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, 66222-66578 [07-5506]

Agencies

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

[Federal Register Volume 72, Number 227 (Tuesday, November 27, 2007)]
[Rules and Regulations]
[Pages 66222-66578]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-5506]



[[Page 66221]]

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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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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

Federal Register / Vol. 72, No. 227 / Tuesday, November 27, 2007 / 
Rules and Regulations

[[Page 66222]]


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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.

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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 https://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: https://
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: https://www.access.gpo.gov/nara/.
    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: https://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 utili