Medicare Program; Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2010, 61738-62188 [E9-26502]

Agencies

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

[Federal Register Volume 74, Number 226 (Wednesday, November 25, 2009)]
[Rules and Regulations]
[Pages 61738-62188]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-26502]



[[Page 61737]]

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Part II

Book 2 of 2 Books

Pages 61737-62206





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 410, 411, 414 et al.



Medicare Program; Payment Policies Under the Physician Fee Schedule and 
Other Revisions to Part B for CY 2010; Final Rule; Medicare Program; 
Solicitation of Independent Accrediting Organizations To Participate in 
the Advanced Diagnostic Imaging Supplier Accreditation Program; Notice

Federal Register / Vol. 74, No. 226 / Wednesday, November 25, 2009 / 
Rules and Regulations

[[Page 61738]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 414, 415, 485, and 498

[CMS-1413-FC]
RINs 0938-AP40


Medicare Program; Payment Policies Under the Physician Fee 
Schedule and Other Revisions to Part B for CY 2010

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 implements changes to the 
physician fee schedule and other Medicare Part B payment policies to 
ensure that our payment systems are updated to reflect changes in 
medical practice and the relative value of services. It also implements 
or discusses certain provisions of the Medicare Improvements for 
Patients and Providers Act of 2008. (See the Table of Contents for a 
listing of the specific issues addressed in this rule.)
    This final rule with comment period also finalizes the calendar 
year (CY) 2009 interim relative value units (RVUs) and issues interim 
RVUs for new and revised codes for CY 2010. In addition, in accordance 
with the statute, it announces that the update to the physician fee 
schedule conversion factor is -21.2 percent for CY 2010, the 
preliminary estimate for the sustainable growth rate for CY 2010 is -
8.8 percent, and the conversion factor (CF) for CY 2010 is $28.4061.

DATES: Effective Dates: With the exception of the provisions of Sec.  
414.68 and Sec.  414.210(e)(5), this final rule is effective on January 
1, 2010. The provisions of Sec.  414.68 are effective on October 30, 
2009, and the provisions of Sec.  414.210(e)(5) are effective on July 
1, 2010.
    Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on December 29, 2009.

ADDRESSES: In commenting, please refer to file code CMS-1413-FC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1413-FC, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    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 to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1413-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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (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 a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.

FOR FURTHER INFORMATION CONTACT: Rick Ensor, (410) 786-5617, for issues 
related to practice expense methodology.
    Craig Dobyski, (410) 786-4584, for issues related to geographic 
practice cost indices and malpractice RVUs.
    Ken Marsalek, (410) 786-4502, for issues related to the physician 
practice information survey and the multiple procedure payment 
reduction.
    Regina Walker-Wren, (410) 786-9160, for issues related to the 
phasing out of the outpatient mental health treatment limitation.
    Diane Stern, (410) 786-1133, for issues related to the physician 
quality reporting initiative and incentives for e-prescribing.
    Lisa Grabert, (410) 786-6827, for issues related to the Physician 
Resource Use Feedback Program.
    Colleen Bruce, (410) 786-5529, for issues related to value-based 
purchasing.
    Sandra Bastinelli, (410) 786-3630, for issues related to the 
implementation of accreditation standards.
    Jim Menas, (410) 786-4507, for issues related to teaching 
anesthesia services.
    Sarah McClain, (410) 786-2994, for issues related to the coverage 
of cardiac rehabilitation services.
    Dorothy Shannon, (410) 786-3396, for issues related to payment for 
cardiac and pulmonary rehabilitation services.
    Roya Lotfi, (410) 786-4072, for issues related to the coverage of 
pulmonary rehabilitation.
    Jamie Hermansen, (410) 786-2064, for issues related to kidney 
disease patient education programs.
    Terri Harris, (410) 786-6830, for issues related to payment for 
kidney disease patient education.
    Brijet Burton, (410) 786-7364, for issues related to the compendia 
for determination of medically-accepted indications for off-label uses 
of drugs and biologicals in an anti-cancer chemotherapeutic regimen.
    Henry Richter, (410) 786-4562, or Lisa Hubbard, (410) 786-5472, for 
issues related to renal dialysis provisions and payments for end-stage 
renal disease facilities.
    Cheryl Gilbreath, (410) 786-5919, for issues related to payment for 
covered outpatient drugs and biologicals.
    Edmund Kasaitis, (410) 786-0477, or Bonny Dahm, (410) 786-4006, for 
issues related to the Competitive Acquisition Program (CAP) for Part B 
drugs.
    Pauline Lapin, (410) 786-6883, for issues related to the 
chiropractic services demonstration BN issue.
    Monique Howard, (410) 786-3869, for issues related to CORF 
conditions of coverage.
    Roechel Kujawa, (410) 786-9111, for issues related to ambulance 
services.
    Anne Tayloe Hauswald, (410) 786-4546, for clinical laboratory 
issues.
    Troy Barsky, (410) 786-8873, or Roy Albert, (410) 786-1872, for 
issues related to physician self-referral.
    Christopher Molling, (410) 786-6399, or Anita Greenberg, (410) 786-
4601, for issues related to the repeal of transfer of title for oxygen 
equipment.

[[Page 61739]]

    Michelle Peterman, (410) 786-2591, or Iffat Fatima, (410) 786-6709 
for issues related to the grandfathering provisions of the durable 
medical equipment, prosthetics, orthotics, and supplies (DMEPOS) 
Competitive Acquisition Program.
    Ralph Goldberg, (410) 786-4870, or Heidi Edmunds, (410) 786-1781, 
for issues related to the damages process caused by the termination of 
contracts awarded in 2008 under the DMEPOS Competitive Bidding program.
    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; the physician self-referral designated 
health services (DHS) codes listed in Tables 31 and 32; services for 
consideration for the Five-Year Review of work RVUs for services as 
discussed in section II.P., and information concerning services 
provided under arrangement as discussed in section II.N.2.
    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.regulations.gov. Follow the search instructions 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.

Table of Contents

    To assist readers in referencing sections contained in this 
preamble, we are providing a 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 
(CFR). Information on the regulation's impact appears throughout the 
preamble, and therefore, is not discussed exclusively in section XIII. 
of this final rule with comment period.

I. Background
    A. Development of the Relative Value System
    1. Work RVUs
    2. Practice Expense Relative Value Units (PE RVUs)
    3. Resource-Based Malpractice (MP) RVUs
    4. Refinements to the RVUs
    5. Adjustments to RVUs Are Budget Neutral
    B. Components of the Fee Schedule Payment Amounts
    C. Most Recent Changes to the Fee Schedule
II. Provisions of the Final Regulation and Analysis of the Public 
Comments
    A. Resource-Based Practice Expense (PE) Relative Value Units 
(RVUs)
    1. Practice Expense Methodology
    a. Data Sources for Calculating Practice Expense
    b. Allocation of PE to Services
    c. Facility and Non-Facility Costs
    d. Services With Technical Components (TCs) and Professional 
Components (PCs)
    e. Transition Period
    f. PE RVU Methodology
    2. PE Revisions for CY 2010
    a. SMS and Supplemental Survey Background
    b. Physician Practice Information Survey (PPIS)
    c. Equipment Utilization Rate
    d. Miscellaneous PE Issues
    e. AMA RUC PE Recommendations for Direct PE Inputs
    f. Practice Expense for Intranasal Vaccine Administration Codes 
(CPT Codes 90467, 90468, 90473, and 90474)
    B. Geographic Practice Cost Indices (GPCIs): Locality Discussion
    1. Update--Expiration of 1.0 Work GPCI Floor
    2. Payment Localities
    C. Malpractice Relative Value Units (RVUs)
    1. Background
    2. Methodology for the Revision of Resource-Based Malpractice 
RVUs
    D. Medicare Telehealth Services
    1. Requests for Adding Services to the List of Medicare 
Telehealth Services
    2. Submitted Requests for Addition to the List of Telehealth 
Services
    a. Health and Behavior Assessment and Intervention (HBAI)
    b. Nursing Facility Services
    c. Critical Care Services
    d. Other Requests
    e. Summary: Result of Evaluation of 2010 Requests
    3. Other Issues
    E. Specific Coding Issues Related to the Physician Fee Schedule
    1. Canalith Repositioning
    2. Payment for an Initial Preventive Physical Examination (IPPE)
    3. Audiology Codes: Policy Clarification of Existing CPT Codes
    4. Consultation Services
    F. Potentially Misvalued Codes Under the Physician Fee Schedule
    1. Valuing Services Under the Physician Fee Schedule
    2. High Cost Supplies
    3. Review of Services Often Billed Together and the Possibility 
of Expanding the Multiple Procedure Payment Reduction (MPPR) to 
Additional Nonsurgical Services
    4. AMA RUC Review of Potentially Misvalued Services
    a. Site of Service
    b. ``23-Hour'' Stay
    c. AMA RUC Review of Potentially Misvalued Codes for CY 2010
    5. PE Issues--Arthoscopy
    6. Establishing Appropriate Relative Values for Physician Fee 
Schedule Services
    G. Issues Related to the Medicare Improvements for Patients and 
Providers Act of 2008 (MIPPA)
    1. Section 102: Elimination of Discriminatory Copayment Rates 
for Medicare Outpatient Psychiatric Services
    2. Section 131(b): Physician Payment, Efficiency, and Quality 
Improvements--Physician Quality Reporting Initiative (PQRI)
    3. Section 131(c): Physician Resource Use Measurement and 
Reporting Program
    4. Section 131(d): Plan for Transition to Value-Based Purchasing 
Program for Physicians and Other Practitioners
    5. Section 132: Incentives for Electronic Prescribing (E-
Prescribing)--The E-Prescibing Incentive Program
    6. Section 135: Implementation of Accreditation Standards for 
Suppliers Furnishing the Technical Component (TC) of Advanced 
Diagnostic Imaging Services
    7. Section 139: Improvements for Medicare Anesthesia Teaching 
Programs
    8. Section 144(a): Payment and Coverage Improvements for 
Patients With Chronic Obstructive Pulmonary Disease and Other 
Conditions--Cardiac Rehabilitation Services
    9. Section 144(a): Payment and Coverage Improvements for 
Patients With Chronic Obstructive Pulmonary Disease and Other 
Conditions--Pulmonary Rehabilitation Services
    10. Section 144(b): Repeal of Transfer of Title for Oxygen 
Equipment
    11. Section 152(b): Coverage of Kidney Disease Patient Education 
Services
    12. Section 153: Renal Dialysis Provisions
    13. Section 182(b): Revision of Definition of Medically-Accepted 
Indication for Drugs; Compendia for Determination of Medically-
Accepted Indications for Off-Label Uses of Drugs and Biologicals in 
an Anti-Cancer Chemotherapeutic Regimen
    H. Part B Drug Payment
    1. Average Sales Price (ASP) Issues
    2. Competitive Acquisition Program (CAP) Issues
    I. Provisions Related to Payment for Renal Dialysis Services 
Furnished by End-Stage Renal Disease (ESRD) Facilities
    J. Discussion of Chiropractic Services Demonstration
    1. Background
    2. Analysis of Demonstration
    3. Payment Adjustment
    K. Comprehensive Outpatient Rehabilitation Facilities (CORF) and 
Rehabilitation Agency Issues

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    L. Ambulance Fee Schedule: Technical Correction to the Rural 
Adjustment Factor Regulations (Sec.  414.610)
    M. Clinical Laboratory Fee Schedule: Signature on Requisition
    N. Physician Self-Referral
    1. General Background
    2. Physician Stand in the Shoes
    3. Services Provided ``Under Arrangements'' (Services Performed 
by an Entity Other Than the Entity That Submits the Claim): 
Solicitation of Comments
    O. Durable Medical Equipment-Related Issues
    1. Damages to Suppliers Awarded a Contract Under the Acquisition 
of Certain Durable Medical Equipment, Prosthetics, Orthotics, and 
Supplies (Medicare DMEPOS Competitive Bidding Program) Caused by the 
Delay of the Program
    2. Notification to Beneficiaries for Suppliers Regarding 
Grandfathering
    P. Five-Year Refinement of Relative Value Units
    Q. Other Issues--Therapy Caps
III. Refinement of Relative Value Units for Calendar Year 2010 and 
Response to Public Comments on Interim Relative Value Units for 2009
    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. Work Relative Value Unit Refinements of Interim Relative 
Value Units
    D. Interim 2009 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 
2010 (Includes Table Titled ``AMA RUC Recommendations and CMS' 
Decisions for New and Revised 2010 CPT Codes'')
    F. Discussion of Codes and AMA RUC 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 2010
IV. Physician Self-Referral Prohibition: Annual Update to the List 
of CPT/HCPCS Codes
    A. General
    B. Annual Update to the Code List
V. Physician Fee Schedule Update for CY 2010
    A. Physician Fee Schedule Update
    B. The Percentage Change in the Medicare Economic Index (MEI)
    C. The Update Adjustment Factor (UAF)
VI. Allowed Expenditures for Physicians' Services and the 
Sustainable Growth Rate (SGR)
    A. Medicare Sustainable Growth Rate
    B. Physicians' Services
    C. Preliminary Estimate of the SGR for 2010
    D. Revised Sustainable Growth Rate for 2009
    E. Final Sustainable Growth Rate for 2008
    F. Calculation of 2010, 2009, and 2008 Sustainable Growth Rates
VII. Anesthesia and Physician Fee Schedule Conversion Factors for CY 
2010
    A. Physician Fee Schedule Conversion Factor
    B. Anesthesia Conversion Factor
VIII. Telehealth Originating Site Facility Fee Payment Amount Update
IX. Provisions of the Final Rule
X. Waiver of Proposed Rulemaking and Delay in Effective Date
XI. Collection of Information Requirements
XII. Response to Comments
XIII. Regulatory Impact Analysis
Regulation Text
Addendum A--Explanation and Use of Addendum B
Addendum B--Relative Value Units and Related Information Used in 
Determining Medicare Payments for CY 2010
Addendum C--Codes With Interim RVUs
Addendum D--2010 Geographic Adjustment Factors (GAFs)
Addendum E--2010 Geographic Practice Cost Indices (GPCIs) by State 
and Medicare Locality
Addendum F--CY 2010 ESRD Wage Index for Non-Urban Areas Based on 
CBSA Labor Market Areas
Addendum G--CY 2010 ESRD Wage Index for Urban Areas Based on CBSA 
Labor Market Areas
Addendum H--CPT/HCPCS Imaging Codes Defined by Section 5102(b) of 
the DRA
Addendum I--List of CPT/HCPCS Codes Used To Define Certain 
Designated Health Services Under Section 1877 of the Social Security 
Act

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:

AA Anesthesiologist assistant
AACVPR American Association of Cardiovascular and Pulmonary 
Rehabilitation
AANA American Association of Nurse Anesthetists
ABMS American Board of Medical Specialties
ABN Advanced Beneficiary Notice
ACC American College of Cardiology
ACGME Accreditation Council on Graduate Medical Education
ACLS Advanced cardiac life support
ACR American College of Radiology
AED Automated external defibrillator
AFROC Association of Freestanding Radiation Oncology Centers
AHA American Heart Association
AHFS-DI American Hospital Formulary Service--Drug Information
AHRQ [HHS'] Agency for Healthcare Research and Quality
AMA American Medical Association
AMA-DE American Medical Association Drug Evaluations
AMP Average manufacturer price
AO Accreditation organization
AOA American Osteopathic Association
APA American Psychological Association
APTA American Physical Therapy Association
ARRA American Recovery and Reinvestment Act (Pub. L. 111-5)
ASC Ambulatory surgical center
ASP Average sales price
ASRT American Society of Radiologic Technologists
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 (Pub. L. 106-554)
BLS Basic Life support
BN Budget neutrality
BPM Benefit Policy Manual
CABG Coronary artery bypass graft
CAD Coronary artery disease
CAH Critical access hospital
CAHEA Committee on Allied Health Education and Accreditation
CAP Competitive acquisition program
CBIC Competitive Bidding Implementation Contractor
CBP Competitive Bidding Program
CBSA Core-Based Statistical Area
CF Conversion factor
CfC Conditions for Coverage
CFR Code of Federal Regulations
CKD Chronic kidney disease
CLFS Clinical laboratory fee schedule
CMA California Medical Association
CMHC Community mental health center
CMP Civil money penalty
CMS Centers for Medicare & Medicaid Services
CNS Clinical nurse specialist
CoP Condition of participation
COPD Chronic obstructive pulmonary disease
CORF Comprehensive Outpatient Rehabilitation Facility
COS Cost of service
CPEP Clinical Practice Expert Panel
CPI Consumer Price Index
CPI-U Consumer price index for urban customers
CPR Cardiopulmonary resuscitation
CPT [Physicians'] Current Procedural Terminology (4th Edition, 2002, 
copyrighted by the American Medical Association)
CR Cardiac rehabilitation
CRNA Certified registered nurse anesthetist
CRP Canalith repositioning
CRT Certified respiratory therapist
CSW Clinical social worker
CY Calendar year
DEA Drug Enforcement Agency
DHS Designated health services
DME Durable medical equipment
DMEPOS Durable medical equipment, prosthetics, orthotics, and 
supplies
DOQ Doctor's Office Quality
DOS Date of service
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)

[[Page 61741]]

DSMT Diabetes self-management training
E/M Evaluation and management
EDI Electronic data interchange
EEG Electroencephalogram
EHR Electronic health record
EKG Electrocardiogram
EMG Electromyogram
EMTALA Emergency Medical Treatment and Active Labor Act
EOG Electro-oculogram
EPO Erythopoeitin
ESRD End-stage renal disease
FAX Facsimile
FDA Food and Drug Administration (HHS)
FFS Fee-for-service
FR Federal Register
GAF Geographic adjustment factor
GAO General Accounting Office
GEM Generating Medicare [Physician Quality Performance Measurement 
Results]
GFR Glomerular filtration rate
GPO Group purchasing organization
GPCI Geographic practice cost index
HAC Hospital-acquired conditions
HBAI Health and behavior assessment and intervention
HCPAC Health Care Professional Advisory Committee
HCPCS Healthcare Common Procedure Coding System
HCRIS Healthcare Cost Report Information System
HDRT High dose radiation therapy
HH PPS Home Health Prospective Payment System
HHA Home health agency
HHRG Home health resource group
HHS [Department of] Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
HIT Health information technology
HITECH Health Information Technology for Economic and Clinical 
Health Act (Title IV of Division B of the Recovery Act, together 
with Title XIII of Division A of the Recovery Act)
HITSP Healthcare Information Technology Standards Panel
HIV Human immunodeficiency virus
HOPD Hospital outpatient department
HPSA Health Professional Shortage Area
HRSA Health Resources Services Administration (HHS)
IACS Individuals Access to CMS Systems
ICD International Classification of Diseases
ICF Intermediate care facilities
ICR Intensive cardiac rehabilitation
ICR Information collection requirement
IDTF Independent diagnostic testing facility
IFC Interim final rule with comment period
IMRT Intensity-Modulated Radiation Therapy
IPPE Initial preventive physical examination
IPPS Inpatient prospective payment system
IRS Internal Revenue Service
ISO Insurance services office
IVD Ischemic Vascular Disease
IVIG Intravenous immune globulin
IWPUT Intra-service work per unit of time
JRCERT Joint Review Committee on Education in Radiologic Technology
KDE Kidney disease education
LCD Local coverage determination
MA Medicare Advantage
MA-PD Medicare Advantage--Prescription Drug Plans
MAV Measure Applicability Validation
MCMP Medicare Care Management Performance
MDRD Modification of Diet in Renal Disease
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) 
(Pub. L. 109-432)
MIPPA Medicare Improvements for Patients and Providers Act of 2008 
(Pub. L. 110-275)
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 
110-173)
MNT Medical nutrition therapy
MOC Maintenance of certification
MP Malpractice
MPPR Multiple procedure payment reduction
MQSA Mammography Quality Standards Act of 1992 (Pub. L. 102-539)
MRA Magnetic resonance angiography
MRI Magnetic resonance imaging
MSA Metropolitan statistical area
NBRC National Board for Respiratory Care
NCD National Coverage Determination
NCQDIS National Coalition of Quality Diagnostic Imaging Services
NDC National drug code
NF Nursing facility
NISTA National Institute of Standards and Technology Act
NP Nurse practitioner
NPI National Provider Identifier
NPP Nonphysician practitioner
NQF National Quality Forum
NRC Nuclear Regulatory Commission
OACT [CMS'] Office of the Actuary
OBRA Omnibus Budget Reconciliation Act
ODF Open door forum
OGPE Oxygen generating portable equipment
OIG Office of Inspector General
OMB Office of Management and Budget
ONC [HHS'] Office of the National Coordinator for Health IT
OPPS Outpatient prospective payment system
OSCAR Online Survey and Certification and Reporting
PA Physician assistant
PAT Performance assessment tool
PC Professional component
PCI Percutaneous coronary intervention
PDP Prescription drug plan
PE Practice expense
PE/HR Practice expense per hour
PEAC Practice Expense Advisory Committee
PERC Practice Expense Review Committee
PFS Physician Fee Schedule
PGP [Medicare] Physician Group Practice
PHI Protected health information
PHP Partial hospitalization program
PIM [Medicare] Program Integrity Manual
PLI Professional liability insurance
POA Present on admission
POC Plan of care
PPI Producer price index
PPIS Physician Practice Information Survey
PPS Prospective payment system
PPTA Plasma Protein Therapeutics Association
PQRI Physician Quality Reporting Initiative
PR Pulmonary rehabilitation
PRA Paperwork Reduction Act
PSA Physician scarcity areas
PT Physical therapy
PTCA Percutaneous transluminal coronary angioplasty
PVBP Physician and Other Health Professional Value-Based Purchasing 
Workgroup
RA Radiology assistant
RBMA Radiology Business Management Association
RFA Regulatory Flexibility Act
RHC Rural health clinic
RIA Regulatory impact analysis
RN Registered nurse
RNAC Reasonable net acquisition cost
RPA Radiology practitioner assistant
RRT Registered 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
SMS [AMA's] Socioeconomic Monitoring System
SNF Skilled nursing facility
SOR System of record
SRS Stereotactic radiosurgery
STARS Services Tracking and Reporting System
TC Technical Component
TIN Tax identification number
TRHCA Tax Relief and Health Care Act of 2006 (Pub. L. 109-432)
TTO Transtracheal oxygen
UPMC University of Pittsburgh Medical Center
USDE United States Department of Education
USP-DI United States Pharmacopoeia--Drug Information
VBP Value-based purchasing
WAMP Widely available market price

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) are based on national uniform relative 
value units (RVUs) based on the relative 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'

[[Page 61742]]

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 
on 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 (DHHS). 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, with appropriate adjustment of the conversion factor (CF), in a 
manner to assure that fee schedule amounts for anesthesia services are 
consistent with those for other services of comparable value. We 
established a separate 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 payment methodology for 
anesthesia services.
    We establish physician work RVUs for new and revised codes based on 
our review of recommendations received from the American Medical 
Association's (AMA) Specialty Society Relative Value Update Committee 
(RUC).
2. Practice Expense Relative Value Units (PE RVUs)
    Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 
103-432), 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 physicians' 
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 Calendar Year (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.
3. Resource-Based Malpractice (MP) RVUs
    Section 4505(f) of the BBA amended section 1848(c) of the Act 
requiring 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 all 
RVUs no less often than every 5 years. The first Five-Year Review of 
the physician work RVUs was published on November 22, 1996 (61 FR 
59489) and was effective in 1997. The second Five-Year Review was 
published in the CY 2002 PFS final rule with comment period (66 FR 
55246) and was effective in 2002. The third Five-Year Review of 
physician work RVUs was published in the CY 2007 PFS final rule with 
comment period (71 FR 69624) and was effective on January 1, 2007. 
(Note: Additional codes relating to the third Five-Year Review of 
physician work RVUs were addressed in the CY 2008 PFS final rule with 
comment period (72 FR 66360).)
    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

[[Page 61743]]

methodology for determining resource-based PE RVUs and are 
transitioning it over a 4-year period.
    In the CY 2005 PFS final rule with comment period (69 FR 66236), we 
implemented the first Five-Year Review of the MP 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 revisions to the 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 2009 PFS final rule with comment period 
(73FR 69730), as required by section 133(b) of the Medicare 
Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 
110-275), the separate budget neutrality (BN) adjustor resulting from 
the third Five-Year Review of physician work RVUs is being applied to 
the CF beginning with CY 2009 rather than the work RVUs.

B. Components of the Fee Schedule Payment Amounts

    To calculate the payment for every physicians' 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 expense in an 
area compared to the national average costs for each component.
    RVUs are converted to dollar amounts through the application of a 
CF, which is calculated by CMS' Office of the Actuary (OACT).
    The formula for calculating the Medicare fee schedule payment 
amount for a given service and fee schedule area can be expressed as:

Payment = [(RVU work x GPCI work) + (RVU PE x GPCI PE) + (RVU 
malpractice x GPCI malpractice)] x CF.

C. Most Recent Changes to the Fee Schedule

    The CY 2009 PFS final rule with comment period (73 FR 69726) 
implemented changes to the PFS and other Medicare Part B payment 
policies. It also finalized the CY 2008 interim RVUs and implemented 
interim RVUs for new and revised codes for CY 2009 to ensure that our 
payment systems are updated to reflect changes in medical practice and 
the relative value of services. The CY 2009 PFS final rule with comment 
period also addressed other policies, as well as certain provisions of 
the MIPPA.
    As required by the statute, and based on section 131 of the MIPPA, 
the CY 2009 PFS final rule with comment period also announced the 
following for CY 2009: the PFS update of 1.1 percent, the initial 
estimate for the sustainable growth rate of 7.4 percent, and the 
conversion factor (CF) of $36.0666.

II. Provisions of the Final Regulation

    In response to the CY 2010 PFS proposed rule (74 FR 33520) we 
received approximately 16,500 timely public comments. These included 
comments from concerned citizens, individual physicians, health care 
workers, professional associations and societies, manufacturers and 
Congressmen. The majority of the comments addressed proposals related 
to the MIPPA provisions concerning teaching anesthesiology and cardiac 
and pulmonary rehabilitation, the physician practice information survey 
(PPIS), and the impact of the proposed rule on specific specialties. To 
the extent that comments were outside the scope of the proposed rule, 
they are not addressed in this final rule with comment period.

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 stated that the revised PE 
methodology must consider the staff, equipment, and supplies used in 
the provision of a variety of 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[dash]specific practice costs to individual 
procedures. The specialty[dash]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 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 provide 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

[[Page 61744]]

explanation of the PE methodology, see the Five-Year Review of Work 
Relative Value Units Under the PFS and Proposed Changes to the Practice 
Expense Methodology proposed notice (71 FR 37242) and the CY 2007 PFS 
final rule with comment period (71 FR 69629).

    Note:  In section II.A.1 of this final rule with comment period 
rule, we discuss the current methodology used for calculating PE. In 
section II.A.2. of this final rule with comment period, which 
contains PE proposals for CY 2010, we summarize and respond to 
comments on our proposal to use data from the AMA Physician Practice 
Information Survey (PPIS) in place of the AMA's SMS survey data and 
supplemental survey data that is currently used in the PE 
methodology, as well as our proposal concerning equipment 
utilization assumptions.

1. Practice Expense Methodology
a. Data Sources for Calculating Practice Expense
    The AMA's SMS survey data and supplemental survey data from the 
specialties of cardiothoracic 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 currently 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 CY 2002 PFS final rule with comment period (66 FR 
55246).) 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 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, those 
entities and organizations representing the specialty itself). (See the 
Criteria for Submitting Supplemental Practice Expense Survey Data 
interim final rule with comment period (65 FR 25664).) 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 with comment period (68 FR 63196) (hereinafter referred to as CY 
2004 PFS final rule with comment period).
    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. The CPEP data has been regularly 
updated by various RUC committees on PE.
b. Allocation of PE to Services
    Currently, the aggregate level specialty-specific PEs are derived 
from the AMA's SMS survey and supplementary survey data. For CY 2010, 
we discuss in section II.A.2. of this final rule with comment period 
how a new data source, PPIS, will be used. 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 x physician CF) x 
(average direct percentage from survey PE/HR data)).
    (ii) Indirect costs. Currently, the SMS and supplementary survey 
data are the sources for the specialty-specific aggregate indirect 
costs used in our PE calculations. For CY 2010, we discuss in section 
II.A.2. of this final rule with comment period how a new data source, 
PPIS, will be used. We then allocate the indirect costs to the code 
level on the basis of the direct costs specifically associated with a 
code and the greater of either the clinical labor costs or the 
physician work RVUs. For calculation of the 2010 PE RVUs, we use the 
2008 procedure-specific utilization data crosswalked to 2010 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 
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 currently use the specialty-specific PE/HR from the SMS 
survey data, as well as the supplemental surveys for cardiothoracic 
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

[[Page 61745]]

American Society for Therapeutic Radiology and Oncology (ASTRO) and the 
Association of Freestanding Radiation Oncology Centers (AFROC)). As 
discussed in the CY 2008 PFS final rule with comment period (72 FR 
66233), the PE/HR survey data for radiology is weighted by practice 
size. For CY 2010, we discuss in section II.A.2. of this final rule 
with comment period how a new data source, PPIS, will be used. 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 and Non-Facility 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 
non-facility. The non-facility 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 
non-facility 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), both of 
which may be performed independently or by different providers. When 
services have TCs, PCs, and global components that can be billed 
separately, the payment for the global component equals the sum of the 
payment for the TC and PC. 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, PCs, and TCs for a service. (The 
direct PE RVUs for the TC and PC 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), the change to the PE methodology was implemented over a 4-
year period. In CY 2010, the transition period for the change to the PE 
methodology is complete and PE RVUs will be calculated based entirely 
on the current methodology.
f. PE RVU Methodology
    The following is a description of the PE RVU methodology. While 
there are some changes to the data sources, the methodology remains the 
same.
(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/non-facility 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. For CY 2010, we discuss in section 
II.A.2. of this final rule with comment period how a new data source, 
PPIS, will be used.
    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 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. For CY 2010, we discuss in section II.A.2. of this final 
rule with comment period how a new data source, PPIS, will be used.
    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 TCs 
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 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

[[Page 61746]]

indirect allocator is: indirect percentage * (direct PE RVU/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 PE RVU/direct percentage) + clinical PE 
RVU.

    Note:  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 the 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 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 TCs 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 component.)
    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 ratesetting purposes, but 
all specialties are included for purposes of calculating the final BN 
adjustment. (See ``Specialties excluded from ratesetting calculation'' 
below in this section.)
(v) Setup File Information
     Specialties excluded from ratesetting 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 modifiers: 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 
proposed rule.
(vi) Equipment cost per minute
    The equipment cost per minute is calculated as:
    (1/(minutes per year * usage)) * price * ((interest rate/(1-(1/((1 
+ interest rate) ** life of equipment)))) + maintenance)

Where:

minutes per year = maximum minutes per year if usage were continuous 
(that is, usage = 1); 150,000 minutes.
usage = equipment utilization assumption; 0.9 for certain expensive 
diagnostic equipment (see section II.A.2. of this final rule with 
comment period rule) and 0.5 for others.
price = price of the particular piece of equipment.
interest rate = 0.11.
life of equipment = useful life of the particular piece of 
equipment.