Medicare Program; Proposed Changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2006 Payment Rates, 42674-43011 [05-14448]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 70, Number 141 (Monday, July 25, 2005)]
[Proposed Rules]
[Pages 42674-43011]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-14448]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 419 and 485



Medicare Program; Proposed Changes to the Hospital Outpatient 
Prospective Payment System and Calendar Year 2006 Payment Rates; 
Proposed Rule

Federal Register / Vol. 70, No. 141 / Monday, July 25, 2005 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 419 and 485

[CMS-1501-P]
RIN 0938-AN46


Medicare Program; Proposed Changes to the Hospital Outpatient 
Prospective Payment System and Calendar Year 2006 Payment Rates

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the Medicare hospital 
outpatient prospective payment system to implement applicable statutory 
requirements and changes arising from our continuing experience with 
this system and to implement certain related provisions of the Medicare 
Prescription Drug, Improvement, and Modernization Act (MMA) of 2003. In 
addition, the proposed rule describes proposed changes to the amounts 
and factors used to determine the payment rates for Medicare hospital 
outpatient services paid under the prospective payment system. This 
proposed rule would also change the requirement for physician oversight 
of mid-level practitioners in critical access hospitals (CAHs). These 
changes would be applicable to services furnished on or after January 
1, 2006.

DATES: To be ensured consideration, comments must be received at one of 
the addresses provided in the ADDRESSES section, no later than 5 p.m. 
on September 16, 2005.

ADDRESSES: In commenting, please refer to file code CMS-1501-P. 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 proposed rule to https://www.cms.hhs.gov/regulations/
ecomments. (Attachments should be in Microsoft Word, WordPerfect, or 
Excel; however, we prefer Microsoft Word).
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1501-P, P.O. Box 8016, Baltimore, MD 21244-8018.
    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-1501-P, 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) 786-7195 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201, or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.

(Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal Government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A 
stamp-in clock is available for persons wishing to retain 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: For comments that 
relate to information collection requirements, mail a copy of comments 
to the following addresses: Centers for Medicare & Medicaid Services, 
Office of Strategic Operations and Regulatory Affairs, Security and 
Standards Group, Office of Issuances, Room C4-24-02, 7500 Security 
Boulevard, Baltimore, MD 21244-1850, Attn: James Wickliffe, CMS-1501-P; 
and, Office of Information and Regulatory Affairs, Office of Management 
and Budget, Room 3001, New Executive Office Building, Washington, DC 
20503, Christopher Martin, CMS Desk Officer, CMS-1501-P.
    Comments submitted to OMB may also be e-mailed to the following 
address: Christopher--Martin@omb.eop.gov, or faxed to OMB at (202) 395-
6974.
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-1501-P 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. CMS posts all electronic 
comments received before the close of the comment period on its public 
Web site as soon as possible after they have been received. Hard copy 
comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, at the headquarters of the Centers for 
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 
21244-1850, 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.

FOR FURTHER INFORMATION, CONTACT: Rebecca Kane, (410) 786-0378, 
Outpatient prospective payment issues, and Suzanne Asplen, (410) 786-
4558, Partial hospitalization and community mental health center 
issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

    This Federal Register document is available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office. The Web site address is: https://
www.gpoaccess.gov/fr/.

Alphabetical List of Acronyms Appearing in the Proposed Rule

ACEP American College of Emergency Physicians
AHA American Hospital Association
AHIMA American Health Information Management Association
AMA American Medical Association
APC Ambulatory payment classification
AMP Average manufacturer price
ASP Average sales price
ASC Ambulatory surgical center
AWP Average wholesale price
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000, Pub. L. 106-554
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Pub. L. 106-113
CAH Critical access hospital
CBSA Core-Based Statistical Areas
CCR (Cost center specific) cost-to-charge ratio
CMHC Community mental health center

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CMS Centers for Medicare & Medicaid Services (formerly known as the 
Health Care Financing Administration)
CORF Comprehensive outpatient rehabilitation facility
CPT [Physicians'] Current Procedural Terminology, Fourth Edition, 2005, 
copyrighted by the American Medical Association
CRNA Certified registered nurse anesthetist
CY Calendar year
DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies
DMERC Durable medical equipment regional carrier
DRG Diagnosis-related group
DSH Disproportionate share hospital
EACH Essential Access Community Hospital
E/M Evaluation and management
EPO Erythropoietin
ESRD End-stage renal disease
FACA Federal Advisory Committee Act, Pub. L. 92-463
FDA Food and Drug Administration
FI Fiscal intermediary
FSS Federal Supply Schedule
FY Federal fiscal year
GAO Government Accountability Office
HCPCS Healthcare Common Procedure Coding System
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act of 1996, Pub. 
L. 104-191
ICD-9-CM International Classification of Diseases, Ninth Edition, 
Clinical Modification
IME Indirect medical education
IPPS (Hospital) inpatient prospective payment system
IVIG Intravenous immune globulin
LTC Long-term care
MedPAC Medicare Payment Advisory Commission
MDH Medicare-dependent hospital
MMA Medicare Prescription Drug, Improvement, and Modernization Act of 
2003, Pub. L. 108-173
MSA Metropolitan Statistical Area
NCCI National Correct Coding Initiative
NCD National Coverage Determination
OCE Outpatient code editor
OMB Office of Management and Budget
OPD (Hospital) outpatient department
OPPS (Hospital) outpatient prospective payment system
PHP Partial hospitalization program
PM Program memorandum
PPI Producer Price Index
PPS Prospective payment system
PPV Pneumococcal pneumonia (virus)
PRA Paperwork Reduction Act
QIO Quality Improvement Organization
RFA Regulatory Flexibility Act
RRC Rural referral center
SBA Small Business Administration
SCH Sole community hospital
SDP Single drug pricer
SI Status indicator
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248
TOPS Transitional outpatient payments
USPDI United States Pharmacopoeia Drug Information

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

Outline of Contents

I. Background
    A. Legislative and Regulatory Authority for the Hospital 
Outpatient Prospective Payment System
    B. Excluded OPPS Services and Hospitals
    C. Prior Rulemaking
    D. APC Advisory Panel
    1. Authority for the APC Panel
    2. Establishment of the APC Panel
    3. APC Panel Meetings and Organizational Structure
    E. Provisions of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 To Be Implemented Beginning in CY 2006
    1. Hold Harmless Provisions
    2. Study and Authorization of Adjustment for Rural Hospitals
    3. Payment for ``Specified Covered Outpatient Drugs''
    4. Adjustment in Payment Rates for ``Specified Covered 
Outpatient Drugs'' for Overhead Costs
    5. Budget Neutrality Adjustment
    F. CMS' Commitment to New Technologies
    G. Summary of the Major Content of This Proposed Rule
II. Proposed Updates Affecting Payments for CY 2006
    A. Recalibration of APC Relative Weights for CY 2006
    1. Database Construction
    a. Database Source and Methodology
    b. Proposed Use of Single and Multiple Procedure Claims
    2. Proposed Calculation of Median Costs for CY 2006
    3. Proposed Calculation of Scaled OPPS Payment Weights
    4. Proposed Changes to Packaged Services
    B. Proposed Payment for Partial Hospitalization
    1. Background
    2. Proposed PHP APC Update for CY 2006
    3. Proposed Separate Threshold for Outlier Payments to CMHCs
    C. Proposed Conversion Factor Update for CY 2006
    D. Proposed Wage Index Changes for CY 2006
    E. Proposed Statewide Average Default Cost-to-Charge Ratios
    F. Expiring Hold Harmless Provision for Transitional Corridor 
Payments for certain Rural Hospitals
    G. Proposed Adjustment for Rural Hospitals
    1. Factors Contributing to Unit Cost Differences Between Rural 
Hospitals and Urban Hospitals
    2. Explanatory Variables
    3. Results
    H. Proposed Hospital Outpatient Outlier Payments
    I. Calculation of Proposed National Unadjusted Medicare Payment
    J. Proposed Beneficiary Copayments for CY 2006
    1. Background
    2. Proposed Copayment for CY 2006
    3. Calculation of the Proposed Unadjusted Copayment Amount for 
CY 2006
III. Proposed Ambulatory Payment Classification (APC) Group Policies
    A. Background
    B. Proposed Changes--Variations Within APCs
    1. Application of the 2 Times Rule
    a. APC 0146: Level I Sigmoidoscopy
    b. APC 0342: Level I Pathology
    2. Proposed Exceptions to the 2 Times Rule
    C. New Technology APCs
    1. Background
    2. Proposed Refinement of New Technology Cost Bands
    3. Proposed Requirements for Assigning Services to New 
Technology APCs
    4. Proposed Movement of Procedures from New Technology APCs to 
Clinically Appropriate APCs
    a. Proton Beam Therapy
    b. Stereotactic Radiosurgery
    c. Other Services in New Technology APCs
    D. Proposed APC-Specific Policies
    1. Hyperbaric Oxygen Therapy
    2. Allergy Testing
    3. Stretta Procedure
    4. Vascular Access Procedures
    E. Proposed Addition of New Procedure Codes
IV. Proposed Payment Changes for Devices
    A. Device-Dependent APCs
    B. APC Panel Recommendations Pertaining to APC 0107 and APC 0108
    C. Pass-Through Payments for Devices
    1. Expiration of Transitional Pass-Through Payments for Certain 
Devices
    2. Proposed Policy for CY 2006
    D. Other Policy Issues Relating to Pass-Through Device 
Categories
    1. Provisions for Reducing Transitional Pass-Through Payments to 
Offset Costs Packaged into APC Groups
    a. Background
    b. Proposed Policy for CY 2006
    2. Criteria for Establishing New Pass-Through Device Categories
    a. Surgical Insertion and Implantation Criterion
    b. Public Comments Received and Our Responses
    c. Existing Device Category Criterion
V. Proposed Payment Changes for Drugs, Biologicals, and 
Radiopharmaceutical Agents
    A. Transitional Pass-Through Payment for Additional Costs of 
Drugs and Biologicals

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    1. Background
    2. Expiration in CY 2005 of Pass-Through Status for Drugs and 
Biologicals
    3. Drugs and Biologicals with Proposed Pass-Through Status in CY 
2006
    B. Proposed Payment for Drugs, Biologicals, and 
Radiopharmaceuticals Without Pass-Through Status
    1. Background
    2. Proposed Criteria for Packaging Payment for Drugs, 
Biologicals, and Radiopharmaceuticals
    3. Proposed Payment for Drugs, Biologicals, and 
Radiopharmaceuticals Without Pass-Through Status That Are Not 
Packaged
    a. Proposed Payment for Specified Covered Outpatient Drugs
    (1) Background
    (2) Proposed Changes for CY 2006 Related to Pub. L. 108-173
    (3) Data Sources Available for Setting CY 2006 Payment Rates
    (4) CY 2006 Proposed Payment Policy for Radiopharmaceutical 
Agents
    (5) MedPAC Report on APC Payment Rate Adjustment of Specified 
Covered Outpatient Drugs
    b. Proposed CY 2006 Payment for Nonpass-Through Drugs, 
Biologicals, and Radiopharmaceuticals with HCPCS Codes But Without 
OPPS Hospital Claims Data
    C. Proposed Coding and Billing Changes for Specified Covered 
Outpatient Drugs
    1. Background
    2. Proposed Policy for CY 2006
    D. Proposed Payment for New Drugs, Biologicals, and 
Radiopharmaceuticals Before HCPCS Codes Are Assigned
    1. Background
    2. Proposed Policy for CY 2006
    E. Proposed Payment for Vaccines
    F. Proposed Changes in Payments for Single Indication Orphan 
Drugs
VI. Estimate of Transitional Pass-Through Spending in CY 2006 for 
Drugs, Biologicals, and Devices
    A. Total Allowed Pass-Through Spending
    B. Estimate of Pass-Through Spending for CY 2006
VII. Proposed Brachytherapy Payment Changes
    A. Background
    B. Proposed Changes Related to Pub. L. 108-173
VIII. Proposed Coding and Payment for Drug Administration
    A. Background
    B. Proposed Changes for CY 2006
    C. Proposed Changes to Vaccine Administration
IX. Hospital Coding for Evaluation and Management (E/M) Services
X. Proposed Payment for Blood and Blood Products
    A. Background
    B. Proposed Changes for CY 2006
XI. Proposed Payment for Observation Services
    A. Background
    B. Proposed CY 2006 Coding Changes for Observation Services
    C. Proposed Criteria for Separately Payable Observation Services
    1. Diagnosis Requirements
    2. Observation Time
    3. Additional Hospital Services
    4. Physician Evaluation
    D. Separate Payment for Direct Admission to Observation Care 
(APC 0600)
XII. Procedures That Will Be Paid Only as Inpatient Procedures
    A. Background
    B. Proposed Changes to the Inpatient List
    C. Ancillary Outpatient Services When Patient Expires
XIII. Proposed Indicator Assignments
    A. Proposed Status Indicator Assignments
    B. Proposed Comment Indicators for the CY 2006 OPPS Final Rule
XIV. Proposed Nonrecurring Policy Changes
    A. Proposed Payment for Multiple Diagnostic Imaging Procedures
    B. Interrupted Procedure Payment Policies (Modifiers -52, -73, 
and -74)
XV. OPPS Policy and Payment Recommendations
    A. MedPAC Recommendations
    B. APC Panel Recommendations
    C. GAO Recommendations
XVI. Physician Oversight of Mid-Level Practitioners in Critical 
Access Hospitals
    A. Background
    B. Proposed Policy Change
XVII. Files Available to the Public via the Internet
XVIII. Collection of Information Requirements
XIX. Response to Public Comments
XX. Regulatory Impact Analysis
    A. OPPS: General
    1. Executive Order 12866
    2. Regulatory Flexibility Act (RFA)
    3. Small Rural Hospitals
    4. Unfunded Mandates
    5. Federalism
    B. Impact of Proposed Changes in this Proposed Rule
    C. Alternatives Considered
    1. Option Considered for Proposed Payment Policy for Separately 
Payable Drugs and Biologicals
    2. Payment Adjustment for Rural Sole Community Hospitals
    3. Change in the Percentage of Total OPPS Payments Dedicated to 
Outlier Payments
    D. Limitations of Our Analysis
    E. Estimated Impacts of this Proposed Rule on Hospitals
    F. Estimated Impacts of this Proposed Rule on Beneficiaries

Regulation Text

Addenda

Addendum A--List of Ambulatory Payment Classification (APCs) with 
Status Indicators, Relative Weights, Payment Rates, and Copayment 
Amounts for CY 2006
Addendum B--Payment Status by HCPCS Code and Related Information--CY 
2006
Addendum C--Healthcare Common Procedure Coding System (HCPCS) Codes 
by Ambulatory Payment Classification (APC) (Available only on CMS 
Web site via Internet. Refer to section XVII. of the preamble of 
this proposed rule.)
Addendum D1--Payment Status Indicators for the Hospital Outpatient 
Prospective Payment System
Addendum D2--Comment Indicators
Addendum E--CPT Codes That Are Paid Only as Inpatient Procedures
Addendum H--Wage Index for Urban Areas
Addendum I--Wage Index for Rural Areas
Addendum J--Wage Index for Hospitals That Are Reclassified
Addendum K--Puerto Rico Wage Index by CBSA
Addendum L--Out-Migration Wage Adjustment--CY 2006
Addendum M--Hospital Reclassifications and Redesignations by 
Individual Hospitals and CBSA
Addendum N--Hospital Reclassifications and Redesignations by 
Individual Hospitals under Section 508 of Pub. L. 108-173
Addendum O--Hospitals Redesignated as Rural Under Section 
1886(d)(8)(E) of the Act

I. Background

A. Legislative and Regulatory Authority for the Hospital Outpatient 
Prospective Payment System

    When the Medicare statute was originally enacted, Medicare payment 
for hospital outpatient services was based on hospital-specific costs. 
In an effort to ensure that Medicare and its beneficiaries pay 
appropriately for services and to encourage more efficient delivery of 
care, the Congress mandated replacement of the reasonable cost-based 
payment methodology with a prospective payment system (PPS). The 
Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 
5, 1997, added section 1833(t) to the Social Security Act (the Act) 
authorizing implementation of a PPS for hospital outpatient services. 
The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (BBRA) (Pub. L. 106-113), enacted on November 29, 1999, made major 
changes that affected the hospital outpatient PPS (OPPS). The Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554), enacted on December 21, 2000, made further 
changes in the OPPS. Section 1833(t) of the Act was also amended by the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA), Pub. L. 108-173, enacted on December 8, 2003. (Discussion of 
provisions related specifically to the CY 2006 OPPS is included in 
sections V. and VII. of this proposed rule.) The OPPS was first 
implemented for services furnished on or after August 1, 2000. 
Implementing regulations for the OPPS are located at 42 CFR part 419.
    Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the ambulatory payment 
classification (APC) group to which the service is

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assigned. We use Healthcare Common Procedure Coding System (HCPCS) 
codes (which include certain Current Procedural Terminology (CPT) 
codes) and descriptors to identify and group the services within each 
APC group. The OPPS includes payment for most hospital outpatient 
services, except those identified in section I.B. of this proposed 
rule. Section 1833(t)(1)(B)(ii) of the Act provides for Medicare 
payment under the OPPS for certain services designated by the Secretary 
that are furnished to inpatients who have exhausted their Part A 
benefits or who are otherwise not in a covered Part A stay. Section 611 
of Pub. L. 108-173 provided for Medicare coverage of an initial 
preventive physical examination, subject to the applicable deductible 
and coinsurance, as an outpatient department service, payable under the 
OPPS. In addition, the OPPS includes payment for partial 
hospitalization services furnished by community mental health centers 
(CMHCs).
    The OPPS rate is an unadjusted national payment amount that 
includes the Medicare payment and the beneficiary copayment. This rate 
is divided into a labor-related amount and a nonlabor-related amount. 
The labor-related amount is adjusted for area wage differences using 
the inpatient hospital wage index value for the locality in which the 
hospital or CMHC is located.
    All services and items within an APC group are comparable 
clinically and with respect to resource use (section 1833(t)(2)(B) of 
the Act). In accordance with section 1833(t)(2) of the Act, subject to 
certain exceptions, services and items within an APC group cannot be 
considered comparable with respect to the use of resources if the 
highest median (or mean cost, if elected by the Secretary) for an item 
or service in the APC group is more than 2 times greater than the 
lowest median cost for an item or service within the same APC group 
(referred to as the ``2 times rule''). In implementing this provision, 
we use the median cost of the item or service assigned to an APC group.
    Special payments under the OPPS may be made for new technology 
items and services in one of two ways. Section 1833(t)(6) of the Act 
provides for temporary additional payments or ``transitional pass-
through payments'' for certain drugs, biological agents, brachytherapy 
devices used for the treatment of cancer, and categories of medical 
devices for at least 2 but not more than 3 years. For new technology 
services that are not eligible for pass-through payments and for which 
we lack sufficient data to appropriately assign them to a clinical APC 
group, we have established special APC groups based on costs, which we 
refer to as ``APC cost bands.'' These cost bands allow us to price 
these new procedures more appropriately and consistently. Similar to 
pass-through payments, these special payments for new technology 
services are also temporary; that is, we retain a service within a new 
technology APC group until we acquire adequate data to assign it to a 
clinically appropriate APC group.

B. Excluded OPPS Services and Hospitals

    Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to 
designate the hospital outpatient services that are paid under the 
OPPS. While most hospital outpatient services are payable under the 
OPPS, section 1833(t)(1)(B)(iv) of the Act excluded payment for 
ambulance, physical and occupational therapy, and speech-language 
pathology services, for which payment is made under a fee schedule. 
Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the 
Act to exclude OPPS payment for screening and diagnostic mammography 
services. The Secretary exercised the broad authority granted under the 
statute to exclude from the OPPS those services that are paid under fee 
schedules or other payment systems. Such excluded services include, for 
example, the professional services of physicians and nonphysician 
practitioners paid under the Medicare Physician Fee Schedule (MPFS); 
laboratory services paid under the clinical diagnostic laboratory fee 
schedule; services for beneficiaries with end-stage renal disease 
(ESRD) that are paid under the ESRD composite rate; and services and 
procedures that require an inpatient stay that are paid under the 
hospital inpatient prospective payment system (IPPS). We set forth the 
services that are excluded from payment under the OPPS in Sec.  419.22 
of the regulations.
    Under Sec.  419.20 of the regulations, we specify the types of 
hospitals and entities that are excluded from payment under the OPPS. 
These excluded entities include Maryland hospitals, but only for 
services that are paid under a cost containment waiver in accordance 
with section 1814(b)(3) of the Act; critical access hospitals (CAHs); 
hospitals located outside of the 50 States, the District of Columbia, 
and Puerto Rico; and Indian Health Service hospitals.

C. Prior Rulemaking

    On April 7, 2000, we published in the Federal Register a final rule 
with comment period (65 FR 18434) to implement a prospective payment 
system for hospital outpatient services. The hospital OPPS was first 
implemented for services furnished on or after August 1, 2000. Section 
1833(t)(9) of the Act requires the Secretary to review certain 
components of the OPPS not less often than annually and to revise the 
groups, relative payment weights, and other adjustments to take into 
account changes in medical practice, changes in technology, and the 
addition of new services, new cost data, and other relevant information 
and factors. Since implementing the OPPS, we have published final rules 
in the Federal Register annually to implement statutory requirements 
and changes arising from our experience with this system. For a full 
discussion of the changes to the OPPS, we refer readers to these 
Federal Register final rules.\1\
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    \1\ Interim final rule with comment period, August 3, 2000 (65 
FR 47670); interim final rule with comment period, November 13, 2000 
(65 FR 67798); final rule and interim final rule with comment 
period, November 2, 2001 (66 FR 55850 and 55857); final rule, 
November 30, 2001 (66 FR 59856); final rule, December 31, 2001 (66 
FR 67494); final rule, March 1, 2002 (67 FR 9556); final rule, 
November 1, 2002 (67 FR 66718); final rule with comment period, 
November 7, 2003 (68 FR 63398); correction of the November 7, 2003 
final rule with comment period, December 31, 2003 (68 FR 75442); 
interim final rule with comment period, January 6, 2004 (69 FR 820); 
and final rule with comment period, November 15, 2004 (69 FR 65681).
---------------------------------------------------------------------------

    On November 15, 2004, we published in the Federal Register a final 
rule with comment period (69 FR 65681) that revised the OPPS to update 
the payment weights and conversion factor for services payable under 
the calendar year (CY) 2005 OPPS on the basis of claims data from 
January 1, 2003 through December 31, 2003, and to implement certain 
provisions of Pub. L. 108-173. In addition, we responded to public 
comments received on the January 6, 2004 interim final rule with 
comment period relating to Pub. L. 108-173 provisions that were 
effective January 1, 2004, and finalized those policies. Further, we 
responded to public comments received on the November 7, 2003 final 
rule with comment period pertaining to the APC assignment of HCPCS 
codes identified in Addendum B of that rule with the new interim (NI) 
comment indicators; and public comments received on the August 16, 2004 
OPPS proposed rule (69 FR 50448).
    Subsequent to publishing the November 15, 2004 final rule with 
comment period, we published a correction of final rule with comment 
period on December 30, 2004 (69 FR 78315). This document corrected 
technical errors that appeared in the November 15, 2004 final rule with

[[Page 42678]]

comment period. It also provided additional information about the CY 
2005 wage indices for the OPPS that was not published in the November 
15, 2004 final rule with comment period.

D. APC Advisory Panel

1. Authority of the APC Panel
    Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of 
the BBRA of 1999, requires that we consult with an outside panel of 
experts to review the clinical integrity of the payment groups and 
weights under the OPPS. The Advisory Panel on Ambulatory Payment 
Classification (APC) Groups (the APC Panel), discussed under section 
I.D.2. of this preamble, fulfills this requirement. The Act further 
specifies that the APC Panel will act in an advisory capacity. This 
expert panel, which is to be composed of 15 representatives of 
providers subject to the OPPS (currently employed full-time, not 
consultants, in their respective areas of expertise), reviews and 
advises us about the clinical integrity of the APC groups and their 
weights. The APC Panel is not restricted to using our data and may use 
data collected or developed by organizations outside the Department in 
conducting its review.
2. Establishment of the APC Panel
    On November 21, 2000, the Secretary originally signed the charter 
establishing the APC Panel. The APC Panel is technical in nature and is 
governed by the provisions of the Federal Advisory Committee Act 
(FACA), as amended (Pub. L. 92-463). Since its initial chartering, the 
Secretary has twice renewed the APC Panel's charter: On November 1, 
2002, and on November 8, 2004. The renewed charter indicates that the 
APC Panel continues to be technical in nature; is governed by the 
provisions of the FACA with a Designated Federal Official (DEO) to 
oversee the day-to-day administration of the FACA requirements and to 
provide to the Committee Management Officer all committee reports for 
forwarding to the Library of Congress; may convene up to three meetings 
per year; and is chaired by a Federal official who also serves as a CMS 
medical officer.
    Originally, in establishing the APC Panel, we solicited members in 
a notice published in the Federal Register on December 5, 2000 (65 FR 
75943). We received applications from more than 115 individuals who 
nominated either colleagues or themselves. After carefully reviewing 
the applications, we chose 15 highly qualified individuals to serve on 
the APC Panel. Because of the loss of four APC Panel members due to the 
expiration of terms of office on March 31, 2004, we published a Federal 
Register notice on January 23, 2004 (69 FR 3370) that solicited 
nominations for APC Panel membership. From the 24 nominations that we 
received, we chose four new members. Six members' terms expired on 
March 31, 2005; therefore, a Federal Register notice was published on 
February 25, 2005, requesting nominations to the APC Panel. We received 
only 13 nominations before the nomination period closed on March 15, 
2005. Therefore, we extended the deadline for nominations to May 9, 
2005, and announced the extension in the Federal Register on April 8, 
2005 (70 FR 18028). The entire APC Panel membership and information 
pertaining to it, including Federal Register notices, meeting dates, 
agenda topics, and meeting reports are identified on the CMS Web site: 
https://www.cms.hhs.gov/faca/apc/apcmem.asp.
3. APC Panel Meetings and Organizational Structure
    The APC Panel first met on February 27, February 28, and March 1, 
2001. Since that initial meeting, the APC Panel has held six subsequent 
meetings, with the last meeting taking place on February 23 and 24, 
2005. (The APC Panel did not meet on February 25, 2004, as announced in 
the meeting notice published on December 30, 2004, (69 FR 78464).) 
Prior to each of these biennial meetings, we published a notice in the 
Federal Register to announce each meeting and, when necessary, to 
solicit and announce nominations for APC Panel membership. For a more 
detailed discussion about these announcements, refer to the following 
Federal Register notices: December 5, 2000 (65 FR 75943), December 14, 
2001 (66 FR 64838), December 27, 2002 (67 FR 79107), July 25, 2003 (68 
FR 44089), December 24, 2003 (68 FR 74621), August 5, 2004 (69 FR 
47446), and December 30, 2004 (69 FR 78464).
    During these meetings, the APC Panel established its operational 
structure that, in part, includes the use of three subcommittees to 
facilitate its required APC review process. Currently, the three 
subcommittees are the Data Subcommittee, the Observation Subcommittee, 
and the Packaging Subcommittee. The Data Subcommittee is responsible 
for studying the data issues confronting the APC Panel and for 
recommending viable options for resolving them. This subcommittee was 
initially established on April 23, 2001, as the Research Subcommittee 
and reestablished as the Data Subcommittee on April 13, 2004, and 
February 11, 2005. The Observation Subcommittee, which was established 
on June 24, 2003, and reestablished with new members on March 8, 2004, 
and February 11, 2005, reviews and makes recommendations to the APC 
Panel on all issues pertaining to observation services paid under the 
OPPS, such as coding and operational issues. The Packaging 
Subcommittee, which was established on March 8, 2004 and reestablished 
with new members on February 11, 2005, studies and makes 
recommendations on issues pertaining to services that are not 
separately payable under the OPPS but are bundled or packaged APC 
payments. Each of these subcommittees was established by a majority 
vote of the APC Panel during a scheduled APC Panel meeting. All 
subcommittee recommendations are discussed and voted upon by the full 
APC Panel.
    For a detailed discussion of the APC Panel meetings, refer to the 
hospital OPPS final rules cited in section I.C. of this preamble. Full 
discussion of the recommendations resulting from the APC Panel's 
February 2005 meeting are included in the sections of this preamble 
that are specific to each recommendation.

E. Provisions of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 To Be Implemented Beginning in CY 2006

    On December 8, 2003, the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA), Pub. L. 108-173, was enacted. Pub. 
L. 108-173 made changes to the Act relating to the Medicare OPPS. In 
the January 6, 2004 interim final rule with comment period and the 
November 15, 2004 final rule with comment period, we implemented 
provisions of Pub. L. 108-173 relating to the OPPS that were effective 
for CY 2004 and CY 2005, respectively. Provisions of Pub. L. 108-173 
that were implemented in CY 2004 or CY 2005, and that are continuing in 
CY 2006, are discussed throughout this proposed rule. Moreover, in this 
proposed rule, we are proposing to implement the following provisions 
of Pub. L. 108-173 that affect the OPPS beginning in CY 2006:
1. Hold Harmless Provisions
    Section 411 of Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of 
the Act and extended the hold harmless provision for small rural 
hospitals having 100 or fewer beds through December 31, 2005. Section 
411 of Pub. L. 108-173 further amended section 1833(t)(7) of the Act to 
provide that hold-harmless transitional corridor payments shall apply 
through December

[[Page 42679]]

31, 2005 to sole community hospitals (SCHs) (as defined in section 
1886(d)(5)(D)(iii) of the Act) located in a rural area. In accordance 
with these provisions, effective January 1, 2006, we are proposing to 
discontinue transitional corridor payments for small rural hospitals 
having 100 or fewer beds and for SCHs located in a rural area.
2. Study and Authorization of Adjustment for Rural Hospitals
    Section 411(b) of Pub. L. 108-173 added a new paragraph (13) to 
section 1833(t) of the Act to authorize an ``Adjustment for Rural 
Hospitals''. This provision requires us to conduct a study to determine 
if costs incurred by hospitals located in rural areas by APCs exceed 
those costs incurred by hospitals located in urban areas. This 
provision further requires us to provide for an appropriate adjustment 
by January 1, 2006, if we find that the costs incurred by hospitals 
located in rural areas exceed those costs incurred by hospitals located 
in urban areas.
3. Payment for ``Specified Covered Outpatient Drugs''
    Section 621(a)(1) of Pub. L. 108-173 added section 1833(t)(14) to 
the Act that specifies payments for certain ``specified covered 
outpatient drugs'' beginning in 2006. Specifically, section 
1833(t)(14)(A)(iii)(I) of the Act states that such payment shall be 
equal to what we determine to be the average acquisition cost for the 
drug, taking into account hospital acquisition cost survey data 
furnished by the Government Accountability Office (GAO). Section 
1833(t)(14)(A)(iii)(II) of the Act further notes that if hospital 
acquisition cost data are not available, payment for specified covered 
outpatient drugs shall equal the average price for the drug established 
under section 1842(o), section 1847(A), or section 1847(B) of the Act 
as calculated and adjusted by the Secretary as necessary. Both payment 
approaches are subject to adjustments under section 1833(t)(14)(E) of 
the Act as discussed below.
4. Adjustment in Payment Rates for ``Specified Covered Outpatient 
Drugs'' for Overhead Costs
    Section 621(a)(1) of Pub. L. 108-173 added section 1833(t)(14)(E) 
to the Act. Section 1833(t)(14)(E)(ii) of the Act authorizes us to make 
an adjustment to payments for ``specified covered outpatient drugs'' to 
take into account overhead and related expenses such as pharmacy 
services and handling costs, based on recommendations contained in a 
report prepared by the Medicare Payment Advisory Commission (MedPAC).
5. Budget Neutrality Adjustment
    Section 621(a)(1) of Pub. L. 108-173 amended the Act by adding 
section 1833(t)(14)(H), which requires that additional expenditures 
resulting from adjustments in APC payment rates for specified covered 
outpatient drugs be taken into account beginning in CY 2006 and 
continuing in subsequent years, in establishing the OPPS conversion, 
weighting, and other adjustment factors.

F. CMS' Commitment to New Technologies

(If you choose to comment on issues in this section, please include 
the caption ``Commitment to New Technologies'' at the beginning of 
your comment.)

    CMS is committed to ensuring that Medicare beneficiaries will have 
timely access to new medical treatments and technologies that are well-
evaluated and demonstrated to be effective. We launched the Council on 
Technology and Innovation (CTI) to provide the Agency with improved 
methods for developing practical information about the clinical 
benefits of new medical technologies to result in faster and more 
efficient coverage and payment of these medical technologies. The CTI 
supports CMS efforts to develop better evidence on the safety, 
effectiveness, and cost of new and approved technologies to help 
promote their more effective use.
    We want to provide doctors and patients with better information 
about the benefits of new medical treatments and/or technologies, 
especially compared to other treatment options. We also want 
beneficiaries to have access to valuable new medical innovations as 
quickly and efficiently as possible. We note there are a number of 
payment mechanisms in the OPPS and the IPPS designed to achieve 
appropriate payment of promising new technologies. In the OPPS, 
qualifying new medical devices may be paid on a cost basis by means of 
transitional pass-through payments, in addition to the APC payments for 
the procedures which utilize the devices. In addition, qualifying new 
services may be assigned for payment to New Technology APCs or, if 
appropriate, to regular clinical APCs. In the IPPS, qualifying new 
technologies may receive add-on payments to the standard diagnosis-
related group (DRG) payments. We also note that collaborative efforts 
are underway to facilitate coordination between the Food and Drug 
Administration (FDA) and CMS with regard to streamlining the CMS 
coverage process by which new technologies come to the marketplace.
    To promote timely access to new medical treatments and 
technologies, in this proposed rule we are proposing enhancements to 
both the OPPS pass-through payment criteria for devices as discussed in 
section IV.D.2. of this preamble and the qualifying process for 
assignment of new services to New Technology APCs or regular clinical 
APCs discussed in section III.C.3. of this preamble. We are proposing 
to make device pass-through eligibility available to a broader range of 
qualifying devices. We are also proposing to change the application and 
review process for assignment of new services to New Technology APCs to 
promote thoughtful review of the coding, clinical use and efficacy of 
new services by the wider medical community, encouraging appropriate 
dissemination of new technologies. These enhancements are explained in 
this proposed rule.

G. Summary of the Major Content of This Proposed Rule

    In this proposed rule, we are setting forth proposed changes to the 
Medicare hospital OPPS for CY 2006. These changes would be effective 
for services furnished on or after January 1, 2006. The following is a 
summary of the major changes that we are proposing to make:
1. Proposed Updates to Payments for CY 2006
    In section II. of this preamble, we set forth--
     The methodology used to recalibrate the proposed APC 
relative payment weights and the proposed recalibration of the relative 
payment weights for CY 2006.
     The proposed payment for partial hospitalization, 
including the proposed separate threshold for outlier payments for 
CMCHs.
     The proposed update to the conversion factor used to 
determine payment rates under the OPPS for CY 2006.
     The proposed retention of our current policy to apply the 
IPPS wage indices to wage adjust the APC median costs in determining 
the OPPS payment rate and the copayment standardized amount for CY 
2006.
     The proposed update of statewide average default cost-to-
charge ratios.
     Proposed changes relating to the expiring hold harmless 
payment provision.
     Proposed changes to payment for rural sole community 
hospitals for CY 2006.

[[Page 42680]]

     Proposed changes in the way we calculate hospital 
outpatient outlier payments for CY 2006.
     Calculation of the proposed national unadjusted Medicare 
OPPS payment.
     The proposed beneficiary copayment for OPPS services for 
CY 2006.
2. Proposed Ambulatory Payment Classification (APC) Group Policies
    In section III. of this preamble, we discuss our proposal to 
establish a number of new APCs and to make changes to the assignment of 
HCPCS codes under a number of existing APCs based on our analyses of 
Medicare claims data and recommendations of the APC Panel. We also 
discuss in section III. of this preamble, the application of the 2 
times rule and proposed exceptions to it; proposed changes for specific 
APCs; the proposed refinement of the New Technology cost bands; the 
proposed movement of procedures from the New Technology APCs; and the 
proposed additions of new procedure codes to the APC groups.
3. Proposed Payment Changes for Devices
    In section IV. of this preamble, we discuss proposed changes to the 
device-dependent APCs and to the pass-through payment for three 
categories of devices.
4. Proposed Payment Changes for Drugs, Biologicals, and 
Radiopharmaceutical Agents
    In section V. of this preamble, we discuss proposed changes for 
drugs, biologicals, radiopharmaceutical agents, and vaccines.
5. Estimate of Transitional Pass-Through Spending in CY 2006 for Drugs, 
Biologicals, and Devices
    In section VI. of this preamble, we discuss the proposed 
methodology for estimating total pass-through spending and whether 
there should be a pro rata reduction for transitional pass-through 
drugs, biologicals, radiopharmacials, and categories of devices for CY 
2006.
6. Proposed Brachytherapy Payment Changes
    In section VII. of this preamble, we include a discussion of our 
proposal concerning coding and payment for the sources of 
brachytherapy.
7. Proposed Coding and Payment for Drug Administration
    In section VIII. of this preamble, we discuss our proposed coding 
and payment changes for drug administration services.
8. Hospital Coding for Evaluation and Management (E/M) Services
    In section IX. of this preamble, we include a discussion of our 
proposal for developing the coding guidelines for evaluation and 
management services.
9. Proposed Payment for Blood and Blood Products
    In section X. of this preamble, we discuss our proposed payment 
changes for blood and blood products.
10. Proposed Payment for Observation Services
    In section XI. of this preamble, we discuss our proposed criteria 
and coding changes for separately payable observation services.
11. Procedures That Will Be Paid Only as Inpatient Services
    In section XII. of this preamble, we discuss the procedures that we 
are proposing to remove from the inpatient list and assign to APCs.
12. Proposed Indicator Assignments
    In section XIII. of this preamble, we discuss the proposed changes 
to the list of status indicators assigned to APCs and present our 
proposed comment indicators for the CY 2006 OPPS final rule.
13. Proposed Nonrecurring Policy Changes
    In section XIV. of this preamble, we discuss proposed changes in 
payments for multiple diagnostic imaging procedures and in the 
interrupted procedures payment policies.
14. OPPS Policy and Payment Recommendations
    In section XV. of this preamble, we address recommendations made by 
MedPAC, the APC Panel, and the GAO regarding the OPPS for CY 2006.
15. Physician Oversight in Critical Access Hospitals
    In section XVI. of this preamble, we address physician oversight 
for services provided by nonphysician practitioners such as physician 
assistants, nurse practitioners, and clinical nurse specialists in 
critical access hospitals (CAHs).

II. Proposed Updates Affecting Payments for CY 2006

A. Recalibration of APC Relative Weights for CY 2006

(If you choose to comment on the issues in this section, please 
include the caption ``APC Relative Weights'' at the beginning of 
your comment.)
1. Database Construction
a. Database Source and Methodology
    Section 1833(t)(9)(A) of the Act requires that the Secretary review 
and revise the relative payment weights for APCs at least annually. In 
the April 7, 2000 OPPS final rule (65 FR 18482), we explained in detail 
how we calculated the relative payment weights that were implemented on 
August 1, 2000, for each APC group. Except for some reweighting due to 
a small number of APC changes, these relative payment weights continued 
to be in effect for CY 2001. This policy is discussed in the November 
13, 2000 interim final rule (65 FR 67824 through 67827).
    We are proposing to use the same basic methodology that we 
described in the April 7, 2000 final rule to recalibrate the APC 
relative payment weights for services furnished on or after January 1, 
2006, and before January 1, 2007. That is, we would recalibrate the 
relative payment weights for each APC based on claims and cost report 
data for outpatient services. We are proposing to use the most recent 
available data to construct the database for calculating APC group 
weights. For the purpose of recalibrating APC relative payment weights 
for CY 2006, we used approximately 127 million final action claims for 
hospital OPD services furnished on or after January 1, 2004, and before 
January 1, 2005. Of the 127 million final action claims for services 
provided in hospital outpatient settings, 102 million claims were of 
the type of bill potentially appropriate for use in setting rates for 
OPPS services (but did not necessarily contain services payable under 
the OPPS). Of the 102 million claims, we were able to use 49 million 
whole claims to set the proposed OPPS APC relative weights for CY 2006 
OPPS. From the 49 million whole claims, we created 81 million single 
records, of which 50 million were ``pseudo'' single claims (created 
from multiple procedure claims using the process we discuss in this 
section).
    The proposed APC relative weights and payments in Addenda A and B 
to this proposed rule were calculated using claims from this period 
that had been processed before January 1, 2005. We selected claims for 
services paid under the OPPS and matched these claims to the most 
recent cost report filed by the individual hospitals represented in our 
claims data. We are proposing that the APC relative payment weights for 
CY 2006 under the OPPS would continue to be based on the median 
hospital costs for services in the APC groups. For the CY 2006 OPPS 
final rule, we are proposing to base APC median costs on

[[Page 42681]]

claims for services furnished in CY 2004 and processed before June 30, 
2005.
b. Proposed Use of Single and Multiple Procedure Claims
    For CY 2006, we are proposing to continue to use single procedure 
claims to set the medians on which the APC relative payment weights 
would be based. As noted in the November 15, 2004 final rule with 
comment period, we have received many requests asking that we ensure 
that the data from claims that contain charges for multiple procedures 
are included in the data from which we calculate the relative payment 
weights (69 FR 65730 through 65731). Requesters believe that relying 
solely on single procedure claims to recalibrate APC relative payment 
weights fails to take into account data for many frequently performed 
procedures, particularly those commonly performed in combination with 
other procedures. They believe that, by depending upon single procedure 
claims, we base relative payment weights on the least-costly services, 
thereby introducing downward bias to the medians on which the weights 
are based.
    We agree that, optimally, it is desirable to use the data from as 
many claims as possible to recalibrate the APC relative payment 
weights, including those with multiple procedures. We generally use 
single procedure claims to set the median costs for APCs because we 
are, so far, unable to ensure that packaged costs can be appropriately 
allocated across multiple procedures performed on the same date of 
service. However, by bypassing specified codes that we believe do not 
have significant packaged costs, we are able to use more data from 
multiple procedure claims. In many cases this enables us to create 
multiple ``pseudo'' single claims from claims that, as submitted, 
contained multiple separately paid procedures on the same claim. We 
have used the date of service on the claims and a list of codes to be 
bypassed to create ``pseudo'' single claims from multiple procedure 
claims the same as we did in recalibrating the CY 2005 APC relative 
payment weights. We refer to these newly created single procedure 
claims as ``pseudo'' singles because they were submitted by providers 
as multiple procedure claims.
    For CY 2003, we created ``pseudo'' single claims by bypassing HCPCS 
codes 93005 (Electrocardiogram, tracing), 71010 (Chest x-ray), and 
71020 (Chest x-ray) on a submitted claim. However, we did not use 
claims data for the bypassed codes in the creation of the median costs 
for the APCs to which these three codes were assigned because the level 
of packaging that would have remained on the claim after we selected 
the bypass code was not apparent and, therefore, it was difficult to 
determine if the medians for these codes would be correct.
    For CY 2004, we created ``pseudo'' single claims by bypassing these 
three codes and also by bypassing an additional 269 HCPCS codes in 
APCs. We selected these codes based on a clinical review of the 
services and because it was presumed that these codes had only very 
limited packaging and could appropriately be bypassed for the purpose 
of creating ``pseudo'' single claims. The APCs to which these codes 
were assigned were varied and included mammography, cardiac 
rehabilitation, and Level I plain film x-rays. To derive more 
``pseudo'' single claims, we also split the claims where there were 
dates of service for revenue code charges on that claim that could be 
matched to a single procedure code on the claim on the same date.
    As in CY 2003, we did not include the claims data for the bypassed 
codes in the creation of the APCs to which the 269 codes were assigned 
because, again, we had not established that such an approach was 
appropriate and would aid in accurately estimating the median cost for 
that APC. For CY 2004, from about 16.3 million otherwise unusable 
claims, we used about 9.5 million multiple procedure claims to create 
about 27 million ``pseudo'' single claims. For CY 2005, we created 383 
bypass codes and from approximately 24 million otherwise unusable 
claims, we used about 18 million multiple procedure claims to create 
about 52 million ``pseudo'' single claims.
    For CY 2006, we are proposing to continue using date of service 
matching as a tool for creation of ``pseudo'' single claims and to 
continue the use of a bypass list to create ``pseudo'' single claims. 
The process we are proposing for CY 2006 OPPS results in our being able 
to use some part of 90 percent of the total claims that are eligible 
for use in OPPS ratesetting and modeling in developing this proposed 
rule. This process enabled us to use, for CY 2006, 81 million single 
bills for ratesetting: 50 million ``pseudo'' singles and 31 million 
``natural'' single bills (bills that were submitted containing only one 
separately payable major HCPCS code).
    We are proposing to bypass the 404 codes identified in Table 1 to 
create new single claims and to use the line-item costs associated with 
the bypass codes on these claims in the creation of the median costs 
for the APCs into which they are assigned. Of the codes on this list, 
345 were used for bypass in CY 2005. We are proposing to continue the 
use of the codes on the CY 2005 OPPS bypass list and expand it by 
adding 46 codes that, using data presented to the APC Panel at its 
February 2005 meeting, meet the same empirical criteria as those used 
in CY 2005 to create the bypass list. Our examination of the data 
against the criteria for inclusion on the bypass list, as discussed 
below for the addition of new codes, shows that the empirically 
selected codes used for bypass for the CY 2005 OPPS generally continue 
to meet the criteria or come very close to meeting the criteria, and we 
have received no comments against bypassing them.
    To facilitate comment, Table 1 indicates the list of codes we are 
proposing to bypass for creation of ``pseudo'' singles for CY 2006 OPPS 
and indicates those used in the CY 2005 OPPS for bypass and those 
proposed to be added for the CY 2006 OPPS. Bypass codes shown in Table 
1 with an asterisk indicate the HCPCs codes we are proposing to add to 
the list for the CY 2006 OPPS. The criteria we are proposing to use to 
determine the additional codes to add to the CY 2005 OPPS bypass list 
in order to create the bypass list for CY 2006 OPPS are discussed 
below.
    The following empirical criteria were developed by reviewing the 
frequency and magnitude of packaging in the single claims for payable 
codes other than drugs and biologicals. We assumed that the 
representation of packaging on the single claims for any given code is 
comparable to packaging for that code in the multiple claims:
     There were 100 or more single claims for the code. This 
number of single claims ensured that observed outcomes were 
sufficiently representative of packaging that might occur in the 
multiple claims.
     Five percent or fewer of the single claims for the code 
had packaged costs on that single claim for the code. This criterion 
results in limiting the amount of packaging being redistributed to the 
payable procedure remaining on the claim after the bypass code is 
removed and ensures that the costs associated with the bypass code 
represent the cost of the bypassed service.
     The median cost of packaging observed in the single claim 
was equal to or less than $50. This limits the amount of error in 
redistributed costs.
     The code is not a code for an unlisted service.
    We also added to the bypass list three codes (CPT codes 51701, 
51702, and 51703 for bladder catheterization) which do not meet these 
criteria. These

[[Page 42682]]

codes have been packaged and have never been paid separately. For that 
reason, when these were the only services provided to the beneficiary, 
no payment was made to the hospital. The APC Panel's packaging 
subcommittee recommends that we make separate payment when they are the 
only service on the claim. See section II.A.4. of this preamble for 
further discussion of our proposal to pay them separately. We are 
proposing to add them to the bypass list because changing them from 
packaged to separately paid would result in the reduction of the number 
of single bills on which we could base median costs for other major 
separately paid procedures which are billed on the same claim with 
these procedure codes. Single bills which contain other procedures 
would become multiple procedure claims when these bladder 
catheterization codes were converted from packaged to separately paid 
status.
    We examined the packaging on the single procedure claims in the CY 
2004 data used for this proposed rule for these codes. We found that 
none of these codes met the empirical standards for the bypass list. 
However, we believe that when these services are performed on the same 
date as another separately paid procedure, any packaging that appears 
on the claim would appropriately be associated with the other 
procedures and not with these codes. Therefore, we believe that 
bypassing them does not adversely affect the medians for other 
procedures. Moreover, future separate payment for these codes does not 
harm the hospitals that furnish these services, in view of the 
historical absence of separate payment for them under the OPPS in the 
past. Hence, we propose to pay separately for these codes and to add 
them to the bypass list for the CY 2006 OPPS.
    We specifically invite public comment on the ``pseudo'' single 
process, including the bypass list and the criteria.

  Table 1.--Proposed CY 2006 HCPCS Bypass Codes for Creating ``Pseudo''
               Single Claims for Calculating Median Costs
------------------------------------------------------------------------
        HCPCS code \1\            Short description    Status  indicator
------------------------------------------------------------------------
11056*........................  Trim skin lesions, 2  T
                                 to 4.
11057*........................  Trim skin lesions,    T
                                 over 4.
11719.........................  Trim nail(s)........  T
11720.........................  Debride nail, 1-5...  T
11721.........................  Debride nail, 6 or    T
                                 more.
17003*........................  Destroy lesions, 2-   T
                                 14.
31231*........................  Nasal endoscopy, dx.  T
31579.........................  Diagnostic            T
                                 laryngoscopy.
51701*........................  Insert bladder        X
                                 catheter.
51702*........................  Insert temp bladder   X
                                 catheter.
51703*........................  Insert bladder        X
                                 catheter, complex.
51798*........................  Us urine capacity     X
                                 measure.
54240.........................  Penis study.........  T
67820*........................  Revise eyelashes....  S
70030*........................  X-ray eye for         X
                                 foreign body.
70100.........................  X-ray exam of jaw...  X
70110.........................  X-ray exam of jaw...  X
70130.........................  X-ray exam of         X
                                 mastoids.
70140.........................  X-ray exam of facial  X
                                 bones.
70150.........................  X-ray exam of facial  X
                                 bones.
70160.........................  X-ray exam of nasal   X
                                 bones.
70200.........................  X-ray exam of eye     X
                                 sockets.
70210.........................  X-ray exam of         X
                                 sinuses.
70220.........................  X-ray exam of         X
                                 sinuses.
70250.........................  X-ray exam of skull.  X
70260.........................  X-ray exam of skull.  X
70328.........................  X-ray exam of jaw     X
                                 joint.
70330.........................  X-ray exam of jaw     X
                                 joints.
70336*........................  Magnetic image, jaw   S
                                 joint.
70355.........................  Panoramic x-ray of    X
                                 jaws.
70360.........................  X-ray exam of neck..  X
70370*........................  Throat x-ray &        X
                                 fluoroscopy.
70371.........................  Speech evaluation,    X
                                 complex.
70450.........................  Ct head/brain w/o     S
                                 dye.
70480.........................  Ct orbit/ear/fossa w/ S
                                 o dye.
70486.........................  Ct maxillofacial w/o  S
                                 dye.
70544.........................  Mr angiography head   S
                                 w/o dye.
70551*........................  Mri brain w/o dye...  S
71010.........................  Chest x-ray.........  X
71015.........................  Chest x-ray.........  X
71020.........................  Chest x-ray.........  X
71021.........................  Chest x-ray.........  X
71022.........................  Chest x-ray.........  X
71023*........................  Chest x-ray and       X
                                 fluoroscopy.
71030.........................  Chest x-ray.........  X
71034.........................  Chest x-ray and       X
                                 fluoroscopy.
71090.........................  X-ray & pacemaker     X
                                 insertion.
71100.........................  X-ray exam of ribs..  X
71101.........................  X-ray exam of ribs/   X
                                 chest.

[[Page 42683]]

 
71110.........................  X-ray exam of ribs..  X
71111.........................  X-ray exam of ribs/   X
                                 chest.
71120.........................  X-ray exam of         X
                                 breastbone.
71130.........................  X-ray exam of         X
                                 breastbone.
71250.........................  Ct thorax w/o dye...  S
72040.........................  X-ray exam of neck    X
                                 spine.
72050.........................  X-ray exam of neck    X
                                 spine.
72052.........................  X-ray exam of neck    X
                                 spine.
72069*........................  X-ray exam of trunk   X
                                 spine.
72070.........................  X-ray exam of         X
                                 thoracic spine.
72072.........................  X-ray exam o