claim. Comment: One commenter stated that we had exceeded the scope of the statute because we were planning to conduct a medical necessity review on CAP drug claims that were selected for review as part of the statistical sample. Another commenter recommended that we make detailed description of the claims sampling process available for public comment and asked that we design the process consistent with the Medicare Program Integrity Manual. The commenter also asked for more detail on the information necessary to include in the medical record to ensure that the participating CAP physician has appropriately documented the medical necessity of the drug administered. One commenter questioned whether we needed to obtain additional information from the CAP participating physician on claims selected for post pay review based on the statistical sample and stated that the information contained on the claim form should be sufficient to verify administration. Another commenter questioned why we were changing the CAP claims processing methodology to pay most claims upon receipt and to verify administration on a post pay basis. The commenter asked whether we would allow for extenuating circumstances if the medical record was not supplied by the participating CAP physician within the 30-day time period for situations such as bankruptcy, litigation, or closure of the practice. Response: As stated in the CY 2008 PFS proposed rule (72 FR 38153), we were required to make changes to the CAP claims processing methodology because section 108 of the MIEA-TRHCA amended section 1847B(a)(3)(A)(iii) of the Act by adding new language that requires the payment for drugs and biologicals upon receipt of a claim for a drug or biological supplied for administration to a beneficiary. This change in the law was effective on April 1, 2007. Section 108(a)(2) of the MIEA- TRHCA requires the Secretary to establish (by program instruction or otherwise) a post-payment review process (which may include the use of statistical sampling) to assure that payment is made for a drug or biological only if the drug or biological has been administered to a beneficiary. The Secretary is required to recoup, offset, or collect any overpayment determined by the Secretary under this process. We implemented the necessary changes to our claims processing system and initiated the post-payment review process on April 1, 2007, via instructions to the CAP-designated claims processing contractor and Questions and Answers posted the CMS competitive bidding Web site at http://www.cmsm.hhs.gov/CompetitiveAcquisforBios/15_Approved_Vendor.asp#TopOfPage. In the CY 2008 PFS proposed rule, we described the changes we had made to our claims processing system and proposed conforming changes to our regulations for additional items not covered by the MIEA-TRHCA. Because the MIEA-TRHCA gave us authority to [[Page 66263]] implement its provisions by program instructions or otherwise by April 1, 2007, the necessary changes have already been made to our claims processing system and the post-pay review process had been implemented. The post-payment review process includes verification of drug administration and a medical necessity review of a statistically-valid sample of CAP claims. This process was designed in conformance with the Medicare Program Integrity Manual and in consultation with CMS statistical sampling experts, consistent with our authority to establish these procedures by program instruction or otherwise. For additional information on the requirements of the Program Integrity Manual see http://www.cms.hhs.gov/manuals/downloads/pim83co2pdf. All Medicare claims are subject to medical necessity determinations; however, under the changes required by the MIEA-TRHCA, there may not be sufficient time for all CAP claims to be reviewed for medical necessity before they are paid. Prior to paying the approved CAP vendor's claim, the designated carrier will check the claims processing system to determine whether the participating CAP physician has submitted the claim for the administration of the drug. If the physician has submitted the claim and the local carrier has made a determination that the drug is not payable because of a coverage or medical necessity denial, the drug claim will be denied by the designated carrier. However, if no determination has been made on the physician's claim, the designated carrier will pay the approved CAP vendor's claims for the drug under the MIEA-TRHCA, and the claim will be subject to statistical sampling on a post-pay basis. If the claim is selected for review, verification of drug administration and a medical necessity review will be conducted. As part of this process, the designated carrier will check the system to see whether the local carrier had denied the claim as not medically necessary. If a denial has been made, the designated carrier will deny the approved CAP vendor's claim on medical necessity grounds. The designated carrier will use the local carrier's policies when conducting the review. Medical necessity review is always conducted based on medical records obtained from the physician and will be conducted in an effort to look behind the information on the claim form. As specified in chapter 3 of the Medicare Program Integrity Manual, standard data elements for post-pay medical review include signature requirements, diagnosis requirements, and documentation of orders for testing. The carrier may also specify additional information it will review to document that coverage and medical necessity requirements have been met. Under the current CAP post-pay review process, the designated carrier requests that all records be supplied by the physician within 30 days but allows for a limited amount of time beyond that period before the service will be considered not to have been administered. Participating CAP physicians are encouraged to send any information they can provide to the designated carrier within the timeframes provided. If the physician is unable to provide all of the requested information in a timely manner to the carrier, he or she may contact the carrier to determine if the contractor will grant an extension. There is also a provision in the Medicare Program Integrity Manual that allows contractors to grant additional time in the event of a natural disaster. As we indicated in the CY 2008 PFS proposed rule, it is standard practice for Medicare providers to be required to submit medical records to assist in claims review. Therefore, we are finalizing our proposal to revise Sec. 414.908(a)(3)(xi) and the physician election agreement to make it very clear to the CAP participating physician that they may be asked to provide medical records for post-payment review in the CAP. e. Provisions for Collection of Beneficiary Coinsurance In the CY 2006 PFS final rule with comment period, we specified at Sec. 414.914(h)(1) that subsequent to receipt of final payment by Medicare, or the verification of drug administration by the participating CAP physician, the approved CAP vendor must bill any applicable supplemental insurance policies. If a balance remains after the supplemental insurer pays its share of the bill, or if there is no supplemental insurance, the approved CAP vendor may bill the beneficiary for the balance. In prior practice, a match in the claims system between the participating CAP physician's drug administration claim and the approved CAP vendor's drug claim and the subsequent payment by Medicare was used to indicate that the beneficiary received the drug. We also allowed voluntary information exchanges between the approved CAP vendor and the participating CAP physician's office to verify CAP drug administration. Additionally, we note that under the CAP regulations, the participating CAP physician has a responsibility to notify the approved CAP vendor when a drug is not administered or a smaller amount was administered than was originally ordered. Because section 108 of the MIEA-TRHCA requires the payment of CAP claims upon receipt, payment of a claim by Medicare may occur before administration of the drug has been verified. However, section 1847B(a)(3)(A)(ii) of the Act, which states that deductible and coinsurance shall not be collected unless the drug or biological is administered, remains unchanged. Thus, because we have interpreted this provision as requiring verification of administration prior to the collection of applicable cost sharing amounts, the requirement for verification of administration similarly remains unchanged. However, because of the statutory change of section 108(a)(1) of the MIEA-TRHCA and its resulting impact on our claims processing methodology, the claims processing system no longer provides a way for CMS to verify administration on the approved CAP vendor's behalf before the approved CAP vendor collects coinsurance from the beneficiary or the supplemental insurer. Verification of CAP drug administration is also conducted in the post-payment review process. The approved CAP vendor is expected to make information available to verify administration for post-payment review as necessary. We believe that an approved CAP vendor can verify whether a CAP drug was administered in a variety of ways. For example, an approved CAP vendor may enter into a voluntary agreement with a participating CAP physician to exchange such information as described in the CY 2006 PFS final rule with comment period (70 FR 70251). However, if a participating CAP physician is unwilling to enter into a voluntary agreement to verify administration, the approved CAP vendor may verify that the drug was administered by contacting the participating CAP physician's office to request verbal confirmation. In such an instance, the approved CAP vendor is expected to document the verbal confirmation of CAP drug administration, the identities of individuals who exchanged the information, and the date and time that the information was obtained. In addition to verifying administration through contact with the physician's office, we also suggest that the approved CAP vendor place a statement on beneficiaries' bills informing the individual of the statutory requirement and suggesting that the beneficiary contact the participating CAP physician to verify that he or she received the dose [[Page 66264]] of the drug for which he or she are being billed prior to paying any cost sharing amount. For the reasons described above in this section, we believe that the verification of CAP drug administration remains a required element of the CAP; therefore, in the CY 2008 PFS proposed rule (72 FR 38155), we proposed to add Sec. 414.906(a)(6) by specifying that all of the following elements are required to document the verification of CAP drug administration: Beneficiary's name. Health insurance number. Expected date of administration. Actual date of administration. Identity of the participating CAP physician. Prescription order number. Identity of the individuals who supply and receive the information. Dosage supplied. Dosage administered. In the CY 2008 PFS proposed rule, these data elements were actually proposed in Sec. 414.914 (72 FR 38226). We believe that the drug administration verification requirements best fit in Sec. 414.914 since CAP vendors must collect this information as part of their terms of contract. Therefore, we are finalizing Sec. 414.914 to include these provisions. Also, as a result of changes mandated by section 108(a)(1) of the MIEA-TRHCA, we proposed to revise new Sec. 414.914(i)(1) to remove the reference to ``final payment by Medicare'' and revise this language to state, ``payment by Medicare.'' The original language was written to indicate that an approved CAP vendor could not bill a beneficiary's supplemental insurer for applicable amounts of cost sharing until the CAP drug claim had matched the corresponding physician's drug administration claim. Under the post-payment review process, the final payment would not occur until a statistical review of the claims was complete, a process that may take several months. Removing the word final from this section of the regulation will clarify that the approved CAP vendor may bill the supplemental insurer immediately after the designated CAP carrier makes the initial payment on a CAP drug claim. Under our current regulations, the approved CAP vendor may also bill the beneficiary if drug administration is verified by the participating CAP physician. This provision remains unchanged. Under the revised CAP claims payment process, the approved CAP vendor will bill Medicare for the CAP drug that has been provided. In most cases Medicare will pay the claim upon receipt. If the beneficiary has a supplemental insurance policy, and the supplemental insurer has a crossover agreement with Medicare, the claim automatically will cross over to the supplemental insurer for payment. The supplemental insurer will pay its share. Upon receipt of payment from the supplemental insurer, the approved CAP vendor may bill the beneficiary for any residual amount. For beneficiaries who do not have a supplemental insurance policy, the approved CAP vendor may bill the beneficiary after payment by Medicare. However, in either case, the approved CAP vendor may not collect any coinsurance owed from the beneficiary or his or her supplemental insurer unless it has verified that the drug was administered. If the approved CAP vendor believes that the drug was administered but later learns that it was not, the approved CAP vendor must refund any coinsurance collected to the beneficiary and his or her supplemental insurer, as applicable. In addition, in Sec. 414.914(i)(2), we proposed that the approved CAP vendor must promptly refund any payment made by CMS if the vendor has been paid for drugs that were not administered. We also proposed to interpret the word ``promptly'' to mean 2 weeks. Thus, the approved CAP vendor would have 2 weeks from the date it was notified that it had been paid for a drug that had not been administered to refund to the designated carrier any payment for the claim and refund any cost sharing collected to the beneficiary or his or her supplemental insurer. Comment: We received few comments on our proposal for provisions for collection of beneficiary coinsurance. One commenter was concerned about the administrative burden placed on the participating CAP physician if the approved CAP vendor calls the physician's office to verify that a drug was administered. Another commenter agreed with our proposal to require that the approved CAP vendor refund any cost sharing collected in error promptly to the beneficiary and or his or her supplemental insurance provider. The commenter also suggested that we require the approved CAP vendor to pay a penalty above the amount owed if it does not refund the cost sharing amount within the 2 week time frame. Response: Physicians and their staff are the best source of information for drug verification since they have direct contact with the beneficiary. We have structured the process for verification of CAP drug administration in the least burdensome way possible for the participating CAP physician that would still provide us with information to comply with the statutory mandate to assure that payment is made for a CAP drug only if it has been administered to a beneficiary. Physicians have flexibility in how verification for drug administration occurs. The physician is free to enter into a voluntary agreement with the approved CAP vendor to verify drug administration and to specify the manner in which he or she would like the verification to occur. Alternatively, if the physician chooses not to enter into such an agreement and does not notify the vendor that a dose of a CAP drug has been administered, the approved CAP vendor will contact the physician to verify administration before collecting coinsurance from the beneficiary. We believe that the degree of flexibility built into this procedure for drug administration verification minimizes the burden for participating CAP physicians within the confines of our statutory obligation to assure that payment is made for a CAP drug only if it has been administered to a beneficiary. Therefore, we are finalizing our proposal to add new Sec. 414.914(h)(1) as described above in this section. We are also finalizing our proposal to revise new Sec. 414.914(i)(1) to remove the reference to ``final payment by Medicare'' and revise this language to state, ``payment by Medicare.'' Under the post-payment review process, the final payment will not occur until a statistical review of the claims was complete, a process that may take several months. Removing the word final from this section of the regulation will clarify that the approved CAP vendor may bill the supplemental insurer immediately after the designated CAP carrier makes the initial payment on a CAP drug claim. Under our current regulations, the approved CAP vendor may also bill the beneficiary if drug administration is verified by the participating CAP physician. This provision remains unchanged. Under the revised CAP claims payment process, the approved CAP vendor will bill Medicare for the CAP drug that has been provided. In most cases Medicare will pay the claim upon receipt. If the beneficiary has a supplemental insurance policy, and the supplemental insurer has a crossover agreement with Medicare, the claim automatically will cross over to the supplemental insurer for payment. The supplemental insurer will pay its share. Upon receipt of payment from the supplemental insurer the approved CAP vendor may bill the beneficiary for any residual amount. For beneficiaries who [[Page 66265]] do not have a supplemental insurance policy, the approved CAP vendor may bill the beneficiary after payment by Medicare. However, in either case, the approved CAP vendor may not collect any coinsurance owed from the beneficiary or his or her supplemental insurer unless it has verified that the drug was administered. If the approved CAP vendor believes that the drug was administered but later learns that it was not, the approved CAP vendor must refund any coinsurance collected to the beneficiary and his or her supplemental insurer, as applicable. In addition, we are finalizing Sec. 414.914(i)(2), so that the approved CAP vendor must promptly refund any payment made my CMS if the vendor has been paid for drugs that were not administered. We are implementing our proposal to interpret the term ``promptly'' to mean 2 weeks so that the approved CAP vendor would have 2 weeks from the date that they were notified that they had been paid for a drug that had not been administered to the beneficiary to refund any payment for the claim made to the designated carrier and refund any cost sharing collected to the beneficiary and his or her supplemental insurer. We are not implementing a penalty if the refund of any cost sharing collected in error exceeds the two week time frame because section 1847B of the Act does not provide for such a remedy. f. Approved CAP Vendor Appeals for Denied Drug Claims In the March 4, 2005 proposed rule (70 FR 10757 through 10758) and the July 6, 2005 IFC (70 FR 39054 through 39057), we discussed the development of the CAP dispute resolution process and the limited applicability of the traditional Medicare fee for service appeals process to an approved CAP vendor's dispute of CAP drugs claims that are denied by the CAP-designated carrier. We stated that the approved CAP vendor could file appeals as a Medicare supplier consistent with the rules at 42 CFR part 405, subpart I. For the purposes of the appeals regulations at Part 405, Subpart I, we indicated that a local carrier's initial determination of the participating CAP physician's drug administration claim was an initial determination regarding payment of the approved CAP vendor's drug claim. Thus, the approved CAP vendor was to be considered a party to any redetermination of the drug administration claim by the local carrier. In addition, the approved CAP vendor would be considered a party to an initial determination on the claim for payment for the drug product that the approved CAP vendor filed with the CAP-designated carrier. We also specified that appeals of either initial determination would be filed with the local carrier. We stated that the local carrier, rather than the designated carrier, possessed all information necessary to adjudicate an appeal in this situation. Such information included local coverage decisions, medical necessity determinations, and information regarding payment of drug administration claims. A dispute resolution process was set forth in Sec. 414.916. Under our initial implementation of the provision that authorized CAP, this alternative approach provided party status to the approved CAP vendor on the participating CAP physician's drug administration claim. This was necessary because an approved CAP vendor was not permitted to receive payment for a CAP drug until the corresponding drug administration claim was submitted by a participating CAP physician. Payment for the approved CAP vendor's claim was authorized when the participating CAP physician's claim and the approved CAP vendor's claim were matched in the system. However, changes to the claims processing requirements and the addition of a post-payment review process required by section 108(a)(2) of the MIEA-TRHCA (discussed above in this section) eliminate the approved CAP vendor's dependency on a participating CAP physician's filing of a drug administration claim in order to receive payment for a CAP drug. Accordingly, the approved CAP vendor no longer needs party status on the drug administration claim submitted by the participating CAP physician. Instead, under the MIEA-TRHCA, the approved CAP vendor's drug claim may be paid by the CAP-designated carrier once it is received. This determination made on the claim constitutes an initial determination as defined in Sec. 405.924. The approved CAP vendor is considered a party to this initial determination and may request a redetermination and subsequent appeals consistent with the process established under 42 CFR part 405, subpart I. The changes to CAP claims processing in this final rule with comment period that conform to the MIEA-TRHCA result in two scenarios that create appeals rights for the approved CAP vendor with respect to their drug product claim: (1) Prepayment denials of the approved CAP vendor's claim made by the CAP-designated carrier (based on information from the local carrier that the payment for the drug should be denied as excluded or non-covered); and (2) post-payment denials by the CAP- designated carrier based on the post-payment review process established under the MIEA-TRHCA. Therefore, as proposed in the CY 2008 PFS proposed rule (72 FR 38156), we are making the following clarifications regarding the CAP appeals process for an approved CAP vendor's denied drug claims: For prepayment denials, the approved CAP vendor, as a supplier, has a direct right to appeal the initial determination made by the designated carrier on its drug product claim. The local carrier will conduct the redetermination on prepayment denials. It is the most appropriate entity to review prepayment denials since it is most familiar with the relevant coverage policies for that jurisdiction. We acknowledge that this process differs from a traditional fee-for- service appeal since the redetermination will not be conducted by the contractor that issued the initial determination. For the post-payment review process, an initial determination will be considered re-opened if the CAP-designated carrier selects the drug claim for review. If the CAP-designated carrier cannot verify administration or cannot determine that the drug is covered or medically reasonable and necessary, the CAP-designated carrier will issue a revised determination to deny coverage of the drug product claim. The CAP-designated carrier will then determine whether an overpayment exists, and if so, will recover the overpayment. As a supplier, the approved CAP vendor would then have the right to request a redetermination of the revised coverage determination, and the overpayment assessment. The CAP-designated carrier will process the redetermination. We received no comments on this topic; therefore, we are finalizing the proposed conforming changes to the CAP appeals process as described herein. g. Definition of Exigent Circumstances Sections 1847B(a)(1)(A)(ii) and 1847B(a)(5)(A)(ii) of the Act require that each physician be given the opportunity annually to elect to obtain drugs and biologicals through the CAP and to select an approved CAP vendor. Section 1847B(a)(5)(A)(i) of the Act allows for selection of another approved CAP vendor more frequently than annually in exigent circumstances as defined by CMS. In the CY 2005 PFS final rule with comment period (70 FR 70258), we [[Page 66266]] stated that participating CAP physicians would have the option of changing approved CAP vendors or opting out of the CAP program on an annual basis. We also provided the circumstances, as specified in Sec. 414.908(a)(2), under which a participating CAP physician may choose a different approved CAP vendor mid-year or opt-out of the CAP. These circumstances are: (1) If the selected approved CAP vendor ceases to participate in the CAP; (2) if the participating CAP physician leaves the group practice that had selected the approved CAP vendor; (3) if the participating CAP physician relocates to another competitive acquisition area (if multiple CAP competitive areas are developed) or, (4) for other exigent circumstances defined by CMS. We also identified a separate exigent circumstance relating to instances in which an approved CAP vendor declines to ship CAP drugs (when the conditions of new Sec. 414.914(i) are met) in Sec. 414.908(a)(5). We noted that in these cases, a physician may opt-out of his or her drug category, and because there is currently only one drug category for the CAP, then the participating CAP physician would be allowed to opt-out of the CAP altogether (70 FR 39081). The CAP became operational on July 1, 2006. At that time, we believed that most issues raised by participating CAP physicians would relate to quality and service, which could be resolved through the approved CAP vendor's grievance process and the dispute resolution process conducted by the designated carrier. However, since then, we have been contacted by a few participating CAP physicians who have requested termination of their election agreement because they misunderstood the CAP program or determined that it was not a viable option for their practice. These instances demonstrate that a practice might wish to leave the program for other business reasons that are unrelated to the approved CAP vendor's performance. However, we continue to believe that opportunities for leaving the CAP outside the annual election process should be limited because the CAP was designed as a program in which physicians would make an annual decision to participate, as consistent with sections 1847B(a)(1)(A)(ii) and 1847B(a)(5)(A) of the Act. Therefore, in the CY 2008 PFS proposed rule (72 FR 38156), we proposed to define an additional exigent circumstance for opting out of the CAP. We proposed that within 30 days of the effective date of the election agreement, the participating CAP physician may submit a written request to terminate his or her participation in the CAP. The request would be sent to the designated carrier under the dispute resolution process, and the designated carrier would determine within 1 business day whether the request was related to the service provided by the approved CAP vendor. If so, the designated carrier would refer the participating CAP physician to his or her approved CAP vendor's grievance process to further determine whether any appropriate and reasonable steps could be taken to resolve the identified issue. We proposed that the approved CAP vendor would have 2 business days to respond to the participating CAP physician's concern, consistent with Sec. 414.914(f)(5). If the approved CAP vendor is unable to identify a solution for resolving the issue that is consistent with the CAP statute, regulations, contracts and guidance, and that is acceptable to the physician, then the participating CAP physician would be referred back to the designated carrier for assistance under the dispute resolution process. We also proposed that the participating CAP physician's request would be handled under the dispute resolution process because protocols and defined time frames have already been developed for handling participating CAP physician and approved CAP vendor complaints in this set of procedures. We proposed that if the designated carrier does not believe that the participating CAP physician's request is related to an issue that could be resolved by the approved CAP vendor, then the designated carrier would conduct an investigation and attempt to resolve any issues identified in the physician's request to terminate his or her CAP election agreement. If the designated carrier is unable to resolve the situation to the physician's satisfaction within 2 business days, then it can either make a recommendation to CMS that the physician be permitted to terminate his or her CAP election agreement, or request a 2-day extension to continue examining the issue. We stated that we believed that 4 business days would be sufficient to conclude this process because it would give the designated carrier time to gather information from other affected parties, such as the participating CAP physician's local carrier, but still prepare a speedy summary of the issues involved in the physician's request. Under our proposal, after the 2-day or 4-day period, as applicable, the designated carrier would forward its recommendation and the physician's request to CMS. We would then review the recommendation and make a final decision within 2 business days from the date that we received the request. We proposed that if the participating CAP physician demonstrated that remaining in the CAP was a significant burden, then we would allow that physician to terminate his or her participation in the program. We would inform the designated carrier of our decision, which the designated carrier would then communicate to the participating CAP physician in writing. As part of this process, the physician's termination date for his or her CAP election agreement would be determined and communicated to all parties involved, including the physician's local carrier. Conversely, if we did not believe that the physician demonstrated that CAP participation constituted a significant burden, then we would not allow the physician to terminate his or her CAP contract. Subsequently, we would inform the physician of our decision in writing via the designated carrier. We would also include a recommendation for corrective action. In the CY 2008 PFS proposed rule, we also proposed that, even if we agreed to terminate the participating CAP physician's CAP election agreement, the physician would still be required to continue to cooperate in any post-payment review and appeal of claims for drugs that the approved CAP vendor had already provided and been paid for. The physician would also have to make arrangements with the approved CAP vendor for the return of any unused drugs that had not been administered to the beneficiary prior to the effective date of the physician's termination from the CAP. If the approved CAP vendor had billed CMS for drugs that had not yet been administered to a beneficiary, then the vendor would be required to correct the claim and return any overpayment. Comment: We received several comments that supported defining an additional exigent circumstance for leaving the CAP because of a burden on the practice. Several commenters addressed the timeframe for leaving the CAP. Of these comments, all supported a 30-day timeframe, though several encouraged a longer window. Commenters who encouraged a longer time period believe that 30 days was insufficient time to determine the suitability of the CAP for their practice. While most commenters agreed that a demonstration of burden should be required, one commenter stated that allowing physicians to opt-out for any reason would be desirable. One commenter suggested that physicians should be allowed to opt-out of the CAP [[Page 66267]] at any time for any reason. Several commenters asked that the opt-out process be simplified. Another commenter requested that the process for determining whether to grant a physician's request to leave the CAP be outlined. Response: Based on the comments, we are revising our proposal to make it more flexible. While we recognize the concerns raised by commenters who recommended that we allow physicians to leave the CAP for any reason at any time, we continue to believe that there should be limits on a participating CAP physician's ability to leave the CAP. The CAP statute contemplates an annual election process. Our proposal to allow a 30-day period for opting out because of a burden is based on our authority to specify ``exigent circumstances,'' and we do not believe it would be appropriate to allow physicians to opt-out under this process without some exigency that makes termination of CAP participation necessary. However, in recognition of these comments, and because we agree that participating CAP physicians should have a sufficient opportunity to assess the suitability of the CAP for their practice, we are making the following changes to the opt-out process. First, we note that we intend to take a broad view of what would constitute a burden to the practice resulting in an ``exigent circumstance.'' We believe that a broad view is appropriate because there may be many reasons why a participating CAP physician may find CAP participation more burdensome than he or she expected, and we do not wish at this time to place a limit on what those reasons may be. As we gain experience with this process, we may in a future rulemaking specify a list of ``exigent circumstances'' or prescribe more specific standards for what constitutes an ``exigent circumstance'' for purposes of the opt-out process; however, for now we will assess requests on a case-by-case basis under the process described in this preamble and set forth in the regulations at Sec. 414.908. In response to comments seeking greater flexibility in the process and a longer window in which to assess the CAP's suitability for the physician's practice, we are implementing a two-tiered process that would both expand the initial time frame for requesting to opt-out of the CAP and would allow for requests to opt-out at any time based on a change in circumstances that was not previously known to the participating CAP physician. We believe that such a process, which we outline below, strikes a balance between providing participating CAP physicians with flexibility to opt-out of the CAP when participation is burdensome, while still placing appropriate limits on a physician's ability to leave the CAP outside the annual election process. Thus, under the two-tiered process we are finalizing in this rule, we are changing to 60 days the initial period during which a physician can request termination of his or her CAP participation agreement as a result of exigent circumstances. We agree with commenters that allowing physicians more time to determine whether the CAP is suitable for their practices is advisable. We believe that an initial 60-day period will allow the participating CAP physician time to make a more complete assessment of the CAP's suitability. Although certain burdens will be likely to be apparent immediately, the first 30 days may be a period with a steep learning curve for the practice as it adapts to the CAP drug ordering process, and the first 30 days may involve working out any ``start up'' issues within the practice or with the approved CAP vendor. For this reason, the first 30 days may not be a fully representative time period during which to assess ongoing CAP participation. We believe an additional 30 days of CAP participation would be sufficient to identify, in the vast majority of cases, whether participation will constitute a burden to the practice. Under this process, therefore, if a participating CAP physician's election agreement was effective on January 1, 2008, then he or she would have until March 1, 2008, to request to terminate participation in the program if CAP participation results in a burden to the practice. In addition, based on the concerns raised by commenters, we will allow physicians to leave the CAP at any time after the first 60 days if they can show that a change in circumstances that was not known to the practice previously results in a burden to the practice. As noted above, we believe that in the vast majority of cases participating CAP physicians will be able to identify a burden, if any, within the first 60 days. However, we also recognize that issues may arise during the course of the year that would result in an ``exigent circumstance,'' but that were not known to the participating CAP physician during the first 60 days of CAP participation. In such instances, we agree with commenters that physicians should have a longer window to request an opt-out. For purposes of the two-tiered process, then, examples of burdens that we would expect a practice could identify within the first 60 days may include difficulties with CAP billing or drug ordering requirements, or documentation that the practice's initial understanding of these requirements was based on inaccurate information provided by a third party. Examples of burdens that might arise after the initial 60 days could include a change in practice personnel, patient population, computer systems, or vendor behavior that makes it harder to participate in the program. Where an opt-out request is submitted after the initial 60 days, we will require the participating CAP physician to demonstrate the request is based on information that he or she did not have within the first 60 days. All requests to terminate participation, whether within the first 60 days or thereafter, would be submitted to the CAP-designated carrier and processed under the dispute resolution process. The request would need to document the physician's burden. Upon completion of the process outlined in proposed Sec. 414.917, we would make the decision about whether the participating CAP physician's participation in the CAP will be terminated. If the physician has not demonstrated that CAP participation represents a burden for his or her practice--either during the first 60 days or, if thereafter, as a result of a change in circumstances that was not known to the practice previously, then we would not allow the physician to terminate his or her participation in CAP because, as noted above, we continue to believe that a participating CAP physician's ability to opt-out of the CAP under this process should be limited to ``exigent circumstances,'' as contemplated by the statute and our regulations. We would inform the physician of our decision in writing via the designated carrier. We would also include a recommendation for corrective action, if appropriate. For example, if the reason that the CAP participating physician wanted to leave the program was that the approved CAP vendor was not delivering drugs timely, the designated carrier would investigate the situation. If it found that the approved CAP vendor was complying with our regulations on drug delivery at Sec. 414.914(f) and Sec. 414.902 but that the participating CAP physician was not ordering drugs consistent with the vendor's procedures, then the CAP-designated carrier could educate the physician about the proper drug ordering procedures and facilitate a discussion between the approved CAP vendor and the participating CAP physician about how the physician could order drugs in a way that met the [[Page 66268]] needs of his or her practice and the drug ordering requirements of the CAP vendor. The CAP-designated carrier would document the result of that discussion in writing. The participating CAP physician would have the right to request a reconsideration of our decision as specified in Sec. 414.916(c). We are revising Sec. 414.916(c) to clarify that the physician reconsideration process would apply to reconsiderations of our decision on whether the participating CAP physician may opt-out of the CAP. Based on our experience with the program, we continue to believe that handling all requests to terminate CAP election under the dispute resolution process is reasonable and straightforward. We further believe the use of our pre-existing process will not create unnecessary delays in processing opt-out requests, particularly in light of the short time frames we have specified for responding to opt-out requests. Moreover, we believe the dispute resolution process is sufficiently detailed that it provides an ample description of how a physician's request to terminate CAP participation will be assessed. Physicians will still be required to return unused CAP drugs and to complete any required CAP claims processing activities as described in proposed Sec. 414.917. The notification to a physician will also include the end date of CAP participation in order to facilitate an orderly and efficient changeover between the CAP and ASP payment systems. Therefore, we are finalizing Sec. 414.908 and Sec. 414.917 as proposed, subject to the changes described in this section. (We are making an additional technical change to Sec. 414.908 to consolidate the ``additional opt-out'' provision, currently set forth at Sec. 414.908(a)(5), with the other opt-out provisions at Sec. 414.908(a)(2). We believe this nonsubstantive change will improve the clarity of the regulations.) Finally, we also are finalizing Sec. 414.916(c) as amended as described in this section. h. Transporting CAP Drugs Although section 1847B((b)(4)(E) of the Act provides for the shipment of CAP drugs to settings other than a participating CAP physician's office under certain conditions, we did not propose to implement the CAP in alternative settings. In the July 6, 2005 IFC (70 FR 39047), we described both comments that supported the idea of allowing participating CAP physicians to transport drugs to multiple office locations, and comments that raised concerns about the risk of damaging a drug that has not been kept under appropriate conditions while being transported. As stated in Sec. 414.906(a)(4), we implemented the CAP with a restriction that CAP drugs be shipped directly to the location where they will be administered. However, we were aware that physicians may desire to administer drugs in alternative settings, especially in a home. We sought comment on how this could be accommodated under the CAP in a way that addresses the concerns about product integrity and damage to the approved CAP vendors' property expressed by the potential vendors. Several comments submitted in response to the July 6, 2005 IFC suggested either narrowing or removing the restriction on transporting drugs to other locations. Commenters believed that physicians, particularly those who specialize in oncology, and their staff are knowledgeable about drug stability and handling, and therefore, were capable of assuming this responsibility. Other commenters indicated that transporting the drug to another office location may allow for flexibility in scheduling patient visits. It would allow practices with satellite operations that are not open every business day to receive shipments of CAP drugs at another practice location and then to administer the drugs in the satellite office. We also received several comments discussing the impact of CAP- delivery times on rural clinics and offices with satellite locations. Many of these responses discussed how easing the restriction on transporting CAP drugs between locations would be welcome in rural areas and for satellite offices with limited hours. These comments and our experience with the CAP thus far have caused us to consider revising our policy. Therefore, in the CY 2008 PFS proposed rule (72 FR 38157), we requested comments on the potential feasibility of narrowing the restriction on transporting CAP drugs where this is permitted by State law and other applicable laws and regulations. We asked commenters to consider how such a policy could be constructed so that the approved CAP vendor could retain control over how the drugs that it owns are handled. We also requested comments on other issues that we should take into account concerning transportation of CAP drugs between practice locations listed on a physician's CAP election agreement form. Additionally, we also solicited comments on the following areas that we could use in the development of future proposals: How to structure requirements so that drugs are not subjected to conditions that will jeopardize their integrity, stability or sterility while being transported and steps to keep transportation activities consistent with all applicable laws and regulations; Whether any agreement allowing participating CAP physicians to transport CAP drugs to alternate practice locations should be voluntary. This means that approved CAP vendors would not be required to offer such an agreement and physicians who participate in the CAP would not be required to accept such an offer; and Whether the agreement should be documented in writing, and whether it is necessary to create any restrictions on which CAP drugs could be transported. We stated that we were not making a specific proposal at this time but that we would use any information received to structure a future proposal in the event we made one. Comment: Several commenters supported the concept of easing the restriction on transporting CAP drugs if this could be done safely, and if changes were consistent with applicable rules, regulations, and within the limitations of product stability and integrity. The restriction on transporting CAP drugs was perceived as a barrier to physician participation in the program. One commenter stated that elimination of the restriction would result in the same flexibility as the ASP (buy and bill) method of acquiring drugs. Another commenter expressed a strong desire to implement these changes promptly. A few commenters also cautioned us to be certain that appropriate safeguards would be in place if we chose to ease the transportation restriction. One commenter asked that the safeguards be available for public scrutiny before they are implemented. Conversely, other commenters stated that a physician's certification or discretion were satisfactory. Response: We are sympathetic to the concerns expressed by the commenters and expect to issue a proposal in the CY 2009 PFS proposed rule that would allow the transportation of CAP drugs from one physician practice location in certain circumstances. We further expect that our proposal would propose to permit transport of CAP subject to voluntary agreements between the approved CAP vendor and the participating CAP physician that complied with all applicable State and Federal laws and regulations and product liability requirements. We welcome comments on how to structure such a proposal. [[Page 66269]] i. Alternatives to the CAP Prescription Order Number In the July 6, 2005 IFC (70 FR 39043 and 39049), we responded to several comments regarding the administrative burden that the CAP ordering and claims payment process imposes upon participating CAP physicians; specifically, activities associated with using and tracking the prescription order number were mentioned. We received additional comments on this issue in response to the IFC as well. After the close of the comment period, we also received an inquiry from the current approved CAP vendor about the potential length of the CAP prescription order number and whether it could present a burden to participating CAP physicians. A 30-byte field is currently available on the electronic claim form for prescription numbers; however, it is not necessary for the prescription order number to be 30 bytes long. Typically, 15 or fewer total characters have been used by the approved CAP vendor. The requirements for developing the CAP prescription order number are as follows: The first 9 characters are the approved CAP vendor's ID and the HCPCS code of the drug that is being billed; the approved CAP vendor sets the remaining characters. The assigned CAP prescription order number is captured in Loop 2410, REF02 (REF01=XZ) of the ANSI 4010A1 electronic claims transaction. This segment of the electronic claims transaction is part of a specific data format that Medicare claims must adhere to in order to meet national electronic standards for the automated transfer of certain health care data as mandated by the Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191) (HIPAA). Each prescription order number is unique to a dose of a CAP drug that is being shipped for administration to a particular beneficiary. The prescription order number is generated by the approved CAP vendor and, as stated in the July 6, 2005 IFC (70 FR 39042), each dose of a CAP drug is required to have a separate prescription order number. After the drug is administered, the participating CAP physician's drug administration claim is submitted with a no-pay line containing the prescription order number. The approved CAP vendor's claim for the CAP drug also contains the prescription order number. When the CAP was implemented, the prescription order number was used in the claims matching process to facilitate accurate payment of the approved CAP vendor. Prior to payment, this system paired an approved CAP vendor's drug claim to a participating CAP physician's drug administration claim using the prescription order number. A matching prescription order number between these two claims indicated that the drug had been administered. Since the CAP began, the claims process has changed because of statutory changes. Section 108(a)(2) of the MIEA-TRHCA requires us to make payment upon receipt of an approved CAP vendor's drug claim and then to conduct a post-payment review of claims. As stated in the MIEA- TRHCA, the post-payment review process is intended to ``assure that payment is made only for a drug or biological * * * if the drug or biological has been administered to a beneficiary.'' Under this new process, the prescription order number still plays a pivotal role. Prior to the payment of the approved CAP vendor's drug claim, the CAP-designated carrier uses the prescription order number to check the claims processing system to ascertain whether the local carrier has adjudicated the drug administration claim. If the local carrier has done so, then the CAP-designated carrier will look to see whether the local carrier has determined that the CAP drug administered by the participating CAP physician is covered and is medically necessary. The local carrier's decision determines whether the CAP- designated carrier will pay the approved CAP vendor's drug claim. If the participating CAP physician's local carrier has not made a determination on the physician's claim and the CAP drug claim, then the designated carrier will pay the approved CAP vendor's claim upon receipt and use the CAP prescription order number to help verify drug administration on a post-payment basis. The prescription order number is also still used in other CAP processes. Each dose of a CAP drug that is shipped by the approved CAP vendor is tracked using the prescription order number. Moreover, the prescription order number is particularly useful in certain situations such as those that involve recurring cyclic drug treatment regimens. In these cases, the prescription order number minimizes the possibility of confusion by serving as a unique differentiating factor between highly similar drug claims. Also, the prescription order number is valuable during instances in which the anticipated day of service submitted by the participating CAP physician differs from the actual date of drug administration. In these situations, the prescription order number would clarify confusion stemming from discrepancies in dates. Overall, we believe that the prescription order number remains an appropriate and necessary tool to track the administration of a specific dose of a drug and for the accurate execution of the post-payment review process. Although we believe that the use of the prescription order number is necessary to facilitate accurate review of CAP claims, we are aware that it may be considered an inconvenience by some potential participating CAP physicians and approved CAP vendors. Therefore, in the CY 2008 PFS proposed rule (72 FR 38158), we requested comments on alternative methods to accurately track the administration of specific doses of drugs in order to meet the requirements stated in section 108(a)(2) of the MIEA-TRHCA. These comments could then be used in the development of a proposal for future rulemaking. Comment: We received a few comments on this issue. One commenter suggested that the CAP-designated carrier should simply match vendor and physician claims but did not provide any details about how that could be accomplished without the prescription order number. Another commenter stated that the CAP prescription order number was no longer needed to verify drug administration and should be eliminated. Instead they recommended that we should rely on the approved e-CAP vendor's verification of drug administration and the physician's records of drug administrations. Response: While the records of participating CAP physicians and the CAP vendor are currently used in the post pay review process, the CAP prescription order number plays an important role in that it enables the designated carrier to identify the exact doses of a drug that was administered and provides a link between the approved CAP vendor's claim and the participating CAP physician's claim that is not available otherwise. We do not believe the suggestions that we have received thus far would allow us to discontinue the use of the prescription order number. The prescription order number allows us to better ``assure that payment is made only for a drug or biological * * * if the drug or biological has been administered to a beneficiary'' since it tracks the administration of a specific dose of a drug, which allows CMS to match the vendor and the physician claim in the post pay review process. However, we would appreciate receiving other suggestions that would allow drug administration verification on a dose specific basis. Since we did not make a specific proposal about this [[Page 66270]] issue, we will not make any changes at this time to the requirement that the CAP prescription order number be supplied by the approved CAP vendor and included on claims from both the participating CAP physician and the approved CAP vendor. j. Prefilled Syringes In the July 6, 2005 IFC (70 FR 39061), we described public comments which stated that participating CAP physicians could not vouch for the quality of products that were opened by an approved CAP vendor for repackaging, for mixing the drug with other drugs or injectable fluids (admixture), or for removing a part of the contents to supply the exact dose for a beneficiary. Several commenters recommended that approved CAP vendors deliver their products in the same form in which they are received from the manufacturer, without opening packaging or containers, mixing or reconstituting vials, or repackaging. Specifically, the commenters were concerned about the capabilities of individuals who mix the drug, as well as shipping conditions, storage, and stability. We responded by stating that the CAP is not intended to require approved CAP vendors to perform pharmacy admixture services (for example, to furnish reconstituted or otherwise mixed drugs repackaged in IV bags, syringes, or other containers that are ready to be administered to a patient) when furnishing CAP drugs. Admixture services for injectable drugs require specialized staff, training, and equipment, and these services are subject to standards such as United States Pharmacopoeia Chapter 797, Pharmaceutical Compounding--Sterile Preparations. These requirements have significant impact on drug shipping, storage, and stability requirements, as well as system cost and complexity. As stated in Sec. 414.906(a)(4), the approved CAP vendor must deliver ``CAP drugs directly to the participating CAP physician in unopened vials or other original containers as supplied by the manufacturer or from a distributor that has acquired the products directly from the manufacturer.'' Since issuing the July 6, 2005 IFC, we have become aware that bevacizumab (Avastin[supreg]) is being used for the treatment of exudative age-related macular degeneration (wet AMD) in very small doses. Although this is an off label use, it is gaining acceptance among ophthalmologists who treat wet AMD, and this use has been the subject of several carriers' local coverage determinations. Bevacizumab is considerably less expensive than certain other drugs used in the treatment of wet AMD. The smallest commercially-available package of bevacizumab is a 100mg single use vial, while a dose used to treat wet AMD is approximately 1mg. Some local carriers who have issued coverage instructions for the use of bevacizumab in the treatment of wet AMD allow physicians to obtain these small doses of drug from a pharmacy that is capable of preparing sterile products. We expect to issue instructions that will allow participating CAP physicians to use the furnish as written option, as appropriate, and to obtain small doses of bevacizumab outside of the CAP in prefilled syringes if their local carrier's coverage determinations allow such a practice and if it is consistent with applicable laws and regulations. We believe that this approach will minimize the waste associated with using a 100mg single use vial for the treatment of wet AMD and will increase the flexibility for participating CAP physicians by making an alternative quantity of this drug available to participating CAP physicians whose carriers have applicable policies. However, this option is not available in all areas. Therefore, we stated that we are considering reassessing our policy on the use of prefilled syringes to determine whether it would be feasible to make the option of using prefilled syringes supplied by an approved CAP vendor available to all physicians who participate in the CAP, rather than requiring physicians to go outside the CAP in order to obtain CAP drugs in prefilled syringes. In the CY 2008 PFS proposed rule (72 FR 38159), we requested comments on whether allowing approved CAP vendors to repackage CAP drugs in certain situations may be beneficial to beneficiaries, the program, and to the physicians who participate in it. In considering whether to propose a change to our regulations in the future, we also solicited comments on: Whether approved CAP vendors are likely to be pharmacies or have access to pharmacy services with trained personnel and facilities for the small scale preparation of sterile drug products in response to a specific prescription order for a specific patient; Whether an approved CAP vendor should be given an opportunity to supply bevacizumab under the CAP if it is repackaged in a patient-specific dose consistent with applicable state laws and regulations upon request from a participating CAP physician; Whether this sort of activity should be restricted to bevacizumab, or possibly phased-in for other CAP drugs. If we were to apply this sort of policy to other CAP drugs, we would also have to determine how phasing-in might occur, which drugs it should apply to and whether the preparation of admixtures (including the preparation of sterile syringes, minibags, and mixing of drugs and solutions intended for intravenous administration) should be allowed as well; How this sort of service could be limited to participating CAP physicians who voluntarily agree to use it, and whether such an agreement should be made in writing between the approved CAP vendor and the participating CAP physician; How such a program could be structured so that the service and staff engaged in providing the service would be required to meet all applicable laws (including Stark, Anti-kickback, and State pharmacy laws), as well as regulations for the preparation of sterile products, (including standards for product integrity and sterility); Whether the cost of preparing such product would be included in the CAP vendor's bid price; and Whether any other important elements should be evaluated if we consider changing CAP policy on prefilled syringes in the future. Comment: We received several comments on these issues. Overall, responses were generally equally divided among those who supported prefilled syringes, those who advocated a cautious approach, and those who opposed the practice. Those who opposed making prefilled syringes available through the CAP cited stability and sterility concerns. Those commenters also raised concerns about whether the CAP vendor's preparation of a particular drug product for an off-label use by participating CAP physicians would violate existing drug law because of the potential scale of an approved CAP vendor's activities and because the drug was being prepared for use in a manner other than as described in its FDA- approved labeling. Several commenters urged that caution be used in developing changes to the aspects of the CAP that are discussed above in this section, but many of these commenters were not completely opposed to the preparation of prefilled syringes by approved CAP vendors. Several commenters were quite supportive of using prefilled syringes. One commenter stated that pharmacy preparation of prefilled syringes was regarded as a ``convenient and safe practice'' and would avoid both waste [[Continued on page 66271]] From the Federal Register Online via GPO Access [wais.access.gpo.gov] ] [[pp. 66271-66320]] Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule, and Other Part B Payment Policies for CY 2008; Revisions to the Payment Policies of Ambulance Services Under the Ambulance Fee Schedule for CY 2008; and the Amendment of the E- Pr[[Page 66271]] [[Continued from page 66270]] [[Page 66271]] and some of the risk associated with transferring sterile products. Another commenter also recommended that a mechanism to pay for the preparation and waste associated with the process be established. There was a general point of agreement between commenters who urged a cautious approach and those who agreed with the concept of prefilled syringes. These commenters agreed that that additional flexibility or enhancements to the CAP would be welcome provided that they did not affect beneficiary safety and were consistent with applicable laws, regulations, product stability, and product integrity requirements. Response: We appreciate the comments on prefilled syringes and we will consider whether to develop a proposal that is consistent with applicable laws, regulations, product stability, and product integrity concerns in future rulemaking. Because we did not propose a change to our current regulations on the use of prefilled syringes in the CAP, they remain unchanged for the present time. We may make a proposal in the future. k. Contractual Provisions Section 1847B of the Act is generally silent on the subject of disputes surrounding the delivery of drugs and the denial of drug claims. However, section 1847B(b)(2)(A)(ii)(II) of the Act states that a grievance process is a quality and service requirement expected of approved CAP vendors. In the July 6, 2005 IFC (70 FR 39055 through 39058), we described the process for the resolution of approved CAP vendors' claims denials and the resolution of participating CAP physicians' drug quality and service complaints. We encouraged participating CAP physicians, beneficiaries, approved CAP vendors, and the designated carrier to use informal communication as a first step to resolve service-related administration issues. However, we recognized that certain disputes would require a more structured approach, and therefore, we established processes under Sec. 414.916 and Sec. 414.917. Suspension and termination from the CAP were the only remedies described under the CAP dispute resolution processes. Having gained some experience with the CAP, we believe that having an intermediate level of remedy for less serious but persistent problems is desirable in order to bridge the gap between taking no action and suspension or termination of an approved CAP vendor. We believe that additional contractual obligations, such as additional reporting requirements, could be useful, particularly if they provide an opportunity for the approved CAP vendor to come into compliance using objective goals and a set timeline. Therefore, in the CY 2008 PFS proposed rule (72 FR 38160), we requested comments on what types of potential contractual provisions could be used to encourage approved CAP vendors to comply with CAP requirements for less serious violations, such as missing reporting deadlines, or participation in inappropriate promotional strategies. We also requested comments on the following: The type of contractual provisions that would be suitable. For example, requests for specific or targeted reporting and monitoring activities in response to specific violations. Whether an approved CAP vendor's code of conduct could be used to address these types of less serious situations and how that could be accomplished; and Whether the CAP physician election agreement should be revised to include provisions to address participating CAP physicians' noncompliance with CAP rules or the CAP election agreement. Comment: One commenter agreed with the use of contractual provisions, including additional reporting requirements, as an intermediate form of remedy in response to a CAP vendor's noncompliance with CAP requirements. The commenter also noted that a vendor code of conduct would be useful. Response: We plan to develop a proposal for additional provisions that could be added to the CAP contract. These provisions would be used to encourage approved CAP vendors to comply with CAP requirements. We will propose such provisions in a future rulemaking period. l. Finalizing Remaining Provisions of the July 6, 2005 Interim Final Rule with Comment Period In this PFS final rule with comment, we are finalizing the portions of the July 6, 2005 IFC that were not finalized in previous rulemaking. We are also responding to other timely comments we received on the July 6, 2005 IFC that we have not responded to previously. Comments that we will be addressing in this rule include the following: The use of e-prescribing in CAP. Updating CAP prices and data reporting. The application of Comprehensive Error Rate Testing (CERT) to CAP claims. The 14-day participating CAP physician billing requirement. The impact of CAP participation on clinical research. Licensure requirements for CAP pharmacies and distributors. Community mental health centers and participation in the CAP. Administrative and financial burden of CAP participation for physicians. We have addressed drug transportation previously in this section of this final rule with comment period. Basis and Scope (Sec. 414.900) These provisions provide that the regulations in this subpart implement sections 1847A and 1847B of the Act. We received no comments on these provisions and we are finalizing the corresponding regulatory text at Sec. 414.900 in its entirety. Definitions (Sec. 414.902) Section 414.902 lists the definitions used in 42 CFR Subpart K. We did not receive any comments about the revisions to this section that we made in the July 6, 2005 IFC (70 FR 39093). At this time, we are finalizing the regulatory text at Sec. 414.902 as it currently reads. Competitive Acquisition Program as the Basis for Payment (Sec. 414.906) Section 414.906 specifies how payment for CAP drugs is determined, including vendor responsibilities for billing, shipment and delivery; computation of the payment amount; substitution of CAP drugs and resupply of a participating CAP physician's drug inventory. i. 2005 Comments In the July 6, 2005 IFC (70 FR 39074), we discussed the methodology used to update CAP drug prices during the bidding process. We responded to comments that suggested that single price updates for CAP drugs should be tied to changes in ASP prices. We stated that we did not believe that there had been enough experience with the ASP payment methodology to update the bids based on growth in the ASP. We also solicited comments on this method of updating single drug prices to the payment year in order to develop and refine the CAP in the future. (a) Updating CAP Prices and Data Submission Comment: We received comments about updating CAP drug prices more frequently than annually. One commenter suggested that we should consider quarterly data submissions and [[Page 66272]] pricing updates even during the phase in period in order to produce greater savings in instances where vendors' overall costs for CAP drugs were declining, while providing greater protection for vendors in instances where vendors were experiencing cost increases. Another commenter encouraged us to compare CAP prices to ASP prices using the most recent data available and to account for manufacturer price adjustments in a timely manner. Response: In the July 6, 2005 IFC (70 FR 39076), we stated, ``when the administrative mechanisms of the CAP are operational and vendors have more experience under the program, we will consider whether more frequent reporting (of reasonable net acquisition costs) would be appropriate.'' Section 414.914 requires that the CAP contract must provide for the disclosure of the approved CAP vendor's reasonable, net acquisition costs for a specified period of time, not to exceed quarterly and provide for appropriate adjustments as described in Sec. 414.906(c)(1). This section describes the computation of an annual update to the payment amount and allows updates more often than annually but no more often than quarterly in any of the following cases: introduction of new drugs; expiration of a drug patent or availability of a generic drug; material shortages that result in a significant price increase for the drug; and withdrawal of a drug from the market. Also, the CAP payment amount is limited by the weighted payment amount established under section 1847A of the Act across all drugs for which a composite bid is required in the category, and limited by the payment amount established under section 1847A of the Act for each other drug for which the approved CAP vendor submits a bid. It is not clear how the commenter is proposing that we account for changes in manufacturer's price adjustments in a more timely manner. Because the CAP has been operational for 15 months, we are still gaining experience with the reporting and update mechanisms already in place. At present, we believe these processes are sufficient to address the needs of the CAP; however, as the program grows, we may consider other options, including more frequent price updates. (b) Impact of CAP on Clinical Research Comment: Some commenters stated that they were concerned that CAP participation would conflict with the Medicare National Coverage Decision (NCD) on Clinical Trials. Since the NCD enables Medicare to reimburse physicians for the current standard of care drugs that are administered to beneficiaries in the control group of clinical trial protocols, commenters were concerned that physicians would not be able to enroll Medicare beneficiaries in clinical trials if drugs required in the protocol were not on the CAP drug list. In addition, some commenters expressed their concern that there was a lack of built in oversight in CAP to ensure that vendors would buy drugs directly from a manufacturer or wholesaler. The commenters were concerned that this could result in the acquisition of counterfeit product, and that as a result, such products could infiltrate clinical trials and compromise the results of cancer clinical research that a CAP physician might be participating in. Response: As a result of an executive memorandum issued by the President of the United States in June 2000, we instituted the NCD in September 2000 as explained in our ``September 2000 Program Memorandum'' on clinical trials available at http://www.cms.hhs.gov/ClinicalTrialPolicies/. The NCD stipulates that Medicare will provide payment for routine costs associated with qualifying clinical trials and for items or services needed to treat complications arising from participation in such trials. The NCD was revised in July 2007 as outlined in CAG-00071R, the ``Decision Memorandum for the Clinical Trial Policy,'' which may be found at https://www.cms.hhs.gov/mcd. More information about the National Coverage Decision on Clinical Trials can be found on the CMS Web site at http://www.cms.hhs.gov/ClinicalTrialPolicies/ and through a Medicare Learning Network article at http://www.cms.hhs.gov/MLNMattersArticles/. We are very aware of the importance of clinical trial research in the treatment of cancer, and we do not believe that CAP participation has imposed any undue hardships on participating CAP physicians or their Medicare patients who engage in such activities. Participating CAP physicians do not have to buy and bill for the medications they receive from the approved CAP vendor. The vendor is responsible for billing the designated carrier and the beneficiary. Thus, if the standard of care drug needed for the control group of a research protocol is on the CAP drug list, the participating CAP physician may order the medication from the approved CAP vendor. This should not affect the participating CAP physician's ability to enroll Medicare patients in clinical trials. Moreover, participating CAP physicians may still purchase and bill for medications that are not on the CAP drug list through the ASP system, which would allow them to obtain the non- CAP drugs required in a research protocol. If a particular NDC for a drug is not on the CAP drug list but is part of the research protocol, a participating CAP physician may buy the medication on their own and bill for it via the ``furnish as written'' provision, which allows the physician to bill for the drug under the ASP methodology in that instance, even though it is on the CAP drug list. Though we have had no reports that CAP physicians have been prevented from engaging in clinical trial research because of their CAP participation, we are mindful that this could be an issue because of the way some studies are structured. In the event that we receive comments that demonstrate that this has become a problem in the future, we will address the issues accordingly and possibly propose mechanisms to facilitate participation in clinical trial research and the CAP. We would also like to reemphasize that CAP is a voluntary program. If physicians do not believe that the ``furnish as written'' option and the CAP drug list are sufficient to meet their clinical research needs, then they may decline to join the CAP and continue to purchase and bill for medication under the ASP system. We also are cognizant of the importance of preserving drug quality and integrity in the CAP and have structured the program accordingly. The importance of drug quality and oversight are recognized in both the vendor bidding process and in the CAP dispute resolution process administered by the designated carrier. We have discussed our concern for maintaining CAP drug quality in the program as a whole on several occasions, most recently in the CY 2006 PFS final rule with comment period (70 FR 70244). Section 1847B of the Act and Sec. 414.908(b) delineate several requirements that vendors must meet in order to be selected to participate in the CAP, including an ability to ensure product integrity, at least 3 years experience in furnishing Part B Injectable drugs, and acquisition of all CAP drugs directly from the manufacturer or from the distributor that has acquired the products directly from the manufacturers. After an entity has been awarded a contract, we work closely with the CAP-designated carrier and the approved CAP vendor to monitor and respond to any concerns that are raised by participating CAP physicians under the dispute resolution process. [[Page 66273]] We have not received any complaints regarding CAP drug quality and integrity. If such an event were to occur, it would be investigated and resolved promptly so that patient health and safety would not be jeopardized. In light of all of these requirements and protections, we do not believe that research and CAP participation are incompatible. At this time, we are finalizing the remaining provisions of this section. Competitive Acquisition Program (Sec. 414.908) This section specifies the process for a physician to select an approved CAP vendor. It also details the responsibilities of a participating CAP physician, such as including the specific information required on the prescription order, notifying the CAP vendor about changes in drug administration, and adhering to the timeframe for submission of claims. Moreover, Sec. 414.908 delineates the process for selecting approved CAP vendors. It also outlines additional factors that are considered both during and after the vendor selection process such as exclusion of entities from participation in Medicare or other Federal health care programs under section 1128 of the Act. i. 2005 Comments (a) Physician Administrative and Financial Burden Comment: We received several comments from individual physicians and physician groups expressing their concern that CAP could place a significant burden on physicians. Some commenters stated that the requirement to maintain a separate inventory of CAP drugs will increase physicians' administrative burden and costs. Others indicated that physicians would have no incentive to participate in the CAP unless these extra administrative costs could be reimbursed. One commenter indicated that the program was impractical and economically unfeasible. Response: In the July 6, 2005 IFC (70 FR 39049), we discussed the issue of administrative burden. Although we agree that a physician may have to make some adjustments in his or her practice in order to comply with the requirements of the CAP, we believe that the relief from the financial burden of purchasing drugs and billing Medicare for them will be a substantial benefit for many physicians. We do not believe that the clerical and inventory resources associated with participation in the CAP exceed the clerical and inventory resources associated with buying and billing drugs under the ASP system. A physician is free to design his or her practice in a way that minimizes the extent of changes necessary to comply with the CAP requirements. For example, an electronic inventory of CAP drugs is required, but separate drug storage is not; it is a suggested option if such a procedure makes it easier on the physician's practice to track the CAP drugs. We recognize that although a physician's staff or their software vendor may need to make system changes to bill using the CAP format and to accommodate the CAP modifiers and prescription numbers, these initial changes would be a one-time occurrence. In the ASP system, the payment for clerical and inventory resources associated with buying and billing for drugs is bundled into the drug administration payment under the physician fee schedule. We have adopted this same logic in the CAP and believe that the drug administration payment is sufficient to cover any associated expenses of participating in the CAP. If a physician perceives that CAP participation would be more burdensome than the ASP system, then he or she is under no obligation to join the CAP because it is a voluntary program. Additionally, as described in other parts of this rule, participating CAP physicians may also petition to terminate their CAP election due to exigent circumstances through the dispute resolution process in the event that they find the participation in the program becomes a burden. Comment: One commenter expressed disappointment that community mental health centers (CMHCs) cannot elect to participate in the CAP. Response: As noted in the July 6, 2005 IFC (70 FR 39030), CMHCs can not elect to participate in the CAP for provision of Part B drugs. The CAP statute is clear that only physicians may elect to have section 1847B of the Act apply in lieu of the ASP payment methodology. (b) E-Prescribing Comment: One commenter recommended that CAP vendors should be capable of accepting and submitting e-prescribing transactions in accordance with the final e-prescribing standards issued for Medicare Part D. The commenter reasoned that vendor compliance would not be an undue hardship because vendors already will have a fairly rigorous technical infrastructure in place. Response: Section 101 of the MMA amended title XVIII of the Act to establish a voluntary prescription drug benefit program. The MMA electronic prescription program provisions found in section 1860D-4(e) of the Act apply to the electronic transmission of prescription and certain prescription-related information for Medicare Part D drugs for Part D eligible individuals. The Part D e-prescribing requirements do not apply to the electronic transmission of prescriptions and prescription related information for Part B drugs unless those prescriptions are written for Part D eligible persons and the prescribed drug is a Part D drug. Prescription Drug Plan (PDP) sponsors Medicare Advantage (MA) organizations offering Medicare Advantage- Prescription Drug Plans (MA-PD) are required to establish electronic prescription drug programs to provide for electronic transmittal of certain information to the prescribing provider and dispensing pharmacy and pharmacist. Prescribers and dispensers of Part D drugs are not required to write prescriptions electronically, but those that do so would be required to comply with any applicable final e-prescribing standards that are in effect when they conduct electronic prescription transactions, or seek or transmit prescription information or certain other related information electronically. We responded to a comment on whether participating physicians would be required to incorporate e-prescribing technologies into the CAP in the July 6, 2005 IFC (70 FR 39039). At that time, we stated that we would monitor the development of the program to see if some aspects of it could be adapted to the CAP. Since publication of the IFC, we have adopted three foundation standards (70 FR 67568), recognized six initial standards in a Request for Applications (RFA) (Available through http://www.grants.nih.gov/grants/guide/rfa-files/FRA-HS-06-001.htm ), and conducted a pilot program in 2006 to test the six initial standards and their ability to interoperate with the foundation standards. More information about the MMA e-prescribing program and the outcome of the pilots can be found on the CMS Web site at http://www.cms.hhs.gov/EPrescribing/. The MMA requires the adoption of additional standards by the Secretary by April 1, 2008. We will continue to track the development of the e-prescribing program to see whether it would be appropriate to incorporate some of the program's elements into the CAP at a later date. [[Page 66274]] (c) The Comprehensive Error Rate Testing (CERT) Program and CAP Claims The purpose of the CERT program is to monitor and report the accuracy of Medicare fee for service payments. In the July 6, 2005 IFC (70 FR 39038), we discussed CERT and how it would apply to CAP claims. While we anticipated that CERT would apply to CAP, the process had not been determined at that point. We received no additional comments on this issue and have implemented CERT review of CAP claims since publication of the July 6, 2005 IFC. CAP claims paid by the designated carrier may be selected for review in a manner consistent with other claims the carrier processes. (d) 14-Day Billing Requirement In the July 6, 2006 IFC (70 FR 39050), we summarized and responded to comments about the 14-day requirement for physicians to file claims for CAP drug administration. Although a number of commenters considered the time period to be too brief and were opposed to it, we decided to implement the 14-day requirement at Sec. 414.908(a)(3)(x) because the approved CAP vendor's payment for drugs furnished under the CAP depended on a match between the vendor's drug claim and the physician's drug administration claim. Implementation of the post-payment review as mandated by section 108 of the MIEA-TRHCA has superseded our original implementation of CAP claims processing procedures, which had required a pre-payment claims matching process for CAP drug claims, and the 14- day billing requirement was not finalized in previous rules (70 FR 70260). Comment: In 2006 several commenters asked us to allow at least 30 days or more for physicians to submit CAP drug administration claims. During this comment period, we also received several comments stating that the 14-day requirement be withdrawn because changes to the claims processing system made it unnecessary and such an action would encourage physician participation in the CAP. Response: Our 14-day standard was based on a review of Medicare claims that showed approximately 75 percent of part B drug and drug administration claims were submitted within 14 days of the date of service. It was initially implemented as a means of facilitating the CAP claims matching process that was in effect prior to the implementation of the post-payment review process as mandated by section 108 of the MIEA TRHCA. As the commenters indicated, a 14-day requirement is less than is allowed under claim submission requirements used in other parts of the program. We agree that the claims processing changes required by Section 108 of MIEA-TRHCA have altered the role of the claims submission standard. However, we do not believe that it has eliminated the need for a claims-matching process under the CAP. Under the new payment process that resulted from the MIEA-TRHCA, the CAP-designated carrier also conducts a pre-payment review in which it checks for any local carrier decisions about medical necessity prior to paying for drug claims submitted by the approved CAP vendor. Retaining a claims submission requirement for participating CAP physician drug administration claims may prevent the agency from paying for drugs that have been denied on a medical necessity basis by the local carrier because when the local carrier reviews the physician's claim it makes a determination on whether the CAP drug that was administered was medically necessary. We are not eliminating the requirement for prompt billing altogether, as requested by commenters, because it will continue to facilitate a quicker determination that the drug can be administered. However, we acknowledge that a somewhat longer claims submission standard would not adversely affect the post-payment review process because it still would allow for a relatively quick match between the claim for a particular dose of a CAP drug and the claim for its administration. Also, separate analyses of previous claims submission data and CAP drug claims lead us to conclude that the overwhelming majority of participating CAP drug administration claims are submitted within 30 days of the date of service. We further believe that, in light of the comments, increasing the 14-day claims submission requirement would make the CAP more appealing to physicians and provide them with greater claims submission flexibility. Therefore, we are increasing the requirement for timely CAP drug administration claim submission from 14 days to 30 days. We are finalizing the requirements at Sec. 414.908 to include this revision. ii. Regulatory Text At this time, we are finalizing Sec. 414.908 as amended to reflect the changes discussed in this final rule with comment period. The Bidding Process (Sec. 414.910) This section outlines the specific criteria for the submission of a bidding price for a CAP drug, and specifies what costs should be included in the bid price. We received no comments on this provision and are now finalizing the regulatory text for Sec. 414.910. Conflicts of Interest (Sec. 414.912) Section 414.912 states conflict of interest requirements and standards that vendor applicants and approved CAP vendors must meet in order to participate in CAP. We received no comments on this provision, and therefore, are finalizing Sec. 414.912. Terms of Contract (Sec. 414.914) Section 414.914 outlines the contract provisions between CMS and the approved CAP vendor such as contract length and termination, and specific requirements that the approved CAP vendor must comply with. i. 2005 Comments (a) Licensure Requirements for Cap Pharmacies and Distributors Comment: Some commenters requested clarification on the types of licenses that are required of CAP vendors. A few commenters also asked us to specify whether a CAP vendor will be operating as a pharmacy or as a wholesale distributor since licensing requirements and regulatory laws for these two types of entities can vary by state, and since pharmacies and distributors are two different models. Response: As specified in Sec. 414.914, approved CAP vendors and their subcontractors must meet applicable licensure requirements in each State in which it supplies drugs under the CAP. This includes appropriate licensure in States that the CAP vendor ships drug to even though the vendor does not maintain a physical establishment in these States. In the July 6, 2005 IFC (70 FR 39066), we stated that a vendor, its subcontractor, or both must be licensed appropriately by each State to conduct its operations under the CAP. Therefore, a vendor under the CAP would be required to be licensed as a pharmacy, as well as a distributor if a State requires it. It is the CAP vendor's responsibility to determine which State and national requirements it must adhere to. Based on our experience with the CAP, we are not persuaded by the comments that any changes to this policy are necessary at this time. ii. Regulatory Text We finalized portions of Sec. 414.914 in the CY 2006 PFS final rule with [[Page 66275]] comment period (70 FR 70333) and are now finalizing the remainder of the regulatory text. Dispute Resolution for Vendors and Beneficiaries (Sec. 414.916) This section discusses the steps, timeframes, and requirements of the dispute resolution process that are available to an approved CAP vendor and beneficiaries to address the issue of denied CAP drug claims. It also describes the protocol that physicians would utilize to appeal the suspension of their CAP contract. We did not receive any comment on this comments on this provision in response to the CY 2006 PFS proposed rule. However, a revision to this section will be made in light of the exigent circumstance discussion in section (g) of this section of the preamble. We are revising Sec. 414.916(c) to clarify that the physician reconsideration process would apply to reconsiderations of our decision on whether the participating CAP physician may opt out of the CAP. We are finalizing Sec. 414.916 at this time. Dispute Resolution and Process for Suspension or Termination of Approved CAP Contract (Sec. 414.917) This section discusses the steps and timeframes of the process available to participating CAP physicians for the resolution of quality or service issues concerning an approved CAP vendor. We did not receive any comments on this section during the comment period for the July 6, 2005 IFC. Comments that we received on this section during the comment period for the CY 2008 PFS proposed rule are discussed above in this section. We are now finalizing the regulatory text for this section as described in this final rule with comment period. Assignment (Sec. 414.918) Section 414.918 specifies that payment for a competitively biddable drug may be made only on an assignment related basis. We received no comments on this provision and are now finalizing Sec. 414.918. Judicial Review (Sec. 414.920) Section 414.920 outlines the areas under the CAP that are not subject to administrative or judicial review. We received no comments on this provision and are now finalizing this section. m. Brief Summary of Comments We Are Not Addressing In response to the FY 2007 IPPS final rule with comment period (71 FR 47870), we received a comment related to the payment rate for intravenous immunoglobulin (IVIG) therapy in Medicare. We will not be addressing this comment since it is outside the scope of both the CY 2008 PFS proposed rule and the FY 2007 IPPS final rule with comment period. In addition, in response to the CY 2007 PFS proposed rule, one commenter recommended that we implement continuous open enrollment in the CAP and eliminate the requirement for annual physician election, and specify who are the appropriate people to sign the CAP election form. We are not addressing these comments because it is outside the scope of the proposed rule. G. Issues Related to the Clinical Laboratory Fee Schedule 1. Date of Service for the Technical Component of Physician Pathology Services (Sec. 414.510) In the CY 2007 PFS final rule with comment period (72 FR 69787), we added Sec. 414.510 for the date of service of a clinical diagnostic laboratory test that uses a stored specimen. When we added Sec. 414.510, we indicated the provision applies to clinical diagnostic laboratory tests. For outpatients, clinical diagnostic laboratory tests are paid under the Medicare Part B clinical laboratory fee schedule. Upon further review, we believe the provision should also apply to the technical component (TC) of physician pathology services. In practice, the collection date for both clinical laboratory services and the TC of physician pathology services is similar. Therefore, we believe Sec. 414.510 should apply to both types of services. This will improve claims processing and adjudication in relation to the clarity of dates of service, accuracy of payment, and detection of duplicate services. For outpatients, the TC of physician pathology services can be paid under the Physician Fee Schedule (PFS) or the hospital Outpatient prospective payment system (OPPS). As a result, for Sec. 414.510, in the CY 2008 PFS proposed rule (72 FR 38160), we proposed to revise the section heading and introductory sentence to specify that the provision applies to both clinical laboratory and pathology specimens. We also proposed revising Sec. 415.130(d) to include a reference to Sec. 414.510. Comment: Some commenters supported our proposal to revise the section heading and introductory sentence for Sec. 414.510 to specify that the provision applies to both clinical laboratory and pathology specimens. (We also proposed revising Sec. 415.130(d) to include a reference to Sec. 414.510.) One commenter asked that we clarify whether the provision applies to pathology tests where the technical component and the professional component (PC) are performed by the same lab and billed globally. Response: Concerning one line global billing, we would like to point out that the TC and the PC of a laboratory test should be on separate line items on the same claim when two different dates of service are involved, even when both services are performed by the same independent laboratory. One line global billing is not appropriate in this instance. Program instructions on this issue will be forthcoming. Comment: One commenter requested revisions to our regulations to specify that if the clinical laboratory test specimen is collected outside the hospital by nonhospital personnel, the beneficiary qualifies as a nonhospital patient. Response: We do recognize that the determination of whether the beneficiary qualifies as an inpatient, outpatient, or nonpatient is important for payment purposes. However, we do not agree that the laboratory date of service regulation should be amended to address the employment arrangements of the personnel performing the specimen collection. Furthermore, this comment is outside the scope of our proposal to broaden the clinical laboratory date of service rules we adopted last year. We continue to believe the date of service should relate to clear calendar dates for the specimen collection and day of discharge from the hospital if the specimen was collected while the patient was undergoing a hospital procedure. We are implementing our proposed regulation at Sec. 414.510 on the date of service of the TC of the physician pathology service. 2. New Clinical Diagnostic Laboratory Test (Sec. 414.508) a. Background In the CY 2007 PFS final rule with comment period (71 FR 69701), we adopted a new subpart G under part 414 that implemented section 942(b) of the MMA requiring that we establish procedures for determining the basis for, and amount of payment for any clinical diagnostic laboratory test for which a new or substantially revised HCPCS code is assigned on or after January 1, 2005 (``new tests''). Under Sec. 414.508, we use one of two bases for payment to establish a payment amount for a new test. Under Sec. 414.508(a), the first basis, called [[Page 66276]] ``crosswalking,'' is used if a new test is determined to be comparable to an existing test, multiple existing test codes, or a portion of an existing test code. If we use crosswalking, we assign to the new test code the local fee schedule amount and national limitation amount (NLA) of the existing test code or codes. If we crosswalk to multiple existing test codes, we determine the local fee schedule amount and NLA based on a blend of payment amounts for the existing test codes. The second basis for payment is ``gapfilling.'' Under Sec. 414.508(b), we use gapfilling when no comparable existing test is available. We instruct each Medicare carrier or MAC to determine a carrier-specific amount for use in the 1st year that the new code is effective. The sources of information that these carriers or MACs examine in determining carrier-specific amounts include: Charges for the test and routine discounts to charges; Resources required to perform the test; Payment amounts determined by other payers; and Charges, payment amounts, and resources required for other tests that may be comparable (although not similar enough to justify crosswalking) or otherwise relevant. After the first year, the carrier-specific amounts are used to calculate the NLA for subsequent years. Under Sec. 414.508(b)(2), the test code is paid at the NLA, rather than the lesser of the NLA and the carrier-specific amounts. We instruct our carriers or MACs to use the gapfill method through program instruction, which lists the specific new test code and the timeframes to establish carrier-specific amounts. During the first year a new test code is paid using the gapfill method, contractors are required to establish carrier-specific amounts on or before March 31. Contractors may revise their payment amounts, if necessary, on or before September 1. In this manner, a carrier or MAC may revise its carrier-specific amount based on additional information during the 1st year. In the CY 2007 PFS final rule with comment period (71 FR 69702), we also described the timeframes for determining the amount of and basis for payment for new tests. The codes to be included in the upcoming year's fee schedule (effective January 1) are available as early as May. We then list the new clinical laboratory test codes on our Web site, usually in June, along with registration information for the public meeting. The public meeting is held no sooner than 30 days after we announce the meeting in the Federal Register. The public meeting is typically held in July. In September, we post our proposed determination of the basis for payment for each new code and seek public comment on these proposed determinations of the basis for payment. The updated clinical laboratory fee schedule is prepared in October for release to our contractors during the first week in November so that the updated clinical laboratory fee schedule is ready to pay claims effective January 1 of the following calendar year. We received comments in response to the CY 2007 PFS proposed rule concerning information to be presented during the public meeting process. In responding to these comments in the CY 2007 PFS final rule, we stated that we did not believe that opportunities for information gathering on new tests have been fully utilized within the public meeting process. Payment recommendations from the public have sometimes lacked charge, cost, and clinically-detailed information for the new clinical laboratory tests. We also stated that when soliciting public input for the meeting we would recommend that all participants in the public meeting consultation process strive for transparency and try to provide as much supporting information as possible to assist us in evaluating their recommendations. In addition, in the CY 2007 PFS final rule with comment period, in response to comments suggesting that the method used by contractors to determine their price for gapfilled tests should be more specific, we indicated that we would engage in discussions with our carrier contractors and laboratory industry representatives to explore their experiences with the gapfill process. We also agreed to host a forum to listen to suggestions from the public and said that we expected to solicit comments on a potential reconsideration process in a future rulemaking. As explained in the CY 2008 PFS proposed rule, we discussed these issues with our contractors. We also solicited comments on the gapfill process in the July 16, 2007 clinical laboratory public meeting. Discussions with our contractors and other interested parties revealed that the length of time we allow for a contractor to establish a carrier-specific amount may sometimes be insufficient for obtaining additional sources and data on a new test. However, our contractors and other interested parties were also concerned that if procedures and determinations were permitted to extend over too long a time frame, the uncertainty of the final payment amount would be detrimental for laboratories, practitioners, and patients for incorporating new technology tests and improving patient care. In the CY 2008 PFS proposed rule, we also encouraged the public to submit written comments on gapfilling and said that we would respond to them to the extent they related to a proposal in the rule. In the CY 2008 PFS proposed rule, we proposed a reconsideration process for determining the basis for and amount of payment for any new test for which a new or substantially revised HCPCS code is assigned on or after January 1, 2008. This proposed change attempted to balance additional opportunities for public input against the necessity for establishing final fees for new clinical laboratory test codes. Section 1833(h)(8)(A) of the Act provides broad authority to develop through regulation procedures for the method for determining the basis for and amount of payment for new tests. We believe that we have authority under section 1833(h)(8)(A) of the Act to establish procedures under which we may reconsider the basis for and amount of payment for a new test. Furthermore, under section 1833(h)(8)(D) of the Act, the Secretary may convene such other public meetings to receive public comments on payment amounts for new tests as the Secretary deems appropriate. We note that, under both section 1833(h)(8)(B)(v) of the Act and Sec. 414.506(d)(2), the Secretary must make available to the public a list of ``final determinations.'' We do not believe that these provisions preclude us from reconsidering our final determinations. It is not unusual for us to provide for discretionary reopening or reconsideration of final agency action. It is not unusual for us to provide for discretionary reopening or reconsideration of final agency action. For example, under Sec. 405.1885, we may reopen a final agency determination regarding payment to a provider of services. Comment: Commenters were supportive of our proposal to add Sec. 414.509 concerning a reconsideration process for new lab test payment determinations. Generally, commenters believed that in contrast to several other payment systems, which have been significantly revised in the last several years, the procedures for operating the clinical laboratory fee schedule have remained relatively static. They further commented that the implementation of a reconsideration process would be a significant step in helping assure reasonable pricing decisions for new [[Page 66277]] tests, and they commended us for our actions in this regard. Response: We appreciate the support for our proposal for a reconsideration process for new lab test payment determinations. We believe this additional opportunity to revisit payment determinations for clinical laboratory test codes will foster accurate payment levels for new tests. We will discuss specific suggestions for revisions to Sec. 414.509 below in this section. b. Basis for Payment Under our existing procedures for determining the basis for payment of a new test, either to crosswalk or gapfill, we receive comments on the appropriate basis for payment for a new test both at the public meeting in July and after we announce our proposed determinations in September. In November, we post our determination on the basis for payment for the new test on the CMS Web site. This determination of the basis for payment is final, except in the case of a gapfilled test for which we later determine that gapfilling is not appropriate under Sec. 414.508(b)(3). In the CY 2008 PFS proposed rule, we proposed to create a reconsideration process for determinations of the basis, either crosswalking or gapfilling, for payment of a new clinical diagnostic laboratory test. Consistent with our existing process, we would make a determination using the information gathered from the public meeting process and post a determination of the basis for payment, either to crosswalk or gapfill, on the CMS Web site, likely in September. We would accept written comments asking for a reconsideration on this basis determination for 30 days after we posted the determination on the CMS Web site. If a commenter recommended that we switch from gapfilling to crosswalking for a new code, the commenter would also have the opportunity to recommend the code or codes to which to crosswalk the new test code. Under Sec. 414.508, claims would be paid using this basis to calculate fees beginning January 1. After considering the comments received and the information from the public meeting, we would post our decision on our Web site as to whether we elect to reconsider our determination of the basis for payment. If we elect to reconsider the basis for payment (that is, whether to crosswalk or gapfill a test), we would post our determination as to whether we would change the basis for payment on the CMS Web site. Our decision regarding the basis for payment would be final and not subject to further reconsideration. If we change our prior determination of the basis for payment, the new determination would be effective on January 1. We would not reopen or otherwise reprocess claims with dates of service prior to the effective date of the revised determination. We note that, under our proposed reconsideration processes (for both the basis for payment and amount of payment) we would make two separate decisions. First, we would decide whether to reconsider our prior determination. If we elect to reconsider our prior determination, we would then determine whether we should change our prior determination. Comment: One commenter suggested that the agenda for the public meeting should announce a list of requests received by CMS to reconsider the basis for and amount of payment for a new clinical laboratory test, and the agenda should invite comment, either written or orally, on the requests. The commenter stated that in this way, we will receive views on the validity of the requests for reconsideration. Another commenter indicated that more than one public meeting per year should be hosted by CMS to discuss comments under the reconsideration process, as well as the payment determination process. Response: We are receptive to suggestions on providing information about the public meeting agenda. We do not believe a revision to the regulatory text at subpart of Sec. 414.509(a) is required in order to disseminate information on our meetings. We publish a public meeting notice in the Federal Register to announce the meeting. The notice includes many details about the purpose and registration process for the meeting and also refers to additional Web site information for the meeting. If we receive a request to reconsider the basis of payment for a new test within the 60-day window after we post our basis of payment on the CMS Web site, the requestor could also request to present his or her comment orally at the next clinical laboratory public meeting. We can include this information in the meeting agenda that will be posted on the CMS Web site. Members of the public who are interested in addressing a particular reconsideration request at the laboratory public meeting can let us know of their interest in doing so after they review the reconsideration requests that will be addressed at the laboratory public meeting. In addition, we will accept written comments on the reconsideration request after the public meeting. We will accept written comments during the same time period we set for accepting other comments after the clinical laboratory public meeting--usually 2 weeks. We note that, if the party that submitted the reconsideration request does not choose to present at the public meeting, members of the public may not comment on the reconsideration request and we will not accept written comments. However, hosting more than one public meeting per year is a timing issue which is limited by the constraints of the process. Currently, there is a limited amount of time between the receipt of the new test codes for the upcoming year and the deadline to issue them via CMS instruction; therefore, we cannot accommodate two public meetings in a year. As a result, we are finalizing Sec. 414.509(a) with revisions to specify that other commenters may speak about reconsideration requests on the laboratory public meeting agenda and that we will accept written comments on reconsideration requests addressed at the public meeting. c. Amount of Payment i. Crosswalking Under our existing procedures, commenters recommend the code or codes to which to crosswalk a new clinical laboratory test both at the public meeting in July and during the comment period after we issue our proposed determination in September. We consider the appropriate basis for payment and the amount of payment at the same time. Therefore, commenters that recommend crosswalking as the basis for payment for a new test also make recommendations concerning the code or codes to which to crosswalk the new test. In November, we post the code or codes to which we will crosswalk the test and the payment amount for the test on the CMS Web site. This determination is final. In the CY 2008 PFS proposed rule (72 FR 38162), we proposed to create a reconsideration process under which we may reevaluate the code or codes and their corresponding fees to which we crosswalk a new test's fees. We would accept reconsideration requests and written comments on the crosswalked code or codes and the resulting amount of payment for the new code for 60 days after we posted the determination on the CMS Web site, sometime in November. In addition, we proposed that a commenter who had submitted a written comment within the 60-day comment period would also be given the opportunity to present its comment at the public meeting. After considering the comments received and the [[Page 66278]] information of the public meeting, we would post our decision as to whether we had elected to reconsider our determination of the crosswalked code or codes and the resulting amount of payment on the CMS Web site. If we elect to reconsider the amount of payment and had determined that we should revise the amount of payment, we would post a new determination of the code or codes to which we would crosswalk the test on the CMS Web site. We proposed that, after we posted our determination of the code or codes to which the test would be crosswalked on the CMS Web site, we would pay claims on the basis of this determination beginning January 1. Our decision regarding the amount of payment would be final and not subject to further reconsideration. If we change our prior determination of the amount of payment, the new determination would be effective January 1. We would not reopen or otherwise reprocess claims with dates of service prior to the effective date of the revised determination. As discussed in section II.G.2.b., we may also change the basis for payment for a new test as the result of reconsideration. If we change the basis for payment from gapfilling to crosswalking, we would also determine the code or codes to which we would crosswalk the test. Because we believe it is important to establish final payment amounts within a reasonable amount of time, we also proposed that these determinations of crosswalked payment amounts would not be subject to reconsideration. Comment: Some commenters indicated that Sec. 414.509(b)(1) should establish payment amounts at the national limitation amount (NLA) of the tests to which the new tests are crosswalked. The NLA should replace carrier-specific amounts below the NLA for new tests. The commenters believe that if the amount of payment is lower than the NLA in a carrier's geographic area, patient access to a new test will be limited in the geographic area. Response: In the CY 2008 PFS proposed rule, we did not make policy proposals regarding the level of payment for crosswalked tests. Rather, our policy proposals were limited to the reconsideration process. Accordingly, we believe that this comment is outside of the scope of this rulemaking Comment: One commenter suggested that a similar reconsideration process should also be available for existing laboratory tests. The commenter pointed out that the payment amounts determined for certain laboratory tests by one or another Medicare carrier or MAC now differ from the payment amounts determined for these same tests by other Medicare contractors and from the corresponding NLA. Response: Section 1833(h)(1) of the Act sets forth the calculation of the payment amounts for test codes included on the clinical laboratory fee schedule to be the lower of the charge submitted, the carrier-specific amount, or the NLA. We believe changes to payment amounts for tests that are not ``new tests'' under section 1833(h)(8)(A) of the Act would require a statutory change. Comment: One commenter recommended that CMS clarify how fee schedule amounts below the NLA will be adjusted as carriers are phased out and their functions are moved to MACs. Response: This comment is outside the scope of our proposal. If necessary we may address this comment in a future program memorandum. We are finalizing Sec. 414.509(b)(1). Consistent with the revisions we made to Sec. 414.509(a), we are revising Sec. 414.509(b)(1) to provide that other commenters may speak about reconsideration requests on the lab public meeting agenda and that we will accept written comments on reconsideration requests addressed at the public meeting. ii. Gapfilling As discussed in this preamble and in accordance with Sec. 414.508(b), after we determine that gapfilling will be the basis for payment for a new clinical diagnostic laboratory test, we instruct our carriers or MACs to determine carrier-specific gapfill amounts by April 1 and finalize carrier-specific amounts by September 30. We include the determinations of carrier-specific amounts and the NLA for the new test code in the clinical laboratory fee schedule the following November when we post our payment determinations on the CMS Web site. Except in the case of a gapfilled test for which we determine that gapfilling was not appropriate under Sec. 414.508(b)(3), these determinations are final. We proposed to provide for a reconsideration process for gapfilled payment amounts. Under this process, by April 30, we would post the carrier-specific amounts on the CMS Web site at http://www.cms.hhs.gov/ClinicalLabFeeSched/02_clinlab.asp . Interested parties would submit written comments to CMS (which we would provide to the carriers for their consideration) on the carrier- specific amounts within 60 days from the date of posting the carrier- specific amounts. In the CY 2008 PFS proposed rule, we stated that carriers or MACs would finalize carrier-specific amounts by September 30 and that we would set the NLA at the median of the carrier-specific amounts, and we would post the carrier-specific amounts and the NLA on our Web site. In addition, we stated that the public would have 60 days to submit a reconsideration request. We also proposed that if we elect to act on the reconsideration request to reconsider the carrier-specific amounts and decide to revise our prior determination, we would adjust the NLA based on comments received. We would post the revised NLA on the CMS Web site and payment for the test would be made at the NLA beginning January 1. This determination would be final and not subject to further reconsideration. In addition we proposed that, if we change the basis of payment from crosswalking to gapfilling as the result of a reconsideration, the new gapfilled payment amount would be subject to reconsideration under proposed Sec. 414.509(b)(2). Unlike a crosswalked test, the payment amount for a gapfilled test is not established when we determine the basis for payment because it takes approximately 9 months for our contractors to establish carrier-specific amounts. Thus providing for reconsideration of gapfilled payment amounts would not lengthen the period of time it would take to determine a final payment amount. We proposed to amend Sec. 414.508(b)(3) to provide that Sec. 414.508(b)(3) applies to new tests for which a new or substantially revised HCPCS code assigned on or before December 31, 2007. We proposed that the more comprehensive reconsideration procedures would apply to new or substantially revised HCPCS codes assigned after December 31, 2007. Comment: One commenter suggested that we should accept comments after the carrier-specific amounts become final, which is currently on September 30. Response: We appreciate this commenter's input. We have decided to revise the reconsideration process that we proposed. Under the final policy we are adopting in this final rule with comment period, we will post interim determinations of carrier-specific amounts on the CMS Web site in April and, for 60 days, we will accept written comments that we will share with our carriers and MACs. However, we will not accept reconsideration requests on the interim carrier-specific amounts. In September, we will post final carrier- [[Page 66279]] specific amounts on the CMS Web site. Interested parties may request reconsideration of the final carrier-specific amounts within 30 days of when we post the final carrier-specific amounts on the CMS Web site. Based on the written reconsideration requests received, we would evaluate whether we should reconsider the carrier-specific amounts and NLA. If we elect to reconsider the carrier-specific amounts and the NLA, we will process the request for reconsideration between the end of the 30-day comment period and the deadline for dissemination of the information to the Medicare carriers or MACs via CMS instruction so that we can finalize our determinations prior to January 1. A request for reconsideration can be denied or reconsidered for a different payment amount. If we elect not to reconsider the carrier-specific amounts and the NLA, we will post the carrier-specific amounts and NLA on the CMS Web site on or before January 1. These amounts would be based on the carrier-specific amounts and NLA we had posted in September. Payment for the test would be made at the NLA on January 1. This determination would be final and not subject to further reconsideration. In addition, after the final test codes and payment amounts are effective on January 1, there is no reconsideration process that occurs after that date. Comment: One commenter suggested that CMS provide a rationale for either accepting or declining a reconsideration after it is received and for deciding whether to change a prior determination. Response: We do not plan to post a rationale for our decision to accept or decline a reconsideration request. This is consistent with our policy in other areas of the Medicare program when we make a decision about whether to reopen a previous decision. Comment: One commenter suggested that we should convene an expert advisory committee, broadly representative of the laboratory industry, to advise CMS on pricing along with standardizing the sources and quality of charge and cost data. Response: The purpose of the Clinical Laboratory public meeting is to convene industry experts and entertain comments, both orally and in writing, as well as any charge and cost data that is available from the industry. In fact, we specifically asked, via public notice, those in the clinical laboratory industry to provide charge and cost data related to the agenda items at the annual public meeting. We welcome any related information that industry representatives would like to provide via the public meeting forum and during the associated comment period. Comment: There were specific concerns raised by commenters regarding varying payment amounts set by carriers when the gapfilling basis is utilized to determine payment amounts for a new test code. These commenters recommended that we establish formal procedures for carriers or MACs to apply when establishing payment amounts, including a formal appeals process. The commenters stated the payment amounts should be calculated using information on the following factors, resources needed to perform the test, staff expertise, time needed to perform the test and the test's potential value. In addition, the commenters suggested we should publish the gapfill payment amounts determined by carriers or MACs and an explanation of the payment amounts. Response: Although we appreciate the comments on the establishment of payment amounts for new clinical laboratory test codes using the gapfill basis and the suggested improvements to the way we set rates, these comments are outside the scope of this rulemaking. In the CY 2008 PFS proposed rule, we proposed policies and requested comment regarding our proposed reconsideration process. We made no policy proposals with respect to the methodology our contractors use to establish gapfilled payment amounts. However, in the interest of transparency we will instruct carriers or MACs to provide a rationale for their final carrier-specific amounts, which we will post on our Web site. Comment: One commenter suggested that we should establish a temporary NLA based on the carrier-specific amounts posted on April 30 within the first year of the gapfill process. Response: We appreciate the commenter's suggestion; however, we are concerned that establishing a temporary NLA within a 3 month time period is not possible due to our substantial program requirements each year. Currently, clinical laboratory fee schedule payment rates are established on a calendar year basis. During the year preceding each January 1, an extensive multi-step process is in place in order to bring those payment rates to fruition. Currently, that process does not allow for additional ratesetting procedures. d. Jurisdiction for Reconsideration Decisions In the CY 2008 PFS proposed rule (72 FR 38163), we proposed that jurisdiction for reconsideration would rest exclusively with the Secretary. A decision whether to reconsider a determination would be committed to the discretion of the Secretary. Accordingly, a refusal to reconsider an initial determination would not be subject to administrative or judicial review. We recognize that parties dissatisfied with an initial determination as to the amount of payment for a particular claim for laboratory services may appeal the initial determination under part 405, subpart I of our regulations. Under our proposal, a party could challenge under part 405, subpart I a determination regarding the amount of payment for a new test-- regardless of whether the amount of payment was established as the result of a reconsideration--but a party could not challenge a decision not to reconsider. Comment: One commenter stated that comments should be allowed on the final payment determination amounts. Response: This comment appears to request an extension of the reconsideration process or a change in the jurisdiction as proposed in Sec. 414.509. The commenter did not provide additional information on the circumstances that would warrant an extension of the reconsideration process. Also, the comment did not specify the length of time for an extension or procedures for an extension or change of jurisdiction. We believe Sec. 414.506 through Sec. 414.509 permit adequate opportunities for public participation in the process of establishing a payment amount and requesting a reconsideration. More than 2 years can elapse if all steps of these reconsideration procedures are necessary for the establishment of the basis and payment for a new test code. We do not agree that revisions to Sec. 414.509(d) are warranted. 3. Technical Revisions We also proposed technical revisions to Sec. 414.502, Sec. 414.506, and Sec. 414.508. Under section 1833(h)(8)(A) of the Act, the term ``new tests'' is defined as any clinical diagnostic laboratory test for which a new or substantially revised HCPCS code is assigned on or after January 1, 2005. However, our regulations do not define the term ``new test.'' Therefore, we proposed to define the term ``new test'' under Sec. 414.502 using the statutory definition. In addition, under Sec. 414.506 and Sec. 414.508, we proposed to replace references to ``new clinical diagnostic laboratory test that is assigned a new or substantially revised code on or after January 1, 2005'' with references to ``new test.'' Response: We received one supportive comment on this subpart, [[Page 66280]] and we appreciate the positive input received on our technical revisions. Therefore, we are finalizing the technical revisions as proposed. H. Revisions Related to Payment for Renal Dialysis Services Furnished by End-Stage Renal Disease (ESRD) Facilities In the CY 2008 PFS proposed rule (72 FR 38163), we outlined the proposed updates to the case mix adjusted composite rate payment system established under section 1881(b)(12) of the Act, added by section 623 of the MMA. These included updates to the drug add-on component of the composite rate system, as well as the wage index values used to adjust the labor component of the composite rate. Specifically, we proposed the following provisions which are described in more detail below in this section. A growth update to the drug add-on adjustment to the composite rates for 2008 required by section 1881(b)(12)(F) of the Act. An update to the wage index adjustments to reflect the latest hospital wage data, including a reduction to the wage index floor and a revised budget neutrality adjustment to the wage index for 2008. We received approximately 7 comments on these proposed changes which are discussed in detail below in this section. 1. Growth Update to the Drug Add-On Adjustment to the Composite Rates Section 623(d) of the MMA added section 1881(b)(12)(B)(ii) of the Act which required the establishment of an add-on to the composite rate to account for changes in the drug payment methodology stemming from enactment of the MMA. Section 1881(b)(12)(C) of the Act provides that the drug add-on must reflect the difference in aggregate payments between the revised drug payment methodology for separately billable ESRD drugs and the AWP payment methodology. In 2005, we generally paid for ESRD drugs based on average acquisition costs. Thus the difference from AWP pricing was calculated using acquisition costs. However, in 2006 when we moved to ASP pricing for ESRD drugs, we recalculated the difference from AWP pricing using ASP prices. Comment: Two commenters supported our continued use of ASP+6 percent to pay for separately billable ESRD drugs. Response: Although these comments are outside the scope of the proposed rule, we appreciate the support of our previous decision to pay for separately billable ESRD drugs at ASP+6 percent. In addition, section 1881(b)(12)(F) of the Act requires that beginning in CY 2006, we establish an annual update to the drug add-on to reflect the estimated growth in expenditures for separately billable drugs and biologicals furnished by ESRD facilities. This growth update applies only to the drug add-on portion of the case-mix adjusted payment system. The CY 2007 drug add-on adjustment to the composite rate is 14.9 percent. The drug add-on adjustment for 2007 incorporates an inflation adjustment of 0.5 percent. This computation is explained in detail in the CY 2007 PFS final rule with comment period (71 FR 69682 through 69684). We note that the drug add-on adjustment of 15.1 percent that was published in the CY 2007 PFS final rule with comment period did not account for the 1.6 percent update to the composite rate portion of the basic case-mix adjustment payment system that was subsequently enacted by the MIEA-TRHCA, effective April 1, 2007. Since we compute the drug add-on adjustment as a percentage of the weighted average base composite rate, the drug add-on percentage was decreased to account for the higher composite payment rate resulting in a 14.9 percent add-on adjustment beginning April 1, 2007. This adjustment was necessary to ensure that the total drug add-on dollars remain constant. (a) Estimating Growth in Expenditures for Drugs and Biologicals for CY 2008 In the CY 2007 PFS final rule with comment period (71 FR 69682), we established a methodology for annually estimating the growth in ESRD drugs and biological expenditures that uses the Producer Price Index (PPI) for pharmaceuticals as a proxy for pricing growth in conjunction with 2 years of ESRD drug data to estimate per patient utilization growth. For CY 2008, we proposed to continue using this methodology to update the drug add-on adjustment, using expenditure data from CY 2005 and CY 2006 to estimate the growth in per patient utilization of drugs. However, we also proposed using only drug expenditure data from independent ESRD facilities because we were unable to determine utilization change in hospital-based dialysis facilities due to the changes in payment methodology for these types of dialysis facilities from CY 2005 to CY 2006. In 2005, payments to hospital-based facilities were based on cost (or a percentage of charges), whereas payments to those facilities in 2006 were based on ASP pricing. Because of the cost payment methodology, the ``drug unit'' fields on the 2005 hospital- based ESRD facility bills were not used for payment purposes, and therefore, the data may not have been accurately reported on those bills. As such, we were unable to accurately isolate the per unit payment differential for hospital-based ESRD facility drug expenditures between 2005 (cost payments) and 2006 (ASP payments) for purposes of estimating the residual utilization change between years. We proposed imputing the same utilization growth for hospital-based ESRD facilities as estimated for independent ESRD facilities. Comment: One comment urged us to reevaluate the data and methodology used to estimate utilization changes. The comment was specifically concerned about the timeliness of the data and that the exclusion of hospital-based drug data may significantly skew the accuracy of the utilization growth calculation. However, the comment did not suggest an alternative methodology. Response: The data from CY 2005 and CY 2006 represent the most up to date and latest full years of data available. Contrary to the commenter's suggestion, as we indicated in the CY 2008 PFS proposed rule, including hospital-based data in the computation would have resulted in a negative utilization growth. Therefore, we opted to exclude those data to avoid penalizing ESRD facilities because of the problems with the hospital-based ESRD facility drug data. We believe our approach provides the most reasonable result given the available data. Comment: One comment suggested that we adopt an index that would account for both price and utilization such as the National Health Expenditures (NHE) index. This would avoid the data issues associated with estimating utilization growth. Response: We do not believe that the NHE projections would be the best proxy for growth in ESRD drug expenditures. The NHE projections are based on the economic, demographic and Medicare spending projections contained in the Medicare Trustees Report as opposed to an independent forecast of economic assumptions, such as the Global Insights projections of the PPI for prescription drugs that are used in our Medicare market basket forecasts to update many of our payment systems. The NHE projection modeling approach is at an aggregate level and does not capture the nuances of both labor and economic markets as accurately as does the specific PPI forecast. We believe that, despite some of the limitations in the data, estimating utilization growth [[Page 66281]] from reported ESRD claims data provides the most accurate measure of actual ESRD facility drug utilization. Comment: One comment suggested that the PPI may not result in an accurate assessment of prices for ESRD drugs and that there are other available indices that would provide more accurate data on ESRD drugs. In addition, they stated that should we choose to move forward with the PPI, the most up to date PPI forecast should be used. Response: We do not know of any better price index than the PPI for measuring price growth for ESRD drugs. However, we welcome any suggestion the industry may have on an alternative price index suitable for measuring price growth of ESRD drugs. Global Insight, Inc. is a nationally recognized economic and financial forecasting firm that contracts with CMS to forecast the components of our market baskets. The current projection of the PPI for prescription drugs is based on the 2007 second quarter forecast using historical data through the first quarter of 2007, the most current data available at this time. Comment: One comment recommended that a mechanism be established to provide for a forecasting error adjustment of prior estimates. Response: While we appreciate the concern related to the accuracy of an update based on proxy measures for price and the proposed utilization computations, the very nature of estimating future expenditures under a prospective payment system requires that those estimates are based on the best historical data available. As such, we believe we have met our obligation under the statute in estimating growth in ESRD drug expenditures for CY 2008. Moreover, forecast error adjustments are rarely made in our prospective payment systems. (b) Estimating Growth in Per Patient Drug Utilization To isolate and project the growth in per patient utilization of ESRD drugs for CY 2008, we removed the enrollment and price growth components from the historical data and considered the residual to be utilization growth. As discussed previously, we proposed to use independent ESRD facility drug expenditure data from CY 2005 and CY 2006 to estimate per patient utilization growth for CY 2008. We first estimated total drug expenditures. For the CY 2008 PFS proposed rule (72 FR 38165), we used the final CY 2005 ESRD facility claims data and the latest available CY 2006 ESRD facility claims data, updated through December 31, 2006. That is, for CY 2006 we used claims that were received, processed, paid, and passed to the National Claims History File as of December 31, 2006. For this final rule with comment period, we are using more updated CY 2006 claims with dates of service for the same time period. This updated CY 2006 data file includes all claims that were received, processed, paid, and passed to the National Claims History File as of June 30, 2007 for CY 2006. For the CY 2008 PFS proposed rule, we adjusted the December 2006 file to reflect our estimate of what total drug expenditures would be using the final June 30, 2007 bill file for CY 2006. The net adjustment we applied to the CY 2006 claims data was an increase of 12 percent to the December 2006 claims file. For this final rule with comment period, we are using the CY 2006 claims file as of June 30, 2007, which represents the final claims file for that year. To calculate the proposed per patient utilization growth, we removed the enrollment component by using the growth in enrollment data between 2005 and 2006. This was approximately 3 percent. To remove the price effect, we calculated the weighted difference between 2005 average acquisition price (AAP) and 2006 ASP pricing for the original top ten drugs for which we had average acquisition prices. We weighted the differences by the 2006 independent ESRD facility drug expenditure data. This process led to an overall 3 percent reduction in price between 2005 and 2006 (72 FR 38165 through 38166). After removing the enrollment and price effects from the expenditure data, the residual growth would reflect the per patient utilization growth. To do this, we divided the product of the enrollment growth of 3 percent (1.03) and the price reduction of 3 percent (1.00 - 0.03 = 0.97) into the total drug expenditure change between 2005 and 2006 of -0.2 percent (1.00 -0.00 = 1.00). The result is a proposed utilization growth factor equal to 1.00 (1.00/1.03 * 0.97) = 1.00. Since we observed no growth in per patient utilization of drugs between 2005 and 2006, we proposed no projected growth in per patient utilization for all ESRD facilities for CY 2008. c. Applying the Proposed Growth Update to the Drug Add-On Adjustment In the CY 2007 PFS final rule with comment period (71 FR 69684), we revised our update methodology by applying the growth update to the per treatment drug add-on amount. That is, for CY 2007, we applied the growth update factor of 4.03 percent to the $18.88 per treatment drug add-on amount for an updated amount of $19.64 per treatment. For CY 2008, we proposed to update the per treatment drug add-on amount of $19.64 established in CY 2007 by converting the update into an adjustment factor as specified in section 1881(b)(12)(F) of the Act. (i) Update to the Drug Add-On Adjustment In the CY 2008 PFS proposed rule (72 FR 38166), we estimated no growth in per patient utilization of ESRD drugs for CY 2008. Using the projected growth of the CY 2008 PPI for prescription drugs of 3.66 percent, we projected that the combined growth in per patient utilization and pricing for CY 2008 would result in an update equal to the PPI growth, or 3.66 percent (1.0 * 1.0366 = 1.0366). This proposed update factor was applied to the CY 2007 per treatment drug add-on amount of $19.64 (reflecting a 14.9 percent adjustment in CY 2007), resulting in a proposed weighted average increase to the composite rate of $0.72 for CY 2008 or a 0.5 percent increase in the drug add-on percentage. Thus, the total proposed drug add-on adjustment to the composite rate for CY 2008, including the growth update was 15.5 percent (1.149 * 1.005 = 1.155). In addition, we proposed to continue to use this method to estimate the growth update to the drug add-on component of the case mix adjusted payment system until we have at least 3 years worth of ASP-based historical drug expenditure data that could be used to conduct a trend analysis to estimate the growth in drug expenditures. Given the time lag in the availability of ASP drug expenditure data, we expect that the earliest we could consider using trend analysis to update the drug add-on adjustment would be 2010. We intend to reevaluate our methodology for estimating the growth update at that time. Comment: One comment suggested that we should work with the kidney care community as we consider a CY 2010 transition to trend analysis using ASP-based historical data. The comment expressed concern that using actual historical ESRD drug expenditure data reflecting ASP pricing could adversely affect ESRD facilities due to changes in ASP pricing for EPO and Procrit. Response: Once we begin using trend analysis to update the drug add-on adjustment, we will provide details of that methodology in future rulemaking. [[Page 66282]] (ii) Final Growth Update to the Drug Add-On Adjustment for 2008 Similar to the proposed rule, we estimated no growth in per patient utilization of ESRD drugs for CY 2008. To remove the price effect, we used 2006 weights for each of the top ten ESRD drugs billed by independent ESRD facilities. These weights are shown in Table 6. Table 6.--CY 2006 Drug Weights for Independent Facilities ------------------------------------------------------------------------ 2006 Independent drugs weights (percent) ------------------------------------------------------------------------ EPO........................................................ 75.2 Paricalcitol............................................... 11.6 Sodium--ferric--glut....................................... 2.9 Iron--sucrose.............................................. 5.7 Levocarnitine.............................................. 0.3 Doxercalciferol............................................ 3.1 Calcitriol................................................. 0.1 Iron--dextran.............................................. 0.0 Vancomycin................................................. 0.1 Alteplase.................................................. 0.9 ------------------------------------------------------------------------ We removed the enrollment and price effects from the independent ESRD facility expenditure data to determine the per patient utilization growth. To do this we divided the product of the enrollment growth of 3 percent (1.03) and the price reduction of 3 percent (1.00-0.03 = 0.97) into the total drug expenditure change between 2005 and 2006 of -0.1 percent (1.00-0.00 = 1.00). The result is a utilization growth factor equal to 1.00 (1.00/1.03 * 0.97) = 1.00. Using the latest projected growth of the CY 2008 PPI for prescription drugs of 3.5 percent, we project that the combined growth in per patient utilization and pricing of ESRD drugs for CY 2008 would result in an update equal to the PPI growth or 3.5 percent (1.00 * 1.035 = 1.035). This update factor was applied to the CY 2007 average per treatment drug add-on amount of $19.64 (reflecting a 14.9 percent adjustment for CY 2007), resulting in a weighted average increase to the composite rate of $0.69 for CY 2008 or a 0.5 percent increase in the drug add-on percentage for CY 2008. Thus, the total drug add-on adjustment to the composite rate for CY 2008, including the growth update is 15.5 percent (1.149 * 1.005 = 1.155). 2. Update to the Geographic Adjustment to the Composite Rates Section 1881(b)(12)(D) of the Act, as added by section 623(d) of the MMA, gives the Secretary the authority to revise the wage indexes previously applied to the ESRD composite rates. The wage index values are calculated for each urban and rural area. The purpose of the wage index is to adjust the composite rates for differing wage levels covering the areas in which ESRD facilities are located. (a) Updates to Core-Based Statistical Area (CBSA) Definitions In the CY 2008 PFS proposed rule (72 FR 38166), we clarified that this and all subsequent ESRD rules and notices are considered to incorporate the CBSA changes published in the most recent OMB bulletin that applies to the hospital wage data used to determine the current ESRD wage index. The OMB bulletins may be accessed online at http://www.whitehouse.gov/omb/bulletins/index.html . (b) Updated Wage Index Values In the CY 2006 PFS final rule with comment period (70 FR 70167), we described that methodology for calculating the CY 2006 wage index values and stated that we intend to update the ESRD wage index values annually. Current wage index values for CY 2007 were developed from FY 2003 wage and employment data obtained from the Medicare hospital cost reports. The ESRD wage index values are calculated without regard to geographic reclassifications authorized under sections 1886(d)(8) and (d)(10) of the Act and utilize pre-floor hospital data that is unadjusted for occupational mix. We proposed to use the same methodology for CY 2008 (72 FR 38167), with the exception that FY 2004 hospital data will be used to develop the CY 2008 ESRD wage index values. For a detailed description of the development of the CY 2008 wage index values based on FY 2004 hospital data, see the FY 2008 IPPS final rule entitled ``Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates'' (72 FR 47320). Section G of the preamble to that final rule describes the cost report schedules, line items, data elements, adjustments, and wage index computations. The wage index data affecting ESRD composite rates for each urban and rural locale may also be accessed on the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The wage data are located in the section entitled ``FY 2008 Final Rule Occupational Mix Adjusted and Unadjusted Average Hourly Wage and Pre-Reclassified Wage Index by CBSA.'' Comment: One commenter expressed concern in regard to our use of acute care hospital wage data in the calculation of the wage index stating that the cost for hospital based facilities and ambulatory centers varies greatly. The commenter urged us to locate an alternative data source that reflects information directly tied to ESRD facilities. Response: At the present time, data that is specific to independent dialysis facilities is not available upon which to base the wage index. As described in the CY 2007 PFS final rule with comment period (71 FR 69685), given the similarity of the labor market for professional, technical, and nursing staff between hospitals and ESRD facilities, we believe our use of hospital wage and employment data obtained from the Medicare cost reports to develop the ESRD wage index is appropriate. In addition, several of our major prospective payment systems (PPS) utilize the same wage index (for example, Skilled Nursing Home PPS, Inpatient Psychiatric Facility PPS, Inpatient Rehabilitation Facility PPS, Home Health PPS, and Hospice PPS.) (i) Third Year of the Transition In the CY 2006 PFS final rule with comment period (70 FR 70169), we indicated that we would apply a 4-year transition period to mitigate the impact on composite rates resulting from our adoption of CBSA-based geographic designations. Beginning January 1, 2006, during each year of the transition, an ESRD facility's wage-adjusted composite rate (that is, without regard to any case-mix adjustments) will be a blend of its old MSA-based wage-adjusted payment rate and its new CBSA-based wage- adjusted payment rate for the transition year involved. In addition, beginning in CY 2006 we provided a gradual reduction in the wage index floor. We indicated that we would reassess the need for a wage index floor for CY 2008. In the CY 2008 PFS proposed rule (72 FR 38167), we proposed a further reduction in the wage index floor. For each transition year, the share of the blended wage-adjusted base payment rate that is derived from the MSA-based and CBSA-based wage index values and the applicable wage index floor is as follows: In CY 2006, the first year of the transition, we implemented a 75/25 blend. The wage index floor was reduced from 0.9000 to 0.8500. In CY 2007, the second year of the transition, we implemented a 50/50 blend. The wage index floor was reduced from 0.8500 to 0.8000. For CY 2008, consistent with the transition blends announced in the CY 2006 PFS final rule with comment period (70 FR 70170), we are implementing a 25/75 blend between an ESRD facility's MSA based composite [[Page 66283]] rate, and its CY 2008 CBSA-based rate reflecting its revised wage index values. In addition, we proposed to continue the wage index floor, but to further reduce it from 0.8000 to 0.7500. An example of how the wage-adjusted composite rates would be blended during CY 2008 and the additional subsequent transition year follows. Example: An ESRD facility has a wage-adjusted composite rate (without regard to any case-mix adjustments) of $135.00 per treatment in CY 2007. Using CBSA-based geographic area designations, the facility's CY 2008 wage-adjusted composite rate, reflecting its wage index value would be $145.00. During the remaining 2 years of the 4- year transition period to the new CBSA-based wage index values, this facility's blended rate through 2009 would be calculated as follows: CY 2008 = 0.25 x $135.00 + 0.75 x $145.00 = $142.50 CY 2009 = 0 x $135.00 + 1.0 x $145.00 = $145.00 We note that this hypothetical example assumes that the calculated wage-adjusted composite rate of $145.00 for CY 2008 does not change in CY 2009. In actuality, the wage-adjusted composite rate for CY 2009 would change because of annual revisions to the wage index. However, the example serves only to demonstrate the effect on the composite rate of the CBSA-based wage index values which will be phased in during the remaining 2 years of the transition period. As noted above in this section, the 4-year transition period will expire and in CY 2009 and forward, we will be using CBSA-based wage index values. Comment: Several commenters expressed concern in regard to our proposal to decrease the wage index floor from 0.80 to 0.75. In addition, one commenter indicated that a defunct licensing board in Puerto Rico has inhibited licensing of dialysis technicians for a long period of time. As a result, registered nurses are the only group of licensed professional qualified to furnish dialysis within this area. In addition, a commenter believes that decreasing the floor will make it difficult to recruit and retain qual