[Federal Register Volume 75, Number 148 (Tuesday, August 3, 2010)]
[Proposed Rules]
[Pages 46169-46831]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-16448]



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Part II--Continued

Book 3 of 3 Books

Pages 46169-46836





Department of Health and Human Services





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Centers for Medicare and Medicaid



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42 CFR Parts 410, 416 and 419



Medicare Program: Changes to the Hospital Outpatient Prospective 
Payment System and CY 2010 Payment Rates; Changes to the Ambulatory 
Surgical Center Payment System and CY 2010 Payment Rates; Corrections; 
Final Rule, Notice, and Proposed Rule

Federal Register / Vol. 75, No. 148 / Tuesday, August 3, 2010 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 412, 413, 416, 419, 482, and 489

[CMS-1504-P]
RIN 0938-AP82


Medicare Program; Proposed Changes to the Hospital Outpatient 
Prospective Payment System and CY 2011 Payment Rates; Proposed Changes 
to the Ambulatory Surgical Center Payment System and CY 2011 Payment 
Rates; Proposed Changes to Payments to Hospitals for Certain Inpatient 
Hospital Services and for Graduate Medical Education Costs; and 
Proposed Changes to Physician Self-Referral Rules and Related Changes 
to Provider Agreement Regulations

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the Medicare hospital 
outpatient prospective payment system (OPPS) to implement applicable 
statutory requirements and changes arising from our continuing 
experience with this system and to implement certain provisions of the 
Patient Protection and Affordable Care Act, as amended by the Health 
Care and Education Reconciliation Act of 2010 (Affordable Care Act). In 
this proposed rule, we describe the proposed changes to the amounts and 
factors used to determine the payment rates for Medicare hospital 
outpatient services paid under the prospective payment system. These 
proposed changes would be applicable to services furnished on or after 
January 1, 2011.
    In addition, this proposed rule would update the revised Medicare 
ambulatory surgical center (ASC) payment system to implement applicable 
statutory requirements and changes arising from our continuing 
experience with this system and to implement certain provisions of the 
Affordable Care Act. In this proposed rule, we set forth the proposed 
applicable relative payment weights and amounts for services furnished 
in ASCs, specific HCPCS codes to which these proposed changes would 
apply, and other pertinent ratesetting information for the CY 2011 ASC 
payment system. These proposed changes would be applicable to services 
furnished on or after January 1, 2011.
    This proposed rule also includes proposals to implement provisions 
of the Affordable Care Act relating to payments to hospitals for direct 
graduate medical education (GME) and indirect medical education (IME) 
costs; and new limitations on certain physician referrals to hospitals 
in which they have an ownership or investment interest.

DATES: To be assured consideration, comments on all sections of this 
proposed rule must be received at one of the addresses provided in the 
ADDRESSES section no later than 5 p.m. EST on August 31, 2010.

ADDRESSES: In commenting, please refer to file code CMS-1504-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on this 
regulation to http://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-1504-P, P.O. Box 8013, Baltimore, MD 
21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1504-P, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments 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 the telephone number (410) 786-7195 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.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions 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: 
    Alberta Dwivedi, (410) 786-0378, Hospital outpatient prospective 
payment issues.
    Paula Smith, (410) 786-0378, Ambulatory surgical center issues.
    Michele Franklin, (410) 786-4533, and Jana Lindquist, (410) 786-
4533, Partial hospitalization and community mental health center 
issues.
    James Poyer, (410) 786-2261, Reporting of quality data issues.
    Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548, 
Hospital preadmission services and direct graduate medical education 
and indirect medical education payments issues.
    Jacqueline Proctor, (410) 786-8852, Physician ownership and 
investment in hospitals issues.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.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, MD 21244, on Monday through Friday of each week from 8:30

[[Page 46171]]

a.m. to 4 p.m. EST. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Electronic Access

    This Federal Register document is also available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office. Free public access is available on a Wide 
Area Information Server (WAIS) through the Internet and via 
asynchronous dial-in. Internet users can access the database by using 
the World Wide Web; the Superintendent of Documents' home page address 
is http://www.gpoaccess.gov/index.html, by using local WAIS client 
software, or by telnet to swais.access.gpo.gov, then login as guest (no 
password required). Dial-in users should use communications software 
and modem to call (202) 512-1661; type swais, then login as guest (no 
password required).

Alphabetical List of Acronyms Appearing in This Proposed Rule

ACEP American College of Emergency Physicians
AHA American Hospital Association
AHIMA American Health Information Management Association
AMA American Medical Association
AMP Average manufacturer price
AOA American Osteopathic Association
APC Ambulatory payment classification
ASC Ambulatory Surgical Center
ASP Average sales price
AWP Average wholesale price
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BCA Blue Cross Association
BCBSA Blue Cross and Blue Shield Association
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Public Law 106-554
CAH Critical access hospital
CAP Competitive Acquisition Program
CBSA Core-Based Statistical Area
CCR Cost-to-charge ratio
CERT Comprehensive Error Rate Testing
CMHC Community mental health center
CMS Centers for Medicare & Medicaid Services
CoP Conditions of Participation
CORF Comprehensive outpatient rehabilitation facility
CPT [Physicians'] Current Procedural Terminology, Fourth Edition, 
2009, copyrighted by the American Medical Association
CY Calendar year
DMEPOS Durable medical equipment, prosthetics, orthotics, and 
supplies
DMERC Durable medical equipment regional carrier
DRA Deficit Reduction Act of 2005, Public Law 109-171
DSH Disproportionate share hospital
EACH Essential Access Community Hospital
E/M Evaluation and management
EPO Erythropoietin
ESRD End-stage renal disease
FACA Federal Advisory Committee Act, Public Law 92-463
FAR Federal Acquisition Regulations
FDA Food and Drug Administration
FFS Fee-for-service
FSS Federal Supply Schedule
FTE Full-time equivalent
FY Federal fiscal year
GAO Government Accountability Office
GME Graduate medical education
HCERA Health Care and Education Reconciliation Act of 2010, Public 
Law 111-152
HCPCS Healthcare Common Procedure Coding System
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act of 1996, 
Public Law 104-191
HOPD Hospital outpatient department
HOP QDRP Hospital Outpatient Quality Data Reporting Program
ICD-9-CM International Classification of Diseases, Ninth Edition, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
IDE Investigational device exemption
IHS Indian Health Service
IME Indirect medical education
I/OCE Integrated Outpatient Code Editor
IOL Intraocular lens
IPPE Initial preventive physical examination
IPPS [Hospital] Inpatient prospective payment system
IVIG Intravenous immune globulin
MAC Medicare Administrative Contractor
MedPAC Medicare Payment Advisory Commission
MDH Medicare-dependent, small rural hospital
MIEA-TRHCA Medicare Improvements and Extension Act under Division B, 
Title I of the Tax Relief Health Care Act of 2006, Public Law 109-
432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MPFS Medicare Physician Fee Schedule
MSA Metropolitan Statistical Area
NCCI National Correct Coding Initiative
NCD National Coverage Determination
NTIOL New technology intraocular lens
OIG [HHS] Office of the Inspector General
OMB Office of Management and Budget
OPD [Hospital] Outpatient department
OPPS [Hospital] Outpatient prospective payment system
PHP Partial hospitalization program
PM Program memorandum
PPACA Patient Protection and Affordable Care Act, Public Law 111-148
PPI Producer Price Index
PPPS Personalized preventive plan services
PPS Prospective payment system
PR Pulmonary rehabilitation
PRA Paperwork Reduction Act
QAPI Quality Assessment and Performance Improvement
QIO Quality Improvement Organization
RAC Recovery Audit Contractor
RFA Regulatory Flexibility Act
RHQDAPU Reporting Hospital Quality Data for Annual Payment Update 
[Program]
RHHI Regional home health intermediary
SBA Small Business Administration
SCH Sole community hospital
SDP Single Drug Pricer
SI Status indicator
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248
TOPS Transitional outpatient payments
USPDI United States Pharmacopoeia Drug Information
USPSTF United States Preventive Services Task Force
WAC Wholesale acquisition cost

    In this document, we address two payment systems under the Medicare 
program: The hospital outpatient prospective payment system (OPPS) and 
the revised ambulatory surgical center (ASC) payment system. In 
addition, we are addressing provisions of the Affordable Care Act, 
relating to payments to hospitals for direct graduate medical education 
(GME) and indirect medical education (IME) costs; we are also 
addressing provisions relating to new limitations on certain physician 
referrals to hospitals in which they have an ownership or investment 
interest and proposing related changes to provider agreement 
regulations. The provisions relating to the OPPS are included in 
sections I. through XIV., XVI, and XIX. through XXII. of this proposed 
rule and in Addenda A, B, C (Addendum C is available on the Internet 
only; we refer readers to section XIX.A. of this proposed rule), D1, 
D2, E, L, and M to this proposed rule. The provisions related to the 
revised ASC payment system are included in sections XV., XVI., and XIX. 
through XXII. of this proposed rule and in Addenda AA, BB, DD1, DD2, 
and EE to this proposed rule. (Addendum EE is available on the Internet 
only; we refer readers to section XIX.B. of this proposed rule.) The 
provisions related to payments to hospitals for direct graduate medical 
education (GME) and indirect medical education (IME) costs are included 
in section XVII. of this proposed rule. The provisions relating to the 
new limitations on certain physician referrals to hospitals in which

[[Page 46172]]

they have an ownership or investment interest and proposed related 
changes to provider agreement regulations are included in section 
XVIII. of this proposed rule.

Table of Contents

I. Background and Summary of the CY 2011 OPPS/ASC Proposed Rule
    A. Legislative and Regulatory Authority for the Hospital 
Outpatient Prospective Payment System
    B. Excluded OPPS Services and Hospitals
    C. Prior Rulemaking
    D. The Affordable Care Act
    E. Advisory Panel on Ambulatory Payment Classification (APC) 
Groups
    1. Authority of the APC Panel
    2. Establishment of the APC Panel
    3. APC Panel Meetings and Organizational Structure
    F. Background and Summary of This Proposed Rule
    1. Proposed Updates Affecting OPPS Payments
    2. Proposed OPPS Ambulatory Payment Classification (APC) Group 
Policies
    3. Proposed OPPS Payment for Devices
    4. Proposed OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    5. Proposed Estimate of OPPS Transitional Pass-Through Spending 
for Drugs, Biologicals, Radiopharmaceuticals, and Devices
    6. Proposed OPPS Payment for Brachytherapy Sources
    7. Proposed OPPS Payment for Drug Administration Services
    8. Proposed OPPS Payment for Hospital Outpatient Visits
    9. Proposed Payment for Partial Hospitalization Services
    10. Proposed Procedures That Would Be Paid Only as Inpatient 
Procedures
    11. Proposed OPPS Nonrecurring Technical and Policy Changes and 
Clarifications
    12. Proposed OPPS Payment Status and Comment Indicators
    13. OPPS Policy and Payment Recommendations
    14. Proposed Updates to the Ambulatory Surgical Center (ASC) 
Payment System
    15. Reporting Quality Data for Annual Payment Rate Updates
    16. Proposed Changes Relating to Payments to Hospitals for 
Preadmission Services and GME and IME Costs
    17. Proposed Changes to Whole Hospital and Rural Provider 
Exceptions to the Physician Self-Referral Prohibition and Related 
Changes to Provider Agreement Regulations
    18. Regulatory Impact Analysis
II. Proposed Updates Affecting OPPS Payments
    A. Proposed Recalibration of APC Relative Weights
    1. Database Construction
    a. Database Source and Methodology
    b. Proposed Use of Single and Multiple Procedure Claims
    c. Proposed Calculation of CCRs
    (1) Development of the CCRs
    (2) Charge Compression
    2. Proposed Data Development Process and Calculation of Median 
Costs
    a. Claims Preparation
    b. Splitting Claims and Creation of ``Pseudo'' Single Procedure 
Claims
    (1) Splitting Claims
    (2) Creation of ``Pseudo'' Single Procedure Claims
    c. Completion of Claim Records and Median Cost Calculations
    d. Proposed Calculation of Single Procedure APC Criteria-Based 
Median Costs
    (1) Device-Dependent APCs
    (2) Blood and Blood Products
    (3) Single Allergy Tests
    (4) Hyperbaric Oxygen Therapy (APC 0659)
    (5) Payment for Ancillary Outpatient Services When Patient 
Expires (APC 0375)
    (6) Pulmonary Rehabilitation
    e. Proposed Calculation of Composite APC Criteria-Based Median 
Costs
    (1) Extended Assessment and Management Composite APCs (APCs 8002 
and 8003)
    (2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC 
(APC 8001)
    (3) Cardiac Electrophysiologic Evaluation and Ablation Composite 
APC (APC 8000)
    (4) Mental Health Services Composite APC (APC 0034)
    (5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 
8007, and 8008)
    3. Proposed Changes to Packaged Services
    a. Background
    b. Packaging Issues
    (1) Packaged Services Addressed by the February 2010 APC Panel 
Recommendations
    (2) Other Service-Specific Packaging Issues
    4. Proposed Calculation of OPPS Scaled Payment Weights
    B. Proposed Conversion Factor Update
    C. Proposed Wage Index Changes
    D. Proposed Statewide Average Default CCRs
    E. Proposed OPPS Payment to Certain Rural and Other Hospitals
    1. Hold Harmless Transitional Payment Changes Made by Pub. L. 
111-148
    2. Proposed Adjustment for Rural SCHs Implemented in CY 2006 
Related to Public Law 108-173 (MMA)
    F. Proposed OPPS Payments to Certain Cancer Hospitals Described 
by Section 1886(d)(1)(B)(v) of the Act
    1. Background
    2. Study of Cancer Hospital Costs Relative to Other Hospitals
    3. Proposed Adjustment for Certain Cancer Hospitals
    G. Proposed Hospital Outpatient Outlier Payments
    1. Background
    2. Proposed Outlier Calculation
    H. Proposed Calculation of an Adjusted Medicare Payment From the 
National Unadjusted Medicare Payment
    I. Proposed Beneficiary Copayments
    1. Background
    2. Proposed OPPS Copayment Policy
    3. Proposed Calculation of an Adjusted Copayment Amount for an 
APC Group
III. Proposed OPPS Ambulatory Payment Classification (APC) Group 
Policies
    A. Proposed OPPS Treatment of New CPT and Level II HCPCS Codes
    1. Proposed Treatment of New Level II HCPCS Codes and Category I 
CPT Vaccine Codes and Category III CPT Codes for Which We Are 
Soliciting Public Comments in This Proposed Rule
    2. Proposed Process for New Level II HCPCS Codes and Category I 
and Category III CPT Codes for Which We Are Soliciting Public 
Comments in the CY 2011 OPPS/ASC Final Rule With Comment Period
    B. Proposed OPPS Changes--Variations Within APCs
    1. Background
    2. Application of the 2 Times Rule
    3. Proposed Exceptions to the 2 Times Rule
    C. New Technology APCs
    1. Background
    2. Proposed Movement of Procedures From New Technology APCs to 
Clinical APCs
    D. Proposed OPPS APC-Specific Policy: Skin Repair (APCs 0134 and 
0135)
IV. Proposed OPPS Payment for Devices
    A. Proposed Pass-Through Payments for Devices
    1. Expiration of Transitional Pass-Through Payments for Certain 
Devices
    2. Proposed Provisions for Reducing Transitional Pass-Through 
Payments To Offset Costs Packaged Into APC Groups
    a. Background
    b. Proposed Policy
    B. Proposed Adjustment to OPPS Payment for No Cost/Full Credit 
and Partial Credit Devices
    1. Background
    2. Proposed APCs and Devices Subject to the Adjustment Policy
V. Proposed OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    A. Proposed OPPS Transitional Pass-Through Payment for 
Additional Costs of Drugs, Biologicals, and Radiopharmaceuticals
    1. Background
    2. Drugs and Biologicals With Expiring Pass-Through Status in CY 
2010
    3. Proposed Drugs, Biologicals, and Radiopharmaceuticals With 
New or Continuing Pass-Through Status in CY 2011
    4. Proposed Provision for Reducing Transitional Pass-Through 
Payments for Diagnostic Radiopharmaceuticals and Contrast Agents To 
Offset Costs Packaged Into APC Groups
    a. Background
    b. Proposed Payment Offset Policy for Diagnostic 
Radiopharmaceuticals
    c. Proposed Payment Offset Policy for Contrast Agents
    B. Proposed OPPS Payment for Drugs, Biologicals, and 
Radiopharmaceuticals Without Pass-Through Status
    1. Background
    2. Proposed Criteria for Packaging Payment for Drugs, 
Biologicals, and Radiopharmaceuticals
    a. Background
    b. Proposed Cost Threshold for Packaging of Payment for HCPCS 
Codes That Describe Certain Drugs, Nonimplantable Biologicals, and 
Therapeutic

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Radiopharmaceuticals (``Threshold-Packaged Drugs'')
    c. Proposed Packaging Determination for HCPCS Codes That 
Describe the Same Drug or Biological But Different Dosages
    d. Proposed Packaging of Payment for Diagnostic 
Radiopharmaceuticals, Contrast Agents, and Implantable Biologicals 
(``Policy-Packaged'' Drugs and Devices)
    3. Proposed Payment for Drugs and Biologicals Without Pass-
Through Status That Are Not Packaged
    a. Proposed Payment for Specified Covered Outpatient Drugs 
(SCODs) and Other Separately Payable and Packaged Drugs and 
Biologicals, Including Therapeutic Radiopharmaceuticals
    b. Proposed Payment Policy
    4. Proposed Payment for Blood Clotting Factors
    5. Proposed Payment for Nonpass-Through Drugs, Biologicals, and 
Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital 
Claims Data
VI. Proposed Estimate of OPPS Transitional Pass-Through Spending for 
Drugs, Biologicals, Radiopharmaceuticals, and Devices
    A. Background
    B. Proposed Estimate of Pass-Through Spending
VII. Proposed OPPS Payment for Brachytherapy Sources
    A. Background
    B. Proposed OPPS Payment Policy
VIII. Proposed OPPS Payment for Drug Administration Services
    A. Background
    B. Proposed Coding and Payment for Drug Administration Services
IX. Proposed OPPS Payment for Hospital Outpatient Visits
    A. Background
    B. Proposed Policies for Hospital Outpatient Visits
    1. Clinic Visits: New and Established Patient Visits
    2. Emergency Department Visits
    3. Visit Reporting Guidelines
    X. Proposed Payment for Partial Hospitalization Services
    A. Background
    B. Proposed PHP APC Update for CY 2011
    C. Proposed Changes to Regulations To Incorporate Provisions of 
HCERA of 2010
    D. Proposed Separate Threshold for Outlier Payments to CMHCs
XI. Proposed Procedures That Will Be Paid Only as Inpatient 
Procedures
    A. Background
    B. Proposed Changes to the Inpatient List
XII. Proposed OPPS Nonrecurring Technical and Policy Issues
    A. Physician Supervision
    1. Background
    a. Outpatient Therapeutic Services
    b. Outpatient Diagnostic Services
    2. Issues Regarding the Supervision of Hospital Outpatient 
Services Raised by Hospitals and Other Stakeholders
    3. Proposed Policies for Supervision of Outpatient Therapeutic 
Services in Hospital and CAHs
    4. Supervision of Hospital Outpatient Diagnostic Services
    B. Proposed Payment for Preventive Services
    1. Definition of ``Preventive Services''
    2. Coinsurance and Deductible for Preventive Services
    3. Extension of Waiver of Deductible to Services Furnished in 
Connection With or in Relation to a Colorectal Cancer Screening Test 
That Becomes Diagnostic or Therapeutic
    C. Payment for Pulmonary Rehabilitation, Cardiac Rehabilitation, 
and Intensive Cardiac Rehabilitation Services Furnished to Hospital 
Outpatients
    D. Expansion of Multiple Procedure Payment Reduction Under the 
Medicare Physician Fee Schedule (MPFS) to Therapy Services
XIII. Proposed OPPS Payment Status and Comment Indicators
    A. Proposed OPPS Payment Status Indicator Definitions
    1. Proposed Payment Status Indicators To Designate Services That 
Are Paid Under the OPPS
    2. Proposed Payment Status Indicators To Designate Services That 
Are Paid Under a Payment System Other Than the OPPS
    3. Proposed Payment Status Indicators To Designate Services That 
Are Not Recognized Under the OPPS But That May Be Recognized by 
Other Institutional Providers
    4. Proposed Payment Status Indicators To Designate Services That 
Are Not Payable by Medicare on Outpatient Claims
    B. Proposed Comment Indicator Definitions
XIV. OPPS Policy and Payment Recommendations
    A. MedPAC Recommendations
    B. APC Panel Recommendations
    C. OIG Recommendations
XV. Proposed Updates to the Ambulatory Surgical Center (ASC) Payment 
System
    A. Background
    1. Legislative Authority for the ASC Payment System
    2. Prior Rulemaking
    3. Policies Governing Changes to the Lists of Codes and Payment 
Rates for ASC Covered Surgical Procedures and Covered Ancillary 
Services
    B. Proposed Treatment of New Codes
    1. Proposed Process for Recognizing New Category I and III CPT 
Codes and Level II HCPCS Codes
    2. Proposed Treatment of New Level II HCPCS Codes and Category 
III CPT Codes Implemented in April and July 2010
    C. Proposed Update to the List of ASC Covered Surgical 
Procedures and Covered Ancillary Services
    1. Covered Surgical Procedures
    a. Proposed Additions to the List of ASC Covered Surgical 
Procedures
    b. Proposed Covered Surgical Procedures Designated as Office-
Based
    (1) Background
    (2) Proposed Changes to Covered Surgical Procedures Designated 
as Office-Based for CY 2011
    c. ASC Covered Surgical Procedures Designated as Device-
Intensive
    (1) Background
    (2) Proposed Changes to List of Covered Surgical Procedures 
Designated as Device-Intensive for CY 2011
    d. ASC Treatment of Surgical Procedures Proposed for Removal 
From the OPPS Inpatient List for CY 2011
    2. Covered Ancillary Services
    D. Proposed ASC Payment for Covered Surgical Procedures and 
Covered Ancillary Services
    1. Proposed Payment for Covered Surgical Procedures
    a. Background
    b. Proposed Update to ASC Covered Surgical Procedure Payment 
Rates for CY 2011
    c. Proposed Adjustment to ASC Payments for No Cost/Full Credit 
and Partial Credit Devices
    d. Proposed Waiver of Coinsurance and Deductible for Certain 
Preventive Services
    2. Proposed Payment for Covered Ancillary Services
    a. Background
    b. Proposed Payment for Covered Ancillary Services for CY 2011
    E. New Technology Intraocular Lenses (NTIOLs)
    1. Background
    2. NTIOL Application Process for Payment Adjustment
    3. Classes of NTIOLs Approved and New Requests for Payment 
Adjustment
    a. Background
    b. Request To Establish New NTIOL Class for CY 2011 and Deadline 
for Public Comment
    4. Proposed Payment Adjustment
    5. Proposed ASC Payment for Insertion of IOLs
    F. Proposed ASC Payment and Comment Indicators
    1. Background
    2. Proposed ASC Payment and Comment Indicators
    G. ASC Policy and Payment Recommendations
    H. Calculation of the Proposed ASC Conversion Factor and the 
Proposed ASC Payment Rates
    1. Background
    2. Calculation of the Proposed ASC Payment Rates
    a. Updating the Proposed ASC Relative Payment Weights for CY 
2011 and Future Years
    b. Updating the ASC Conversion Factor With Application of a 
Productivity Adjustment to the Update Factor
    3. Display of Proposed ASC Payment Rates
XVI. Reporting Quality Data for Annual Payment Rate Updates
    A. Background
    1. Overview
    2. Hospital Outpatient Quality Data Reporting Under Section 
109(a) of Public Law 109-432
    3. Reporting ASC Quality Data for Annual Payment Update
    4. HOP QDRP Quality Measures for the CY 2009 Payment 
Determination
    5. HOP QDRP Quality Measures for the CY 2010 Payment 
Determination
    6. HOP QDRP Quality Measures, Technical Specification Updates, 
and Data

[[Page 46174]]

Publication for the CY 2011 Payment Determination
    a. Quality Measures
    b. Maintenance of Technical Specifications for Quality Measures
    c. Publication of HOP QDRP Data
    B. Proposed Expansion of HOP QDRP Quality Measures for the CY 
2012, CY 2013, and CY 2014 Payment Determinations
    1. Considerations in Expanding and Updating Quality Measures 
Under the HOP QRDP Program
    2. Retirement of HOP QDRP Quality Measures
    3. Proposed HOP QDRP Quality Measures for the CY 2012 Payment 
Determination
    a. Proposed Retention of Existing HOP QDRP Measures for the CY 
2012 Payment Determination
    b. Proposed New Structural Measure for CY 2012 Payment 
Determination
    c. Proposed New Claims-Based Measures for CY 2012 Payment 
Determination
    d. Proposed New Chart-Abstracted Measures for CY 2012 Payment 
Determination
    4. Proposed HOP QDRP Quality Measures for the CY 2013 Payment 
Determination
    a. Proposed Retention of CY 2012 HOP QDRP Measures for the CY 
2013 Payment Determination
    b. Proposed New Structural Measure for the CY 2013 Payment 
Determination
    c. Proposed New Chart-Abstracted Measures for the CY 2013 
Payment Determination
    5. Proposed HOP QDRP Quality Measures for the CY 2014 Payment 
Determination
    a. Proposed Retention of CY 2013 HOP QDRP Measures for the CY 
2014 Payment Determination
    b. Proposed New Chart-Abstracted Measures for the CY 2014 
Payment Determination
    6. Possible Quality Measures Under Consideration for Future 
Inclusion in HOP QDRP
    C. Proposed Payment Reduction for Hospitals That Fail To Meet 
the HOP QDRP Requirements for the CY 2011 Payment Update
    1. Background
    2. Proposed Reporting Ratio Application and Associated 
Adjustment Policy for CY 2011
    D. Proposed Requirements for HOPD Quality Data Reporting for CY 
2012 and Subsequent Years
    1. Administrative Requirements
    2. Data Collection and Submission Requirements
    a. General Data Collection and Submission Requirements
    b. Extraordinary Circumstance Extension or Waiver for Reporting 
Quality Data
    3. HOP QDRP Validation Requirements for Abstracted Data: Data 
Validation Approach for CY 2012 and Subsequent Years
    a. Background
    b. Proposed Data Validation Requirements for CY 2012
    c. Additional Data Validation Conditions Under Consideration for 
CY 2013 and Subsequent Years
    E. Proposed HOP QDRP Reconsideration and Appeals Procedures
    F. Reporting of ASC Quality Data
    G. Electronic Health Records
XVII. Proposed Changes Relating to Payments to Hospitals for 
Preadmission Services and for Direct Graduate Medical Education 
(GME) and Indirect Medical Education (IME) Costs
    A. Proposed Changes Relating to Payments to Hospitals for Direct 
GME and IME Costs
    1. Background
    2. Counting Resident Time in Nonprovider Settings (Section 5504 
of the Affordable Care Act)
    a. Background and Changes Made by the Affordable Care Act
    b. Elimination of the ``All or Substantially All of the Costs 
for the Training Program in the Nonhospital Setting'' Requirement 
and New Cost Requirements for Hospitals
    c. Proposed Revision to Regulations To Allow More Than One 
Hospital To Incur the Costs of Training Programs at Nonhospital 
Settings, Either Directly or Through a Third Party
    d. Proposed Changes to Regulations Regarding Recordkeeping and 
Comparison to a Base Year
    3. Counting Resident Time for Didactic and Scholarly Activities 
and Other Activities (Section 5505 of the Affordable Care Act)
    a. Background and Changes Made by the Affordable Care Act
    b. Definition of ``Nonprovider Setting That Is Primarily Engaged 
in Furnishing Patient Care''
    c. Distinguishing Between Allowed ``Nonpatient Care Activities'' 
and Nonallowable Research Time
    d. Approved Leave of Absence
    4. Reductions of and Increases in Hospitals' FTE Resident Caps 
for GME Payment Purposes
    a. General Background on Methodology for Determining the FTE 
Resident Count
    b. Reduction of Hospitals' FTE Resident Caps Under the 
Provisions of Section 5503 of the Affordable Care Act
    c. Hospitals Subject to the FTE Resident Cap Reduction
    d. Exemption From FTE Resident Cap Reduction for Certain Rural 
Hospitals
    e. Application of Section 5503 to Hospitals That Participate in 
Demonstration Projects or Voluntary Reduction Programs and Certain 
Other Hospitals
    f. Determining the Estimated Number of FTE Resident Slots 
Available for Redistribution
    g. Reference Cost Reports That Are Under Appeal
    h. Determining the Possible Reduction to a Hospital's FTE 
Resident Cap
    i. Application of Section 5503 to Hospitals That File Low 
Utilization Medicare Cost Reports
    j. Treatment of Hospitals With Caps That Have Been Reduced or 
Increased Under Section 422 of Public Law 108-173
    k. Criteria for Determining Hospitals That Will Receive 
Increases in Their FTE Resident Caps
    l. Application Process for the Increases in Hospitals' FTE 
Resident Caps
    m. CMS Evaluation of Applications for Increases in FTE Resident 
Caps
    n. CMS Evaluation of Application for Increases in FTE Resident 
Caps
    o. Exception If Positions Are Not Redistributed by July 1, 2011
    p. Application of Direct GME PRAs for Primary Care and 
Nonprimary Care Residents and Conforming Changes for the IME 
Multiplier
    q. Other Issues Related to a Request for Increase in the FTE 
Caps Under Section 5503
    5. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)
    a. Background
    b. Definition of a ``Closed Hospital''
    c. Priority for Hospitals in Certain Areas
    d. Application Process
    e. Ranking Criteria
    f. Demonstrated Likelihood of Filling the Positions Within a 
Certain Time Period
    g. No Duplication of FTE Cap Slots
    h. Other Payment Issues Regarding Hospitals That Receive Slots 
From Closed Hospitals
    i. Application--No Reopening of Settled Cost Reports
XVIII. Proposed Changes to Whole Hospital and Rural Provider 
Exceptions to the Physician Self-Referral Prohibition and Related 
Changes to Provider Agreement Regulations
    A. Background
    B. Changes Made by the Affordable Care Act Relating to the Whole 
Hospital and Rural Provider Exceptions to Ownership and Investment 
Prohibition
    C. Proposed Changes to Physician Self-Referral Regulations
    1. Physician Ownership and Provider Agreement
    2. Limitation on Expansion of Facility Capacity
    3. Preventing Conflicts of Interest
    4. Ensuring Bona Fide Investment
    5. Patient Safety
    6. Conversion From Ambulatory Surgery Center (ASC)
    7. Publication of Information Reported
    8. Enforcement
    D. Proposed Related Changes to Provider Agreement Regulations
XIX. Files Available to the Public via the Internet
    A. Information in Addenda Related to the Proposed CY 2011 
Hospital OPPS
    B. Information in Addenda Related to the Proposed CY 2011 ASC 
Payment System
XX. Collection of Information Requirements
    A. Legislative Requirements for Solicitation of Comments
    B. Requirements in Regulation Text
    C. Associated Information Collections Not Specified in 
Regulatory Text
    1. Hospital Outpatient Quality Data Reporting Program (HOP QDRP)
    2. Proposed HOP QDRP Quality Measures for the CY 2011 and CY 
2012 Payment Determinations
    3. Proposed HOP QDRP Validation Requirements
    4. Proposed HOP QDRP Reconsideration and Appeals Procedures
    5. Additional Topics

[[Page 46175]]

XXI. Response to Comments
XXII. Regulatory Impact Analysis
    A. Overall Impact
    1. Executive Order 12866
    2. Regulatory Flexibility Act
    3. Small Rural Hospitals
    4. Unfunded Mandates
    5. Federalism
    B. Effects of OPPS Changes in This Proposed Rule
    1. Alternatives Considered
    2. Limitations of Our Analysis
    3. Estimated Effects of This Proposed Rule on Hospitals
    4. Estimated Effects of This Proposed Rule on CMHCs
    5. Estimated Effects of This Proposed Rule on Beneficiaries
    6. Conclusion
    7. Accounting Statement
    C. Effects of ASC Payment System Changes in This Proposed Rule
    1. Alternatives Considered
    2. Limitations of Our Analysis
    3. Estimated Effects of This Proposed Rule on Payments to ASCs
    4. Estimated Effects of This Proposed Rule on Beneficiaries
    5. Conclusion
    6. Accounting Statement
    D. Effects of Proposed Requirements for Reporting of Quality 
Data for Annual Hospital Payment Update
    E. Effects of Proposed Changes in Payments to Hospitals for 
Direct GME and IME Costs
    F. Effects of Proposed Changes to Physician Self-Referral 
Regulations and Related Proposed Changes to Provider Agreement 
Regulations
    G. Executive Order 12866

Regulation Text

Addenda

Addendum A--Proposed OPPS APCs for CY 2011
Addendum AA--Proposed ASC Covered Surgical Procedures for CY 2011 
(Including Surgical Procedures for Which Payment Is Packaged)
Addendum B--Proposed OPPS Payment by HCPCS Code for CY 2011
Addendum BB--Proposed ASC Covered Ancillary Services Integral to 
Covered Surgical Procedures for CY 2011 (Including Ancillary 
Services for Which Payment Is Packaged)
Addendum D1--Proposed OPPS Payment Status Indicators for CY 2011
Addendum DD1--Proposed ASC Payment Indicators for CY 2011
Addendum D2--Proposed OPPS Comment Indicators for CY 2011
Addendum DD2--Proposed ASC Comment Indicators for CY 2011
Addendum E--Proposed HCPCS Codes That Would Be Paid Only as 
Inpatient Procedures for CY 2011
Addendum L--Proposed CY 2011 OPPS Out-Migration Adjustment
Addendum M--Proposed HCPCS Codes for Assignment to Composite APCs 
for CY 2011

I. Background and Summary of the CY 2011 OPPS/ASC Proposed Rule

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

    When Title XVIII of the Social Security Act (the Act) was enacted, 
Medicare payment for hospital outpatient services was based on 
hospital-specific costs. In an effort to ensure that Medicare and its 
beneficiaries pay appropriately for services and to encourage more 
efficient delivery of care, the Congress mandated replacement of the 
reasonable cost-based payment methodology with a prospective payment 
system (PPS). The Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33) 
added section 1833(t) to the Act authorizing implementation of a PPS 
for hospital outpatient services. The OPPS was first implemented for 
services furnished on or after August 1, 2000. Implementing regulations 
for the OPPS are located at 42 CFR part 419.
    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
(BBRA) of 1999 (Pub. L. 106-113) made major changes in the hospital 
outpatient prospective payment system (OPPS). The following Acts made 
additional changes to the OPPS: the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-
554); the Medicare Prescription Drug, Improvement, and Modernization 
Act (MMA) of 2003 (Pub. L. 108-173); the Deficit Reduction Act (DRA) of 
2005 (Pub. L. 109-171), enacted on February 8, 2006; the Medicare 
Improvements and Extension Act under Division B of Title I of the Tax 
Relief and Health Care Act (MIEA-TRHCA) of 2006 (Pub. L. 109-432), 
enacted on December 20, 2006; the Medicare, Medicaid, and SCHIP 
Extension Act (MMSEA) of 2007 (Pub. L. 110-173), enacted on December 
29, 2007; the Medicare Improvements for Patients and Providers Act 
(MIPPA) of 2008 (Pub. L. 110-275), enacted on July 15, 2008; and most 
recently the Patient Protection and Affordable Care Act (Pub. L. 111-
148), enacted on March 23, 2010, as amended by the Health Care and 
Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on 
March 30, 2010. We refer readers to section I.D. of this proposed rule 
for a summary of the provisions of Public Law 111-148, as amended by 
Public Law 111-152, that we are proposing to implement in this proposed 
rule.
    Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the ambulatory payment 
classification (APC) group to which the service is assigned. We use the 
Healthcare Common Procedure Coding System (HCPCS) codes (which include 
certain Current Procedural Terminology (CPT) codes) and descriptors to 
identify and group the services within each APC group. The OPPS 
includes payment for most hospital outpatient services, except those 
identified in section I.B. of this proposed rule. Section 
1833(t)(1)(B)(ii) of the Act provides for payment under the OPPS for 
hospital outpatient services designated by the Secretary (which 
includes partial hospitalization services furnished by community mental 
health centers (CMHCs)) and hospital outpatient services that are 
furnished to inpatients who have exhausted their Part A benefits, or 
who are otherwise not in a covered Part A stay.
    The OPPS rate is an unadjusted national payment amount that 
includes the Medicare payment and the beneficiary copayment. This rate 
is divided into a labor-related amount and a nonlabor-related amount. 
The labor-related amount is adjusted for area wage differences using 
the hospital inpatient wage index value for the locality in which the 
hospital or CMHC is located.
    All services and items within an APC group are comparable 
clinically and with respect to resource use (section 1833(t)(2)(B) of 
the Act). In accordance with section 1833(t)(2) of the Act, subject to 
certain exceptions, items and services within an APC group cannot be 
considered comparable with respect to the use of resources if the 
highest median cost (or mean cost, if elected by the Secretary) for an 
item or service in the APC group is more than 2 times greater than the 
lowest median cost for an item or service within the same APC group 
(referred to as the ``2 times rule''). In implementing this provision, 
we generally use the median cost of the item or service assigned to an 
APC group.
    For new technology items and services, special payments under the 
OPPS may be made in one of two ways. Section 1833(t)(6) of the Act 
provides for temporary additional payments, which we refer to as 
``transitional pass-through payments,'' for at least 2 but not more 
than 3 years for certain drugs, biological agents, brachytherapy 
devices used for the treatment of cancer, and categories of other 
medical devices. For new technology services that are not eligible for 
transitional pass-through payments, and for which we lack sufficient 
data to appropriately assign them to a clinical APC group, we have 
established special APC groups based on costs, which we refer to as New 
Technology APCs. These New

[[Page 46176]]

Technology APCs are designated by cost bands which allow us to provide 
appropriate and consistent payment for designated new procedures that 
are not yet reflected in our claims data. Similar to pass-through 
payments, an assignment to a New Technology APC is temporary; that is, 
we retain a service within a New Technology APC until we acquire 
sufficient data to assign it to a clinically appropriate APC group.

B. Excluded OPPS Services and Hospitals

    Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to 
designate the hospital outpatient services that are paid under the 
OPPS. While most hospital outpatient services are payable under the 
OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for 
ambulance, physical and occupational therapy, and speech-language 
pathology services, for which payment is made under a fee schedule. It 
also excludes screening mammography, diagnostic mammography, and 
effective January 1, 2011, an annual wellness visit providing 
personalized prevention plan services. The Secretary exercised the 
authority granted under the statute to also exclude from the OPPS those 
services that are paid under fee schedules or other payment systems. 
Such excluded services include, for example, the professional services 
of physicians and nonphysician practitioners paid under the Medicare 
Physician Fee Schedule (MPFS); laboratory services paid under the 
clinical diagnostic laboratory fee schedule (CLFS); services for 
beneficiaries with end-stage renal disease (ESRD) that are paid under 
the ESRD composite rate; and services and procedures that require an 
inpatient stay that are paid under the hospital inpatient prospective 
payment system (IPPS). We set forth the services that are excluded from 
payment under the OPPS in Sec.  419.22 of the regulations.
    Under Sec.  419.20(b) of the regulations, we specify the types of 
hospitals and entities that are excluded from payment under the OPPS. 
These excluded entities include: Maryland hospitals, but only for 
services that are paid under a cost containment waiver in accordance 
with section 1814(b)(3) of the Act; critical access hospitals (CAHs); 
hospitals located outside of the 50 States, the District of Columbia, 
and Puerto Rico; and Indian Health Service (IHS) hospitals.

C. Prior Rulemaking

    On April 7, 2000, we published in the Federal Register a final rule 
with comment period (65 FR 18434) to implement a prospective payment 
system for hospital outpatient services. The hospital OPPS was first 
implemented for services furnished on or after August 1, 2000. Section 
1833(t)(9) of the Act requires the Secretary to review certain 
components of the OPPS, not less often than annually, and to revise the 
groups, relative payment weights, and other adjustments that take into 
account changes in medical practices, changes in technologies, and the 
addition of new services, new cost data, and other relevant information 
and factors.
    Since initially implementing the OPPS, we have published final 
rules in the Federal Register annually to implement statutory 
requirements and changes arising from our continuing experience with 
this system. These rules can be viewed on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/. The CY 2010 OPPS/ASC final rule 
with comment period appears in the November 20, 2009 Federal Register 
(74 FR 60316). In that final rule with comment period, we revised the 
OPPS to update the payment weights and conversion factor for services 
payable under the CY 2010 OPPS on the basis of claims data from January 
1, 2008, through December 31, 2008, and to implement certain provisions 
of Public Law 110-173 and Public Law 110-275. In addition, we responded 
to public comments received on the provisions of the November 18, 2008 
final rule with comment period (73 FR 68502) pertaining to the APC 
assignment of HCPCS codes identified in Addendum B to that rule with 
the new interim (``NI'') comment indicator, and public comments 
received on the July 20, 2009 OPPS/ASC proposed rule for CY 2010 (74 FR 
35232).

D. Provisions of the Patient Protection and Affordable Care Act (Pub. 
L. 111-148), as Amended by the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152)

    On March 23, 2010, the Patient Protection and Affordable Care Act, 
Public Law 111-148, was enacted. Following the enactment of Public Law 
111-148, the Health Care and Education Reconciliation Act of 2010, 
Public Law 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. (These two public laws are 
collectively known as the Affordable Care Act.) A number of the 
provisions of the Affordable Care Act affect the OPPS and the ASC 
payment system and the providers and suppliers addressed in this 
proposed rule. Listed below are the provisions of the Affordable Care 
Act that we are proposing to implement in this proposed rule. We note 
that, due to the timing of the passage of the legislation, we were 
unable to address some of the provisions of the Affordable Care Act 
that affect the IPPS and the LTCH PPS in the FY 2011 IPPS/LTCH PPS 
proposed rule published in the Federal Register on May 4, 2010. 
Therefore, we also are including some proposals to implement certain 
provisions relating to the IPPS and LTCH PPS in this proposed rule. In 
addition, we note that we have issued or plan to issue separate 
documents in the Federal Register addressing other provisions of the 
Affordable Care Act (75 FR 30756 and 75 FR 31118).
     Section 1301 of the Affordable Care Act amended sections 
1861(ff)(3)(A) and (B) of the Act to establish new additional 
requirements for CMHCs applicable to items or services furnished to 
Medicare beneficiaries on or after the first day of the first calendar 
quarter that begins at least 12 months after the date of enactment of 
Public Law 111-152 (that is, beginning April 1, 2011). The new 
requirements specify that a CMHC provide at least 40 percent of its 
services to individuals who are not eligible for Medicare benefits 
under Title XVIII of the Act and that a partial hospitalization program 
must be a distinct and organized intensive ambulatory treatment service 
offering less than 24-hour daily care ``other than an individual's home 
or in an inpatient or residential setting.'' This provision is 
addressed in section X. of this proposed rule.
     Section 3121(a) of the Affordable Care Act amended section 
1833(t)(7)(D)(i) of the Act to extend hold harmless payment adjustments 
(called transitional corridor payments or transitional outpatient 
payments (TOPS)) to rural hospitals with 100 or fewer beds and that are 
not sole community hospitals for covered OPD services furnished on or 
after January 1, 2006 and before January 1, 2011. Section 3121(b) 
amended section 1833(t)(7)(D)(i)(III) of the Act to provide that, for 
SCHs, in the case of covered OPD services furnished on or after January 
1, 2010, and before January 1, 2011, the hold harmless TOPS provisions 
shall be applied without regard to the 100-bed limitation. These 
provisions are addressed in section II.E. of this proposed rule.
     Section 3138 of the Affordable Care Act amended section 
1833(t) of the Act to direct the Secretary to conduct a study to 
determine if costs incurred by cancer hospitals (described in section 
1886(d)(1)(B)(v) of the Act) for outpatient hospital services with 
respect to APC groups exceed those costs

[[Page 46177]]

incurred by other hospitals furnishing these services. In so far as the 
Secretary determines that such costs exceed those costs incurred by 
other hospitals, the Secretary shall provide for an appropriate 
adjustment under the authority of section 1833(t)(2)(E) to reflect 
those higher costs effective for services furnished on or after January 
1, 2011. This provision is addressed in section II.F. of this proposed 
rule.
     Section 3401(i) of the Affordable Care Act amended section 
1833(t)(3) of the Act by, among other things, adding new paragraphs 
(C)(iv)(F) and (G) to reduce the OPD fee schedule increase factor by a 
productivity adjustment and an additional adjustment for payments to 
hospital OPDs beginning in various years from CY 2010 through CY 2019 
as applicable. These hospital OPD provisions are addressed in section 
II.B.1. of this proposed rule. Section 3401(k) of the Affordable Care 
Act amended section 1833(i)(2)(D) of the Act by adding a new subsection 
(iv) to provide for a similar productivity adjustment for payment for 
ASC services. This ASC provision is addressed in section XV.H.2.b. of 
this proposed rule.
     Section 4103(a) of the Affordable Care Act amended section 
1861(s)(2) of the Act by adding a new subsection (FF) to provide 
Medicare coverage of ``personalized prevention plan services,'' 
beginning January 1, 2011. Section 4103(b) of the Affordable Care Act 
amended section 1861 of the Act by adding a new subsection (hhh) to 
define ``personalized prevention plan services'' (also cited as the 
``annual wellness visit''). Section 4103(c) of the Affordable Care Act 
excludes the annual wellness visit from payment under the OPPS and 
provides for the elimination of beneficiary coinsurance requirements 
for these preventive services in outpatient hospital settings and for 
waiver of application of the deductible for these services. These 
provisions are addressed in section XII.B. of this proposed rule.
     Section 4104(a) of the Affordable Care Act amended section 
1861(ddd) of the Act to define ``preventive services'' under Medicare 
to include screening and preventive services described under subsection 
(ww)(2) of the Act (other than services under subparagraph (M)); an 
initial preventive physical examination as defined in subsection (ww) 
of the Act; and personalized prevention plan services as defined in 
subsection (hhh)(1) of the Act. Section 4104(b) of the Affordable Care 
Act amended section 1833(a)(1) of the Act, as amended by section 
4103(c)(1) of the Affordable Care Act, to provide for the elimination 
of coinsurance for most preventive services, and section 4104(c) 
amended section 1833(b) of the Act to provide for the waiver of the 
application of the deductible for most preventive services and, 
specifically, for colorectal cancer screening tests that become 
diagnostic and any related services performed with that diagnostic 
colorectal cancer screening test performed in the same clinical 
encounter, effective for items and services furnished on or after 
January 1, 2011. These provisions are addressed in section XII.B. of 
this proposed rule.
     Sections 5503, 5504, 5505, and 5506 of the Affordable Care 
Act made a number of changes to various sections of the Act relating to 
payment for direct GME and IME costs to hospitals.
    (1) Section 5503 amended the Act to add a provision to redistribute 
medical residency positions that have been unfilled during a prior cost 
reporting period to other hospitals and to direct slots for training 
primary care physicians beginning July 1, 2011.
    (2) Section 5504 amended sections 1886(h)(4)(E) and 
1886(d)(5)(B)(iv) of the Act to allow any time spent by residents 
training in a nonprovider setting to count toward direct GME and IME 
costs if the hospital incurs the costs of residents' salaries and 
fringe benefits, effective for cost reporting periods beginning on or 
after July 1, 2010, for direct GME, and for discharges occurring on or 
after July 1, 2010, for IME.
    (3) Section 5505 amended section 1886(h) and section 1886(d)(5)(B) 
of the Act to add a provision to allow hospitals to count resident time 
spent in certain non-patient care activities while training in certain 
nonhospital settings for direct GME purposes, effective for cost 
reporting periods beginning on or after July 1, 2009; to allow 
hospitals to count resident time spent in certain non-patient care 
activities while training in certain hospital settings for IME purposes 
for cost reporting periods beginning on or after January 1, 1983; and 
to prohibit the counting of time spent by residents in research not 
associated with the treatment or diagnosis of a particular patient for 
IME purposes effective October 1, 2001 (with certain limitations).
    (4) Section 5506 amended section 1886(h)(4)(H) and section 
1886(d)(5)(B)(iv) of the Act to add a provision to allow for the 
redistribution to other hospitals in the same or contiguous areas of 
FTE resident positions from a hospital that closes (on or after the 
date that is 2 years before the date of enactment of Pub. L. 111-148). 
These provisions are addressed in section XVII.B. of this proposed 
rule.
     Section 6001 of the Affordable Care Act amended section 
1877 of the Act to add provisions under new subsection (i) relating to 
the prohibition against referrals to a hospital by a physician who has 
an ownership or investment interest in the hospital. This provision is 
addressed in section XVIII. of this proposed rule.
     Section 10324(b) of the Affordable Care Act amended 
section 1833(t) of the Act by adding a new subsection (19) to provide 
for a floor on the area wage adjustment factor for hospital outpatient 
department services furnished on or after January 1, 2011, in a State 
in which at least 50 percent of the counties in the State are frontier 
counties, that is, a county in which the population per square mile is 
less than 6. This provision is addressed in section II.C. of this 
proposed rule.

E. Advisory Panel on Ambulatory Payment Classification (APC) Groups

1. Authority of the Advisory Panel on Ambulatory Payment Classification 
(APC) Groups (the APC Panel)
    Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of 
Public Law 106-113, and redesignated by section 202(a)(2) of Public Law 
106-113, requires that we consult with an outside panel of experts to 
review the clinical integrity of the payment groups and their weights 
under the OPPS. The Act further specifies that the panel will act in an 
advisory capacity. The APC Panel, discussed under section I.E.2. of 
this proposed rule, fulfills these requirements. The APC Panel is not 
restricted to using data compiled by CMS, and it may use data collected 
or developed by organizations outside the Department in conducting its 
review.
2. Establishment of the APC Panel
    On November 21, 2000, the Secretary signed the initial charter 
establishing the APC Panel. This expert panel, which may be composed of 
up to 15 representatives of providers (currently employed full-time, 
not as consultants, in their respective areas of expertise) subject to 
the OPPS, reviews clinical data and advises CMS about the clinical 
integrity of the APC groups and their payment weights. The APC Panel is 
technical in nature, and it is governed by the provisions of the 
Federal Advisory Committee Act (FACA). Since its initial chartering, 
the Secretary has renewed the APC Panel's charter four times: on 
November 1, 2002; on November 1, 2004; on November 21, 2006; and on 
November 2, 2008. The

[[Page 46178]]

current charter specifies, among other requirements, that: the APC 
Panel continues to be technical in nature; is governed by the 
provisions of the FACA; may convene up to three meetings per year; has 
a Designated Federal Official (DFO); and is chaired by a Federal 
official designated by the Secretary.
    The current APC Panel membership and other information pertaining 
to the APC Panel, including its charter, Federal Register notices, 
membership, meeting dates, agenda topics, and meeting reports, can be 
viewed on the CMS Web site at: http://www.cms.hhs.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp#TopOfPage.
3. APC Panel Meetings and Organizational Structure
    The APC Panel first met on February 27 through March 1, 2001. Since 
the initial meeting, the APC Panel has held 17 meetings, with the last 
meeting taking place on February 17 and 18, 2010. Prior to each 
meeting, we publish a notice in the Federal Register to announce the 
meeting and, when necessary, to solicit nominations for APC Panel 
membership and to announce new members.
    The APC Panel has established an operational structure that, in 
part, includes the use of three subcommittees to facilitate its 
required APC review process. The three current subcommittees are the 
Data Subcommittee, the Visits and Observation Subcommittee, and the 
Packaging Subcommittee. The Data Subcommittee is responsible for 
studying the data issues confronting the APC Panel and for recommending 
options for resolving them. The Visits and Observation Subcommittee 
reviews and makes recommendations to the APC Panel on all technical 
issues pertaining to observation services and hospital outpatient 
visits paid under the OPPS (for example, APC configurations and APC 
payment weights). The Packaging Subcommittee studies and makes 
recommendations on issues pertaining to services that are not 
separately payable under the OPPS, but whose payments are bundled or 
packaged into APC payments. Each of these subcommittees was established 
by a majority vote from the full APC Panel during a scheduled APC Panel 
meeting, and the APC Panel recommended that the subcommittees continue 
at the February 2010 APC Panel meeting. We accept those recommendations 
of the APC Panel. All subcommittee recommendations are discussed and 
voted upon by the full APC Panel.
    Discussions of the other recommendations made by the APC Panel at 
the February 2010 meeting are included in the sections of this proposed 
rule that are specific to each recommendation. For discussions of 
earlier APC Panel meetings and recommendations, we refer readers to 
previously published hospital OPPS/ASC proposed and final rules, the 
CMS Web site mentioned earlier in this section, and the FACA database 
at: http://fido.gov/facadatabase/public.asp.

F. Summary of the Contents of This Proposed Rule

    In this proposed rule, we set forth proposed changes to the 
Medicare hospital OPPS for CY 2011 to implement statutory requirements 
and changes arising from our continuing experience with the system and 
to implement certain provisions of Public Law 111-148, as amended by 
Public Law 111-152 (collectively known as the Affordable Care Act). In 
addition, we set forth proposed changes to the revised Medicare ASC 
payment system for CY 2011, including proposed updated payment weights, 
covered surgical procedures, and covered ancillary items and services 
based on the proposed OPPS update. We set forth proposed quality 
measures for the Hospital Outpatient Quality Data Reporting Program 
(HOP QDRP) for reporting quality data for annual payment rate updates 
for CY 2012 and subsequent calendar years, the proposed requirements 
for data collection and submission for the annual payment update, and a 
proposed reduction in the OPPS payment for hospitals that fail to meet 
the HOP QDRP requirements for the CY 2011 payment update, in accordance 
with the statutory requirement. We also set forth proposed changes to 
implement provisions of the Affordable Care Act relating to payments to 
hospitals for direct GME and IME costs and the rules relating to 
physician self-referrals to hospitals in which they have an ownership 
or investment interest. In addition, we are setting forth proposals 
affecting certain payments under the Medicare IPPS. The following is a 
summary of the major proposed changes that we are proposing to make:
1. Proposed Updates Affecting OPPS Payments
    In section II. of this proposed rule, we set forth--
     The methodology used to recalibrate the proposed APC 
relative payment weights.
     The proposed changes to packaged services.
     The proposed update to the conversion factor used to 
determine payment rates under the OPPS. In this section, we set forth 
proposed changes in the amounts and factors for calculating the full 
annual update increase to the conversion factor.
     The proposed retention of our current policy to use the 
IPPS wage indices to adjust, for geographic wage differences, the 
portion of the OPPS payment rate and the copayment standardized amount 
attributable to labor-related cost. This proposal addresses the 
provisions of section 10324 of the Affordable Care Act relating to the 
establishment of a floor for the area wage adjustment factor for OPD 
services furnished in frontier States.
     The proposed update of statewide average default CCRs.
     The proposed application of hold harmless transitional 
outpatient payments (TOPs) for certain small rural hospitals, extended 
by section 3121 of the Affordable Care Act.
     The proposed payment adjustment for rural SCHs.
     The proposed calculation of the hospital outpatient 
outlier payment.
     The calculation of the proposed national unadjusted 
Medicare OPPS payment.
     The proposed beneficiary copayments for OPPS services.
2. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies
    In section III. of this proposed rule, we discuss--
     The proposed additions of new HCPCS codes to APCs.
     The proposed establishment of a number of new APCs.
     Our analyses of Medicare claims data and certain 
recommendations of the APC Panel.
     The application of the 2 times rule and proposed 
exceptions to it.
     The proposed changes to specific APCs.
     The proposed movement of procedures from New Technology 
APCs to clinical APCs.
3. Proposed OPPS Payment for Devices
    In section IV. of this proposed rule, we discuss the proposed pass-
through payment for specific categories of devices and the proposed 
adjustment for devices furnished at no cost or with partial or full 
credit.
4. Proposed OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals
    In section V. of this proposed rule, we discuss the proposed CY 
2011 OPPS

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payment for drugs, biologicals, and radiopharmaceuticals, including the 
proposed payment for drugs, biologicals, and radiopharmaceuticals with 
and without pass-through status.
5. Proposed Estimate of OPPS Transitional Pass-Through Spending for 
Drugs, Biologicals, Radiopharmaceuticals, and Devices
    In section VI. of this proposed rule, we discuss the estimate of CY 
2011 OPPS transitional pass-through spending for drugs, biologicals, 
and devices.
6. Proposed OPPS Payment for Brachytherapy Sources
    In section VII. of this proposed rule, we discuss our proposal for 
payment for brachytherapy sources.
7. Proposed OPPS Payment for Drug Administration Services
    In section VIII. of this proposed rule, we set forth our proposed 
policy concerning coding and payment for drug administration services.
8. Proposed OPPS Payment for Hospital Outpatient Visits
    In section IX. of this proposed rule, we set forth our proposed 
policies for the payment of clinic and emergency department visits and 
critical care services based on claims data.
9. Proposed Payment for Partial Hospitalization Services
    In section X. of this proposed rule, we set forth our proposed 
payment for partial hospitalization services, including the proposed 
separate threshold for outlier payments for CMHCs. We also set for our 
proposals to implement the new requirements for CMHCs established by 
section 1301 of the Affordable Care Act.
10. Proposed Procedures That Would Be Paid Only as Inpatient Procedures
    In section XI. of this proposed rule, we discuss the procedures 
that we are proposing to remove from the inpatient list and assign to 
APCs for payment under the OPPS.
11. Proposed OPPS Nonrecurring Technical and Policy Changes and 
Clarifications
    In section XII. of this proposed rule, we discuss nonrecurring 
technical issues and proposed policy changes relating to physician 
supervision of OPD services in hospitals, including CAHs. We also are 
proposing to implement the provisions of sections 4103 and 4104 of the 
Affordable Care Act relating to payment for preventive services, 
including personalized prevention plan services, and the waiver of 
beneficiary coinsurance and deductibles.
12. Proposed OPPS Payment Status and Comment Indicators
    In section XIII. of this proposed rule, we discuss our proposed 
changes to the definitions of status indicators assigned to APCs and 
present our proposed comment indicators for the final rule with comment 
period.
13. OPPS Policy and Payment Recommendations
    In section XIV. of this proposed rule, we address recommendations 
made by the Medicare Payment Advisory Commission (MedPAC) in its March 
2010 report to Congress, by the Office of Inspector General (OIG), and 
by the APC Panel regarding the OPPS for CY 2011.
14. Proposed Updates to the Ambulatory Surgical Center (ASC) Payment 
System
    In section XV. of this proposed rule, we discuss the proposed 
updates of the revised ASC payment system and payment rates for CY 
2011.
15. Reporting Quality Data for Annual Payment Rate Updates
    In section XVI. of this proposed rule, we discuss the proposed 
quality measures for reporting hospital outpatient (HOP) quality data 
for the annual payment update factor for CY 2012 and subsequent 
calendar years; set forth the requirements for data collection and 
submission for the annual payment update; and discuss the reduction in 
the OPPS payment for hospitals that fail to meet the HOP Quality Data 
Reporting Program (QDRP) requirements for CY 2011.
16. Bundling of Payments for Inpatient and Outpatient Services and 
Payments to Hospitals for Direct GME and IME Costs
    In section XVII. of this proposed rule, we discuss our proposed 
implementation of the provisions of section 5503, 5504, 5505, and 5506 
of the Affordable Care Act relating to redistribution of FTE resident 
slots of closed hospitals and policy changes for the counting of FTE 
residents in determining payments to hospitals for direct GME and IME 
costs.
17. Physician Self-Referrals to Hospitals
    In section XVIII. of this preamble, we discuss our proposal to 
implement the changes made by section 6001 of the Affordable Care Act 
relating to the rules governing the prohibition on referrals to a 
hospital by a physician who has an ownership or investment interest in 
the hospital.
18. Regulatory Impact Analysis
    In section XXII. of this proposed rule, we set forth an analysis of 
the impact that the proposed changes would have on affected entities 
and beneficiaries.

II. Proposed Updates Affecting OPPS Payments

A. Proposed Recalibration of APC Relative Weights

1. Database Construction
a. Database Source and Methodology
    Section 1833(t)(9)(A) of the Act requires that the Secretary review 
and revise the relative payment weights for APCs at least annually. In 
the April 7, 2000 OPPS final rule with comment period (65 FR 18482), we 
explained in detail how we calculated the relative payment weights that 
were implemented on August 1, 2000 for each APC group.
    For CY 2011, we are proposing to use the same basic methodology 
that we described in the November 20, 2009 OPPS final rule with comment 
period to recalibrate the APC relative payment weights for services 
furnished on or after January 1, 2011, and before January 1, 2012 (CY 
2011). That is, we are proposing to recalibrate the relative payment 
weights for each APC based on claims and cost report data for hospital 
outpatient department (HOPD) services. We are proposing to use the most 
recent available data to construct the database for calculating APC 
group weights. Therefore, for the purpose of recalibrating the proposed 
APC relative payment weights for CY 2011, we used approximately 133 
million final action claims for hospital outpatient department services 
furnished on or after January 1, 2009, and before January 1, 2010. (For 
exact counts of claims used, we refer readers to the claims accounting 
narrative under supporting documentation for this proposed rule on the 
CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/.)
    Of the 133 million final action claims for services provided in 
hospital outpatient settings used to calculate the CY 2011 OPPS payment 
rates for this proposed rule, approximately 102 million claims were the 
type of bill potentially appropriate for use in setting rates for OPPS 
services (but did not necessarily contain services payable under the 
OPPS). Of the 102 million claims, approximately 4 million claims were 
not for services paid under the OPPS or were excluded as not

[[Page 46180]]

appropriate for use (for example, erroneous cost-to-charge ratios 
(CCRs) or no HCPCS codes reported on the claim). From the remaining 98 
million claims, we created approximately 95 million single records, of 
which approximately 64 million were ``pseudo'' single or ``single 
session'' claims (created from 24 million multiple procedure claims 
using the process we discuss later in this section). Approximately 
696,000 claims were trimmed out on cost or units in excess of +/- 3 
standard deviations from the geometric mean, yielding approximately 95 
million single bills for median setting. As described in section 
II.A.2. of this proposed rule, our data development process is designed 
with the goal of using appropriate cost information in setting the APC 
relative weights. The bypass process is described in section II.A.1.b. 
of this proposed rule. This section discusses how we develop ``pseudo'' 
single procedure claims, with the intention of using more appropriate 
data from the available claims. In some cases, the bypass process 
allows us to use some portion of the submitted claim for cost 
estimation purposes, while the remaining information on the claim 
continues to be unusable. Consistent with the goal of using appropriate 
information in our data development process, we only use claims (or 
portions of each claim) that are appropriate for ratesetting purposes. 
Ultimately, we were able to use for CY 2011 ratesetting some portion of 
95 percent of the CY 2009 claims containing services payable under the 
OPPS.
    The proposed APC relative weights and payments for CY 2011 in 
Addenda A and B to this proposed rule were calculated using claims from 
CY 2009 that were processed before January 1, 2010, and continue to be 
based on the median hospital costs for services in the APC groups. We 
selected claims for services paid under the OPPS and matched these 
claims to the most recent cost report filed by the individual hospitals 
represented in our claims data. We continue to believe that it is 
appropriate to use the most current full calendar year claims data and 
the most recently submitted cost reports to calculate the median costs 
underpinning the APC relative payment weights and the CY 2011 payment 
rates.
b. Proposed Use of Single and Multiple Procedure Claims
    For CY 2011, in general, we are proposing to continue to use single 
procedure claims to set the medians on which the APC relative payment 
weights would be based, with some exceptions as discussed below in this 
section. We generally use single procedure claims to set the median 
costs for APCs because we believe that the OPPS relative weights on 
which payment rates are based should be derived from the costs of 
furnishing one unit of one procedure and because, in many 
circumstances, we are unable to ensure that packaged costs can be 
appropriately allocated across multiple procedures performed on the 
same date of service.
    We agree that, optimally, it is desirable to use the data from as 
many claims as possible to recalibrate the APC relative payment 
weights, including those claims for multiple procedures. As we have for 
several years, we continued to use date of service stratification and a 
list of codes to be bypassed to convert multiple procedure claims to 
``pseudo'' single procedure claims. Through bypassing specified codes 
that we believe do not have significant packaged costs, we are able to 
use more data from multiple procedure claims. In many cases, this 
enables us to create multiple ``pseudo'' single procedure claims from 
claims that were submitted as multiple procedure claims spanning 
multiple dates of service, or claims that contained numerous separately 
paid procedures reported on the same date on one claim. We refer to 
these newly created single procedure claims as ``pseudo'' single 
procedure claims. The history of our use of a bypass list to generate 
``pseudo'' single procedure claims is well documented, most recently in 
the CY 2010 OPPS/ASC final rule with comment period (74 FR 60324 
through 60342). In addition, for CY 2008, we increased packaging and 
created the first composite APCs. We have continued our packaging 
policies and the creation of composite APCs for CY 2009 and 2010, and 
we are proposing to continue them for CY 2011. This also increased the 
number of bills that we were able to use for median calculation by 
enabling us to use claims that contained multiple major procedures that 
previously would not have been usable. Further, for CY 2009, we 
expanded the composite APC model to one additional clinical area, 
multiple imaging services (73 FR 68559 through 68569), which also 
increased the number of bills we were able to use to calculate APC 
median costs. We have continued the composite APCs for multiple imaging 
services for CY 2010, and we are proposing to continue to create them 
for CY 2011. We refer readers to section II.A.2.e. of this proposed 
rule for discussion of the use of claims to establish median costs for 
composite APCs.
    We are proposing to continue to apply these processes to enable us 
to use as much claims data as possible for ratesetting for the CY 2011 
OPPS. This methodology enabled us to create, for this proposed rule, 
approximately 64 million ``pseudo'' single procedure claims, including 
multiple imaging composite ``single session'' bills (we refer readers 
to section II.A.2.e.(5) of this proposed rule for further discussion), 
to add to the approximately 31 million ``natural'' single procedure 
claims. For this proposed rule, ``pseudo'' single procedure and 
``single session'' procedure bills represent approximately 67 percent 
of all single procedure bills used to calculate median costs.
    For CY 2011, we are proposing to bypass 448 HCPCS codes for CY 2011 
that are identified in Table 1 of this proposed rule. Since the 
inception of the bypass list, we have calculated the percent of 
``natural'' single bills that contained packaging for each HCPCS code 
and the amount of packaging on each ``natural'' single bill for each 
code. Each year, we generally retain the codes on the previous year's 
bypass list and use the update year's data (for CY 2011, data available 
for the February 2010 APC Panel meeting from CY 2009 claims processed 
through September 30, 2009, and CY 2008 claims data processed through 
June 30, 2009, used to model the payment rates for CY 2010) to 
determine whether it would be appropriate to propose to add additional 
codes to the previous year's bypass list. For CY 2011, we are proposing 
to continue to bypass all of the HCPCS codes on the CY 2010 OPPS bypass 
list. We updated HCPCS codes on the CY 2010 bypass list that were 
mapped to new HCPCS codes for CY 2011 ratesetting by adding the new 
replacement codes and also removing the deleted codes, which are listed 
in Table 2. None of these deleted codes were ``overlap bypass codes'' 
(those HCPCS codes that are both on the bypass list and are members of 
the multiple imaging composite APCs). We also are proposing to add to 
the bypass list for CY 2011 all HCPCS codes not on the CY 2010 bypass 
list that, using both CY 2010 final rule data (CY 2008 claims) and 
February 2010 APC Panel data (first 9 months of CY 2009 claims), met 
the same previously established empirical criteria for the bypass list 
that are summarized below. The entire list proposed for CY 2011 
(including the codes that remain on the bypass list from prior years) 
is open to public comment. Because we must make some assumptions about 
packaging in the multiple procedure claims in order to

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assess a HCPCS code for addition to the bypass list, we assume that the 
representation of packaging on ``natural'' single procedure claims for 
any given code is comparable to packaging for that code in the multiple 
procedure claims. The proposed criteria for the bypass list are:
     There are 100 or more ``natural'' single procedure claims 
for the code. This number of single procedure claims ensures that 
observed outcomes are sufficiently representative of packaging that 
might occur in the multiple claims.
     Five percent or fewer of the ``natural'' single procedure 
claims for the code have packaged costs on that single procedure claim 
for the code. This criterion results in limiting the amount of 
packaging being redistributed to the separately payable procedures 
remaining on the claim after the bypass code is removed and ensures 
that the costs associated with the bypass code represent the cost of 
the bypassed service.
     The median cost of packaging observed in the ``natural'' 
single procedure claims is equal to or less than $50. This criterion 
also limits the amount of error in redistributed costs. Throughout the 
bypass process, we do not know the dollar value of the packaged cost 
that should be appropriately attributed to the other procedures on the 
claim. Ensuring that redistributed costs associated with a bypass code 
are small in amount and volume protects the validity of cost estimates 
for low cost services billed with the bypassed service.
    In response to comments to the CY 2010 OPPS/ASC proposed rule 
requesting that the packaged cost threshold be updated, we noted that 
we would consider whether it would be appropriate to update the $50 
packaged cost threshold for inflation when examining potential bypass 
list additions (74 FR 60328). For the CY 2011 OPPS, based on CY 2009 
claims data, we are proposing to apply the final market basket of 3.6 
percent published in the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 26584) to the $50 packaged cost threshold used in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60325) that we 
initially established in the CY 2005 OPPS final rule based on our 
analysis of the data (69 FR 65731), rounded to the nearest $5 
increment. This calculation would lead us to a proposed packaged cost 
threshold for bypass list additions of $50 ($51.80 rounded to $50). We 
believe that applying the market basket from the year of claims data to 
the packaged cost threshold, rounded to the nearest $5 increment, would 
appropriately account for the effects of inflation when considering 
additions to the bypass list because the market basket increase 
percentage reflects the extent to which the cost of inputs for hospital 
services has increased compared to the cost of inputs for hospital 
services in the prior year. As discussed in the CY 2010 OPPS/ASC final 
rule with comment period (74 FR 60328), the real value of this packaged 
cost threshold criterion has declined due to inflation, making the 
packaged cost threshold more restrictive over time when considering 
additions to the bypass list. Therefore, adjusting the threshold by the 
market basket would prevent continuing decline in the threshold's real 
value. The dollar threshold would not change for CY 2011 under this 
proposed policy, because when rounded to the nearest $5 increment after 
adjustment for the market basket increase, the threshold would for CY 
2011 remain at $50. Therefore, we are not proposing to add any 
additional bypass codes for CY 2011 as a result of this proposed 
policy.
     The code is not a code for an unlisted service.
    In addition, we are proposing to continue to include, on the bypass 
list, HCPCS codes that CMS medical advisors believe have minimal 
associated packaging based on their clinical assessment of the complete 
CY 2011 OPPS proposal. Some of these codes were identified by CMS 
medical advisors and some were identified in prior years by commenters 
with specialized knowledge of the packaging associated with specific 
services. We also are proposing to continue to include on the bypass 
list certain HCPCS codes in order to purposefully direct the assignment 
of packaged costs to a companion code where services always appear 
together and where there would otherwise be few single procedure claims 
available for ratesetting. For example, we have previously discussed 
our reasoning for adding HCPCS code G0390 (Trauma response team 
associated with hospital critical care service) and the CPT codes for 
additional hours of drug administration to the bypass list (73 FR 68513 
and 71 FR 68117 through 68118).
    As a result of the multiple imaging composite APCs that we 
established in CY 2009, the program logic for creating ``pseudo'' 
single procedure claims from bypassed codes that are also members of 
multiple imaging composite APCs changed. When creating the set of 
``pseudo'' single procedure claims, claims that contain ``overlap 
bypass codes'' (those HCPCS codes that are both on the bypass list and 
are members of the multiple imaging composite APCs), were identified 
first. These HCPCS codes were then processed to create multiple imaging 
composite ``single session'' bills, that is, claims containing HCPCS 
codes from only one imaging family, thus suppressing the initial use of 
these codes as bypass codes. However, these ``overlap bypass codes'' 
were retained on the bypass list because, at the end of the ``pseudo'' 
single processing logic, we reassessed the claims without suppression 
of the ``overlap bypass codes'' under our longstanding ``pseudo'' 
single process to determine whether we could convert additional claims 
to ``pseudo'' single procedure claims. (We refer readers to section 
II.A.2.b. of this proposed rule for further discussion of the treatment 
of ``overlap bypass codes.'') This process also created multiple 
imaging composite ``single session'' bills that could be used for 
calculating composite APC median costs. ``Overlap bypass codes'' that 
are members of the proposed multiple imaging composite APCs are 
identified by asterisks (*) in Table 1 below.
    Table 1 below includes the proposed list of bypass codes for CY 
2011. The list of bypass codes contains codes that were reported on 
claims for services in CY 2009 and, therefore, includes codes that were 
in effect in 2009 and used for billing but were deleted for CY 2010. We 
retain these deleted bypass codes on the proposed CY 2011 bypass list 
because these codes existed in CY 2009 and were covered OPD services in 
that period. Since these bypass codes were deleted for billing in CY 
2010, we will not need to retain them for the CY 2010 bypass list. 
Keeping these deleted bypass codes on the bypass list potentially 
allows us to create more ``pseudo'' single procedure claims for 
ratesetting purposes. ``Overlap bypass codes'' that are members of the 
proposed multiple imaging composite APCs are identified by asterisks 
(*) in the third column of Table 1 below. HCPCS codes that we are 
proposing to add for CY 2011 also are identified by asterisks (*) in 
the fourth column of Table 1. Table 2 contains the list of codes that 
we are proposing to remove from the CY 2011 bypass list because they 
were deleted from the HCPCS before CY 2009. None of these proposed 
deleted codes were ``overlap bypass'' codes.
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BILLING CODE 4120-01-C
c. Proposed Calculation and Use of Cost-to-Charge Ratios (CCRs)
    For CY 2011, we are proposing to continue to use the hospital-
specific overall ancillary and departmental CCRs to convert charges to 
estimated costs through application of a revenue code-to-cost center 
crosswalk. To calculate the APC median costs on which the proposed CY 
2011 APC payment rates are based, we calculated hospital-specific 
overall ancillary CCRs and hospital-specific departmental CCRs for each 
hospital for which we had CY 2009 claims data from the most recent 
available hospital cost reports, in most cases, cost reports beginning 
in CY 2008. For the CY 2011 OPPS proposed rates, we used the set of 
claims processed during CY 2009. We applied the hospital-specific CCR 
to the hospital's charges at the most detailed level possible, based on 
a revenue code-to-cost center crosswalk that contains a hierarchy of 
CCRs used to estimate costs from charges for each revenue code. That 
crosswalk is available for review and continuous comment on the CMS Web 
site at: http://www.cms.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage.
    To ensure the completeness of the revenue code-to-cost center 
crosswalk, we reviewed changes to the list of revenue codes for CY 2009 
(the year of the claims data we are using to calculate the CY 2011 OPPS 
proposed payment rates). For CY 2009, there were several changes to 
these revenue codes. The National Uniform Billing Committee (NUBC) is 
the organization that is responsible for the data specifications for 
the Uniform Bill (currently the UB-04). For CY 2009, the NUBC changed 
the title of revenue code series 076X from ``Specialty Room--Treatment/
Observation Room'' to ``Specialty Services'' and changed the title of 
subclassification revenue code 0762 from ``Observation Room'' to 
``Observation Hours''. We are not proposing to change the revenue code-
to-cost center crosswalk as a result of this change because we believe 
that hospitals have historically reported charges for observation based 
on hours of care and that this change reflects existing practices. In 
addition, for CY 2009, NUBC removed a note that indicated that 
subcategory revenue codes 0912, Behavioral Health Treatment/Services 
(also see 091X, an extension of 090X), and 0913, Behavioral Health 
Treatment/Services--Extension of 090X, were designed as zero-billed 
revenue codes (that is, no dollar in the amount field). This change has 
no impact on the revenue code-to-cost center crosswalk. We note that 
the addition of revenue codes with effective dates in CY 2010 is not 
relevant to this process because the revenue codes were not applicable 
to claims for services furnished during CY 2009.
    We calculated CCRs for the standard and nonstandard cost centers 
accepted by the electronic cost report database. In general, the most 
detailed level at which we calculated CCRs was the hospital-specific 
departmental level. For a discussion of the hospital-specific overall 
ancillary CCR calculation, we

[[Page 46196]]

refer readers to the CY 2007 OPPS/ASC final rule with comment period 
(71 FR 67983 through 67985). One longstanding exception to this general 
methodology for calculation of CCRs used for converting charges to 
costs on each claim is the calculation of median blood costs, as 
discussed in section II.A.2.d.(2) of this proposed rule and which has 
been our standard policy since the CY 2005 OPPS.
    For the CCR calculation process, we used the same general approach 
that we used in developing the final APC rates for CY 2007 and 
thereafter, using the revised CCR calculation that excluded the costs 
of paramedical education programs and weighted the outpatient charges 
by the volume of outpatient services furnished by the hospital. We 
refer readers to the CY 2007 OPPS/ASC final rule with comment period 
for more information (71 FR 67983 through 67985). We first limited the 
population of cost reports to only those for hospitals that filed 
outpatient claims in CY 2009 before determining whether the CCRs for 
such hospitals were valid.
    We then calculated the CCRs for each cost center and the overall 
ancillary CCR for each hospital for which we had claims data. We did 
this using hospital-specific data from the Hospital Cost Report 
Information System (HCRIS). We used the most recent available cost 
report data, in most cases, cost reports with cost reporting periods 
beginning in CY 2007. For this proposed rule, we used the most recently 
submitted cost reports to calculate the CCRs to be used to calculate 
median costs for the proposed CY 2011 OPPS payment rates. If the most 
recent available cost report was submitted but not settled, we looked 
at the last settled cost report to determine the ratio of submitted to 
settled cost using the overall ancillary CCR, and we then adjusted the 
most recent available submitted but not settled cost report using that 
ratio. We then calculated both an overall ancillary CCR and cost 
center-specific CCRs for each hospital. We used the overall ancillary 
CCR referenced in section II.A.1.c. of this proposed rule for all 
purposes that require use of an overall ancillary CCR.
    Since the implementation of the OPPS, some commenters have raised 
concerns about potential bias in the OPPS cost-based weights due to 
``charge compression,'' which is the practice of applying a lower 
charge markup to higher-cost services and a higher charge markup to 
lower-cost services. As a result, the cost-based weights may reflect 
some aggregation bias, undervaluing high-cost items and overvaluing 
low-cost items when an estimate of average markup, embodied in a single 
CCR, is applied to items of widely varying costs in the same cost 
center.
    To explore this issue, in August 2006 we awarded a contract to RTI 
International (RTI) to study the effects of charge compression in 
calculating the IPPS cost-based relative weights, particularly with 
regard to the impact on inpatient diagnosis-related group (DRG) 
payments, and to consider methods to better capture the variation in 
cost and charges for individual services when calculating costs for the 
IPPS relative weights across services in the same cost center. RTI 
issued a report in March 2007 with its findings on charge compression, 
which is available on the CMS Web site at: http://www.cms.gov/reports/downloads/Dalton.pdf. Although this report was focused largely on 
charge compression in the context of the IPPS cost-based relative 
weights, because several of the findings were relevant to the OPPS, we 
discussed that report in the CY 2008 OPPS/ASC proposed rule (72 FR 
42641 through 42643) and reiterated them in the CY 2008 OPPS/ASC final 
rule with comment period (72 FR 66599 through 66602).
    In August 2007, we contracted with RTI to evaluate the cost 
estimation process for the OPPS relative weights because its 2007 
report had concentrated on IPPS DRG cost-based relative weights. The 
results of RTI's analyses had implications for both the OPPS APC cost-
based relative weights and the IPPS MS-DRG (Medicare severity) cost-
based relative weights. The RTI final report can be found on RTI's Web 
site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf. For a complete 
discussion of the RTI recommendations, public comments, and our 
responses, we refer readers to the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68519 through 68527).
    We addressed the RTI finding that there was aggregation bias in 
both the IPPS and the OPPS cost estimation of expensive and inexpensive 
medical supplies in the FY 2009 IPPS final rule. Specifically, we 
finalized our proposal for both the OPPS and IPPS to create one cost 
center for ``Medical Supplies Charged to Patients'' and one cost center 
for ``Implantable Devices Charged to Patients,'' essentially splitting 
the then current CCR for ``Medical Supplies and Equipment'' into one 
CCR for low-cost medical supplies and another CCR for high-cost 
implantable devices in order to mitigate some of the effects of charge 
compression. Accordingly, in Transmittal 20 of the Provider 
Reimbursement Manual, Part II (PRM-II), Chapter 36, Form CMS-2552-96, 
which was issued in July 2009, we created a new subscripted Line 55.01 
on Worksheet A for the ``Implantable Devices Charged to Patients'' cost 
center. This new subscripted cost center, placed under the standard 
line for ``Medical Supplies Charged to Patients,'' is available for use 
for cost reporting periods beginning on or after May 1, 2009. A 
subscripted cost center is the addition of a separate new cost center 
line and description which bears a logical relationship to the standard 
cost center line and is located immediately following a standard cost 
center line. Subscripting a cost center line adds flexibility and cost 
center expansion capability to the cost report. For example, Line 55 of 
Worksheet A on Form CMS 2552-96 (the Medicare hospital cost report) is 
``Medical Supplies Charged to Patients.'' The additional cost center, 
which isolates the costs of ``Implantable Medical Supplies Charged to 
Patients'', was created by adding subscripted Line 55.01 to Worksheet 
A.
    Because there is approximately a 3-year lag in the availability of 
cost report data for IPPS and OPPS ratesetting purposes in a given 
calendar year, we believe we will be able to use data from the revised 
cost report form to estimate costs from charges for implantable devices 
for the CY 2013 OPPS relative weights. For a complete discussion of the 
rationale for the creation of the new cost center for ``Implantable 
Devices Charged to Patients,'' public comments, and our responses, we 
refer readers to the FY 2009 IPPS final rule (73 FR 48458 through 
45467).
    In the CY 2009 OPPS/ASC final rule with comment period, we 
indicated that we would be making some OPPS-specific changes in 
response to the RTI report recommendations. Specifically, these changes 
included modifications to the cost reporting software and the addition 
of three new nonstandard cost centers. With regard to modifying the 
cost reporting preparation software in order to offer additional 
descriptions for nonstandard cost centers to improve the accuracy of 
reporting for nonstandard cost centers, we indicated that the change 
would be made for the next release of the cost report software. These 
changes have been made to the cost reporting software with the 
implementation of CMS Transmittal 21, under Chapter 36 of the Provider 
Reimbursement Manual--Part II, available online at http://www.cms.hhs.gov/Manuals/PBM/, which is effective for cost reporting

[[Page 46197]]

periods ending on or after October 1, 2009.
    We also indicated that we intended to add new nonstandard cost 
centers for Cardiac Rehabilitation, Hyperbaric Oxygen Therapy, and 
Lithotripsy. We note that in January 2010, CMS issued Transmittal 21 
which updated the PRM-II, Chapter 36, Form CMS-2552-96. One of the 
updates in this transmittal established nonstandard cost centers for 
Cardiac Rehabilitation, Hyperbaric Oxygen Therapy, and Lithotripsy for 
use on Worksheet A. These three new nonstandard cost centers are now 
available for cost reporting periods ending on or after October 1, 
2009.
    Furthermore, we noted in the FY 2010 IPPS/LTCH PPS final rule (74 
FR 43781 through 43782) that we were updating the cost report form to 
eliminate outdated requirements, in conjunction with the Paperwork 
Reduction Act (PRA), and that we had proposed actual changes to the 
cost reporting form, the attending cost reporting software, and the 
cost report instructions in Chapters 36 and 40 of the PRM-II. The new 
draft hospital cost report Form CMS-2552-10 was published in the 
Federal Register on July 2, 2009, and was subject to a 60-day review 
and comment period, which ended on August 31, 2009. We received 
numerous comments on the draft hospital cost report Form CMS-2552-10, 
specifically regarding the creation of new cost centers from which data 
might be used in the OPPS cost-based relative weights calculation. We 
had proposed to create new standard cost centers for Computed 
Tomography (CT), Magnetic Resonance Imaging (MRI), and Cardiac 
Catheterization in Form CMS-2552-10. If these standard cost centers are 
finalized, when the data become available, we would analyze the cost 
and charge data to determine if it is appropriate to use those data to 
create distinct CCRs from these cost centers in setting the relative 
weights. For a discussion of these cost centers, we refer readers to 
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23878 through 23880). 
Comments will be addressed in detail in the Federal Register notice 
that will finalize Form CMS-2552-10. The revised draft of hospital cost 
report Form CMS-2552-10 went on public display on April 23, 2010, and 
appeared in the Federal Register on April 30, 2010 (75 FR 22810) with a 
30-day public comment period. The public comment period ended on June 
1, 2010.
    We believe that improved cost report software, the incorporation of 
new standard and nonstandard cost centers, and the elimination of 
outdated requirements will improve the accuracy of the cost data 
contained in the electronic cost report data files and, therefore, the 
accuracy of our cost estimation processes for the OPPS relative 
weights. We will continue our standard practice of examining ways in 
which we can improve the accuracy of our cost estimation processes.
2. Proposed Data Development Process and Calculation of Median Costs
    In this section of this proposed rule, we discuss the use of claims 
to calculate proposed OPPS payment rates for CY 2011. The hospital OPPS 
page on the CMS Web site on which this proposed rule is posted provides 
an accounting of claims used in the development of the proposed payment 
rates at: http://www.cms.gov/HospitalOutpatientPPS. The accounting of 
claims used in the development of this proposed rule is included on the 
CMS Web site under supplemental materials for the CY 2011 OPPS/ASC 
proposed rule. That accounting provides additional detail regarding the 
number of claims derived at each stage of the process. In addition, 
below in this section, we discuss the file of claims that comprises the 
data set that is available for purchase under a CMS data use agreement. 
Our CMS Web site, http://www.cms.gov/HospitalOutpatientPPS, includes 
information about purchasing the ``OPPS Limited Data Set,'' which now 
includes the additional variables previously available only in the OPPS 
Identifiable Data Set, including ICD-9-CM diagnosis codes and revenue 
code payment amounts. This file is derived from the CY 2009 claims that 
were used to calculate the proposed payment rates for the CY 2011 OPPS.
    We used the methodology described in sections II.A.2.a. through 
II.A.2.e. of this proposed rule to calculate the median costs we use to 
establish the relative weights used in calculating the proposed OPPS 
payment rates for CY 2011 shown in Addenda A and B to this proposed 
rule. We refer readers to section II.A.4. of this proposed rule for a 
discussion of the conversion of APC median costs to scaled payment 
weights.
a. Claims Preparation
    We used the CY 2009 hospital outpatient claims processed before 
January 1, 2010 to calculate the median costs of APCs that underpin the 
proposed relative weights for CY 2011. To begin the calculation of the 
relative weights for CY 2011, we pulled all claims for outpatient 
services furnished in CY 2009 from the national claims history file. 
This is not the population of claims paid under the OPPS, but all 
outpatient claims (including, for example, critical access hospital 
(CAH) claims and hospital claims for clinical laboratory services for 
persons who are neither inpatients nor outpatients of the hospital).
    We then excluded claims with condition codes 04, 20, 21, and 77. 
These are claims that providers submitted to Medicare knowing that no 
payment would be made. For example, providers submit claims with a 
condition code 21 to elicit an official denial notice from Medicare and 
document that a service is not covered. We then excluded claims for 
services furnished in Maryland, Guam, the U.S. Virgin Islands, American 
Samoa, and the Northern Mariana Islands because hospitals in those 
geographic areas are not paid under the OPPS.
    We divided the remaining claims into the three groups shown below. 
Groups 2 and 3 comprise the 102 million claims that contain hospital 
bill types paid under the OPPS.
    1. Claims that were not bill types 12X, 13X (hospital bill types), 
14X (laboratory specimen bill types), or 76X (CMHC bill types). Other 
bill types are not paid under the OPPS and, therefore, these claims 
were not used to set OPPS payment.
    2. Claims that were bill types 12X, 13X or 14X. Claims with bill 
types 12X and 13X are hospital outpatient claims. Claims with bill type 
14X are laboratory specimen claims, of which we use a subset for the 
limited number of services in these claims that are paid under the 
OPPS.
    3. Claims that were bill type 76X (CMHC).
    To convert charges on the claims to estimated cost, we multiplied 
the charges on each claim by the appropriate hospital specific CCR 
associated with the revenue code for the charge as discussed in section 
II.A.1.c. of this proposed rule. We then flagged and excluded CAH 
claims (which are not paid under the OPPS) and claims from hospitals 
with invalid CCRs. The latter included claims from hospitals without a 
CCR; those from hospitals paid an all-inclusive rate; those from 
hospitals with obviously erroneous CCRs (greater than 90 or less than 
.0001); and those from hospitals with overall ancillary CCRs that were 
identified as outliers (3 standard deviations from the geometric mean 
after removing error CCRs). In addition, we trimmed the CCRs at the 
cost center (that is, departmental) level by removing the CCRs for each 
cost center as outliers if they exceeded +/- 3 standard deviations from 
the geometric mean. We used a four-tiered hierarchy of cost

[[Page 46198]]

center CCRs, which is the revenue code-to-cost center crosswalk, to 
match a cost center to every possible revenue code appearing in the 
outpatient claims that is relevant to OPPS services, with the top tier 
being the most common cost center and the last tier being the default 
CCR. If a hospital's cost center CCR was deleted by trimming, we set 
the CCR for that cost center to ``missing'' so that another cost center 
CCR in the revenue center hierarchy could apply. If no other cost 
center CCR could apply to the revenue code on the claim, we used the 
hospital's overall ancillary CCR for the revenue code in question as 
the default CCR. For example, if a visit was reported under the clinic 
revenue code but the hospital did not have a clinic cost center, we 
mapped the hospital-specific overall ancillary CCR to the clinic 
revenue code. The revenue code-to-cost center crosswalk is available 
for inspection and comment on the CMS Web site: http://www.cms.gov/HospitalOutpatientPPS. Revenue codes that we do not use to set medians 
or to model impacts are identified with an ``N'' in the revenue code-
to-cost center crosswalk.
    At the February 17-18, 2010 APC Panel Meeting, the Panel 
recommended that CMS present to the Data Subcommittee an analysis of 
the effect of using a different lower-level threshold in the overall 
CCR error trim as part of the standard methodology. The Panel members 
were concerned that our current CCR trimming policy (excluding 
providers with an overall ancillary CCR greater than 90 or less than 
.0001 or above and then excluding remaining providers with overall 
ancillary CCRs beyond +/- 3 standard deviations from the geometric 
mean) could result in the exclusion of claims from providers that could 
otherwise be used for ratesetting and modeling. We are accepting this 
recommendation. We will study the issue and provide the relevant data 
to the Data Subcommittee at an upcoming meeting.
    We applied CCRs as described above to claims with bill type 12X, 
13X, or 14X, excluding all claims from CAHs and hospitals in Maryland, 
Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana 
Islands and claims from all hospitals for which CCRs were flagged as 
invalid.
    We identified claims with condition code 41 as partial 
hospitalization services of hospitals and moved them to another file. 
We note that the separate file containing partial hospitalization 
claims is included in the files that are available for purchase as 
discussed above.
    We then excluded claims without a HCPCS code. We moved to another 
file claims that contained nothing but influenza and pneumococcal 
pneumonia (PPV) vaccines. Influenza and PPV vaccines are paid at 
reasonable cost and, therefore, these claims are not used to set OPPS 
rates.
    We next copied line-item costs for drugs, blood, and brachytherapy 
sources (the lines stay on the claim, but are copied onto another file) 
to a separate file. No claims were deleted when we copied these lines 
onto another file. These line-items are used to calculate a per unit 
mean and median cost and a per day mean and median cost for drugs and 
nonimplantable biologicals, therapeutic radiopharmaceutical agents, and 
brachytherapy sources, as well as other information used to set payment 
rates, such as a unit-to-day ratio for drugs.
    To implement our proposed policy to redistribute some portion of 
total cost for packaged drugs and biologicals to the separately payable 
drugs and biologicals as acquisition and pharmacy overhead and handling 
costs discussed in section V.B.3. of this proposed rule, we used the 
line-item cost data for drugs and biologicals for which we had a HCPCS 
code with ASP pricing information to calculate the ASP+X values, first 
for all drugs and biologicals, and then for separately payable drugs 
and biologicals and for packaged drugs and biologicals, respectively, 
by taking the ratio of total claim cost for each group relative to 
total ASP dollars (per unit of each drug or biological HCPCS code's 
April 2010 ASP amount multiplied by total units for each drug or 
biological in the CY 2009 claims data). These values are ASP+14 percent 
(for all drugs and biologicals with HCPCS codes, whether separately 
paid or packaged), ASP+0 percent (for drugs and biologicals that are 
separately paid), and ASP+283 percent (for drugs and biologicals that 
have HCPCS codes and that are packaged), respectively. As we discuss in 
section V.B.3. of this proposed rule, we are proposing a policy to 
redistribute $150 million of the total cost in our claims data for 
packaged drugs and biologicals that have an associated ASP from 
packaged drugs with an ASP to separately payable drugs and biologicals. 
We also are proposing a policy to redistribute an additional $50 
million of the total cost in our claims data for drugs and biologicals 
lacking an ASP, largely for estimated costs associated with uncoded 
charges billed under pharmacy revenue code series 025X (Pharmacy (also 
see 063X, an extension of 025X)), 026X (IV Therapy), and 063X 
(Pharmacy--Extension of 025X). We observe about $623 million for drugs 
lacking an ASP in our CY 2009 claims data. This total excludes the cost 
of diagnostic and therapeutic radiopharmaceuticals because they are not 
reported under pharmacy revenue codes or under the pharmacy cost center 
on the hospital cost report.
    Removing a total of $150 million in pharmacy overhead cost from 
packaged drugs and biologicals reduces the $593 million to $443 
million, approximately a 25 percent reduction. Removing $50 million 
from the cost of drugs lacking an ASP reduces the $623 million to $573 
million, approximately an 8 percent reduction. To implement our 
proposed CY 2011 policy to redistribute $150 million in claim cost from 
packaged drugs and biologicals with an ASP to separately payable drugs 
and biologicals and $50 million in claim cost from packaged drugs and 
biologicals lacking an ASP, including uncoded pharmacy revenue code 
charges, we multiplied the cost of each packaged drug or biological 
with a HCPCS code and ASP pricing information in our CY 2009 claims 
data by 0.75, and we multiplied all other packaged drug costs in our CY 
2009 claims data, excluding those for diagnostic radiopharmaceuticals, 
by 0.92. We also added the redistributed $200 million to the total cost 
of separately payable drugs and biologicals in our CY 2009 claims data, 
which increased the relationship between the total cost for separately 
payable drugs and biologicals and ASP dollars for the same drugs and 
biologicals from ASP+0 percent to ASP+6 percent. We refer readers to 
section V.B.3. of this proposed rule for a complete discussion of our 
proposal to pay for separately paid drugs and biologicals and pharmacy 
overhead for CY 2011.
    We then removed line-items that were not paid during claim 
processing, presumably for a line-item rejection or denial. We added 
this process to our median cost calculation methodology for the CY 2010 
OPPS, as discussed in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60359). The number of edits for valid OPPS payment in the 
Integrated Outpatient Code Editor (I/OCE) and elsewhere has grown 
significantly in the past few years, especially with the implementation 
of the full spectrum of National Correct Coding Initiative (NCCI) 
edits. To ensure that we are using valid claims that represent the cost 
of payable services to set payment rates, we removed line-items with an 
OPPS status indicator for the claim year and a status indicator of 
``S,'' ``T,'' ``V,'' or ``X'' when separately paid under the 
prospective

[[Page 46199]]

year's payment system. This logic preserves charges for services that 
would not have been paid in the claim year but for which some estimate 
of cost is needed for the prospective year, such as services newly 
proposed to come off the inpatient list for CY 2010 that were assigned 
status indicator ``C'' in the claim year.
    For CY 2011, we are proposing to expand the application of this 
trim to exclude line-item data for pass-through drugs and biologicals 
(status indicator ``G'' for CY 2009) and nonpass-through drugs and 
biologicals (status indicator ``K'' for CY 2009) where the charges 
reported on the claim for the line were either denied or rejected 
during claims processing. Removing lines that were eligible for payment 
but were not paid ensures that we are using appropriate data. The trim 
avoids using cost data on lines that we believe were defective or 
invalid because those rejected or denied lines did not meet the 
Medicare requirements for payment. For example, edits may reject a line 
for a separately paid drug because the number of units billed exceeded 
the number of units that would be reasonable and, therefore, is likely 
a billing error (for example, a line reporting 55 units of a drug for 
which 5 units is known to be a fatal dose). For approximately 90 
percent of the codes with status indicators ``G'' and ``K'' in their 
claims year, to which the expansion of the trim would apply, between 0 
and 10 percent of lines would be removed due to receiving zero payment. 
As with our trimming in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60359) of line items with a status indicator of ``S,'' 
``T,'' ``V,'' or ``X'', we believe that unpaid line-items represent 
services that are invalidly reported and, therefore, should not be used 
for ratesetting. We believe that removing lines with valid status 
indicators that were edited and not paid during claims processing 
increases the accuracy of the single bills used to determine the mean 
unit costs for use in the ASP+X calculation described in section V.B.3. 
of this proposed rule.
b. Splitting Claims and Creation of ``Pseudo'' Single Procedure Claims
(1) Splitting Claims
    We then split the remaining claims into five groups: Single majors; 
multiple majors; single minors; multiple minors; and other claims. 
(Specific definitions of these groups follow below.) For CY 2011, we 
are proposing to continue our current policy of defining major 
procedures as any HCPCS code having a status indicator of ``S,'' ``T,'' 
``V,'' or ``X;'' defining minor procedures as any code having a status 
indicator of ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' ``R,'' ``U,'' or ``N,'' 
and classifying ``other'' procedures as any code having a status 
indicator other than one that we have classified as major or minor. For 
CY 2011, we are proposing to continue assigning status indicator ``R'' 
to blood and blood products; status indicator ``U'' to brachytherapy 
sources; status indicator ``Q1'' to all ``STVX-packaged codes;'' status 
indicator ``Q2'' to all ``T-packaged codes;'' and status indicator 
``Q3'' to all codes that may be paid through a composite APC based on 
composite-specific criteria or paid separately through single code APCs 
when the criteria are not met. As discussed in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68709), we established status 
indicators ``Q1,'' ``Q2,'' and ``Q3'' to facilitate identification of 
the different categories of codes. We are proposing to treat these 
codes in the same manner for data purposes for CY 2011 as we have 
treated them since CY 2008. Specifically, we are proposing to continue 
to evaluate whether the criteria for separate payment of codes with 
status indicator ``Q1'' or ``Q2'' are met in determining whether they 
are treated as major or minor codes. Codes with status indicator ``Q1'' 
or ``Q2'' are carried through the data either with status indicator 
``N'' as packaged or, if they meet the criteria for separate payment, 
they are given the status indicator of the APC to which they are 
assigned and are considered as ``pseudo'' single procedure claims for 
major codes. Codes assigned status indicator ``Q3'' are paid under 
individual APCs unless they occur in the combinations that qualify for 
payment as composite APCs and, therefore, they carry the status 
indicator of the individual APC to which they are assigned through the 
data process and are treated as major codes during both the split and 
``pseudo'' single creation process. The calculation of the median costs 
for composite APCs from multiple procedure major claims is discussed in 
section II.A.2.e. of this proposed rule.
    Specifically, we divided the remaining claims into the following 
five groups:
    1. Single Procedure Major Claims: Claims with a single separately 
payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or 
``X,'' which includes codes with status indicator ``Q3''); claims with 
one unit of a status indicator ``Q1'' code (``STVX-packaged'') where 
there was no code with status indicator ``S,'' ``T,'' ``V,'' or ``X'' 
on the same claim on the same date; or claims with one unit of a status 
indicator ``Q2'' code (``T-packaged'') where there was no code with a 
status indicator ``T'' on the same claim on the same date.
    2. Multiple Procedure Major Claims: Claims with more than one 
separately payable procedure (that is, status indicator ``S,'' ``T,'' 
``V,'' or ``X,'' which includes codes with status indicator ``Q3''), or 
multiple units of one payable procedure. These claims include those 
codes with a status indicator ``Q2'' code (``T-packaged'') where there 
was no procedure with a status indicator ``T'' on the same claim on the 
same date of service but where there was another separately paid 
procedure on the same claim with the same date of service (that is, 
another code with status indicator ``S,'' ``V,'' or ``X''). We also 
include, in this set, claims that contained one unit of one code when 
the bilateral modifier was appended to the code and the code was 
conditionally or independently bilateral. In these cases, the claims 
represented more than one unit of the service described by the code, 
notwithstanding that only one unit was billed.
    3. Single Procedure Minor Claims: Claims with a single HCPCS code 
that was assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' 
``R,'' ``U,'' or ``N'' and not status indicator ``Q1'' (``STVX-
packaged'') or status indicator ``Q2'' (``T-packaged'') code.
    4. Multiple Procedure Minor Claims: Claims with multiple HCPCS 
codes that are assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' 
``L,'' ``R,'' ``U,'' or ``N;'' claims that contain more than one code 
with status indicator ``Q1'' (``STVX-packaged'') or more than one unit 
of a code with status indicator ``Q1'' but no codes with status 
indicator ``S,'' ``T,'' ``V,'' or ``X'' on the same date of service; or 
claims that contain more than one code with status indicator ``Q2'' (T-
packaged), or ``Q2'' and ``Q1,'' or more than one unit of a code with 
status indicator ``Q2'' but no code with status indicator ``T'' on the 
same date of service.
    5. Non-OPPS Claims: Claims that contain no services payable under 
the OPPS (that is, all status indicators other than those listed for 
major or minor status). These claims were excluded from the files used 
for the OPPS. Non-OPPS claims have codes paid under other fee 
schedules, for example, durable medical equipment or clinical 
laboratory tests, and do not contain a code for a separately payable or 
packaged OPPS service. Non-OPPS claims include claims for therapy 
services paid sometimes under the OPPS but billed, in these non-OPPS 
cases, with revenue codes indicating that the therapy services would be 
paid under the Medicare Physician Fee Schedule (MPFS).

[[Page 46200]]

    The claims listed in numbers 1, 2, 3, and 4 above are included in 
the data file that can be purchased as described above. Claims that 
contain codes to which we have assigned status indicators ``Q1'' 
(``STVX-packaged'') and ``Q2'' (``T-packaged'') appear in the data for 
the single major file, the multiple major file, and the multiple minor 
file used in this proposed rule. Claims that contain codes to which we 
have assigned status indicator ``Q3'' (composite APC members) appear in 
both the data of the single and multiple major files used in this 
proposed rule, depending on the specific composite calculation.
(2) Creation of ``Pseudo'' Single Procedure Claims
    To develop ``pseudo'' single procedure claims for this proposed 
rule, we examined both the multiple procedure major claims and the 
multiple procedure minor claims. We first examined the multiple major 
procedure claims for dates of service to determine if we could break 
them into ``pseudo'' single procedure claims using the dates of service 
for all lines on the claim. If we could create claims with single major 
procedures by using dates of service, we created a single procedure 
claim record for each separately payable procedure on a different date 
of service (that is, a ``pseudo'' single).
    We also used the bypass codes listed earlier in Table 1 and 
discussed in section II.A.1.b. of this proposed rule to remove 
separately payable procedures that we determined contained limited or 
no packaged costs or that were otherwise suitable for inclusion on the 
bypass list from a multiple procedure bill. As discussed above, we 
ignore the ``overlap bypass codes,'' that is, those HCPCS codes that 
are both on the bypass list and are members of the multiple imaging 
composite APCs, in this initial assessment for ``pseudo'' single 
procedure claims. The proposed CY 2011 ``overlap bypass codes'' are 
listed in Table 1 in section II.A.1.b. of this proposed rule. When one 
of the two separately payable procedures on a multiple procedure claim 
was on the bypass list, we split the claim into two ``pseudo'' single 
procedure claim records. The single procedure claim record that 
contained the bypass code did not retain packaged services. The single 
procedure claim record that contained the other separately payable 
procedure (but no bypass code) retained the packaged revenue code 
charges and the packaged HCPCS code charges. We also removed lines that 
contained multiple units of codes on the bypass list and treated them 
as ``pseudo'' single procedure claims by dividing the cost for the 
multiple units by the number of units on the line. Where one unit of a 
single, separately payable procedure code remained on the claim after 
removal of the multiple units of the bypass code, we created a 
``pseudo'' single procedure claim from that residual claim record, 
which retained the costs of packaged revenue codes and packaged HCPCS 
codes. This enabled us to use claims that would otherwise be multiple 
procedure claims and could not be used.
    We then assessed the claims to determine if the criteria for the 
multiple imaging composite APCs, discussed in section II.A.2.e.(5) of 
this proposed rule, were met. Where the criteria for the imaging 
composite APCs were met, we created a ``single session'' claim for the 
applicable imaging composite service and determined whether we could 
use the claim in ratesetting. For HCPCS codes that are both 
conditionally packaged and are members of a multiple imaging composite 
APC, we first assessed whether the code would be packaged and, if so, 
the code ceased to be available for further assessment as part of the 
composite APC. Because the packaged code would not be a separately 
payable procedure, we considered it to be unavailable for use in 
setting the composite APC median cost. Having identified ``single 
session'' claims for the imaging composite APCs, we reassessed the 
claim to determine if, after removal of all lines for bypass codes, 
including the ``overlap bypass codes,'' a single unit of a single 
separately payable code remained on the claim. If so, we attributed the 
packaged costs on the claim to the single unit of the single remaining 
separately payable code other than the bypass code to create a 
``pseudo'' single procedure claim. We also identified line-items of 
overlap bypass codes as a ``pseudo'' single procedure claim. This 
allowed us to use more claims data for ratesetting purposes.
    We also examined the multiple procedure minor claims to determine 
whether we could create ``pseudo'' single procedure claims. 
Specifically, where the claim contained multiple codes with status 
indicator ``Q1'' (``STVX-packaged'') on the same date of service or 
contained multiple units of a single code with status indicator ``Q1,'' 
we selected the status indicator ``Q1'' HCPCS code that had the highest 
CY 2010 relative weight, set the units to one on that HCPCS code to 
reflect our policy of paying only one unit of a code with a status 
indicator of ``Q1.'' We then packaged all costs for the following into 
a single cost for the ``Q1'' HCPCS code that had the highest CY 2010 
relative weight to create a ``pseudo'' single procedure claim for that 
code: Additional units of the status indicator ``Q1'' HCPCS code with 
the highest CY 2010 relative weight; other codes with status indicator 
``Q1''; and all other packaged HCPCS codes and packaged revenue code 
costs. We changed the status indicator for selected codes from the data 
status indicator of ``N'' to the status indicator of the APC to which 
the selected procedure was assigned for further data processing and 
considered this claim as a major procedure claim. We used this claim in 
the calculation of the APC median cost for the status indicator ``Q1'' 
HCPCS code.
    Similarly, where a multiple procedure minor claim contained 
multiple codes with status indicator ``Q2'' (``T-packaged'') or 
multiple units of a single code with status indicator ``Q2,'' we 
selected the status indicator ``Q2'' HCPCS code that had the highest CY 
2010 relative weight, set the units to one on that HCPCS code to 
reflect our policy of paying only one unit of a code with a status 
indicator of ``Q2.'' We then packaged all costs for the following into 
a single cost for the ``Q2'' HCPCS code that had the highest CY 2010 
relative weight to create a ``pseudo'' single procedure claim for that 
code: Additional units of the status indicator ``Q2'' HCPCS code with 
the highest CY 2010 relative weight; other codes with status indicator 
``Q2;'' and other packaged HCPCS codes and packaged revenue code costs. 
We changed the status indicator for the selected code from a data 
status indicator of ``N'' to the status indicator of the APC to which 
the selected code was assigned, and we considered this claim as a major 
procedure claim.
    Lastly, where a multiple procedure minor claim contained multiple 
codes with status indicator ``Q2'' (``T-packaged'') and status 
indicator ``Q1'' (``STVX-packaged''), we selected the status indicator 
``Q2'' HCPCS code (``T-packaged'') that had the highest relative weight 
for CY 2010 and set the units to one on that HCPCS code to reflect our 
policy of paying only one unit of a code with a status indicator of 
``Q2.'' We then packaged all costs for the following into a single cost 
for the selected (``T packaged'') HCPCS code to create a ``pseudo'' 
single procedure claim for that code: Additional units of the status 
indicator ``Q2'' HCPCS code with the highest CY 2010 relative weight; 
other codes with status indicator ``Q2;'' codes with status indicator 
``Q1'' (``STVX-packaged''); and other packaged HCPCS codes and packaged 
revenue code costs. We favor status indicator ``Q2'' over ``Q1''

[[Page 46201]]

HCPCS codes because ``Q2'' HCPCS codes have higher CY 2010 relative 
weights. If a status indicator ``Q1'' HCPCS code had a higher CY 2010 
relative weight, it would become the primary code for the simulated 
single bill process. We changed the status indicator for the selected 
status indicator ``Q2'' (``T-packaged'') code from a data status 
indicator of ``N'' to the status indicator of the APC to which the 
selected code was assigned and we considered this claim as a major 
procedure claim.
    In public comments received on the CY 2010 OPPS/ASC proposed rule, 
a public commenter suggested that CMS could use more claims data to 
develop medians for these conditionally packaged codes if CMS applied 
the ``pseudo'' single creation process to the conditionally packaged 
codes in the multiple major claims that still contained unusable data. 
We agree and, for this CY 2011 OPPS/ASC proposed rule, we are proposing 
to use the otherwise unusable multiple procedure claims data that 
remain after the standard pseudo single creation process is applied to 
them, in order to create more pseudo single procedure claims. We would 
do this by treating the conditionally packaged codes that do not meet 
the criteria for packaging as if they were separately payable major 
codes and applying the pseudo single process to the claims data to 
create single procedure claims from them if they meet the criteria for 
single procedure claims. Conditionally packaged codes are identified 
using status indicators ``Q1'' and ``Q2,'' and are described in section 
XIII.A.1. of this proposed rule. Using the February 2010 APC Panel 
data, we estimate that the impact of adding this proposed additional 
step to the pseudo single creation process would result in a small 
increase in the number of claims usable for ratesetting in most cases, 
but with more significant increases of between 5 to 10 percent of 
claims for a few codes. For most of the codes affected by adding this 
proposed additional step to the ``pseudo'' single creation process, we 
found no significant changes to the APC medians. Some HCPCS codes do 
experience some fluctuations, with the impact of additional claims 
causing their APC median to decrease. We believe that this change is 
consistent with our goal of using more available data from within the 
existing set of claims information and results in a more accurate 
estimation of the APC median cost for conditionally packaged services.
    We excluded those claims that we were not able to convert to single 
procedure claims even after applying all of the techniques for creation 
of ``pseudo'' single procedure claims to multiple procedure major and 
to multiple procedure minor claims. As has been our practice in recent 
years, we also excluded claims that contained codes that were viewed as 
independently or conditionally bilateral and that contained the 
bilateral modifier (Modifier 50 (Bilateral procedure)) because the 
line-item cost for the code represented the cost of two units of the 
procedure, notwithstanding that hospitals billed the code with a unit 
of one.
c. Completion of Claim Records and Median Cost Calculations
    We then packaged the costs of packaged HCPCS codes (codes with 
status indicator ``N'' listed in Addendum B to this proposed rule and 
the costs of those lines for codes with status indicator ``Q1'' or 
``Q2'' when they are not separately paid), and the costs of the 
services reported under packaged revenue codes in Table 3 that appeared 
on the claim without a HCPCS code into the cost of the single major 
procedure remaining on the claim.
    As noted in the CY 2008 OPPS/ASC final rule with comment period (72 
FR 66606), for the CY 2008 OPPS, we adopted an APC Panel recommendation 
that CMS should review the final list of packaged revenue codes for 
consistency with OPPS policy and ensure that future versions of the I/
OCE edit accordingly. As we have in the past, we will continue to 
compare the final list of packaged revenue codes that we adopt for CY 
2011 to the revenue codes that the I/OCE will package for CY 2011 to 
ensure consistency.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68531), we replaced the NUBC standard abbreviations for the revenue 
codes listed in Table 2 of the CY 2009 OPPS/ASC proposed rule with the 
most current NUBC descriptions of the revenue code categories and 
subcategories to better articulate the meanings of the revenue codes 
without changing the proposed list of revenue codes. In the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60362 through 60363), we 
finalized changes to the packaged revenue code list based on our 
examination of the updated NUBC codes and public comment to the CY 2010 
proposed list of packaged revenue codes. For this CY 2011 OPPS proposed 
rule, we reviewed the changes to revenue codes that were effective 
during CY 2009 for purposes of determining the charges reported with 
revenue codes but without HCPCS codes that we would propose to package 
for the CY 2011 OPPS. As we discuss in the context of the revenue code-
to-cost center crosswalk in section II.A.1.c. of this proposed rule, 
for CY 2009, the NUBC changed the title of revenue code series 076x 
from ``Specialty Room--Treatment/Observation Room'' to ``Specialty 
Services'' and changed the title of subclassification revenue code 0762 
from ``Observation Room'' to ``Observation Hours''. In addition, the 
NUBC deleted an explanatory note following revenue code 0913, 
``Behavioral Health Treatment Services--Extension of 090x.'' We are 
proposing to revise the title for revenue code 076x, Observation Hours, 
in Table 3 to comport to the CY 2009 revenue code title for revenue 
code 076x. There is no need to revise the table as a result of the 
deletion of the explanatory note. We believe that the charges reported 
under the revenue codes listed in Table 3 continue to reflect ancillary 
and supportive services for which hospitals report charges without 
HCPCS codes. Therefore, we are proposing to continue to package the 
costs that we derive from the charges reported under the revenue codes 
displayed in Table 3 below for purposes of calculating the median costs 
on which the CY 2011 OPPS would be based.
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    In accordance with our longstanding policy, we are proposing to 
continue to exclude: (1) Claims that had zero costs after summing all 
costs on the claim; and (2) claims containing packaging flag number 3. 
Effective for services furnished on or after July 1, 2004, the I/OCE 
assigned packaging flag number 3 to claims on which hospitals submitted 
token charges less than $1.01 for a service with status indicator ``S'' 
or ``T'' (a major separately payable service under the OPPS) for which 
the fiscal intermediary or MAC was required to allocate the sum of 
charges for services with a status indicator equaling ``S'' or ``T'' 
based on the relative weight of the APC to which each code was 
assigned. We do not believe that these charges, which were token 
charges as submitted by the hospital, are valid reflections of hospital 
resources. Therefore, we deleted these claims. We also deleted claims 
for which the charges equaled the revenue center payment (that is, the 
Medicare payment) on the assumption that where the charge equaled the 
payment, to apply a CCR to the charge would not yield a valid estimate 
of relative provider cost. We are proposing to continue these processes 
for the CY 2011 OPPS.
    For the remaining claims, we then standardized 60 percent of the 
costs of the claim (which we have previously determined to be the 
labor-related portion) for geographic differences in labor input costs. 
We made this adjustment by determining the wage index that applied to 
the hospital that furnished the service and dividing the cost for the 
separately paid HCPCS code furnished by the hospital by that wage 
index. As has been our policy since the inception of the OPPS, we are 
proposing to use the pre-reclassified wage indices for standardization 
because we believe that they better reflect the true costs of items and 
services in the area in which the hospital is located than the post-
reclassification wage indices and, therefore, would result in the most 
accurate unadjusted median costs.
    In accordance with our longstanding practice, we also excluded 
single and pseudo single procedure claims for

[[Page 46204]]

which the total cost on the claim was outside 3 standard deviations 
from the geometric mean of units for each HCPCS code on the bypass list 
(because, as discussed above, we used claims that contain multiple 
units of the bypass codes).
    After removing claims for hospitals with error CCRs, claims without 
HCPCS codes, claims for immunizations not covered under the OPPS, and 
claims for services not paid under the OPPS, approximately 98 million 
claims were left. Using these 98 million claims, we created 
approximately 96 million single and ``pseudo'' single procedure claims, 
of which we used 95 million single bills (after trimming out 
approximately 696,000 claims as discussed above in this section) in the 
proposed CY 2011 median development and ratesetting.
    We used these claims to calculate the proposed CY 2011 median costs 
for each separately payable HCPCS code and each APC. The comparison of 
HCPCS code-specific and APC medians determines the applicability of the 
2 times rule. Section 1833(t)(2) of the Act provides that, subject to 
certain exceptions, the items and services within an APC group cannot 
be considered comparable with respect to the use of resources if the 
highest median (or mean cost, if elected by the Secretary) for an item 
or service in the group is more than 2 times greater than the lowest 
median cost for an item or service within the same group (the 2 times 
rule). Finally, we reviewed the median costs for the services for which 
we are proposing to pay separately under this proposed rule, and we 
reassigned HCPCS codes to different APCs where it was necessary to 
ensure clinical and resource homogeneity within the APCs. Section III. 
of this proposed rule includes a discussion of many of the HCPCS code 
assignment changes that resulted from examination of the median costs 
and for other reasons. The APC medians were recalculated after we 
reassigned the affected HCPCS codes. Both the HCPCS code-specific 
medians and the APC medians were weighted to account for the inclusion 
of multiple units of the bypass codes in the creation of ``pseudo'' 
single procedure claims.
    As we discuss in sections II.A.2 d. and II.A.2.e. and in section 
X.B. of this proposed rule, in some cases, APC median costs are 
calculated using variations of the process outlined above. 
Specifically, section II.A.2.d. of this proposed rule addresses the 
proposed calculation of single APC criteria-based median costs. Section 
II.A.2.e. of this proposed rule discusses the proposed calculation of 
composite APC criteria-based median costs. Section X.B. of this 
proposed rule addresses the methodology for calculating the proposed 
median cost for partial hospitalization services.
    At the February 2010 APC Panel Meeting, we provided the APC Panel a 
list of all APCs decreasing by more than 5 percent and increasing by 
more than 15 percent when comparing the proposed CY 2011 median costs 
based on data available for the February 2010 APC Panel meeting from CY 
2009 claims processed through September 30, 2009, to those based on CY 
2010 OPPS/ASC final rule data (CY 2008 claims). The APC Panel reviewed 
these fluctuations in the APC median costs but did not express 
particular concerns with the median cost changes.
    As we stated earlier, at the February 2010 APC Panel Meeting, the 
APC Panel also recommended that the Data Subcommittee continue its 
work. We are proposing to accept that recommendation.
d. Proposed Calculation of Single Procedure APC Criteria-Based Median 
Costs
(1) Device-Dependent APCs
    Device-dependent APCs are populated by HCPCS codes that usually, 
but not always, require that a device be implanted or used to perform 
the procedure. For a full history of how we have calculated payment 
rates for device-dependent APCs in previous years and a detailed 
discussion of how we developed the standard device-dependent APC 
ratesetting methodology, we refer readers to the CY 2008 OPPS/ASC final 
rule with comment period (72 FR 66739 through 66742). Overviews of the 
procedure-to-device edits and device-to-procedure edits used in 
ratesetting for device-dependent APCs are available in the CY 2005 OPPS 
final rule with comment period (69 FR 65761 through 65763) and the CY 
2007 OPPS/ASC final rule with comment period (71 FR 68070 through 
68071).
    For CY 2011, we are proposing to continue to use the standard 
methodology for calculating median costs for device-dependent APCs that 
was finalized in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60365). This methodology utilizes claims data that generally 
represent the full cost of the required device. Specifically, we are 
proposing to calculate the median costs for device-dependent APCs for 
CY 2011 using only the subset of single procedure claims from CY 2009 
claims data that pass the procedure-to-device and device-to-procedure 
edits; do not contain token charges (less than $1.01) for devices; do 
not contain the ``FB'' modifier signifying that the device was 
furnished without cost to the provider, supplier, or practitioner, or 
where a full credit was received; and do not contain the ``FC'' 
modifier signifying that the hospital received partial credit for the 
device. The ``FC'' modifier became effective January 1, 2008, and was 
present for the first time on claims that were used in OPPS ratesetting 
for CY 2010. We continue to believe the standard methodology for 
calculating median costs for device-dependent APCs gives us the most 
appropriate proposed median costs for device-dependent APCs in which 
the hospital incurs the full cost of the device.
    The median costs for the majority of device-dependent APCs that are 
calculated using the CY 2011 proposed rule claims data are generally 
stable, with most median costs increasing moderately compared to the 
median costs upon which the CY 2010 OPPS payment rates were based. 
However, the median costs for APC 0225 (Implantation of Neurostimulator 
Electrodes, Cranial Nerve) and APC 0418 (Insertion of Left Ventricular 
Pacing Electrode) demonstrate significant fluctuation. Specifically, 
the proposed CY 2011 median cost for APC 0225 increased approximately 
40 percent compared to its final CY 2010 median cost, while the 
proposed CY 2011 median cost for APC 0418, which had increased 
approximately 53 percent from CY 2009 to CY 2010, showed a decrease of 
approximately 27 percent based on the claims data available for this CY 
2011 proposed rule. We believe the fluctuations in median costs for 
these two APCs are a consequence of the small number of single bills 
upon which the median costs are based and the small number of providers 
of these services. As we have stated in the past, some fluctuation in 
relative costs from year to year is to be expected in a prospective 
payment system for low volume device-dependent APCs, particularly where 
there are small numbers of single bills from a small number of 
providers. The additional single bills available for ratesetting in the 
CY 2011 final rule data and updated cost report data may result in less 
fluctuation in the median costs for these APCs for CY 2011.
    Table 4 below lists the APCs for which we are proposing to use our 
standard device-dependent APC ratesetting methodology for CY 2011. We 
refer readers to Addendum A to this proposed rule for the proposed 
payment rates for these APCs.

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[[Page 46206]]

(2) Blood and Blood Products
    Since the implementation of the OPPS in August 2000, we have made 
separate payments for blood and blood products through APCs rather than 
packaging payment for them into payments for the procedures with which 
they are administered. Hospital payments for the costs of blood and 
blood products, as well as for the costs of collecting, processing, and 
storing blood and blood products, are made through the OPPS payments 
for specific blood product APCs.
    For CY 2011, we are proposing to continue to establish payment 
rates for blood and blood products using our blood-specific CCR 
methodology, which utilizes actual or simulated CCRs from the most 
recently available hospital cost reports to convert hospital charges 
for blood and blood products to costs. This methodology has been our 
standard ratesetting methodology for blood and blood products since CY 
2005. It was developed in response to data analysis indicating that 
there was a significant difference in CCRs for those hospitals with and 
without blood-specific cost centers, and past comments indicating that 
the former OPPS policy of defaulting to the overall hospital CCR for 
hospitals not reporting a blood-specific cost center often resulted in 
an underestimation of the true hospital costs for blood and blood 
products. Specifically, in order to address the differences in CCRs and 
to better reflect hospitals' costs, we are proposing to continue to 
simulate blood CCRs for each hospital that does not report a blood cost 
center by calculating the ratio of the blood-specific CCRs to 
hospitals' overall CCRs for those hospitals that do report costs and 
charges for blood cost centers. We would then apply this mean ratio to 
the overall CCRs of hospitals not reporting costs and charges for blood 
cost centers on their cost reports in order to simulate blood-specific 
CCRs for those hospitals. We calculated the median costs upon which the 
proposed CY 2011 payment rates for blood and blood products are based 
using the actual blood-specific CCR for hospitals that reported costs 
and charges for a blood cost center and a hospital-specific simulated 
blood-specific CCR for hospitals that did not report costs and charges 
for a blood cost center.
    We continue to believe the hospital-specific, blood-specific CCR 
methodology better responds to the absence of a blood-specific CCR for 
a hospital than alternative methodologies, such as defaulting to the 
overall hospital CCR or applying an average blood-specific CCR across 
hospitals. Because this methodology takes into account the unique 
charging and cost accounting structure of each provider, we believe 
that it yields more accurate estimated costs for these products. We 
believe that continuing with this methodology in CY 2011 would result 
in median costs for blood and blood products that appropriately reflect 
the relative estimated costs of these products for hospitals without 
blood cost centers and, therefore, for these blood products in general.
    We refer readers to Addendum B to this proposed rule for the 
proposed CY 2011 payment rates for blood and blood products, which are 
identified with status indicator ``R.'' For more detailed discussion of 
the blood-specific CCR methodology, we refer readers to the CY 2005 
OPPS proposed rule (69 FR 50524 through 50525). For a full history of 
OPPS payment for blood and blood products, we refer readers to the CY 
2008 OPPS/ASC final rule with comment period (72 FR 66807 through 
66810).
(3) Single Allergy Tests
    We are proposing to continue with our methodology of 
differentiating single allergy tests (``per test'') from multiple 
allergy tests (``per visit'') by assigning these services to two 
different APCs to provide accurate payments for these tests in CY 2011. 
Multiple allergy tests are currently assigned to APC 0370 (Allergy 
Tests), with a median cost calculated based on the standard OPPS 
methodology. We provided billing guidance in CY 2006 in Transmittal 804 
(issued on January 3, 2006) specifically clarifying that hospitals 
should report charges for the CPT codes that describe single allergy 
tests to reflect charges ``per test'' rather than ``per visit'' and 
should bill the appropriate number of units (as defined in the CPT code 
descriptor) of these CPT codes to describe all of the tests provided. 
Our CY 2009 claims data available for this proposed rule for APC 0381 
do not reflect improved and more consistent hospital billing practices 
of ``per test'' for single allergy tests. The median cost of APC 0381, 
calculated for this proposed rule according to the standard single 
claims OPPS methodology, is approximately $52, significantly higher 
than the CY 2010 median cost of APC 0381 of approximately $29 
calculated according to the ``per unit'' methodology, and greater than 
we would expect for these procedures that are to be reported ``per 
test'' with the appropriate number of units. Some claims for single 
allergy tests still appear to provide charges that represent a ``per 
visit'' charge, rather than a ``per test'' charge. Therefore, 
consistent with our payment policy for single allergy tests since CY 
2006, we are proposing to calculate a ``per unit'' median cost for APC 
0381, based upon 595 claims containing multiple units or multiple 
occurrences of a single CPT code. The proposed CY 2011 median cost for 
APC 0381 using the ``per unit'' methodology is approximately $29. For a 
full discussion of this methodology, we refer readers to the CY 2008 
OPPS/ASC final rule with comment period (72 FR 66737).
(4) Hyperbaric Oxygen Therapy (APC 0659)
    Since the implementation of OPPS in August 2000, the OPPS has 
recognized HCPCS code C1300 (Hyperbaric oxygen under pressure, full 
body chamber, per 30 minute interval) for hyperbaric oxygen therapy 
(HBOT) provided in the hospital outpatient setting. In the CY 2005 
final rule with comment period (69 FR 65758 through 65759), we 
finalized a ``per unit'' median cost calculation for APC 0659 
(Hyperbaric Oxygen) using only claims with multiple units or multiple 
occurrences of HCPCS code C1300 because delivery of a typical HBOT 
service requires more than 30 minutes. We observed that claims with 
only a single occurrence of the code were anomalies, either because 
they reflected terminated sessions or because they were incorrectly 
coded with a single unit. In the same rule, we also established that 
HBOT would not generally be furnished with additional services that 
might be packaged under the standard OPPS APC median cost methodology. 
This enabled us to use claims with multiple units or multiple 
occurrences. Finally, we also used each hospital's overall CCR to 
estimate costs for HCPCS code C1300 from billed charges rather than the 
CCR for the respiratory therapy or other departmental cost centers. The 
public comments on the CY 2005 OPPS proposed rule effectively 
demonstrated that hospitals report the costs and charges for HBOT in a 
wide variety of cost centers. Since CY 2005, we have used this 
methodology to estimate the median cost for HBOT. The median costs of 
HBOT using this methodology have been relatively stable for the last 5 
years. For CY 2011, we are proposing to continue using the same 
methodology to estimate a ``per unit'' median cost for HCPCS code 
C1300. This methodology results in a proposed APC median cost of 
approximately $109 using 328,960 claims with multiple units or multiple 
occurrences for HCPCS code C1300 for CY 2011.

[[Page 46207]]

(5) Payment for Ancillary Outpatient Services When Patient Expires (APC 
0375)
    In the November 1, 2002 final rule with comment period (67 FR 
66798), we discussed the creation of the new HCPCS modifier -CA to 
address situations where a procedure on the OPPS inpatient list must be 
performed to resuscitate or stabilize a patient (whose status is that 
of an outpatient) with an emergent, life-threatening condition, and the 
patient dies before being admitted as an inpatient. HCPCS modifier -CA 
is defined as a procedure payable only in the inpatient setting when 
performed emergently on an outpatient who expires prior to admission. 
In Transmittal A-02-129, issued on January 3, 2003, we instructed 
hospitals on the use of this modifier. For a complete description of 
the history of the policy and the development of the payment 
methodology for these services, we refer readers to the CY 2007 OPPS/
ASC final rule with comment period (71 FR 68157 through 68158).
    For CY 2011, we are proposing to continue to use our established 
ratesetting methodology for calculating the median cost of APC 0375 
(Ancillary Outpatient Services When Patient Expires) and to continue to 
make one payment under APC 0375 for the services that meet the specific 
conditions for using HCPCS modifier -CA. We are proposing to calculate 
the relative payment weight for APC 0375 by using all claims reporting 
a status indicator ``C'' (inpatient procedures) appended with HCPCS 
modifier -CA, using estimated costs from claims data for line-items 
with a HCPCS code assigned to status indicators ``G,'' ``H,'' ``K,'' 
``N,'' ``Q1,'' ``Q2,'' ``Q3,'' ``R,'' ``S,'' ``T,'' ``U,'' ``V,'' and 
``X'' and charges for packaged revenue codes without a HCPCS code (we 
refer readers to section XIII.A.1. of this proposed rule for a complete 
listing of status indicators). We continue to believe that this 
methodology results in the most appropriate aggregate median cost for 
the ancillary services provided in these unusual clinical situations.
    We believe that hospitals are reporting the HCPCS modifier -CA 
according to the policy initially established in CY 2003. We note that 
the claims frequency for APC 0375 has been relatively stable over the 
past few years. Although the median cost for APC 0375 has increased, 
the median in the CY 2009 OPPS claims data used for development of 
proposed rates for CY 2011 was only slightly higher than that for CY 
2010. Variation in the median cost for APC 0375 is expected because of 
the small number of claims and because the specific cases are grouped 
by the presence of the HCPCS modifier -CA appended to an inpatient 
procedure and not according to the standard APC criteria of clinical 
and resource homogeneity. Cost variation for APC 0375 from year to year 
is anticipated and acceptable as long as hospitals continue judicious 
reporting of the HCPCS modifier -CA. Table 5 below shows the number of 
claims and the final median costs for APC 0375 for CYs 2007, 2008, 
2009, and 2010. For CY 2011, we are proposing a median cost of 
approximately $6,566 for APC 0375 based on 117 claims.
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(6) Pulmonary Rehabilitation
    Section 144(a)(1) of Public Law 110-275 (MIPPA) added section 
1861(fff) to the Act to provide Medicare Part B coverage and payment 
for a comprehensive program of pulmonary rehabilitation services 
furnished to beneficiaries with chronic obstructive pulmonary disease, 
effective January 1, 2010. Accordingly, in the CY 2010 OPPS/ASC final 
rule with comment period, we established a policy to pay for pulmonary 
rehabilitation (PR) services furnished as a part of the comprehensive 
PR program benefit (74 FR 60567). We created new HCPCS code G0424 
(Pulmonary rehabilitation, including exercise (includes monitoring), 
one hour, per session, up to two sessions per day) and assigned it to 
new APC 0102 (Level II Pulmonary Treatment).
    For CY 2011, we are proposing to continue to require hospitals to 
report PR services provided under the comprehensive PR benefit in 
section 1861(fff) of the Act using HCPCS code G0424. We also are 
proposing to continue to use the methodology described in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60567 through 60570) to 
calculate the median cost on which the proposed payment rate for CY 
2011 is based. Specifically, we are proposing to continue to assign 
HCPCS code G0424 to APC 0102 and to calculate a median ``per session'' 
cost simulated from historical hospital claims data for similar 
pulmonary therapy services for the CY 2011 OPPS.
    To simulate the proposed ``per session'' median cost of HCPCS code 
G0424 from claims data for existing services, we used only claims that 
contained at least one unit of HCPCS code G0239 (Therapeutic procedures 
to improve respiratory function or increase strength or endurance of 
respiratory muscles, two or more individuals (includes monitoring)), 
the group code that is without limitation on time duration, and one 
unit of HCPCS code G0237 (Therapeutic procedures to increase strength 
or endurance of respiratory muscles, face to face, one on one, each 15 
minutes (includes monitoring)) or G0238 (Therapeutic procedures to 
improve respiratory function, other than described by G0237, one on 
one, face to face, per 15 minutes (includes monitoring)), the 
individual, face-to-face codes that report 15 minutes of service on the 
same date of service. We continue to believe that patients in a PR 
program would typically receive individual and group services in each 
session of

[[Page 46208]]

approximately 1 hour in duration. This proposal is consistent with 
public comments on the CY 2010 OPPS/ASC proposed rule that were 
addressed in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60569) that suggested that PR is often provided in group sessions in 
the HOPD, although patients commonly require additional one-on-one care 
in order to fully participate in the program. We note that our use of 
``per session'' claims reporting one unit of HCPCS code G0237 or G0238 
and one unit of HCPCS code G0239 in this simulation methodology is also 
consistent with our overall finding of approximately 2.4 service units 
of the HCPCS G-codes per day on a single date of service, usually 
consisting of both individual and group services, for patients 
receiving pulmonary therapy services in the HOPD based upon CY 2008 
claims used for CY 2010 OPPS final rule ratesetting. We continue to 
believe that the typical session of PR is 1 hour based on public 
comments that indicated that a session of PR is typically 1 hour and 
based on our findings that the most commonly reported HCPCS code for 
pulmonary treatment is HCPCS code G0239, which has no time definition 
for this group service.
    In the calculation of the proposed median cost for APC 0102, we 
included all costs of the related tests and assessment services, 
including CPT codes 94620 (Pulmonary stress testing, simple (e.g. 6-
minute walk test, prolonged exercise test for bronchospasm with pre- 
and post-spirometry and oximetry)), 94664 (Demonstration and/or 
evaluation of patient utilization of an aerosol generator, nebulizer, 
metered dose inhaler or IPPB device), and 94667 (Manipulation chest 
wall, such as cupping, percussing, and vibration to facilitate lung 
function; initial demonstration and/or evaluation and all the costs of 
all CPT codes for established patient clinic visits) on the same date 
of service as the HCPCS codes in the claims we used to simulate the 
median cost for HCPCS code G0424, which is the only HCPCS code in APC 
0102. After identifying these ``per session'' claims, which we believe 
represent 1 hour of care, we summed the costs and calculated the median 
cost for the set of selected claims. In light of the cost and clinical 
similarities of PR and the existing services described by HCPCS codes 
G0237, G0238, and G0239 and the CPT codes for related assessments and 
tests, and the significant number of ``per session'' hospital claims we 
found, we are confident that the proposed simulated median cost for 
HCPCS code G0424 and APC 0102 of approximately $68 is a valid estimate 
of the expected hospital cost of a PR session. We note that this 
proposed median cost is higher than the CY 2010 final rule median cost 
for HCPCs code G0424 and APC 0102 of approximately $50 on which the CY 
2010 payment is based.
e. Proposed Calculation of Composite APC Criteria-Based Median Costs
    As discussed in the CY 2008 OPPS/ASC final rule with comment period 
(72 FR 66613), we believe it is important that the OPPS enhance 
incentives for hospitals to provide only necessary, high quality care 
and to provide that care as efficiently as possible. For CY 2008, we 
developed composite APCs to provide a single payment for groups of 
services that are typically performed together during a single clinical 
encounter and that result in the provision of a complete service. 
Combining payment for multiple independent services into a single OPPS 
payment in this way enables hospitals to manage their resources with 
maximum flexibility by monitoring and adjusting the volume and 
efficiency of services themselves. An additional advantage to the 
composite APC model is that we can use data from correctly coded 
multiple procedure claims to calculate payment rates for the specified 
combinations of services, rather than relying upon single procedure 
claims which may be low in volume and/or incorrectly coded. Under the 
OPPS, we currently have composite APC policies for extended assessment 
and management services, low dose rate (LDR) prostate brachytherapy, 
cardiac electrophysiologic evaluation and ablation services, mental 
health services, and multiple imaging services. We refer readers to the 
CY 2008 OPPS/ASC final rule with comment period for a full discussion 
of the development of the composite APC methodology (72 FR 66611 
through 66614 and 66650 through 66652).
    At its February 2010 meeting, the APC Panel recommended that, in 
order to support stem cell transplantation, CMS consider creating a 
composite APC or custom APC that captures the costs of stem cell 
acquisition performed in conjunction with recipient transplantation and 
preparation of tissue. We are accepting this APC Panel recommendation 
to consider creating a composite APC or custom APC that captures the 
costs of stem cell acquisition performed in conjunction with recipient 
transplantation and preparation of tissue, and will report the results 
of our assessment to the APC Panel at a future meeting.
    For CY 2011, we are proposing to continue our established composite 
APC policies for extended assessment and management, LDR prostate 
brachytherapy, cardiac electrophysiologic evaluation and ablation, 
mental health services, and multiple imaging services, as discussed in 
sections II.A.2.e.(1), II.A.2.e.(2), II.A.2.e.(3), II.A.2.e.(4), and 
II.A.2.e.(5), respectively, of this proposed rule.
(1) Extended Assessment and Management Composite APCs (APCs 8002 and 
8003)
    For CY 2011, we are proposing to continue to include composite APC 
8002 (Level I Extended Assessment and Management Composite) and 
composite APC 8003 (Level II Extended Assessment and Management 
Composite) in the OPPS. For CY 2008, we created these two composite 
APCs to provide payment to hospitals in certain circumstances when 
extended assessment and management of a patient occur (an extended 
visit). In most circumstances, observation services are supportive and 
ancillary to the other services provided to a patient. In the 
circumstances when observation care is provided in conjunction with a 
high level visit or direct referral and is an integral part of a 
patient's extended encounter of care, payment is made for the entire 
care encounter through one of two composite APCs as appropriate.
    As defined for the CY 2008 OPPS, composite APC 8002 describes an 
encounter for care provided to a patient that includes a high level 
(Level 5) clinic visit or direct referral for observation services in 
conjunction with observation services of substantial duration (72 FR 
66648 through 66649). Composite APC 8003 describes an encounter for 
care provided to a patient that includes a high level (Level 4 or 5) 
Type A emergency department visit, a high level (Level 5) Type B 
emergency department visit, or critical care services in conjunction 
with observation services of substantial duration. HCPCS code G0378 
(Observation services, per hour) is assigned status indicator ``N,'' 
signifying that its payment is always packaged. As noted in the CY 2008 
OPPS/ASC final rule with comment period (72 FR 66648 through 66649), 
the Integrated Outpatient Code Editor (I/OCE) evaluates every claim 
received to determine if payment through a composite APC is 
appropriate. If payment through a composite APC is inappropriate, the 
I/OCE, in conjunction with the OPPS Pricer, determines the appropriate 
status indicator, APC, and

[[Page 46209]]

payment for every code on a claim. The specific criteria that must be 
met for the two extended assessment and management composite APCs to be 
paid are provided below in the description of the claims that were 
selected for the calculation of the proposed CY 2011 median costs for 
these composite APCs. We are not proposing to change these criteria for 
the CY 2011 OPPS.
    When we created composite APCs 8002 and 8003 for CY 2008, we 
retained as general reporting requirements for all observation services 
those criteria related to physician order and evaluation, 
documentation, and observation beginning and ending time as listed in 
the CY 2008 OPPS/ASC final rule with comment period (72 FR 66812). 
These are more general requirements that encourage hospitals to provide 
medically reasonable and necessary care and help to ensure the proper 
reporting of observation services on correctly coded hospital claims 
that reflect the full charges associated with all hospital resources 
utilized to provide the reported services. We also issued guidance 
clarifying the correct method for reporting the starting time for 
observation services sections 290.2.2 through 290.5 in the Medicare 
Claims Processing Manual (Pub. 100-4), Chapter 4, through Transmittal 
1745, Change Request 6492, issued May 22, 2009 and implemented July 6, 
2009. We are not proposing to change these reporting requirements for 
the CY 2011 OPPS.
    For CY 2011, we are proposing to continue the extended assessment 
and management composite APC payment methodology for APCs 8002 and 
8003. We continue to believe that the composite APCs 8002 and 8003 and 
related policies provide the most appropriate means of paying for these 
services. We are proposing to calculate the median costs for APCs 8002 
and 8003 using all single and ``pseudo'' single procedure claims for CY 
2009 that meet the criteria for payment of each composite APC.
    Specifically, to calculate the proposed median costs for composite 
APCs 8002 and 8003, we selected single and ``pseudo'' single procedure 
claims that met each of the following criteria:
    1. Did not contain a HCPCS code to which we have assigned status 
indicator ``T'' that is reported with a date of service 1 day earlier 
than the date of service associated with HCPCS code G0378. (By 
selecting these claims from single and ``pseudo'' single claims, we had 
already assured that they would not contain a code for a service with 
status indicator ``T'' on the same date of service.);
    2. Contained 8 or more units of HCPCS code G0378; and
    3. Contained one of the following codes:
     In the case of composite APC 8002, HCPCS code G0379 
(Direct referral of patient for hospital observation care) on the same 
date of service as G0378; or CPT code 99205 (Office or other outpatient 
visit for the evaluation and management of a new patient (Level 5)); or 
CPT code 99215 (Office or other outpatient visit for the evaluation and 
management of an established patient (Level 5)) provided on the same 
date of service or one day before the date of service for HCPCS code 
G0378.
     In the case of composite APC 8003, CPT code 99284 
(Emergency department visit for the evaluation and management of a 
patient (Level 4)); CPT code 99285 (Emergency department visit for the 
evaluation and management of a patient (Level 5)); CPT code 99291 
(Critical care, evaluation and management of the critically ill or 
critically injured patient; first 30-74 minutes); or HCPCS code G0384 
(Level 5 hospital emergency department visit provided in a Type B 
emergency department) provided on the same date of service or one day 
before the date of service for HCPCS code G0378. (As discussed in 
detail in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68684), we added HCPCS code G0384 to the eligibility criteria for 
composite APC 8003 for CY 2009.)
    As discussed further in section IX. of this proposed rule, and 
consistent with our CY 2008, CY 2009, and CY 2010 final policies, when 
calculating the median costs for the clinic, Type A emergency 
department visit, Type B emergency department visit, and critical care 
APCs (0604 through 0617 and 0626 through 0630), we utilize our 
methodology that excludes those claims for visits that are eligible for 
payment through the two extended assessment and management composite 
APCs, that is APC 8002 or APC 8003. We believe that this approach 
results in the most accurate cost estimates for APCs 0604 through 0617 
and 0626 through 0630 for CY 2011.
    At its February 2010 meeting, the APC Panel recommended that CMS 
study the feasibility of expanding the extended assessment and 
management composite APC methodology to include services commonly 
furnished in conjunction with visits and observation services, such as 
drug infusion, electrocardiogram, and chest X-ray. We are accepting 
this recommendation, and we will share our assessment with the APC 
Panel at a future meeting.
    In summary, for CY 2011, we are proposing to continue to include 
composite APCs 8002 and 8003 in the OPPS. We are proposing to continue 
the extended assessment and management composite APC payment 
methodology and criteria that we finalized for CYs 2009 and 2010. We 
also are proposing to calculate the median costs for APCs 8002 and 8003 
using the same methodology that we used to calculate the medians for 
composite APCs 8002 and 8003 for the CY 2008 OPPS (72 FR 66649). That 
is, we used all single and ``pseudo'' single procedure claims from CY 
2009 that met the criteria for payment of each composite APC and 
applied the standard packaging and trimming rules to the claims before 
calculating the proposed CY 2011 median costs. The proposed CY 2011 
median cost resulting from this methodology for composite APC 8002 is 
approximately $401, which was calculated from 17,398 single and 
``pseudo'' single bills that met the required criteria. The proposed CY 
2011 median cost for composite APC 8003 is approximately $743, which 
was calculated from 201,189 single and ``pseudo'' single bills that met 
the required criteria.
(2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001)
    LDR prostate brachytherapy is a treatment for prostate cancer in 
which hollow needles or catheters are inserted into the prostate, 
followed by permanent implantation of radioactive sources into the 
prostate through the needles/catheters. At least two CPT codes are used 
to report the composite treatment service because there are separate 
codes that describe placement of the needles/catheters and the 
application of the brachytherapy sources: CPT code 55875 (Transperineal 
placement of needles or catheters into prostate for interstitial 
radioelement application, with or without cystoscopy) and CPT code 
77778 (Interstitial radiation source application; complex). Generally, 
the component services represented by both codes are provided in the 
same operative session in the same hospital on the same date of service 
to the Medicare beneficiary being treated with LDR brachytherapy for 
prostate cancer. As discussed in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66653), OPPS payment rates for CPT code 77778, in 
particular, had fluctuated over the years. We were frequently informed 
by the public that reliance on single procedure claims to set the 
median costs for these services resulted in use of mainly

[[Page 46210]]

incorrectly coded claims for LDR prostate brachytherapy because a 
correctly coded claim should include, for the same date of service, CPT 
codes for both needle/catheter placement and application of radiation 
sources, as well as separately coded imaging and radiation therapy 
planning services (that is, a multiple procedure claim).
    In order to base payment on claims for the most common clinical 
scenario, and to further our goal of providing payment under the OPPS 
for a larger bundle of component services provided in a single hospital 
encounter, beginning in CY 2008, we provide a single payment for LDR 
prostate brachytherapy when the composite service, reported as CPT 
codes 55875 and 77778, is furnished in a single hospital encounter. We 
base the payment for composite APC 8001 (LDR Prostate Brachytherapy 
Composite) on the median cost derived from claims for the same date of 
service that contain both CPT codes 55875 and 77778 and that do not 
contain other separately paid codes that are not on the bypass list. In 
uncommon occurrences in which the services are billed individually, 
hospitals continue to receive separate payments for the individual 
services. We refer readers to the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66652 through 66655) for a full history of OPPS 
payment for LDR prostate brachytherapy and a detailed description of 
how we developed the LDR prostate brachytherapy composite APC.
    For CY 2011, we are proposing to continue paying for LDR prostate 
brachytherapy services using the composite APC methodology proposed and 
implemented for CYs 2008, 2009, and 2010. That is, we are proposing to 
use CY 2009 claims on which both CPT codes 55875 and 77778 were billed 
on the same date of service with no other separately paid procedure 
codes (other than those on the bypass list) to calculate the payment 
rate for composite APC 8001. Consistent with our CY 2008 through CY 
2010 practice, we are proposing not to use the claims that meet these 
criteria in the calculation of the median costs for APCs 0163 (Level IV 
Cystourethroscopy and Other Genitourinary Procedures) and 0651 (Complex 
Interstitial Radiation Source Application), the APCs to which CPT codes 
55875 and 77778 are assigned, respectively. The median costs for APCs 
0163 and 0651 would continue to be calculated using single and 
``pseudo'' single procedure claims. We continue to believe that this 
composite APC contributes to our goal of creating hospital incentives 
for efficiency and cost containment, while providing hospitals with the 
most flexibility to manage their resources. We also continue to believe 
that data from claims reporting both services required for LDR prostate 
brachytherapy provide the most accurate median cost upon which to base 
the composite APC payment rate.
    Using partial year CY 2009 claims data available for this proposed 
rule, we were able to use 788 claims that contained both CPT codes and 
55875 and 77778 to calculate the median cost upon which the proposed CY 
2011 payment for composite APC 8001 is based. The proposed median cost 
for composite APC 8001 for CY 2011 is approximately $3,265. This is an 
increase compared to the CY 2010 OPPS/ASC final rule with comment 
period in which we calculated a final median cost for this composite 
APC of approximately $3,084 based on a full year of CY 2008 claims 
data. The proposed CY 2011 median cost for this composite APC is 
slightly less than $3,604, the sum of the proposed median costs for 
APCs 0163 and 0651 ($2,606 + $998), the APCs to which CPT codes 55875 
and 77778 map if one service is billed on a claim without the other. We 
believe the proposed CY 2011 median cost for composite APC 8001 of 
approximately $3,265, calculated from claims we believe to be correctly 
coded, would result in a reasonable and appropriate payment rate for 
this service in CY 2011.
(3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC 
(APC 8000)
    Cardiac electrophysiologic evaluation and ablation services 
frequently are performed in varying combinations with one another 
during a single episode-of-care in the hospital outpatient setting. 
Therefore, correctly coded claims for these services often include 
multiple codes for component services that are reported with different 
CPT codes and that, prior to CY 2008, were always paid separately 
through different APCs (specifically, APC 0085 (Level II 
Electrophysiologic Evaluation), APC 0086 (Ablate Heart Dysrhythm 
Focus), and APC 0087 (Cardiac Electrophysiologic Recording/Mapping)). 
As a result, there would never be many single bills for cardiac 
electrophysiologic evaluation and ablation services, and those that are 
reported as single bills would often represent atypical cases or 
incorrectly coded claims. As described in the CY 2008 OPPS/ASC final 
rule with comment period (72 FR 66655 through 66659), the APC Panel and 
the public expressed persistent concerns regarding the limited and 
reportedly unrepresentative single bills available for use in 
calculating the median costs for these services according to our 
standard OPPS methodology.
    Effective January 1, 2008, we established APC 8000 (Cardiac 
Electrophysiologic Evaluation and Ablation Composite) to pay for a 
composite service made up of at least one specified electrophysiologic 
evaluation service and one specified electrophysiologic ablation 
service. Calculating a composite APC for these services allowed us to 
utilize many more claims than were available to establish the 
individual APC median costs for these services, and we also saw this 
composite APC as an opportunity to advance our stated goal of promoting 
hospital efficiency through larger payment bundles. In order to 
calculate the median cost upon which the payment rate for composite APC 
8000 is based, we used multiple procedure claims that contained at 
least one CPT code from group A for evaluation services and at least 
one CPT code from group B for ablation services reported on the same 
date of service on an individual claim. Table 9 in the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66656) identified the CPT codes 
that are assigned to groups A and B. For a full discussion of how we 
identified the group A and group B procedures and established the 
payment rate for the cardiac electrophysiologic evaluation and ablation 
composite APC, we refer readers to the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66655 through 66659). Where a service in group A 
is furnished on a date of service that is different from the date of 
service for a code in group B for the same beneficiary, payments are 
made under the appropriate single procedure APCs and the composite APC 
does not apply.
    For CY 2011, we are proposing to continue to pay for cardiac 
electrophysiologic evaluation and ablation services using the composite 
APC methodology proposed and implemented for CY 2008, CY 2009, and CY 
2010. Consistent with our CY 2008 through CY 2010 practice, we are 
proposing not to use the claims that meet the composite payment 
criteria in the calculation of the median costs for APC 0085 and APC 
0086, to which the CPT codes in both groups A and B for composite APC 
8000 are otherwise assigned. Median costs for APCs 0085 and 0086 would 
continue to be calculated using single procedure claims. We continue to 
believe that the composite APC methodology for cardiac 
electrophysiologic evaluation and

[[Page 46211]]

ablation services is the most efficient and effective way to use the 
claims data for the majority of these services and best represents the 
hospital resources associated with performing the common combinations 
of these services that are clinically typical. Furthermore, this 
approach creates incentives for efficiency by providing a single 
payment for a larger bundle of major procedures when they are performed 
together, in contrast to continued separate payment for each of the 
individual procedures.
    Using partial year CY 2009 claims data available for this proposed 
rule, we were able to use 8,964 claims containing a combination of 
group A and group B codes and calculated a proposed median cost of 
approximately $10,834 for composite APC 8000. This is an increase 
compared to the CY 2010 OPPS/ASC final rule with comment period in 
which we calculated a final median cost for this composite APC of 
approximately $10,026 based on a full year of CY 2008 claims data. We 
believe the proposed median cost of $10,834 calculated from a high 
volume of correctly coded multiple procedure claims would result in an 
accurate and appropriate proposed payment for cardiac 
electrophysiologic evaluation and ablation services when at least one 
evaluation service is furnished during the same clinical encounter as 
at least one ablation service. Table 6 below list the groups of 
procedures upon which we are proposing to base composite APC 8000 for 
CY 2011.
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C
(4) Mental Health Services Composite APC (APC 0034)
    We are proposing to continue our longstanding policy of limiting 
the aggregate payment for specified less resource-intensive mental 
health services furnished on the same date to the payment for a day of 
partial hospitalization, which we consider to be the most resource-
intensive of all outpatient mental health treatment for CY 2011. We 
refer readers to the April 7, 2000 OPPS final rule with comment period 
(65 FR 18452 through 18455) for the initial discussion of this 
longstanding policy. We continue to believe that the costs associated 
with administering a partial hospitalization program represent the most 
resource-intensive of all outpatient mental health treatment. 
Therefore, we do not believe that we should pay more for a day of 
individual mental health services under

[[Page 46212]]

the OPPS than the partial hospitalization per diem payment.
    As discussed in detail in section X. of this proposed rule, for CY 
2011, we are proposing to use a provider-specific two tiered payment 
approach for partial hospitalization services that distinguishes 
payment made for services furnished in a CMHC from payment made for 
services furnished in a hospital. Specifically, we are proposing one 
APC for partial hospitalization program days with three services 
furnished in a CMHC (APC 0172, Level I Partial Hospitalization (3 
services) for CMHCs) and one APC for days with four or more services 
furnished in a CMHC (APC 0173, Level II Partial Hospitalization (4 or 
more services) for CMHCs). We are proposing that the payment rates for 
these two APCs be based upon the median per diem costs calculated using 
data only from CMHCs. Similarly, we are proposing one APC for partial 
hospitalization program days with three services furnished in a 
hospital (APC 0175, Level I Partial Hospitalization (3 services) for 
Hospital-Based PHPs), and one APC for days with four or more services 
furnished in a hospital (APC 0176, Level II Partial Hospitalization (4 
or more services) for Hospital-Based PHPs). We are proposing that the 
payment rates for these two APCs be based on the median per diem costs 
calculated using data only from hospitals.
    Because our longstanding policy of limiting the aggregate payment 
for specified less resource-intensive mental health services furnished 
on the same date to the payment rate for the most resource-intensive of 
all outpatient mental health treatment, we are proposing to set the CY 
2011 payment rate for APC 0034 (Mental Health Services Composite) at 
the same rate as we are proposing for APC 0176, which is the maximum 
partial hospitalization per diem payment. We believe this APC payment 
rate would provide the most appropriate payment for composite APC 0034, 
taking into consideration the intensity of the mental health services 
and the differences in the HCPCS codes for mental health services that 
could be paid through this composite APC compared with the HCPCS codes 
that could be paid through partial hospitalization APC 0176. When the 
aggregate payment for specified mental health services provided by one 
hospital to a single beneficiary on one date of service based on the 
payment rates associated with the APCs for the individual services 
exceeds the maximum per diem partial hospitalization payment, we are 
proposing that those specified mental health services would be assigned 
to APC 0034. We are proposing that APC 0034 would have the same payment 
rate as APC 0176 and that the hospital would continue to be paid one 
unit of APC 0034. The I/OCE currently determines, and we are proposing 
for CY 2011 that it would continue to determine, whether to pay these 
specified mental health services individually or to make a single 
payment at the same rate as the APC 0176 per diem rate for partial 
hospitalization for all of the specified mental health services 
furnished by the hospital on that single date of service.
(5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 8007, and 
8008)
    Prior to CY 2009, hospitals received a full APC payment for each 
imaging service on a claim, regardless of how many procedures were 
performed during a single session using the same imaging modality. 
Based on extensive data analysis, we determined that this practice 
neither reflected nor promoted the efficiencies hospitals can achieve 
when performing multiple imaging procedures during a single session (73 
FR 41448 through 41450). As a result of our data analysis, and in 
response to ongoing recommendations from MedPAC to improve payment 
accuracy for imaging services under the OPPS, we expanded the composite 
APC model developed in CY 2008 to multiple imaging services. Effective 
January 1, 2009, we provide a single payment each time a hospital bills 
more than one imaging procedure within an imaging family on the same 
date of service. We utilize three imaging families based on imaging 
modality for purposes of this methodology: (1) Ultrasound; (2) computed 
tomography (CT) and computed tomographic angiography (CTA); and (3) 
magnetic resonance imaging (MRI) and magnetic resonance angiography 
(MRA). The HCPCS codes subject to the multiple imaging composite 
policy, and their respective families, are listed in Table 13 of the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60403 through 
60407).
    While there are three imaging families, there are five multiple 
imaging composite APCs due to the statutory requirement at section 
1833(t)(2)(G) of the Act that we differentiate payment for OPPS imaging 
services provided with and without contrast. While the ultrasound 
procedures included in the policy do not involve contrast, both CT/CTA 
and MRI/MRA scans can be provided either with or without contrast. The 
five multiple imaging composite APCs established in CY 2009 are:
     APC 8004 (Ultrasound Composite);
     APC 8005 (CT and CTA without Contrast Composite);
     APC 8006 (CT and CTA with Contrast Composite);
     APC 8007 (MRI and MRA without Contrast Composite); and
     APC 8008 (MRI and MRA with Contrast Composite).
    We define the single imaging session for the ``with contrast'' 
composite APCs as having at least one or more imaging procedures from 
the same family performed with contrast on the same date of service. 
For example, if the hospital performs an MRI without contrast during 
the same session as at least one other MRI with contrast, the hospital 
will receive payment for APC 8008, the ``with contrast'' composite APC.
    Hospitals continue to use the same HCPCS codes to report imaging 
procedures, and the I/OCE determines when combinations of imaging 
procedures qualify for composite APC payment or map to standard (sole 
service) APCs for payment. We make a single payment for those imaging 
procedures that qualify for composite APC payment, as well as any 
packaged services furnished on the same date of service. The standard 
(noncomposite) APC assignments continue to apply for single imaging 
procedures and multiple imaging procedures performed across families. 
For a full discussion of the development of the multiple imaging 
composite APC methodology, we refer readers to the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68559 through 68569).
    At its February 2010 meeting, the APC Panel recommended that CMS 
continue providing analysis on an ongoing basis of the impact on 
beneficiaries of the multiple imaging composite APCs as data become 
available. We are accepting this recommendation and will provide the 
requested analysis to the APC Panel at a future meeting.
    In summary, for CY 2011, we are proposing to continue paying for 
all multiple imaging procedures within an imaging family performed on 
the same date of service using the multiple imaging composite payment 
methodology. The proposed CY 2011 payment rates for the five multiple 
imaging composite APCs (APC 8004, APC 8005, APC 8006, APC 8007, and APC 
8008) are based on median costs calculated from the partial year CY 
2009 claims available for this proposed rule that would have qualified 
for composite payment under the current policy (that is, those claims 
with more than one

[[Page 46213]]

procedure within the same family on a single date of service). To 
calculate the proposed median costs, we used the same methodology that 
we used to calculate the final CY 2010 median costs for these composite 
APCs. That is, we removed any HCPCS codes in the OPPS imaging families 
that overlapped with codes on our bypass list (``overlap bypass 
codes'') to avoid splitting claims with multiple units or multiple 
occurrences of codes in an OPPS imaging family into new ``pseudo'' 
single claims. The imaging HCPCS codes that we removed from the bypass 
list for purposes of calculating the proposed multiple imaging 
composite APC median costs appear in Table 8 of this proposed rule. (We 
note that, consistent with our proposal in section II.A.1.b. of this 
proposed rule to add CPT code 70547 (Magnetic resonance angiography, 
neck; without contrast material(s)) to the list of bypass codes for CY 
2011, we also are proposing to add CPT code 70547 to the list of 
proposed OPPS imaging family services overlapping with HCPCS codes on 
the proposed CY 2010 bypass list.) We integrated the identification of 
imaging composite ``single session'' claims, that is, claims with 
multiple imaging procedures within the same family on the same date of 
service, into the creation of ``pseudo'' single procedure claims to 
ensure that claims were split in the ``pseudo'' single process into 
accurate reflections of either a composite ``single session'' imaging 
service or a standard sole imaging service resource cost. Like all 
single bills, the new composite ``single session'' claims were for the 
same date of service and contained no other separately paid services in 
order to isolate the session imaging costs. Our last step after 
processing all claims through the ``pseudo'' single process was to 
reassess the remaining multiple procedure claims using the full bypass 
list and bypass process in order to determine if we could make other 
``pseudo'' single bills. That is, we assessed whether a single 
separately paid service remained on the claim after removing line-items 
for the ``overlap bypass codes.''
    We were able to identify 1.7 million ``single session'' claims out 
of an estimated 2.7 million potential composite cases from our 
ratesetting claims data, or well over half of all eligible claims, to 
calculate the proposed CY 2011 median costs for the multiple imaging 
composite APCs. Table 7 below lists the HCPCS codes that would be 
subject to the proposed multiple imaging composite policy and their 
respective families for CY 2011.
BILLING CODE 4120-01-P

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[[Page 46216]]


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[[Page 46217]]


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[[Page 46218]]


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[[Page 46219]]


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BILLING CODE 4120-01-C
3. Proposed Changes to Packaged Services
a. Background
    The OPPS, like other prospective payment systems, relies on the 
concept of averaging, where the payment may be more or less than the 
estimated cost of providing a service or bundle of services for a 
particular patient, but with the exception of outlier cases, the 
payment is adequate to ensure access to appropriate care. Packaging 
payment for multiple interrelated services into a single payment 
creates incentives for providers to furnish services in the most 
efficient way by enabling hospitals to manage their resources with 
maximum flexibility, thereby encouraging long-term cost containment. 
For example, where there are a variety of supplies that could be used 
to furnish a service, some of which are more expensive than others, 
packaging encourages hospitals to use the least expensive item that 
meets the patient's needs, rather than to routinely use a more 
expensive item. Packaging also encourages hospitals to negotiate 
carefully with manufacturers and suppliers to reduce the purchase price 
of items and services or to explore alternative group purchasing 
arrangements, thereby encouraging the most economical health care. 
Similarly, packaging encourages hospitals to establish protocols that 
ensure that necessary services are furnished, while carefully 
scrutinizing the services ordered by practitioners to maximize the 
efficient use of hospital resources. Packaging payments into larger 
payment bundles promotes the stability of payment for services over 
time. Finally, packaging also may reduce the importance of refining 
service-specific payment because there is more opportunity for 
hospitals to average payment across higher cost cases requiring many 
ancillary services and lower cost cases requiring fewer ancillary 
services. For these reasons, packaging payment for services that are 
typically ancillary and supportive to a primary service has been a 
fundamental part of the OPPS since its implementation in August 2000.
    We assign status indicator ``N'' to those HCPCS codes that we 
believe are always integral to the performance of the primary modality; 
therefore, we always package their costs into the costs of the 
separately paid primary services with which they are billed. Services 
assigned status indicator ``N'' are unconditionally packaged.
    We assign status indicator ``Q1'' (``STVX-Packaged Codes''), ``Q2'' 
(``T-Packaged Codes''), or ``Q3'' (Codes that may be paid through a 
composite APC) to each conditionally packaged HCPCS code. An ``STVX-
packaged code''

[[Page 46220]]

describes a HCPCS code whose payment is packaged when one or more 
separately paid primary services with the status indicator of ``S,'' 
``T,'' ``V,'' or ``X'' are furnished in the hospital outpatient 
encounter. A ``T-packaged code'' describes a code whose payment is 
packaged when one or more separately paid surgical procedures with the 
status indicator of ``T'' are provided during the hospital encounter. 
``STVX-packaged codes'' and ``T-packaged codes'' are paid separately in 
those uncommon cases when they do not meet their respective criteria 
for packaged payment. ``STVX-packaged codes'' and ``T-packaged codes'' 
are conditionally packaged. We refer readers to section XIII.A.1. of 
this proposed rule for a complete listing of status indicators.
    We use the term ``dependent service'' to refer to the HCPCS codes 
that represent services that are typically ancillary and supportive to 
a primary diagnostic or therapeutic modality. We use the term 
``independent service'' to refer to the HCPCS codes that represent the 
primary therapeutic or diagnostic modality into which we package 
payment for the dependent service. In future years, as we consider the 
development of larger payment groups that more broadly reflect services 
provided in an encounter or episode-of-care, it is possible that we 
might propose to bundle payment for a service that we now refer to as 
``independent.''
    Hospitals include HCPCS codes and charges for packaged services on 
their claims, and the estimated costs associated with those packaged 
services are then added to the costs of separately payable procedures 
on the same claims in establishing payment rates for the separately 
payable services. We encourage hospitals to report all HCPCS codes that 
describe packaged services that were provided, unless the CPT Editorial 
Panel or CMS provide other guidance. The appropriateness of the OPPS 
payment rates depend on the quality and completeness of the claims data 
that hospitals submit for the services they furnish to our Medicare 
beneficiaries.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66610 
through 66659), we adopted the packaging of payment for items and 
services in seven categories into the payment for the primary 
diagnostic or therapeutic modality to which we believe these items and 
services are typically ancillary and supportive. The seven categories 
are: (1) Guidance services; (2) image processing services; (3) 
intraoperative services; (4) imaging supervision and interpretation 
services; (5) diagnostic radiopharmaceuticals; (6) contrast media; and 
(7) observation services. We specifically chose these categories of 
HCPCS codes for packaging because we believe that the items and 
services described by the codes in these categories are typically 
ancillary and supportive to a primary diagnostic or therapeutic 
modality and, in those cases, are an integral part of the primary 
service they support.
    In addition, in the CY 2008 OPPS/ASC final rule with comment period 
(72 FR 66650 through 66659), we finalized additional packaging for the 
CY 2008 OPPS, which included the establishment of new composite APCs 
for CY 2008, specifically APC 8000 (Cardiac Electrophysiologic 
Evaluation and Ablation Composite), APC 8001 (LDR Prostate 
Brachytherapy Composite), APC 8002 (Level I Extended Assessment & 
Management Composite), and APC 8003 (Level II Extended Assessment & 
Management Composite). In the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68559 through 68569), we expanded the composite APC model 
to one new clinical area--multiple imaging services. We created five 
multiple imaging composite APCs for payment in CY 2009 that incorporate 
statutory requirements to differentiate between imaging services 
provided with contrast and without contrast as required by section 
1833(t)(2)(G) of the Act. The multiple imaging composite APCs are: APC 
8004 (Ultrasound Composite); APC 8005 (CT and CTA without Contrast 
Composite); APC 8006 (CT and CTA with Contrast Composite); APC 8007 
(MRI and MRA without Contrast Composite); and APC 8008 (MRI and MRA 
with Contrast Composite). We discuss composite APCs in more detail in 
section II.A.2.e. of this proposed rule.
    We recognize that decisions about packaging and bundling payment 
involve a balance between ensuring that payment is adequate to enable 
the hospital to provide quality care and establishing incentives for 
efficiency through larger units of payment. Therefore we welcome public 
comments regarding our packaging proposals for calendar year (CY) 2011 
OPPS.
b. Packaging Issues
(1) CMS Presentation of Findings Regarding Expanded Packaging at the 
February 2010 APC Panel Meeting
    In deciding whether to package a service or pay for a code 
separately, we have historically considered a variety of factors, 
including whether the service is normally provided separately or in 
conjunction with other services; how likely it is for the costs of the 
packaged code to be appropriately mapped to the separately payable 
codes with which it was performed; and whether the expected cost of the 
service is relatively low.
    As discussed in section I.E. of this proposed rule, the APC Panel 
advises CMS on the clinical integrity of payment groups and their 
weights, and the APC Panel has a Packaging Subcommittee that studies 
and makes recommendations on issues pertaining to services that are not 
separately payable under the OPPS, but whose payments are bundled or 
packaged into APC payments. The APC Panel has considered packaging 
issues at several earlier meetings. For discussions of earlier APC 
Panel meetings and recommendations, we refer readers to previously 
published hospital OPPS/ASC proposed and final rules on the CMS Web 
site at: http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp#TopOfPage.
    During the August 5-6, 2009 meeting of the APC Panel, we agreed to 
continue to provide the Panel with information on the impact of 
increased packaging on Medicare beneficiaries building on the analyses 
we had presented at the February 2009 APC Panel meeting. We did not 
share additional packaging data with the APC Panel at the August 2009 
meeting because we had already presented analysis comparing CY 2007 and 
CY 2008 claims data and believed the APC Panel's discussions would 
benefit from analyses of CY 2007 and CY 2009 claims data. We indicated 
that we planned to incorporate analysis of CY 2009 claims into the 
information we would bring to the APC Panel for its review at the 
winter 2010 meeting.
    At the February 17-18, 2010 APC Panel meeting, we presented 
subsequent analyses that compared CY 2007 claims processed through 
September 30, 2007 to CY 2009 claims processed through September 30, 
2009. Similar to the initial analysis that we presented to the APC 
Panel in 2009, the HCPCS codes that we compared are the ones that we 
identified in the CY 2008 OPPS final rule with comment period as 
fitting into one of the packaging categories, including HCPCS codes 
that became effective for CY 2009. As noted above, the seven packaging 
categories in our CY 2008 packaging proposal are guidance services, 
image processing services, intraoperative services, imaging supervision 
and interpretation services, diagnostic radiopharmaceuticals, contrast 
media, and observation services. We note that, similar to the initial 
analysis, we did not

[[Page 46221]]

make any adjustments for inflation, changes in the Medicare population, 
changes in payment due to APC recalibration, changes in frequency due 
to known changes in code definitions and coding practices, or changes 
in the population of hospitals paid under the OPPS. A summary of these 
data analyses is provided below.
    Analysis of the diagnostic radiopharmaceuticals category showed 
that the diagnostic radiopharmaceuticals were billed 1 percent more 
often during the first 9 months of CY 2009 as compared to the first 9 
months of CY 2007. We noticed very little change in the frequency of 
hospitals reporting one or more diagnostic radiopharmaceutical between 
CY 2007 and CY 2009. Beginning in CY 2008, we required reporting of a 
radiolabeled product (including diagnostic radiopharmaceuticals) when 
billing a nuclear medicine procedure, and we believe that the modest 
increases in frequency of reporting diagnostic radiopharmaceuticals and 
the percentage of reporting hospitals generally reflects hospitals 
adhering to our reporting requirements.
    We also found that nuclear medicine procedures (into which 
diagnostic radiopharmaceuticals were packaged) and associated 
diagnostic radiopharmaceuticals were billed approximately 3 million 
times during the first 9 months of both CY 2007 and CY 2009. Further 
analysis revealed that we paid hospitals over $637 million for nuclear 
medicine procedures and diagnostic radiopharmaceuticals during the 
first 9 months of CY 2007, when diagnostic radiopharmaceuticals were 
separately payable, and approximately the same amount for nuclear 
medicine procedures and diagnostic radiopharmaceuticals during the 
first 9 months of CY 2009, when payment for diagnostic 
radiopharmaceuticals was packaged. This suggests that frequency and 
payment for nuclear medicine procedures remained fairly steady between 
the first 9 months of CY 2007 and the first 9 months of CY 2009.
    We conducted the same analysis for guidance services that were 
packaged beginning in CY 2008. Analysis of the guidance category (which 
includes image-guided radiation therapy services) showed that guidance 
services were billed 8 percent more often during CY 2009 as compared to 
CY 2007 and that the number of hospitals reporting guidance services 
declined by 1 percent between CY 2007 and CY 2009.
    We also analyzed the same data for all contrast services that were 
packaged beginning in CY 2008. Analysis of this category showed that 
contrast services were billed 9 percent more often during CY 2009 as 
compared to CY 2007 and that the number of hospitals reporting contrast 
media increased by 1 percent between CY 2007 and CY 2009.
    Analysis of the data for image supervision and interpretation 
services showed that these services were billed 10 percent more often 
during CY 2009 as compared to CY 2007 and, similar to guidance services 
and contrast agents, the number of hospitals reporting image 
supervision and interpretation services declined by 1 percent between 
CY 2007 and CY 2009.
    We also analyzed the first 9 months of CY 2007 and CY 2009 data 
related to all image processing services that were packaged beginning 
in the CY 2008 OPPS. This analysis was difficult because there were 
significant changes to the CPT codes in this category for CY 2009. For 
example, the intraoperative procedures described by CPT codes 93320 
(which describes spectral Doppler) and 93325 (which describes color 
flow Doppler) are now reported using one comprehensive code, CPT 93306, 
which describes complete transthoracic echocardiogram with spectral and 
color flow Doppler. In an effort to isolate the effects of the changes 
to coding from our analysis, we removed the data for any codes 
experiencing significant modifications and observed a 7 percent 
decrease from CY 2007 to CY 2009 in the frequency of image processing 
services billed. However, as we pointed out to the APC panel, these 
numbers are not necessarily the majority of services in the category or 
reflective of behavioral changes for the services of interest. When we 
included the image processing services with the revised coding for CY 
2009, the data showed a 61-percent decrease in the billing of these 
services between CY 2007 and CY 2009 and a 6-percent decrease in the 
number of hospitals reporting these services during the same timeframe.
    Our analysis of changes in intraoperative services between CY 2007 
and CY 2009 showed a 5-percent decrease in the billing of these 
services and a 5-percent decrease in the number of hospitals reporting 
these services during the same timeframe.
    As we did for our presentation at the February 2009 APC Panel 
meeting, we also found that cardiac catheterization and other 
percutaneous vascular procedures that would typically be accompanied by 
Intravascular Ultrasound (IVUS), Intracardiac echocardiography (ICE), 
and Fractional flow reserve (FFR) (including IVUS, ICE, and FFR) were 
billed approximately 376,000 times in CY 2007 and approximately 473,000 
times in CY 2009, representing an increase of 26 percent in the number 
of services and items billed between CY 2007 and CY 2009. IVUS, ICE, 
and FFR are intraoperative and image supervision and interpretation 
services that have received a lot of attention. Further analysis showed 
that the OPPS paid hospitals over $912 million for cardiac 
catheterizations, other related services, and IVUS, ICE, and FFR in CY 
2007, when IVUS, ICE, and FFR were paid separately. In the first 9 
months of CY 2009, the OPPS paid hospitals approximately $1.4 billion 
for cardiac catheterization and other percutaneous vascular procedures 
and IVUS, ICE, and FFR, when payments for IVUS, ICE, and FFR were 
packaged. This is a 58-percent increase in payment from CY 2007. Using 
the first 9 months of claims data for both CY 2007 and CY 2009, we 
calculated an average payment per service or item provided of $2,430 in 
CY 2007 and $3,048 in CY 2009 for cardiac catheterization and other 
related services, an increase of 25 percent in average payment per item 
or service. This observed increase in average payment per service is 
most likely attributable to the observed increase in the frequency of 
these cardiac catheterization and other percutaneous vascular 
procedures that would typically be accompanied by IVUS, ICE, and FFR 
(including IVUS, ICE, and FFR) billed in CY 2009.
    We also cannot determine how much of the 58-percent increase in 
aggregate payment for these services may be due to the packaging of 
payment for IVUS, ICE, and FFR (and other services that were newly 
packaged for CY 2008) and how much may be due to annual APC 
recalibration and typical fluctuations in service frequency. However, 
we believe that all of these factors contributed to the notable 
increase in aggregate payment between CY 2007 and CY 2009.
    We further analyzed the first 9 months of CY 2007 and CY 2009 
claims data for radiation oncology services that would be accompanied 
by radiation oncology guidance. We found that radiation oncology 
services (including radiation oncology guidance services) were billed 
approximately 4 million times in CY 2007 and 3.8 million times in CY 
2009, representing a decrease in frequency of approximately 6 percent 
between CY 2007 and CY 2009. These numbers represented each instance 
where a radiation oncology service or a radiation oncology guidance 
service was billed. Our analysis indicated that hospitals were paid 
over $811 million for radiation oncology services and

[[Page 46222]]

radiation oncology guidance services under the OPPS during the first 9 
months of CY 2007, when radiation oncology guidance services were 
separately payable. During the first 9 months of CY 2009, when payments 
for radiation oncology guidance were packaged, hospitals were paid over 
$827 million for radiation oncology services under the OPPS. This $827 
million included packaged payment for radiation oncology guidance 
services and represented a 2-percent increase in aggregate payment from 
CY 2007 to CY 2009. Using the first 9 months of claims data for both CY 
2007 and CY 2009, we calculated an average payment per radiation 
oncology service or item billed of $199 in CY 2007 and $216 in CY 2009, 
representing a per service increase of 8 percent from CY 2007 to CY 
2009.
    At the February 2009 meeting, the APC panel also requested that CMS 
provide separate analyses of radiation oncology guidance, by type of 
radiation oncology service, specifically, intensity modulated radiation 
therapy (IMRT), stereotactic radiosurgery (SRS), brachytherapy, and 
conventional radiation therapy. The results from these analyses are 
discussed below:
    We conducted these analyses on the specified categories using the 
first 9 months of claims and cost report data from CY 2007, before the 
expanded packaging went into effect, and the first 9 months of claims 
and cost report data from CY 2009--the second year of packaged payment 
for the radiation guidance services. We found that IMRT services were 
billed approximately 670 thousand times during the first 9 months of CY 
2007. During this same timeframe, Medicare paid hospitals approximately 
$227 million for IMRT services. In comparison, during the first 9 
months of CY 2009, IMRT services were billed 713 thousand times, 
representing an increase in frequency of 6 percent. Further, during the 
first 9 months of CY 2009, when payments for radiation oncology 
guidance were packaged into the payments for the separately paid IMRT 
procedures, we paid hospitals over $298 million, representing a 31-
percent increase in payments from CY 2007 to CY 2009.
    We further analyzed the data for SRS services and found that, for 
the first 9 months of CY 2007 and CY 2009, SRS services were billed 
approximately 9 thousand and 13 thousand times, respectively, 
representing an increase in frequency of 43 percent. Aggregate Medicare 
payments for these SRS services increased by 24 percent from $34 
million in CY 2007 to $42 million in CY 2009.
    Our review of the data for brachytherapy services revealed that, 
for the first 9 months of CY 2007 and CY 2009, these services were 
billed approximately 10 thousand and 11 thousand times, respectively, 
representing an increase in frequency of 8 percent. During this 
timeframe, aggregate Medicare payments for these brachytherapy services 
increased by 1 percent from $9.8 million in CY 2007 to $9.9 million in 
CY 2009.
    Our review of the data for conventional radiation therapy services 
revealed that conventional radiation therapy services were billed 1.4 
million times and 1.1 million times, in the first 9 months of CY 2007 
and CY 2009, respectively, representing a decrease in frequency of 20 
percent. During this timeframe, aggregate Medicare payments for these 
conventional radiation services decreased by 10 percent from $189 
million in CY 2007 to $169 million in CY 2009.
    In reviewing our early CY 2009 claims data, which reflect the 
second year of packaged payment for services in the packaged categories 
identified in the CY 2008 OPPS/ASC final rule with comment period, we 
generally observed increases in the billing and reporting of packaged 
services described by these categories, with the caveat that we are not 
able to untangle the various causes of declines in the image processing 
category, indicating steady beneficiary access to these categories of 
supporting and ancillary services. In aggregate, hospitals do not 
appear to have significantly changed their reporting patterns as a 
result of the expanded packaging policy nor do the analyses suggest 
that hospitals have stopped offering these supporting and ancillary 
services with the primary diagnostic and therapeutic modalities that 
they support.
(2) Packaging Recommendations of the APC Panel at Its February 2010 
Meeting
    During the February 2010 APC panel meeting, the APC Panel accepted 
the report of the Packaging Subcommittee, heard several presentations 
related to packaged services, discussed the deliberations of the 
Packaging Subcommittee, and made 6 recommendations. The Report of the 
February 2010 meeting of the APC Panel may be found at the Web site at: 
http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.
    To summarize, the APC Panel made the following recommendations 
regarding packaging of payment under the CY 2011 OPPS:
    1. That CMS consider whether CPT code 31627 (Bronchoscopy, rigid or 
flexible, including fluoroscopic guidance, when performed; with 
computer-assisted, image-guided navigation) (also known as 
electromagnetic navigational bronchoscopy (ENB)) should be packaged or 
paid separately; if it should be paid separately, CMS should 
investigate the appropriate APC assignment. The Panel suggests CMS use 
bronchoscopic ultrasonography (EBUS) as a clinical example for 
comparison. (Recommendation 1)
    2. That CMS make CPT code 96368 (Intravenous infusion, for therapy, 
prophylaxis, or diagnosis (specify substance or drug); concurrent 
infusion) and CPT code 96376 (Therapeutic, prophylactic, or diagnostic 
injection (specify substance or drug); subcutaneous or intramuscular, 
each additional sequential intravenous push of the same substance/drug 
provided in the facility (List separately in addition to code for 
primary procedure)) separately payable in the CY 2011 OPPS/ASC final 
rule with comment period at an appropriate payment rate as determined 
by CMS. (Recommendation 2)
    3. That CMS conditionally package payment for the guidance 
procedures that would accompany breast needle placement (specifically 
CPT code 19290 (Preoperative placement of needle localization wire, 
breast); CPT code 19291 (Preoperative placement of needle localization 
wire, breast; each additional lesion (List separately in addition to 
code for primary procedure)); CPT code 19295 (Image guided placement, 
metallic localization clip, percutaneous, during breast biopsy/
aspiration (List separately in addition to code for primary 
procedure)); CPT code 77031 (Stereotactic localization guidance for 
breast biopsy or needle placement (e.g., for wire localization or for 
injection)), each lesion, radiological supervision and interpretation); 
CPT code 77032 (Mammographic guidance for needle placement, breast 
(e.g., for wire localization or for injection), each lesion, 
radiological supervision and interpretation); CPT code 76942 
(Ultrasonic guidance for needle placement (e.g., biopsy, aspiration, 
injection, localization device), imaging supervision and 
interpretation)) when these guidance services are performed separately. 
(Recommendation 3)
    4. The Panel encourages the public to submit common clinical 
scenarios involving currently packaged HCPCS codes and recommendations 
of specific services or procedures for which

[[Page 46223]]

payment would be most appropriately packaged under the OPPS for review 
by the Packaging Subcommittee members. (Recommendation 4)
    5. That CMS continue providing analysis on an ongoing basis of the 
impact on beneficiaries of the multiple imaging composite APCs as data 
become available. (Recommendation 5)
    6. That the work of the Packaging Subcommittee continue. 
(Recommendation 6)
    We address each of these recommendations in the discussion that 
follows:
Recommendation 1
    At the APC Panel's February 2010 meeting, the manufacturer asserted 
that use of ENB technology during a bronchoscopy procedure enables 
access to distal lesions that are otherwise not accessible without use 
of the ENB technology. The manufacturer also argued that without 
separate payment for ENB, hospitals would likely not adopt the 
technology and the population that would likely benefit from ENB would 
not have access to this technology. In response to the manufacturer's 
assertion, the APC Panel asked CMS to consider whether CPT code 31627, 
which describes Electromagnetic Navigational Bronchoscopy (ENB), should 
be packaged or paid separately; and if it should be paid separately, 
the APC Panel asked CMS to investigate the appropriate APC assignment. 
CPT code 31627 is new for CY 2010, and we assigned it a new interim 
status indicator of ``N'' in our CY 2010 OPPS/ASC final rule with 
comment period based on our packaging policies (discussed in section 
II.A.3.a. of this proposed rule). We have considered the information 
available to us for CPT code 31627 and believe that the code describes 
a procedure that is supportive of and ancillary to the primary 
diagnostic or therapeutic modality, in this case, bronchoscopy 
procedures (for example, CPT code 31622 (Bronchoscopy, rigid or 
flexible, including fluoroscopic guidance, when performed: diagnostic, 
with cell washing, when performed (separate procedure)). We currently 
package payment for CPT code 31627, and we continue to believe that 
this is the appropriate treatment of that code. Therefore, we are 
proposing to package payment for CPT code 31627. As we have discussed 
in past rules, in making our decision on whether to package a service 
or pay for it separately we consider a variety of factors, including 
whether the service is normally provided separately or in conjunction 
with other services because it supports those services. By proposing to 
packaging payment for this procedure, we would be treating it in the 
same manner as similar computer-assisted, navigational diagnostic 
procedures that are supportive of and ancillary to a primary diagnostic 
or therapeutic modality. In its recommendation regarding whether to 
make separate payment under an APC for CPT code 31627, the APC Panel 
suggested that we use bronchoscopic ultrasonography as a clinical 
example for comparison. We consider CPT code 31620 (Endobronchial 
ultrasound (EBUS) during bronchoscopic diagnostic or therapeutic 
intervention(s) (List separately in addition to code for primary 
procedure)) to be a suitable comparison because it describes another 
bronchoscopic procedure in which a guidance technology (that is, 
ultrasonography) is used to achieve the therapeutic benefit of the 
procedure. Similar to our proposed payment for CPT code 31627, payment 
for CPT code 31620 is currently packaged into the primary modality with 
which it would be appropriately billed. In CY 2008, as part of our 
increased packaging proposal, we identified the EBUS procedure as an 
intraoperative ancillary service that would typically be reported in 
conjunction with an independent service. In addition, similar to CPT 
code 31627, CPT code 31620 is an add-on code that, per CPT reporting 
guidelines, would only be appropriately reported in conjunction with 
specified bronchoscopy procedures with which it would be performed. 
Based on these general comparisons of CPT code 31627 to the EBUS 
procedure described by CPT code 31620, we believe that our proposal to 
package payment for CPT code 31627 is consistent with the packaging 
approach that we have adopted in recent years. As we have stated in 
past rules with regard to EBUS, we also fully expect that, to the 
extent these services are billed appropriately, payment for the primary 
service would reflect the cost of the packaged ENB procedure. For 
example, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68584), we discussed packaging of CPT code 31620; we state that we 
observed increased packaged costs associated with the services into 
which CPT code 31620 had been packaged, which increased the APC payment 
rates for bronchoscopy procedures.
    In summary, we continue to believe that CPT code 31627 describes a 
procedure that is ancillary to and supportive of the primary service 
with which it is often billed. Therefore, for CY 2011, we are proposing 
to maintain CPT code 31627 as a packaged service.
Recommendation 2
    We are not accepting the APC Panel's recommendation that CMS make 
CPT code 96368 and CPT code 96376 separately payable for the CY 2011 
OPPS. We consider a variety of factors in making a decision whether to 
package a service or pay for it separately, including whether the 
service is normally provided separately or in conjunction with other 
services and how likely it is for the costs of the packaged code to be 
appropriately mapped to the separately payable codes with which it was 
performed. CPT codes 96376 and 96368 describe concurrent and sequential 
drug administration services that have always been packaged under the 
OPPS. From the inception of the OPPS through CY 2006, we paid for drug 
administration under the OPPS using HCPCS alphanumeric codes that 
packaged payment for concurrent infusions and administration of new 
drugs into the payment for the alphanumeric codes for drug 
administration. In CY 2007, we adopted CPT codes for drug 
administration services. The CY 2007 CPT codes did not separately 
recognize administration of new drugs during the same encounter with a 
separate CPT code. Therefore, administration of a new drug continued to 
be packaged into payment for the service of which it was a part. 
Moreover, for CY 2007, CPT code 90768 (Intravenous infusion, for 
therapy, prophylaxis, or diagnosis; concurrent infusion), which was 
replaced by CPT code 96368, was packaged under the OPPS, continuing the 
longstanding practice of not making separate payment for concurrent 
infusion. We also pointed out that, during our implementation of this 
new CPT code, while it was new for CY 2007, it represented the same 
procedures as described by the previous drug administration HCPCS code 
set, and, as a result, the payment data for these procedures would be 
captured in the claims that were available to us for ratesetting 
purposes.
    Similarly, CPT codes 96368 and 96376, which were created by CPT in 
2008, are replacement codes for those same procedures that were 
described by the previous drug administration code sets and their 
associated data would be captured in our claims database. The costs for 
these services, concurrent infusion and additional push of the same 
drug, would continue to be packaged into payment for the drug 
administration codes with which they

[[Page 46224]]

are reported. In making our decision whether to package a service or 
pay for it separately, we consider a variety of factors, including 
whether the service is normally provided separately or in conjunction 
with other services. CPT codes 96368 and 96376 describe concurrent and 
sequential drug administration services that, per CPT guidelines, are 
always provided in association with an initial drug administration 
service. Therefore, they continue to be appropriately packaged into the 
payment for the separately payable services that they usually 
accompany. For example, CPT code 96376 would be billed with CPT code 
96374 (Therapeutic, prophylactic, or diagnostic injection; intravenous 
push, single or initial substance/drug), which describes an initial 
intravenous push code and, as a result, the cost for CPT code 96376 
would be reflected in the total cost for CPT code 96374. Moreover, 
payment for these services has always been packaged into payment for 
the drug administration services without which they cannot be correctly 
reported.
    These two codes each describe services that, by definition, are 
always provided in conjunction with an initial drug administration 
code. These services have been packaged since the inception of the 
OPPS, and we continue to believe they are appropriately packaged into 
the payment for the separately payable services without which, under 
CPT guidelines and definitions, they cannot be appropriately reported. 
Therefore, for CY 2011, we are proposing to make packaged payment for 
CPT code 96368 and CPT code 96376 and assign them a status indicator of 
``N.''
Recommendation 3
    We are not accepting the APC Panel's recommendation that we 
conditionally package CPT codes 19290, 19291, 19295, 77031, 77032, and 
76942. During the APC Panel's February 2010 meeting, we shared with the 
Packaging Subcommittee our most recent claims data for the guidance 
procedures that would accompany breast needle placement, demonstrating 
that, for some of these services, the code was billed by itself up to 
25 percent of the time. While the Packaging Subcommittee broadly 
discussed clinical scenarios in which these services may be billed 
separately, it remains unclear to us why these services are being 
performed separately and whether they should be paid separately. We 
believe that these services typically are performed in conjunction with 
surgical procedures involving the breast and, therefore, are 
appropriately packaged. Therefore, we are not accepting the APC panel's 
recommendation that we conditionally package payment for these guidance 
procedures when they are performed separately. For CY 2011, we are 
proposing to maintain the unconditional packaged payment status for 
these procedures. Specifically, we are proposing to package payment, 
indicated by a status indicator of ``N,'' for CPT codes 19290, 19291, 
19295, 77031, 77032, and 76942, into the primary modality with which 
they would be appropriately billed. However, observing such a sizable 
percentage of services that are the only service appearing on a claim 
for a packaged item, especially when these services do not receive 
separate payment, leads us to encourage the public to submit any 
clinical scenarios in their public comments involving these services 
that show the circumstances under which these services may be 
appropriately billed without a primary procedure that is furnished on 
the same date.
Recommendation 4
    We are accepting the APC Panel's recommendation to continue to 
encourage submission of common clinical scenarios involving currently 
packaged HCPCS codes to the Packaging Subcommittee for its ongoing 
review. We also encourage recommendations from the public on specific 
services or procedures whose payment would be most appropriately 
packaged under the OPPS. Additional detailed suggestions for the 
Packaging Subcommittee should be submitted by e-mail to 
APCPanel@cms.hhs.gov with Packaging Subcommittee in the subject line.
Recommendation 5
    We are accepting the APC Panel's recommendation that CMS provide 
information to the APC Panel on the impact of the creation of the 
imaging composite APCs on services to beneficiaries. Our proposal with 
regard to the imaging composite APCs is discussed in detail in section 
II.A.2.e.(5) of this proposed rule.
Recommendation 6
    The Packaging Subcommittee of the APC Panel was established to 
review packaging issues. We are accepting the APC Panel's 
recommendation that the Packaging Subcommittee remain active until the 
next APC Panel meeting. We note that the APC Panel Packaging 
Subcommittee is currently active and that we will share additional 
issues and new data concerning the packaged status of codes with the 
APC Panel Packaging Subcommittee as that information becomes available.
4. Proposed Calculation of OPPS Scaled Payment Weights
    Using the proposed APC median costs discussed in sections II.A.1. 
and II.A.2. of this proposed rule, we calculated the proposed relative 
payment weights for each APC for CY 2011 shown in Addenda A and B to 
this proposed rule. In years prior to CY 2007, we standardized all the 
relative payment weights to APC 0601 (Mid Level Clinic Visit) because 
mid-level clinic visits were among the most frequently performed 
services in the hospital outpatient setting. We assigned APC 0601 a 
relative payment weight of 1.00 and divided the median cost for each 
APC by the median cost for APC 0601 to derive the relative payment 
weight for each APC.
    Beginning with the CY 2007 OPPS (71 FR 67990), we standardized all 
of the relative payment weights to APC 0606 (Level 3 Clinic Visits) 
because we deleted APC 0601 as part of the reconfiguration of the 
clinic visit APCs. We selected APC 0606 as the base because APC 0606 
was the mid-level clinic visit APC (that is, Level 3 of five levels). 
Therefore, for CY 2011, to maintain consistency in using a median for 
calculating unscaled weights representing the median cost of some of 
the most frequently provided services, we are proposing to continue to 
use the median cost of the mid-level clinic visit APC (APC 0606) to 
calculate unscaled weights. Following our standard methodology, but 
using the proposed CY 2011 median cost for APC 0606, for CY 2011 we 
assigned APC 0606 a relative payment weight of 1.00 and divided the 
median cost of each APC by the proposed median cost for APC 0606 to 
derive the proposed unscaled relative payment weight for each APC. The 
choice of the APC on which to base the proposed relative weights for 
all other APCs does not affect the payments made under the OPPS because 
we scale the weights for budget neutrality.
    Section 1833(t)(9)(B) of the Act requires that APC reclassification 
and recalibration changes, wage index changes, and other adjustments be 
made in a budget neutral manner. Budget neutrality ensures that the 
estimated aggregate weight under the OPPS for CY 2011 is neither 
greater than nor less than the estimated aggregate weight that would 
have been made without the changes. To comply with this requirement 
concerning the APC changes, we are proposing to compare the estimated 
aggregate weight using the CY 2010 scaled relative weights to the 
estimated aggregate weight using the proposed CY 2011 unscaled relative

[[Page 46225]]

weights. For CY 2010, we multiply the CY 2010 scaled APC relative 
weight applicable to a service paid under the OPPS by the volume of 
that service from CY 2009 claims to calculate the total weight for each 
service. We then add together the total weight for each of these 
services in order to calculate an estimated aggregate weight for the 
year. For CY 2011, we perform the same process using the proposed CY 
2011 unscaled weights rather than scaled weights. We then calculate the 
weight scaler by dividing the CY 2010 estimated aggregate weight by the 
proposed CY 2011 estimated aggregate weight. The service-mix is the 
same in the current and prospective years because we use the same set 
of claims for service volume in calculating the aggregate weight for 
each year. For a detailed discussion of the weight scaler calculation, 
we refer readers to the OPPS claims accounting document available on 
the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/ HospitalOutpatientPPS/. We 
included payments to CMHCs in our comparison of estimated unscaled 
weight in CY 2011 to estimated total weight in CY 2010 using CY 2009 
claims data, holding all other components of the payment system 
constant to isolate changes in total weight. Based on this comparison, 
we adjusted the unscaled relative weights for purposes of budget 
neutrality. The proposed CY 2011 unscaled relative payment weights were 
adjusted by multiplying them by a proposed weight scaler of 1.3650 to 
ensure budget neutrality of the proposed CY 2011 relative weights.
    Section 1833(t)(14) of the Act provides the payment rates for 
certain ``specified covered outpatient drugs.'' That section states 
that ``Additional expenditures resulting from this paragraph shall not 
be taken into account in establishing the conversion factor, weighting 
and other adjustment factors for 2004 and 2005 under paragraph (9) but 
shall be taken into account for subsequent years.'' Therefore, the cost 
of those specified covered outpatient drugs (as discussed in section 
V.B.3. of this proposed rule) was included in the proposed budget 
neutrality calculations for the CY 2011 OPPS.
    The proposed scaled relative payment weights listed in Addenda A 
and B to this proposed rule incorporate the proposed recalibration 
adjustments discussed in sections II.A.1. and II.A.2. of this proposed 
rule.

B. Proposed Conversion Factor Update

    Section 1833(t)(3)(C)(ii) of the Act requires us to update the 
conversion factor used to determine payment rates under the OPPS on an 
annual basis by applying the OPD fee schedule increase factor. Under 
the authority in section 1833(t)(3)(C)(iv) of the Act, for CY 2010, the 
OPD fee schedule increase factor is equal to the hospital inpatient 
market basket percentage increase applicable to hospital discharges 
under section 1886(b)(3)(B)(iii) of the Act. The proposed hospital 
market basket increase for FY 2011 published in the FY 2011 IPPS/LTCH 
PPS proposed rule (75 FR 24062) prior to changes required by the 
Affordable Care Act and the HCERA is 2.4 percent. New section 
1833(t)(3)(F)(iii) and (G)(i) of the Act (as added by 3401(i) of the 
Affordable Care Act and as amended by 10319(g) of such Act and section 
1105(e) of HCERA) require a .25 percentage point reduction to the CY 
2011 OPD fee schedule increase factor, resulting in a proposed CY 2011 
OPPS market basket update of 2.15 percent. To set the proposed OPPS 
conversion factor for CY 2011, we increased the CY 2010 conversion 
factor of $67.241 by 2.15 percent. We announced the CY 2010 OPPS 
conversion factor of $67.241 in the Federal Register Notice CMS 1504-N, 
entitled ``Medicare Program; Changes to the Hospital Outpatient 
Prospective Payment System and Ambulatory Surgical Center Payment 
System for CY 2010, and Extension of Part B Payment for Services 
Furnished by Hospitals or Clinics Operated by the Indian Health 
Service, Indian Tribes, or Tribal Organizations Made by the Affordable 
Care Act and ASC Changes Made By Previous Correction Notices,'' which 
is being published around the time of this proposed rule. Hospitals 
that fail to meet the reporting requirements of the Hospital Outpatient 
Quality Data Reporting Program (HOP QDRP) are subject to a reduction of 
2.0 percentage points from the OPD fee schedule increase factor 
adjustment to the conversion factor. For a complete discussion of the 
HOP QDRP requirements and the payment reduction for hospitals that fail 
to meet those requirements, we refer readers to section XVI. of this 
proposed rule.
    In accordance with section 1833(t)(9)(B) of the Act, we further 
adjusted the proposed conversion factor for CY 2011 to ensure that any 
revisions we are proposing to make to our updates for a revised wage 
index and rural adjustment are made on a budget neutral basis. We 
calculated a proposed overall budget neutrality factor of 1.0011 for 
wage index changes by comparing total payments from our simulation 
model using the FY 2011 IPPS proposed wage indices to those payments 
using the current (FY 2010) IPPS wage indices, as adopted on a calendar 
year basis for the OPPS, as indicated in the Federal Register notice 
announcing Affordable Care Act changes to the wage indices (See CMS 
1504-N referenced above). For CY 2011, we are not proposing a change to 
our rural adjustment policy. Therefore, the proposed budget neutrality 
factor for the rural adjustment is 1.0000. In addition, to accommodate 
the proposed cancer hospital adjustment described in section II.F. of 
this preamble, we calculated an additional proposed budget neutrality 
factor of 0.9934 by comparing total payments from our simulation model 
for CY 2011 including the proposed adjustment for cancer hospitals to 
total payments from our simulation model for CY 2011 without the 
proposed adjustment for cancer hospitals.
    For this proposed rule, we estimated that pass-through spending for 
both drugs and biologicals and devices for CY 2011 would equal 
approximately $86.9 million, which represents 0.20 percent of total 
projected CY 2011 OPPS spending. Therefore, the conversion factor would 
also be adjusted by the difference between the 0.14 percent estimate of 
pass-through spending for CY 2010 and the 0.20 percent estimate of CY 
2011 pass-through spending. Finally, estimated payments for outliers 
remain at 1.0 percent of total OPPS payments for CY 2011.
    The proposed OPD fee schedule increase factor of 2.15 percent for 
CY 2011, the required proposed wage index budget neutrality adjustment 
of approximately 1.0011, the proposed cancer hospital budget neutrality 
adjustment of 0.9934, and the proposed adjustment of 0.06 percent of 
projected OPPS spending for the difference in the pass-through spending 
resulted in a proposed conversion factor for CY 2011 of $68.267, which 
reflects the full proposed OPD fee schedule increase. To calculate the 
proposed CY 2011 reduced market basket conversion factor for those 
hospitals that fail to meet the requirements of the HOP QDRP for the 
full CY 2011 payment update, we made all other adjustments discussed 
above, but used a proposed reduced market basket increase update factor 
of 0.15 percent (that is, an unadjusted OPD fee schedule increase 
factor of 2.4 percent reduced by 0.25 percentage point as required by 
the Affordable Care Act and HCERA and further reduced by 2.0 percentage 
points as required by section 1833(t)(17)(A)(i) of the Act for failure 
to comply with the OPD quality reporting requirements). This resulted 
in a proposed reduced conversion factor for

[[Page 46226]]

CY 2011 of $66.930 for those hospitals that fail to meet the HOP QDRP 
requirements.
OPD Fee Schedule Increase Factor
    In accordance with section 1833(t)(3)(C)(iv) of the Act, each year 
we update the OPPS conversion factor by an OPD fee schedule increase 
factor. For purposes of section 1833(t)(3)(C)(iv) of the Act, subject 
to 1833(t)(17) and 1833(t)(F), the OPD fee schedule increase factor is 
equal to the market basket percentage increase applicable under section 
1886(b)(3)(B)(iii) to hospital discharges occurring during the fiscal 
year ending in such year, reduced by 1 percentage point for such factor 
for services furnished in each of 2000 and 2002. For hospitals that do 
not meet the HOP QDRP reporting requirements discussed in section XVI 
of this proposed rule, the update is equal to the OPD fee schedule 
increase factor less an additional 2.0 percentage points. In accordance 
with these statutory provisions, in the CY 2010 OPPS final rule (74 FR 
60419), we finalized an OPD fee schedule increase factor equal to the 
IPPS full market basket update of 2.1 percent. Hospitals that failed to 
meet the HOP QDRP reporting requirements were subject to a reduced OPD 
fee schedule increase factor of 0.1 percent.
    We note that section 1833(t)(3)(F)(ii) and (G)(i) of the Act as 
added by section 3401(i) of Public Law 111-148 (Affordable Care Act) 
and as amended by section 10319(g) of such Act and section 1105(e) of 
Public Law 111-152 (HCERA) require that after determining the OPD fee 
schedule increase factor, the Secretary shall reduce such factor for CY 
2010 by 0.25 percentage point. Therefore, the reduction of 0.25 
percentage point applied to the full IPPS hospital operating market 
basket increase factor of 2.1 percent results in a revised OPD fee 
schedule increase factor of 1.85 percent. For hospitals that do not 
meet the HOP QDRP reporting requirements, the update is equal to the 
OPD fee schedule increase factor, less the additional 0.25 percentage 
point required by section 1833(t)(F)(ii) and (G)(i) of the Act, minus 
2.0 percentage points. New section 1833(t)(3)(F) of the Act further 
states the application of 1833(t)(3)(F) may result in the OPD fee 
schedule increase factor under 1833(t)(3)(C)(iv) of the Act being less 
than zero for a year. Thus, the CY 2010 OPD fee schedule increase 
factor was 1.85 percent (that is, 2.1 percent minus 0.25 percentage 
point) for hospitals that met the HOP QDRP reporting requirements and 
negative 0.15 percent (2.1 percent, less the 0.25 percentage point, 
minus the 2.0 percentage points) for hospitals failing to meet the HOP 
QDRP reporting requirements.
    As with the CY 2010 OPD fee schedule increase factor, new section 
1833(t)(3)(F)(ii) and (G)(i) of the Act requires that the CY 2011 OPD 
fee schedule increase factor be reduced by 0.25 percentage point, 
subject to the hospital submitting quality information under rules 
established by the Secretary in accordance with section 1833(t)(17) of 
the Act. For hospitals that do not meet the HOP QDRP reporting 
requirements, the update is equal to the OPD fee schedule increase 
factor minus 0.25 percentage point minus 2.0 percentage points. Section 
1833(t)(3)(F) of the Act further states that this amendment may result 
in the applicable percentage increase being less than zero.
    In the FY 2011 IPPS proposed rule, consistent with current law, 
based on IHS Global Insight, Inc.'s first quarter 2010 forecast, with 
historical data through the 2009 fourth quarter, we estimated that the 
FY 2011 IPPS market basket update would be 2.4 percent (75 FR 24016). 
However, consistent with the amendments to section 1833(t)(3)(F)(ii) 
and (G)(i) of the Act, we are required to reduce the OPD fee schedule 
increase factor by 0.25 percentage point. Therefore, the proposed 
market basket update to the CY 2011 OPD fee schedule increase factor is 
2.15 percent (that is, the CY 2011 estimate of the OPD fee schedule 
increase factor of 2.4 percent minus 0.25 percentage point). For 
hospitals that do not meet the HOP QDRP reporting requirements, the 
proposed update to the OPPS conversion factor is 0.15 percent (that is, 
the adjusted CY 2011 estimate of the market basket rate-of increase of 
2.15 percent minus 2.0 percentage points).
    We are proposing to revise 42 CFR 419.32 to reflect the Affordable 
Care Act and HCERA requirements for 0.25 percentage point reductions to 
the OPPS fee schedule increase factor for CY 2010 and CY 2011 
respectively in revised paragraph 42 CFR 419.32(b)(1)(iv).

C. Proposed Wage Index Changes

    Section 1833(t)(2)(D) of the Act requires the Secretary to 
determine a wage adjustment factor to adjust, for geographic wage 
differences, the portion of the OPPS payment rate, which includes the 
copayment standardized amount, that is attributable to labor and labor-
related cost. This adjustment must be made in a budget neutral manner 
and budget neutrality is discussed in section II.B. of this proposed 
rule.
    The OPPS labor-related share is 60 percent of the national OPPS 
payment. This labor-related share is based on a regression analysis 
that determined that approximately 60 percent of the costs of services 
paid under the OPPS were attributable to wage costs. We confirmed that 
this labor-related share for outpatient services is still appropriate 
during our regression analysis for the payment adjustment for rural 
hospitals in the CY 2006 OPPS final rule with comment period (70 FR 
68553). Therefore, we are not proposing to revise this policy for the 
CY 2011 OPPS. We refer readers to section II.H. of this proposed rule 
for a description and example of how the wage index for a particular 
hospital is used to determine the payment for the hospital.
    As discussed in section II.A.2.c. of this proposed rule, for 
estimating national median APC costs, we standardize 60 percent of 
estimated claims costs for geographic area wage variation using the 
same FY 2011 pre-reclassified wage index that the IPPS uses to 
standardize costs. This standardization process removes the effects of 
differences in area wage levels from the determination of a national 
unadjusted OPPS payment rate and the copayment amount.
    As published in the original OPPS April 7, 2000 final rule with 
comment period (65 FR 18545), the OPPS has consistently adopted the 
final IPPS wage index as the wage index for adjusting the OPPS standard 
payment amounts for labor market differences. Thus, the wage index that 
applies to a particular acute care short-stay hospital under the IPPS 
would also apply to that hospital under the OPPS. As initially 
explained in the September 8, 1998 OPPS proposed rule, we believed and 
continue to believe that using the IPPS wage index as the source of an 
adjustment factor for the OPPS is reasonable and logical, given the 
inseparable, subordinate status of the HOPD within the hospital 
overall. In accordance with section 1886(d)(3)(E) of the Act, the IPPS 
wage index is updated annually. Therefore, in accordance with our 
established policy, we are proposing to use the final FY 2011 version 
of the IPPS wage index used to pay IPPS hospitals to adjust the CY 2011 
OPPS payment rates and copayment amounts for geographic differences in 
labor cost for all providers that participate in the OPPS, including 
providers that are not paid under the IPPS (referred to in this section 
as ``non-IPPS'' providers).
    The Affordable Care Act contains a number of provisions affecting 
the FY 2011 IPPS wage index values, including revisions to the 
reclassification wage comparability criteria that were finalized in the 
FY 2009 IPPS final rule (73 FR 48568 through 48570), and the 
application of rural floor budget

[[Page 46227]]

neutrality on a national, rather than State-specific, basis through a 
uniform, national adjustment to the area wage index. These specific 
provisions are discussed in more detail in the supplemental FY 2011 
IPPS/LTCH PPS proposed rule published June 2, 2010 in the Federal 
Register (75 FR 30920). The Affordable Care Act also required CMS to 
establish an adjustment to create a wage index floor of 1.00 for 
hospitals located in States determined to be frontier States (section 
10324). We discuss this provision and how it applies to hospital 
outpatient departments in more detail below.
    Section 10324 of the Affordable Care Act specifies that, for 
services furnished beginning CY 2011, the wage adjustment factor 
applicable to any hospital outpatient department that is located in a 
frontier State (as defined in section 1886(d)(3)(E)(iii)(II) of the 
Act) may not be less than 1.00. Further, section 10324 states that this 
adjustment to the wage index for these outpatient departments should 
not be made in a budget neutral manner. As such, for the CY 2011 OPPS, 
we are proposing to adjust the wage index for all HOPDs, including 
those providers that are not paid under the IPPS, which are identified 
as being located in a frontier State, in the manner specified in the 
Affordable Care Act. Specifically, we would adjust the FY 2011 wage 
index, as adopted on a calendar year basis for the OPPS, for all 
hospitals paid under the OPPS, including non-IPPS hospitals, located in 
a frontier State to 1.00 in instances where the assigned FY 2011 wage 
index (that reflects MGCRB reclassifications, application of the rural 
floor and rural floor budget neutrality adjustment) for these hospitals 
is less than 1.00. Similar to our current policy for HOPDs that are 
affiliated with multicampus hospital systems, we fully expect that the 
HOPD would receive a wage index based on the geographic location of the 
specific inpatient hospital with which it is associated. Therefore, if 
the associated hospital is located in a frontier state, then the wage 
index adjustment applicable for the hospital would also apply for the 
affiliated HOPD. We refer readers to the FY 2011 supplemental proposed 
rule published subsequent to the FY 2011 IPPS/LTCH proposed rule for 
detailed discussion regarding this provision, including our proposed 
methodology for identifying which areas meet the definition of frontier 
States as provided for in section 1886(d)(3)(E)(iii)(II)) of the Act.
    In addition, we are proposing to revise Sec.  419.43(c) of the 
regulations to incorporate the amendments made by section 10324 of the 
Affordable Care Act. Specifically, we would include a provision under a 
new paragraph (c)(2) to state that for services furnished beginning 
January 1, 2011, the wage adjustment factor referenced in the existing 
regulations applicable to any HOPD that is located in a frontier State, 
as defined in the statute and regulations, may not be less than 1.00. 
We also are proposing to add a new paragraph (c)(3) to Sec.  419.43 to 
not consider these additional payments in budget neutrality.
    In addition to the changes required by the Affordable Care Act, we 
note that the proposed FY 2011 IPPS wage indices continue to reflect a 
number of adjustments implemented over the past few years, including 
revised Office of Management and Budget (OMB) standards for defining 
geographic statistical areas (Core-Based Statistical Areas or CBSAs), 
reclassification of hospitals to different geographic areas, rural 
floor provisions, an adjustment for out-migration labor patterns, an 
adjustment for occupational mix, and a policy for allocating hourly 
wage data among campuses of multicampus hospital systems that cross 
CBSAs. We refer readers to the FY 2011 IPPS/LTCH PPS proposed rule (75 
FR 23936 through 23956) and the supplemental proposed rule (75 FR 
30918) for a detailed discussion of all proposed changes, including 
changes required by the Affordable Care Act, to the FY 2011 IPPS wage 
indices. In addition, we refer readers to the CY 2005 OPPS final rule 
with comment period (69 FR 65842 through 65844) and subsequent OPPS 
rules for a detailed discussion of the history of these wage index 
adjustments as applied under the OPPS.
    The IPPS wage index that we are proposing to adopt in this proposed 
rule includes all reclassifications that are approved by the Medicare 
Geographic Classification Review Board (MGCRB) for FY 2011. We note 
that reclassifications under section 508 of Public Law 108-173 and 
certain special exception wage indices that were extended by section 
106(a) of Public Law 109-432 (MIEA-TRHCA) and section 117(a)(1) of 
Public Law 110-173 (MMSEA) were set to terminate September 30, 2008, 
but were further extended by section 124 of Public Law 110-275 (MIPPA) 
through September 30, 2009 and, most recently, by section 3137 as 
amended by section 10317 of Public Law 111-148 (Affordable Care Act) 
through September 30, 2010. We did not make any proposals related to 
these provisions for the CY 2010 OPPS wage index because Public Law 
111-148 (Affordable Care Act) was enacted after issuance of the CY 2010 
OPPS/ASC proposed and final rules. In accordance with section 10317 of 
Public Law 111-148, for CY 2010, we adopted all section 508 geographic 
reclassifications through September 30, 2010. Similar to our treatment 
of section 508 reclassifications extended under Public Law 110-173 
(MMSEA) as described in the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68586), hospitals with section 508 reclassifications will 
revert to their home area wage index, with out-migration adjustment if 
applicable, or a current MGCRB reclassification, from October 1, 2010 
to December 31, 2010. In addition, as we did for CY 2009, we will 
recognize the revised wage index values for certain special exception 
hospitals from January 1, 2010 through December 31, 2010, under the 
OPPS, in order to give these hospitals the special exception wage 
indices under the OPPS for the same time period as under the IPPS. We 
refer readers to the FY 2010 section 508 reclassification Federal 
Register notice published on June 2, 2010 (75 FR 31118) for a detailed 
discussion of the changes to the wage indices as required by section 
10317 of the Affordable Care Act. We also discuss the impact of the 
extension of reclassifications under section 508 and special exception 
wage indices in the Federal Register notice CMS-1504-N, entitled 
``Medicare Program; Changes to the Hospital Outpatient Prospective 
Payment System for CY 2010, Changes to the Ambulatory Surgical Center 
Payment System for CY 2010, and Extension of Payment under Part B for 
Services Furnished by Hospitals or Clinics Operated by the Indian 
Health Service or Tribal Organizations Made by the Affordable Care Act 
and the Health Care and Education Reconciliation Act of 2010 and 
Changes to the Ambulatory Surgical Center Payment System for CY 2010 
Made By Previous Correction Notices'' that will be published around the 
same time as this proposed rule. Because the provisions of section 
10317 of the Affordable Care Act expired in 2010 and are not applicable 
to FY 2011, we are not making any proposals related to those provisions 
for the OPPS wage indices for CY 2011. However, we note that Congress 
is currently considering legislation that may further extend section 
508 reclassifications and wage indexes for special exception providers 
for FY 2011, which would be applicable for the CY 2011 OPPS. We will 
implement any extension occurring before or during the comment period 
for this proposed rule in our final rule.

[[Page 46228]]

    For purposes of the OPPS, we are proposing to continue our policy 
in CY 2011 to allow non-IPPS hospitals paid under the OPPS to qualify 
for the out-migration adjustment if they are located in a section 505 
out-migration county. We note that because non-IPPS hospitals cannot 
reclassify, they are eligible for the out-migration wage adjustment. 
Table 4J in the Federal Register for the supplemental FY 2011 IPPS 
proposed rule (75 FR 31049), identifies counties eligible for the out-
migration adjustment and providers receiving the adjustment. As we have 
done in prior years, we are reprinting Table 4J as Addendum L to this 
proposed rule with the addition of non-IPPS hospitals that would 
receive the section 505 out-migration adjustment under the CY 2011 
OPPS.
    As stated earlier in this section, we continue to believe that 
using the IPPS wage index as the source of an adjustment factor for the 
OPPS is reasonable and logical, given the inseparable, subordinate 
status of the HOPD within the hospital overall. Therefore, we are 
proposing to use the final FY 2011 IPPS wage indices for calculating 
OPPS payments in CY 2011. With the exception of the out-migration wage 
adjustment table (Addendum L to this proposed rule), which includes 
non-IPPS hospitals paid under the OPPS, we are not reprinting the FY 
2011 IPPS proposed wage indices referenced in this discussion of the 
wage index. We refer readers to the CMS Web site for the OPPS at: 
http://www.cms.gov/HospitalOutpatientPPS/. At this link, readers will 
find a link to the FY 2011 IPPS proposed wage index tables.

D. Proposed Statewide Average Default CCRs

    In addition to using CCRs to estimate costs from charges on claims 
for ratesetting, CMS uses overall hospital-specific CCRs calculated 
from the hospital's most recent cost report to determine outlier 
payments, payments for pass-through devices, and monthly interim 
transitional corridor payments under the OPPS during the PPS year. 
Medicare contractors cannot calculate a CCR for some hospitals because 
there is no cost report available. For these hospitals, CMS uses the 
statewide average default CCRs to determine the payments mentioned 
above until a hospital's Medicare contractor is able to calculate the 
hospital's actual CCR from its most recently submitted Medicare cost 
report. These hospitals include, but are not limited to, hospitals that 
are new, have not accepted assignment of an existing hospital's 
provider agreement, and have not yet submitted a cost report. CMS also 
uses the statewide average default CCRs to determine payments for 
hospitals that appear to have a biased CCR (that is, the CCR falls 
outside the predetermined ceiling threshold for a valid CCR) or for 
hospitals whose most recent cost report reflects an all-inclusive rate 
status (Medicare Claims Processing Manual (Pub. 100-04), Chapter 4, 
Section 10.11). We are proposing to update the default ratios for CY 
2011 using the most recent cost report data. We discuss our policy for 
using default CCRs, including setting the ceiling threshold for a valid 
CCR, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68594 through 68599) in the context of our adoption of an outlier 
reconciliation policy for cost reports beginning on or after January 1, 
2009.
    For CY 2011, we are proposing to continue to use our standard 
methodology of calculating the statewide average default CCRs using the 
same hospital overall CCRs that we use to adjust charges to costs on 
claims data for setting the CY 2011 proposed OPPS relative weights. 
Table 9 below lists the proposed CY 2011 default urban and rural CCRs 
by State and compares them to last year's default CCRs. These proposed 
CCRs represent the ratio of total costs to total charges for those cost 
centers relevant to outpatient services from each hospital's most 
recently submitted cost report, weighted by Medicare Part B charges. We 
also adjusted ratios from submitted cost reports to reflect final 
settled status by applying the differential between settled to 
submitted overall CCR for the cost centers relevant to outpatient 
services from the most recent pair of final settled and submitted cost 
reports. We then weighted each hospital's CCR by the volume of 
separately paid line-items on hospital claims corresponding to the year 
of the majority of cost reports used to calculate the overall CCRs. We 
refer readers to the CY 2008 OPPS/ASC final rule with comment period 
(72 FR 66680 through 66682) and prior OPPS rules for a more detailed 
discussion of our established methodology for calculating the statewide 
average default CCRs, including the hospitals used in our calculations 
and our trimming criteria.
    For this proposed rule, approximately 87 percent of the submitted 
cost reports utilized in the default ratio calculations represented 
data for cost reporting periods ending in CY 2008 and 12 percent were 
for cost reporting periods ending in CY 2007. For Maryland, we used an 
overall weighted average CCR for all hospitals in the nation as a 
substitute for Maryland CCRs. Few hospitals in Maryland are eligible to 
receive payment under the OPPS, which limits the data available to 
calculate an accurate and representative CCR. In general, observed 
changes in the statewide average default CCRs between CY 2010 and CY 
2011 are modest and the few significant changes are associated with 
areas that have a small number of hospitals.
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BILLING CODE 4120-01-C

E. Proposed OPPS Payment to Certain Rural and Other Hospitals

1. Hold Harmless Transitional Payment Changes Made by Public Law 110-
275 (MIPPA)
    When the OPPS was implemented, every provider was eligible to 
receive an additional payment adjustment (called either transitional 
corridor payments or transitional outpatient payment (TOPs)) if the 
payments it received for covered OPD services under the OPPS were less 
than the payments it would have received for the same services under 
the prior reasonable cost-based system (referred to as the pre-BBA 
amount). Section 1833(t)(7) of the Act provides that the transitional 
corridor payments are temporary payments for most providers and were 
intended to ease their transition from the prior reasonable cost-based 
payment system to the OPPS system. There are two exceptions to this 
provision, cancer hospitals and children's hospitals, and those 
hospitals receive the transitional corridor payments on a permanent 
basis. Section 1833(t)(7)(D)(i) of the Act originally provided for 
transitional corridor payments to rural hospitals with 100 or fewer 
beds for covered OPD services furnished before January 1, 2004. 
However, section 411 of Public Law 108-173 amended section 
1833(t)(7)(D)(i) of the Act to extend these payments through December 
31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also 
extended the transitional corridor payments to sole community hospitals 
(SCHs) located in rural areas for services furnished during the period 
that began with the provider's first cost reporting period beginning on 
or after January 1, 2004, and ended on December 31, 2005. Accordingly, 
the authority for making transitional corridor payments under section 
1833(t)(7)(D)(i) of the Act, as amended by section 411 of Pub. L. 108-
173, for rural hospitals having 100 or fewer beds and SCHs located in 
rural areas expired on December 31, 2005.
    Section 5105 of Public Law 109-171 reinstituted the TOPs for 
covered OPD services furnished on or after January 1, 2006, and before 
January 1, 2009, for rural hospitals having 100 or fewer beds that are 
not SCHs. When the OPPS payment was less than the provider's pre-BBA 
amount, the amount of payment was increased by 95 percent of the amount 
of the difference between the two amounts for CY 2006, by 90 percent of 
the amount of that difference for CY 2007, and by 85 percent of the 
amount of that difference for CY 2008.
    For CY 2006, we implemented section 5105 of Public Law 109-171 
through Transmittal 877, issued on February 24, 2006. In the 
Transmittal, we did not specifically address whether TOPs apply to 
essential access community hospitals (EACHs), which are considered to 
be SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Accordingly, 
under the statute, EACHs are treated as SCHs. In the CY 2007 OPPS/ASC 
final rule with comment period (71 FR 68010), we stated that EACHs were 
not eligible for TOPs under Public Law 109-171. However, we stated they 
were eligible for the adjustment for rural SCHs. In the CY 2007 OPPS/
ASC final rule with comment period (71 FR 68010 and 68228), we updated 
Sec.  419.70(d) of our regulations to reflect the requirements of 
Public Law 109-171.

[[Page 46232]]

    In the CY 2009 OPPS/ASC proposed rule (73 FR 41461), we stated 
that, effective for services provided on or after January 1, 2009, 
rural hospitals having 100 or fewer beds that are not SCHs would no 
longer be eligible for TOPs, in accordance with section 5105 of Public 
Law 109-171. However, subsequent to issuance of the CY 2009 OPPS/ASC 
proposed rule, section 147 of Public Law 110-275 amended section 
1833(t)(7)(D)(i) of the Act by extending the period of TOPs to rural 
hospitals with 100 beds or fewer for 1 year, for services provided 
before January 1, 2010. Section 147 of Public Law 110-275 also extended 
TOPs to SCHs (including EACHs) with 100 or fewer beds for covered OPD 
services provided on or after January 1, 2009, and before January 1, 
2010. In accordance with section 147 of Public Law 110-275, when the 
OPPS payment is less than the provider's pre-BBA amount, the amount of 
payment is increased by 85 percent of the amount of the difference 
between the two payment amounts for CY 2009.
    For CY 2009, we revised our regulations at Sec. Sec.  419.70(d)(2) 
and (d)(4) and added a new paragraph (d)(5) to incorporate the 
provisions of section 147 of Public Law 110-275. In addition, we made 
other technical changes to Sec.  419.70(d)(2) to more precisely capture 
our existing policy and to correct an inaccurate cross-reference. We 
also made technical corrections to the cross-references in paragraphs 
(e), (g), and (i) of Sec.  419.70.
    For CY 2010, we made a technical correction to the heading of Sec.  
419.70(d)(5) to correctly identify the policy as described in the 
subsequent regulation text. The paragraph heading now indicates that 
the adjustment applies to small SCHs, rather than to rural SCHs.
    In the CY 2010 OPPS/ASC final rule (74 FR 60425), we stated that, 
effective for services provided on or after January 1, 2010, rural 
hospitals and SCHs (including EACHs) having 100 or fewer beds would no 
longer be eligible for TOPs, in accordance with section 147 of Pub. L. 
110-275. However, subsequent to issuance of the CY 2010 OPPS/ASC final 
rule, section 3121(a) of the Affordable Care Act, Public Law 111-148, 
amended section 1833(t)(7)(D)(i)(III) of the Act by extending the 
period of TOPs to rural hospitals that are not SCHs with 100 beds or 
fewer for 1 year, for services provided before January 1, 2011. Section 
3121(a) of Public Law 111-148, amended section 1833(t)(7)(D)(i)(III) of 
the Act and extended the period of TOPs to SCHs (including EACHs) for 1 
year, for services provided before January 1, 2011, with Section 
3121(b) of Public Law 111-148 removing the 100-bed limitation 
applicable to such SCHs for covered OPD services furnished on and after 
January 1, 2010 and before January 1, 2011. In accordance with section 
3121 of Public Law 111-148, when the OPPS payment is less than the 
provider's pre-BBA amount, the amount of payment is increased by 85 
percent of the amount of the difference between the two payment amounts 
for CY 2010. Accordingly, we are proposing to update section 419.70(d) 
of the regulations to reflect the TOPs extensions and amendments 
described in section 3121 of Public Law 111-148.
    Effective for services provided on or after January 1, 2011, rural 
hospitals having 100 or fewer beds that are not SCHs and SCHs 
(including EACHs) will no longer be eligible for hold harmless TOPs, in 
accordance with section 3121 of Public Law 111-148.
2. Proposed Adjustment for Rural SCHs Implemented in CY 2006 Related to 
Public Law 108-173 (MMA)
    In the CY 2006 OPPS final rule with comment period (70 FR 68556), 
we finalized a payment increase for rural SCHs of 7.1 percent for all 
services and procedures paid under the OPPS, excluding drugs, 
biologicals, brachytherapy sources, and devices paid under the pass-
through payment policy in accordance with section 1833(t)(13)(B) of the 
Act, as added by section 411 of Public Law 108-173. Section 411 gave 
the Secretary the authority to make an adjustment to OPPS payments for 
rural hospitals, effective January 1, 2006, if justified by a study of 
the difference in costs by APC between hospitals in rural areas and 
hospitals in urban areas. Our analysis showed a difference in costs for 
rural SCHs. Therefore, for the CY 2006 OPPS, we finalized a payment 
adjustment for rural SCHs of 7.1 percent for all services and 
procedures paid under the OPPS, excluding separately payable drugs and 
biologicals, brachytherapy sources, and devices paid under the pass-
through payment policy, in accordance with section 1833(t)(13)(B) of 
the Act.
    In CY 2007, we became aware that we did not specifically address 
whether the adjustment applies to EACHs, which are considered to be 
SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Thus, under the 
statute, EACHs are treated as SCHs. Therefore, in the CY 2007 OPPS/ASC 
final rule with comment period (71 FR 68010 and 68227), for purposes of 
receiving this rural adjustment, we revised Sec.  419.43(g) to clarify 
that EACHs are also eligible to receive the rural SCH adjustment, 
assuming these entities otherwise meet the rural adjustment criteria. 
Currently, fewer than 10 hospitals are classified as EACHs and as of CY 
1998, under section 4201(c) of Public Law 105-33, a hospital can no 
longer become newly classified as an EACH.
    This adjustment for rural SCHs is budget neutral and applied before 
calculating outliers and copayment. As stated in the CY 2006 OPPS final 
rule with comment period (70 FR 68560), we would not reestablish the 
adjustment amount on an annual basis, but we may review the adjustment 
in the future and, if appropriate, would revise the adjustment. We 
provided the same 7.1 percent adjustment to rural SCHs, including 
EACHs, again in CY 2008 and CY 2009. Further, in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68590), we updated the 
regulations at Sec.  419.43(g)(4) to specify, in general terms, that 
items paid at charges adjusted to costs by application of a hospital-
specific CCR are excluded from the 7.1 percent payment adjustment.
    For the CY 2011 OPPS, we are proposing to continue our policy of a 
budget neutral 7.1 percent payment adjustment for rural SCHs, including 
EACHs, for all services and procedures paid under the OPPS, excluding 
separately payable drugs and biologicals, devices paid under the pass-
through payment policy, and items paid at charges reduced to costs. We 
intend to reassess the 7.1 percent adjustment in the near future by 
examining differences between urban and rural hospitals' costs using 
updated claims, cost reports, and provider information.

F. Proposed OPPS Payments to Cancer Hospitals Described in Section 
1886(d)(1)(B)(v) of the Act

1. Background
    Since the inception of the hospital outpatient prospective payment 
system (OPPS), which was authorized by the Balanced Budget Act of 1997 
(BBA), Medicare has paid cancer hospitals identified in section 
1886(d)(1)(B)(v) of the Act (cancer hospitals) under the OPPS for 
covered outpatient hospital services. There are 11 cancer hospitals 
that meet the classification criteria in section 1886(d)(1)(B)(v) of 
the Act. These 11 cancer hospitals are exempted from payment under the 
inpatient prospective payment system (IPPS). With the Medicare, 
Medicaid and SCHIP Balanced Budget Refinement Act of 1999, Congress 
created section 1833(t)(7) of the Act, ``Transitional Adjustment to 
Limit Decline in Payment,'' to serve as a permanent payment floor by 
limiting cancer

[[Page 46233]]

hospitals' potential losses under the OPPS. Through 1833(t)(7)(D)(ii) 
of the Act, a cancer hospital receives the full amount of the 
difference between payments for covered outpatient services under the 
OPPS and a pre-BBA amount. That is, cancer hospitals are permanently 
held harmless to their ``pre-BBA'' amount, and they receive 
transitional outpatient payments (TOPs) to ensure that they do not 
receive a payment that is lower under the OPPS than the payment they 
would have received before implementation of the OPPS, as set forth in 
section 1833(t)(7)(F) of the Act. The pre-BBA payment amount is an 
amount equal to the product of the reasonable cost of the hospital for 
such services for the portions of the hospital's cost reporting period 
(or periods) occurring in the year and the base payment to cost ratio 
(base PCR) for the hospital. The pre-BBA amount, including the 
determination of the base PCR, are defined at 42 CFR 419.70(f). TOPs 
are calculated on Worksheet E Part B of the Hospital and Hospital 
Health Care Complex Cost Report (form CMS-2552-96) each year. Section 
1833(t)(7)(I) of the Act exempts TOPs from budget neutrality 
calculations. Almost all of the 11 cancer hospitals receive TOPs each 
year. The volume weighted average payment to cost ratio (PCR) for the 
cancer hospitals is 0.83, or outpatient payment with TOPs to cancer 
hospitals is 83 percent of reasonable cost.
    Section 3138 of the Affordable Care Act instructs the Secretary to 
conduct a study to determine if, under the OPPS, outpatient costs 
incurred by cancer hospitals described in section 1886(d)(1)(1)(v)(B) 
of the Act with respect to ambulatory classification groups exceed the 
costs incurred by other hospitals furnishing services under this 
subsection (section 1833(t) of the Act) as determined appropriate by 
the Secretary. In addition, section 3138 of the Affordable Care Act 
requires the Secretary to take into consideration the cost of drugs and 
biologicals incurred by such hospitals when studying cancer hospital 
costliness. Further, section 3138 of the Affordable Care Act states 
that if the cancer hospitals' costs are determined to be greater than 
the costs of other hospitals paid under the OPPS, the Secretary shall 
provide an appropriate adjustment to reflect these higher costs. 
Section 3138 of the Affordable Care Act also requires that this 
adjustment be budget neutral, and it would be effective for outpatient 
services provided at cancer hospitals on or after January 1, 2011. 
Cancer hospitals described in section 1886(d)(1)(B)(v) of the Act 
remain eligible for TOPs payment (which are not budget neutral) and 
outlier payments (which are budget neutral).
2. Study of Cancer Hospitals' Costs Relative to Other Hospitals
    It has been our standard analytical approach to use a combination 
of explanatory and payment regression models to assess the costliness 
of a class of hospitals while controlling for other legitimate 
influences of costliness, such as ability to achieve economies of 
scale, to ensure that costliness is due to the type of hospital and to 
identify appropriate payment adjustments. We used this approach in our 
CY 2006 OPPS final rule with comment period to establish the 7.1 
percent payment adjustment for rural sole community hospitals (70 FR 
68556 through 68561). In our discussion for the CY 2006 OPPS proposed 
rule we stated that a simple comparison of unit costs would not be 
sufficient to assess the costliness of a class of hospitals because the 
costs faced by individual hospitals, whether urban or rural, are a 
function of many varying factors, including local labor supply and the 
complexity and volume of services provided (70 FR 42699).
    In constructing our analysis of cancer hospitals' costs relative to 
other hospitals, we considered whether our standard analytical approach 
to use a combination of explanatory and payment regression models would 
lead to valid results for this particular study, or whether we should 
develop a different or modified analytic approach. We note that the 
analyses presented in the CY 2006 OPPS proposed and final rules were 
designed to establish an adjustment for a large class of rural 
hospitals. In contrast, section 3138 of the Affordable Care Act is 
specifically limited to identifying an adjustment for 11 cancer 
hospitals. With such a small sample size (11 out of approximately 4,000 
hospitals paid under the OPPS), we are concerned that the standard 
explanatory and payment regression models used to establish the rural 
hospital adjustment would lead to imprecise estimates of payment 
adjustments for this small group of hospitals. Further, Section 3138 of 
the Affordable Care Act specifies explicitly that cost comparisons 
between classes of hospitals must include the cost of drugs and 
biologicals. In our CY 2006 analysis of rural hospitals, we excluded 
the cost of drugs and biologicals in our model because the extreme 
units associated with proper billing for some drugs and biologicals can 
bias the calculation of a service mix index, or volume weighted average 
APC relative weight, for each hospital (70 FR 42698). Therefore, we 
chose not to pursue our standard combination of explanatory and payment 
regression modeling to identify costliness and determine a cancer 
hospital adjustment.
    While we chose not to use our standard models to calculate a 
proposed cancer hospital adjustment, we determined it still would be 
appropriate to construct our usual provider-level analytical dataset 
consisting of variables related to assessing costliness including 
average cost per unit for a hospital and the hospitals average APC 
relative weight as an indicator of the hospitals resource intensity, as 
measured by the APC relative weights. We used these variables to 
calculate univariate statistics that describe the costliness and 
related aspects of cancer hospitals and other hospitals paid under the 
OPPS. While descriptive statistics cannot control for the myriad 
factors that contribute to observed costs, we believe that we can 
assume that stark differences in cost between cancer hospitals and 
other hospitals paid under the OPPS that would be observable by 
examining descriptive univariate statistics would provide some 
indication of relative costliness. We began our analysis of the cancer 
hospitals as we did for the rural hospitals by creating an analytical 
dataset of hospitals billing under the OPPS for CY 2009 (a total of 
3,933) that were included in our claims dataset for establishing the CY 
2011 OPPS proposed APC relative weights (discussed in detail in section 
II.A. of this proposed rule). This analytical dataset includes the 
3,933 OPPS hospitals' total estimated cost (including packaged cost), 
total lines, total discounted units as modeled for CY 2011 OPPS 
payment, and the average weight of their separately payable services 
(total APC weight divided by total units) as modeled for CY 2011 OPPS. 
We create this dataset from the hospital specific service utilization 
files that we use to model budget neutrality and to perform impact 
analyses after we complete estimating a median cost (or equivalent 
amount depending on unique APC methodologies as discussed in section II 
of this proposed rule) for each APC. Using the CY 2009 claims that we 
use to model the CY 2011 proposed OPPS, we use the utilization on those 
claims to model APC payment under the CY 2011 proposed payment 
policies, such as proposed payment for drugs and biologicals at ASP+6 
percent and proposed reassignment of some HCPCS codes to different 
APCs. We then summarized this estimated

[[Page 46234]]

utilization and payment for each hospital (``hospital-level''). These 
files consist of hospital-level aggregate costs (including the cost of 
packaged items and services), total estimated discounted units under 
the modeled proposed CY 2011 OPPS, total estimated volume of number of 
occurrences of separately payable HCPCS codes under the modeled 
proposed CY 2011 OPPS, and total relative weight of separately payable 
services under the modeled proposed CY 2011 OPPS. The calculation of 
these summary files are discussed in Stage 6 of our claims accounting 
narrative available under supporting documentation for this proposed 
rule on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/. After summarizing modeled payment to the hospital-level, we 
removed 48 hospitals in Puerto Rico from our dataset, because we do not 
believe that their cost structure reflects the costs of most hospitals 
paid under the OPPS and because they could bias the calculation of 
hospital-weighted statistics. We then removed an additional 66 
hospitals with a cost per unit of more than 3 standard deviations from 
the geometric mean (mean of the natural log) because including outliers 
in hospital-weighted descriptive statistics also could bias the those 
statistics. This resulted in a dataset with 11 cancer hospitals and 
3,808 other hospitals.
    We included the following standard hospital-level variables that 
describe hospital costliness in our analysis file: Outpatient cost per 
discounted unit under the modeled CY 2011 OPPS (substituting a cost per 
administration, rather than a cost per unit, for drugs and 
biologicals); each hospital's proposed CY 2011 wage index as a measure 
of relative labor cost; the service mix index, or volume-weighted 
average proposed CY 2011 APC relative weight (including a simulated 
weight for drugs and biologicals created by dividing the CY 2010 April 
ASP-based payment amount at ASP+6 percent appearing in Addendum A and B 
of this proposed rule by the proposed conversion factor of $68.267); 
outpatient volume based on number of occurrences of HCPCS codes in the 
CY 2009 claims data; and number of beds. We use these variables because 
they are key indicators of costliness under the modeled OPPS system, 
and they allow us to assess the relative costliness of classes of 
hospitals under the proposed CY 2011 OPPS. We further discuss these 
variables in our CY 2006 proposed rule analysis (70 FR 42698 through 
42701). A hospital's service mix index is a measure of resource 
intensity of the services provided by the hospital as measured by the 
proposed CY 2011 OPPS relative weights, and standardizing the cost per 
discounted unit by the service mix index creates an adjusted cost per 
unit estimate that reflects the remaining relative costliness of a 
hospital remaining after receiving the estimated payments that we are 
proposing to make under the CY 2011 OPPS. In short, if a class of 
hospitals demonstrates higher cost per unit after standardization by 
service mix it is an early indication that the class of hospitals may 
be significantly more costly in the regression models. We used this 
data to calculate the descriptive univariate statistics for cancer 
hospitals appearing in Table 10 below. We note that because drugs and 
biologicals are such a significant portion of the services that the 
cancer hospitals provide, and because Section 3138 of the Affordable 
Care Act explicitly requires us to consider the cost of drugs and 
biologicals, we included the cost of these items in our total cost 
calculation for each hospital, counting each occurrence of a drug in 
the modeled proposed CY 2011 data (based on units in CY 2009 claims 
data). That is, we sought to treat each administration of a drug or 
biological as one unit.
    In reviewing these descriptive statistics, we observe that cancer 
hospitals had a standardized cost per discounted unit of $150.12 
compared to a standardized cost per discounted unit of $94.14 for all 
other hospitals. That is, cancer hospitals' average cost per discounted 
unit remains high even after accounting for payment under the modeled 
proposed CY 2011 payment system, which is not true for all other 
hospitals. Observing such differences in standardized cost per 
discounted unit lead us to conclude that cancer hospitals are more 
costly than other hospitals paid under the OPPS, even without the 
inferential statistical models that we typically employ.
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[[Page 46235]]


3. Proposed Adjustment for Certain Cancer Hospitals
    Having reviewed the cost data from the standard analytic database 
and determined that cancer hospitals are more costly than other 
hospitals within the OPPS system, we decided to examine hospital cost 
report data from Worksheet E Part B (where TOPs are calculated on the 
Hospital and Hospital Health Care Complex Cost Report each year) in 
order to determine whether our findings were further supported by cost 
report data and to determine an appropriate proposed payment adjustment 
methodology. Analyses on our standard analytic database and descriptive 
statistics presented in Table 10 above, did not consider TOPs in 
assessing costliness of cancer hospitals relative to other hospitals 
furnishing services under section 1833(t) of the Act. This is because 
section 3138 of the Affordable Care Act requires that any cancer 
adjustment be made within the budget neutral system. In making a 
determination about a payment adjustment subject to budget neutrality, 
we believe it is appropriate to assess costliness and payments within 
the budget neutral payment system. We note that TOPs are based on 
reasonable cost and are not part of the budget neutral payment system. 
Further, TOPs have no associated relative weight that could be included 
in an assessment of APC-based payment. TOPs are paid at cost report 
settlement on an aggregate basis, not a per service basis, and we would 
have no way to break these payments down into a relative weight to 
incorporate these retrospective aggregate payments in the form of 
relative weight under the proposed modeled CY 2011 OPPS. The cost 
report data we selected for the analysis was limited to the OPPS-
specific payment and cost data available on Worksheet E Part B, which 
is also where TOPs are calculated including aggregate OPPS payments, 
including outlier payments and the cost of medical and other health 
services. These aggregate measures of cost and payment also include the 
cost and payment for drugs and biologicals and other adjustments that 
we typically include in our regression modeling, including wage index 
adjustment and rural adjustment, if applicable. While this cost report 
data cannot provide an estimate of cost per unit after controlling for 
other potential factors that could influence cost per unit, we can use 
this aggregate cost and payment data to examine the cancer hospitals' 
OPPS PCR and OPPS PCR with TOPs, and compare these to the OPPS PCR for 
other hospitals.
    PCRs calculated from the most recent cost report data also indicate 
that costs relative to payments at cancer hospitals are higher than 
those at other hospitals paid under the OPPS (that is, cancer hospitals 
have lower PCRs). In order to calculate PCRs for hospitals paid under 
the OPPS (including cancer hospitals), we used the same extract of cost 
report data from the Hospital Cost Report Information System (HCRIS), 
as discussed in section II.A. of this proposed rule, that we used to 
calculate the CCRs that we used to estimate median costs for this 
proposed CY 2011 OPPS. Using this cost report data, we included data 
from Worksheet E Part B for each hospital, keeping data from each 
hospital's most recent cost report, whether as submitted or settled. We 
then limited the data set to the hospitals with CY 2009 claims data 
that we used to model the CY 2011 proposed APC relative weights (3933 
hospitals) because we used the claims from these hospitals to calculate 
the estimated costs we used for the descriptive statistics in our first 
analysis and because it is appropriate to use the same set of hospitals 
that we are using to calibrate the modeled proposed CY 2011 OPPS. The 
cancer hospitals in this data set largely had cost report data from 
cost reporting periods ending in FY 2008 and FY 2009. The cost report 
data for the other hospitals were from cost report periods with fiscal 
year ends ranging from 2005 to 2009. We then removed the cost report 
data for 48 hospitals from Puerto Rico from our data set because we do 
not believe that their cost structure reflects the costs of most 
hospitals paid under the OPPS and therefore may bias the results of the 
study. We also removed 301 hospitals with cost report data that was not 
complete (missing OPPS payments including outliers, missing aggregate 
cost data, or both) so that all cost reports in the study would have 
both the payment and cost data necessary to calculate a PCR for each 
hospital, leading to a final analytic file of 3584 hospitals with cost 
report data. We believe that the costs, PPS payments, and TOPs reported 
on Worksheet E part B for the hospitals included in our CY 2011 
modeling should be sufficiently accurate for assessing hospitals' 
relative costliness because all of the key elements that we believe to 
be necessary for the analysis (payment, cost and TOPs) are contained on 
this worksheet.
    Using this much smaller dataset of cost report data, we estimate 
that on average, the OPPS payments to the 11 cancer hospitals, not 
including TOPs, are approximately 62 percent of reasonable cost (that 
is, we calculate a PCR of 0.615 for the cancer hospitals), whereas, we 
estimate that, on average, the OPPS payments to other hospitals paid 
under the OPPS are approximately 87 percent of reasonable cost 
(resulting in a PCR of 0.868). Individual cancer hospitals' OPPS PCRs 
range from approximately 48 percent to approximately 82 percent. When 
TOPS are included in the calculation of the PCR, cancer hospitals, as a 
group, receive payments that are approximately 83 percent of reasonable 
cost, which is still lower than the average PCR of other OPPS hospitals 
of approximately 87 percent of reasonable cost. Considering this data, 
we find that the cancer hospitals are more costly than other hospitals 
paid under the OPPS. The dataset of hospital cost report data that we 
used to model this proposed adjustment is available under supporting 
documentation for this proposed rule on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/.
    Based on our findings that cancer hospitals, as a class, have a 
significantly lower volume weighted average PCR than the volume 
weighted PCR of other hospitals paid under the OPPS and our findings 
above that the cancer hospitals cost per discounted unit standardized 
for service mix remains much higher than the standardized cost per 
discounted unit of all other hospitals, we are proposing an adjustment 
for cancer hospitals to reflect these higher costs effective January 1, 
2011, as mandated by section 3138 of the Affordable Care Act. For 
purposes of calculating a proposed adjustment, we chose to rely on this 
straightforward assessment of payments and costs from the cost report 
data because of the concerns outlined above with respect to the small 
number of hospitals, and because of the challenges associated with 
accurately including drug and biological costs in our standard 
regression models. We believe that an appropriate adjustment would 
redistribute enough payments from other hospitals paid under the OPPS 
to the cancer hospitals to give cancer hospitals a PCR that is 
comparable to the average PCR for other hospitals paid under the OPPS. 
Therefore, we propose a hospital-specific payment adjustment determined 
as the percentage of additional payment needed to raise each cancer 
hospital's PCR to the weighted average PCR for all other hospitals paid 
under OPPS (0.868) in the CY 2011 dataset. This would be accomplished 
by adjusting each cancer hospital's OPPS payment by the percentage 
difference

[[Page 46236]]

between their individual PCR (without TOPs) and the weighted average 
PCR of the other hospitals paid under OPPS.
    This proposed methodology would result in the proposed percentage 
payment adjustments for the 11 cancer hospitals appearing in Table 11. 
We propose that this hospital-specific adjustment would be applied to 
the wage adjusted payments for all items, except for items and services 
paid at charges adjusted to cost or devices receiving pass-through 
status defined in 42 CFR 419.66. The proposed cancer hospital 
adjustment would not be applied to items and services paid at charges 
adjusted to cost because these items and services are always paid the 
estimated full cost of the item or service. We are proposing to amend 
42 CFR to add new section 419.43(i)(2) which would establish the amount 
of the adjustment to cancer hospitals. We also propose that this 
adjustment would be budget neutral as set forth in proposed new section 
42 CFR 419.43(i)(3), consistent with section 3138 of the Affordable 
Care Act. We note that outlier payments would be appropriately assessed 
after application of the cancer adjustment and that TOPs would continue 
to apply. The changes made by section 3138 of the Affordable Care Act 
do not affect the existing statutory provisions that provide for 
outlier payment for all hospitals paid under the OPPS, including cancer 
hospitals and TOPs payments for cancer hospitals. Further, both outlier 
payments and TOPs serve as a safety net for hospitals, although 
outliers are budget neutral and TOPs are not, and TOPs are limited to 
certain hospitals. As a means of buffering the financial risk 
associated with a prospective payment system, both adjustments 
(outliers and TOPs) only should be assessed after final payments have 
been made. Because outlier payments are made within the budget 
neutrality, outlier payments should be assessed after all budget 
neutral payments for an individual service have been made, including 
the cancer adjustment. The TOPs payments would be assessed after all 
payments have been made for a cost reporting period. We note that the 
proposed adjustment for all cancer hospitals would result in an 
estimated aggregate increase in OPPS payments to cancer hospitals of 
41.2 percent for CY 2011, based on cost report data.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP03AU10.096

    We propose to recalibrate the ``other hospital'' PCR target amount 
and the hospital-specific percentage adjustment for each cancer 
hospital periodically, but not every year, because we do not believe 
that these amounts will change

[[Page 46237]]

so drastically in any given year to warrant annual recalculation. In 
the event that a cancer hospital has a PCR that is higher than the 
volume weighted average PCR for all hospitals, we propose that the 
specific hospital would not be eligible for this adjustment. We believe 
that this would indicate that the hospital's costs do not exceed the 
costs incurred by other hospitals furnishing services under the OPPS 
and, therefore, an adjustment would not be required and would be 
unnecessary. We note that the TOPS provision remains in effect and that 
we will continue to make TOPS to cancer hospitals that continue to have 
all final OPPS payments (including but not limited to outlier payments, 
the wage adjustment, and this new cancer hospital adjustment), that are 
lower than their pre-BBA payment amount. If this proposed adjustment is 
finalized, we estimate that only one cancer hospital would continue to 
receive TOPS. We propose to update the hospital-specific cancer 
hospital payment adjustments in Table 11 using the more recent cost 
reports that become available for the CY 2011 OPPS/ASC final rule with 
comment period.

G. Proposed Hospital Outpatient Outlier Payments

1. Background
    Currently, the OPPS pays outlier payments on a service-by-service 
basis. For CY 2010, the outlier threshold is met when the cost of 
furnishing a service or procedure by a hospital exceeds 1.75 times the 
APC payment amount and exceeds the APC payment rate plus a $2,175 
fixed-dollar threshold. We introduced a fixed-dollar threshold in CY 
2005 in addition to the traditional multiple threshold in order to 
better target outliers to those high cost and complex procedures where 
a very costly service could present a hospital with significant 
financial loss. If the cost of a service meets both of these 
conditions, the multiple threshold and the fixed-dollar threshold, the 
outlier payment is calculated as 50 percent of the amount by which the 
cost of furnishing the service exceeds 1.75 times the APC payment rate. 
Before CY 2009, this outlier payment had historically been considered a 
final payment by longstanding OPPS policy. We implemented a 
reconciliation process similar to the IPPS outlier reconciliation 
process for cost reports with cost reporting periods beginning on or 
after January 1, 2009 (73 FR 68594 through 68599).
    It has been our policy for the past several years to report the 
actual amount of outlier payments as a percent of total spending in the 
claims being used to model the proposed OPPS. Our current estimate of 
total outlier payments as a percent of total CY 2009 OPPS payment, 
using available CY 2009 claims and the revised OPPS expenditure 
estimate for the President's Budget for FY 2011, is approximately 1.0 
percent of the total aggregated OPPS payments. Therefore, for CY 2009, 
we estimate that we paid at the CY 2009 outlier target of 1.0 percent 
of total aggregated OPPS payments.
    As explained in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60426 through 60427), we set our projected target for aggregate 
outlier payments at 1.0 percent of the aggregate total payments under 
the OPPS for CY 2010. The outlier thresholds were set so that estimated 
CY 2010 aggregate outlier payments would equal 1.0 percent of the total 
aggregated payments under the OPPS. Using CY 2009 claims data and CY 
2010 payment rates, we currently estimate that the aggregate outlier 
payments for CY 2010 would be approximately 0.85 percent of the total 
CY 2010 OPPS payments. The difference between 1.0 percent and 0.85 
percent is reflected in the regulatory impact analysis in section 
XXIII. of this proposed rule. We note that we provide estimated CY 2011 
outlier payments for hospitals and CMHCs with claims included in the 
claims data that we used to model impacts in the Hospital-Specific 
Impacts--Provider-Specific Data file on the CMS Web site at:  http://www.cms.hhs.gov/HospitalOutpatientPPS/.
2. Proposed Outlier Calculation
    For CY 2011, we are proposing to continue our policy of estimating 
outlier payments to be 1.0 percent of the estimated aggregate total 
payments under the OPPS for outlier payments. We are proposing that a 
portion of that 1.0 percent, specifically 0.04 percent, would be 
allocated to CMHCs for PHP outlier payments. This is the amount of 
estimated outlier payments that would result from the proposed CMHC 
outlier threshold as a proportion of total estimated outlier payments. 
As discussed in section X.D. of this proposed rule, for CMHCs, we are 
proposing to continue a policy, that if a CMHC's cost for partial 
hospitalization services, paid under either APC 0172 (Level I Partial 
Hospitalization (3 services)) or APC 0173 (Level II Partial 
Hospitalization (4 or more services)), exceeds 3.40 times the payment 
for APC 0173, the outlier payment would be calculated as 50 percent of 
the amount by which the cost exceeds 3.40 times the APC 0173 payment 
rate. For further discussion of CMHC outlier payments, we refer readers 
to section X.D. of this proposed rule.
    To ensure that the estimated CY 2011 aggregate outlier payments 
would equal 1.0 percent of estimated aggregate total payments under the 
OPPS, we are proposing that the hospital outlier threshold be set so 
that outlier payments would be triggered when the cost of furnishing a 
service or procedure by a hospital exceeds 1.75 times the APC payment 
amount and exceeds the APC payment rate plus a $2,025 fixed-dollar 
threshold. This proposed threshold reflects the methodology discussed 
below in this section, as well as the proposed APC recalibration for CY 
2011.
    We calculated the proposed fixed-dollar threshold for this proposed 
rule using largely the same methodology as we did in CY 2009 (73 FR 
41462). For purposes of estimating outlier payments for this proposed 
rule, we used the hospital-specific overall ancillary CCRs available in 
the April 2010 update to the Outpatient Provider-Specific File (OPSF). 
The OPSF contains provider-specific data, such as the most current CCR, 
which are maintained by the Medicare contractors and used by the OPPS 
Pricer to pay claims. The claims that we use to model each OPPS update 
lag by 2 years. For this proposed rule, we used CY 2009 claims to model 
the CY 2011 OPPS. In order to estimate the proposed CY 2011 hospital 
outlier payments for this proposed rule, we inflated the charges on the 
CY 2009 claims using the same inflation factor of 1.1059 that we used 
to estimate the IPPS fixed-dollar outlier threshold for the FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 24068). We used an inflation factor 
of 1.0516 to estimate CY 2010 charges from the CY 2009 charges reported 
on CY 2009 claims. The methodology for determining this charge 
inflation factor was discussed in the FY 2011 IPPS/LTCH PPS proposed 
rule (75 FR 24068). As we stated in the CY 2005 OPPS final rule with 
comment period (69 FR 65845), we believe that the use of this charge 
inflation factor is appropriate for the OPPS because, with the 
exception of the inpatient routine service cost centers, hospitals use 
the same ancillary and outpatient cost centers to capture costs and 
charges for inpatient and outpatient services.
    As noted in the CY 2007 OPPS/ASC final rule with comment period (71 
FR 68011), we are concerned that we could systematically overestimate 
the OPPS hospital outlier threshold if we did not apply a CCR inflation 
adjustment factor. Therefore, we are proposing to apply the same CCR 
inflation adjustment factor

[[Page 46238]]

that we proposed to apply for the FY 2011 IPPS outlier calculation to 
the CCRs used to simulate the proposed CY 2011 OPPS outlier payments 
that determine the fixed-dollar threshold. Specifically, for CY 2011, 
we are proposing to apply an adjustment of 0.9890 to the CCRs that were 
in the April 2010 OPSF to trend them forward from CY 2010 to CY 2011. 
The methodology for calculating this adjustment is discussed in the FY 
2011 IPPS/LTCH PPS proposed rule (75 FR 24068 through 24070).
    Therefore, to model hospital outlier payments for this proposed 
rule, we applied the overall CCRs from the April 2010 OPSF file after 
adjustment (using the proposed CCR inflation adjustment factor of 
0.9890 to approximate CY 2011 CCRs) to charges on CY 2009 claims that 
were adjusted (using the proposed charge inflation factor of 1.1059 to 
approximate CY 2011 charges). We simulated aggregated CY 2011 hospital 
outlier payments using these costs for several different fixed-dollar 
thresholds, holding the 1.75 multiple threshold constant and assuming 
that outlier payment would continue to be made at 50 percent of the 
amount by which the cost of furnishing the service would exceed 1.75 
times the APC payment amount, until the total outlier payments equaled 
1.0 percent of aggregated estimated total CY 2011 OPPS payments. We 
estimated that a proposed fixed-dollar threshold of $2,025, combined 
with the proposed multiple threshold of 1.75 times the APC payment 
rate, would allocate 1.0 percent of aggregated total OPPS payments to 
outlier payments. We are proposing to continue to make an outlier 
payment that equals 50 percent of the amount by which the cost of 
furnishing the service exceeds 1.75 times the APC payment amount when 
both the 1.75 multiple threshold and the proposed fixed-dollar $2,025 
threshold are met. For CMHCs, if a CMHC's cost for partial 
hospitalization services, paid under either APC 0172 or APC 0173, 
exceeds 3.40 times the payment for APC 0173, the outlier payment would 
be calculated as 50 percent of the amount by which the cost exceeds 
3.40 times the APC 0173 payment rate.
    Section 1833(t)(17)(A) of the Act, which applies to hospitals as 
defined under section 1886(d)(1)(B) of the Act, requires that hospitals 
that fail to report data required for the quality measures selected by 
the Secretary, in the form and manner required by the Secretary under 
1833(t)(17)(B) of the Act, incur a 2.0 percentage point reduction to 
their OPD fee schedule increase factor, that is, the annual payment 
update factor. The application of a reduced OPD fee schedule increase 
factor results in reduced national unadjusted payment rates that will 
apply to certain outpatient items and services furnished by hospitals 
that are required to report outpatient quality data and that fail to 
meet the HOP QDRP requirements. For hospitals that fail to meet the HOP 
QDRP requirements, we are proposing to continue our policy that we 
implemented in CY 2009 that the hospitals' costs would be compared to 
the reduced payments for purposes of outlier eligibility and payment 
calculation. For more information on the HOP QDRP, we refer readers to 
section XVI. of this proposed rule.
    In the CY 2009 OPPS/ASC final rule with comment period (73 CFR 
68599), we adopted as final policy a process to reconcile hospital or 
CMHC outlier payments at cost report settlement for services furnished 
during cost reporting periods beginning in CY 2009. OPPS outlier 
reconciliation ensures accurate outlier payments for those facilities 
whose CCRs fluctuate significantly relative to the CCRs of other 
facilities, and who receive a significant amount of outlier payments. 
As under the IPPS, we do not adjust the fixed-dollar threshold or 
amount of total OPPS payment set aside for outlier payments for 
reconciliation activity because such action would be contrary to the 
prospective nature of the system. Our outlier threshold calculation 
assumes that overall ancillary CCRs accurately estimate hospital costs 
based on the information available to us at the time we set the 
prospective fixed-dollar outlier threshold. For these reasons, we are 
not incorporating any assumptions about the effects of reconciliation 
into our calculation of the proposed OPPS fixed-dollar outlier 
threshold.

H. Proposed Calculation of an Adjusted Medicare Payment From the 
National Unadjusted Medicare Payment

    The basic methodology for determining prospective payment rates for 
HOPD services under the OPPS is set forth in existing regulations at 42 
CFR part 419, subparts C and D. The payment rate for most services and 
procedures for which payment is made under the OPPS is the product of 
the conversion factor calculated in accordance with section II.B. of 
this proposed rule and the relative weight determined under section 
II.A. of this proposed rule. Therefore, the proposed national 
unadjusted payment rate for most APCs contained in Addendum A to this 
proposed rule and for most HCPCS codes to which separate payment under 
the OPPS has been assigned in Addendum B to this proposed rule was 
calculated by multiplying the proposed CY 2011 scaled weight for the 
APC by the proposed CY 2011 conversion factor.
    We note that section 1833(t)(17) of the Act, which applies to 
hospitals as defined under section 1886(d)(1)(B) of the Act, requires 
that hospitals that fail to submit data required to be submitted on 
quality measures selected by the Secretary, in the form and manner and 
at a time specified by the Secretary, incur a 2.0 percentage point 
reduction to their OPD fee schedule increase factor, that is, the 
annual payment update factor. The application of a reduced OPD fee 
schedule increase factor results in reduced national unadjusted payment 
rates that apply to certain outpatient items and services provided by 
hospitals that are required to report outpatient quality data and that 
fail to meet the Hospital Outpatient Quality Data Reporting Program 
(HOP QDRP) requirements. For further discussion of the payment 
reduction for hospitals that fail to meet the requirements of the HOP 
QDRP, we refer readers to section XVII.D. of this proposed rule.
    We demonstrate in the steps below how to determine the APC payments 
that would be made in a calendar year under the OPPS to a hospital that 
fulfills the HOP QDRP requirements and to a hospital that fails to meet 
the HOP QDRP requirements for a service that has any of the following 
status indicator assignments: ``P,'' ``Q1,'' ``Q2,'' ``Q3,'' ``R,'' 
``S,'' ``T,'' ``U,'' ``V,'' or ``X'' (as defined in Addendum D1 to this 
proposed rule), in a circumstance in which the multiple procedure 
discount does not apply, the procedure is not bilateral, and 
conditionally packaged services (status indicator of ``Q1'' and ``Q2'') 
qualify for separate payment. We note that although blood and blood 
products with status indicator ``R'' and brachytherapy sources with 
status indicator ``U'' are not subject to wage adjustment, they are 
subject to reduced payments when a hospital fails to meet the HOP QDRP 
requirements because the national unadjusted payment rates for these 
services are updated by the OPD fee schedule increase factor.
    Individual providers interested in calculating the payment amount 
that they would receive for a specific service from the national 
unadjusted payment rates presented in Addenda A and B to this proposed 
rule should follow the formulas presented in the following steps. For 
purposes of the payment calculations below, we refer to the national 
unadjusted payment rate for hospitals that meet the requirements of

[[Page 46239]]

the HOP QDRP as the ``full'' national unadjusted payment rate. We refer 
to the national unadjusted payment rate for hospitals that fail to meet 
the requirements of the HOP QDRP as the ``reduced'' national unadjusted 
payment rate. The reduced national unadjusted payment rate is 
calculated by multiplying the reporting ratio of 0.980 times the 
``full'' national unadjusted payment rate. The national unadjusted 
payment rate used in the calculations below is either the full national 
unadjusted payment rate or the reduced national unadjusted payment 
rate, depending on whether the hospital met its HOP QDRP requirements 
in order to receive the full CY 2011 OPPS increase factor.
    Step 1. Calculate 60 percent (the labor-related portion) of the 
proposed national unadjusted payment rate. Since the initial 
implementation of the OPPS, we have used 60 percent to represent our 
estimate of that portion of costs attributable, on average, to labor. 
We refer readers to the April 7, 2000 OPPS final rule with comment 
period (65 FR 18496 through 18497) for a detailed discussion of how we 
derived this percentage. We confirmed that this labor-related share for 
hospital outpatient services is still appropriate during our regression 
analysis for the payment adjustment for rural hospitals in the CY 2006 
OPPS final rule with comment period (70 FR 68553).
    The formula below is a mathematical representation of Step 1 and 
identifies the labor-related portion of a specific payment rate for a 
specific service.
    X is the labor-related portion of the national unadjusted payment 
rate.

X = .60 * (national unadjusted payment rate)

    Step 2. Determine the wage index area in which the hospital is 
located and identify the wage index level that applies to the specific 
hospital. The wage index values assigned to each area reflect the 
geographic statistical areas (which are based upon OMB standards) to 
which hospitals are assigned for FY 2011 under the IPPS, 
reclassifications through the MGCRB, section 1886(d)(8)(B) ``Lugar'' 
hospitals, reclassifications under section 1886(d)(8)(E) of the Act, as 
defined in Sec.  412.103 of the regulations, and hospitals designated 
as urban under section 601(g) of Public Law 98-21. We note that the 
reclassifications of hospitals under section 508 of Public Law 108-173, 
as extended by section 3137 of the Affordable Care Act, expires on 
September 30, 2010, and, therefore, are not applicable under the IPPS 
for FY 2011. Therefore, these reclassifications will not apply to the 
CY 2011 OPPS. (For further discussion of the changes to the FY 2011 
IPPS wage indices, as applied to the CY 2011 OPPS, we refer readers to 
section II.C. of this proposed rule.) In section II.C. of this proposed 
rule, we also discuss our proposal to implement section 10324 of the 
Affordable Care Act, which establishes a wage index floor of 1.00 for 
frontier States, effective for services furnished on and after January 
1, 2011.
    Step 3. Adjust the wage index of hospitals located in certain 
qualifying counties that have a relatively high percentage of hospital 
employees who reside in the county, but who work in a different county 
with a higher wage index, in accordance with section 505 of Public Law 
108-173. Addendum L to this proposed rule contains the qualifying 
counties and the associated proposed wage index increase developed for 
the FY 2011 IPPS and published as Table 4J in the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 24182). This step is to be followed only if the 
hospital is not reclassified or redesignated under section 1886(d)(8) 
or section 1886(d)(10) of the Act.
    Step 4. Multiply the applicable wage index determined under Steps 2 
and 3 by the amount determined under Step 1 that represents the labor-
related portion of the national unadjusted payment rate.
    The formula below is a mathematical representation of Step 4 and 
adjusts the labor-related portion of the national payment rate for the 
specific service by the wage index.
    Xa is the labor-related portion of the national unadjusted payment 
rate (wage adjusted).

Xa = .60 * (national unadjusted payment rate) * applicable 
wage index.

    Step 5. Calculate 40 percent (the nonlabor-related portion) of the 
proposed national unadjusted payment rate and add that amount to the 
resulting product of Step 4. The result is the wage index adjusted 
payment rate for the relevant wage index area.
    The formula below is a mathematical representation of Step 5 and 
calculates the remaining portion of the national payment rate, the 
amount not attributable to labor, and the adjusted payment for the 
specific service.
    Y is the nonlabor-related portion of the national unadjusted 
payment rate.

Y = .40 * (national unadjusted payment rate)
Adjusted Medicare Payment = Y + Xa

    Step 6. If a provider is a SCH, set forth in the regulations at 
Sec.  412.92, or an EACH, which is considered to be a SCH under section 
1886(d)(5)(D)(iii)(III) of the Act, and located in a rural area, as 
defined in Sec.  412.64(b), or is treated as being located in a rural 
area under Sec.  412.103, multiply the wage index adjusted payment rate 
by 1.071 to calculate the total payment.
    The formula below is a mathematical representation of Step 6 and 
applies the rural adjustment for rural SCHs.

Adjusted Medicare Payment (SCH or EACH) = Adjusted Medicare Payment * 
1.071

    We have provided examples below of the calculation of both the 
proposed full and reduced national unadjusted payment rates that would 
apply to certain outpatient items and services performed by hospitals 
that meet and that fail to meet the HOP QDRP requirements, using the 
steps outlined above. For purposes of this example, we use a provider 
that is located in Brooklyn, New York that is assigned to CBSA 35644. 
This provider bills one service that is assigned to APC 0019 (Level I 
Excision/Biopsy). The proposed CY 2011 full national unadjusted payment 
rate for APC 0019 is $335.76. The proposed reduced national unadjusted 
payment rate for a hospital that fails to meet the HOP QDRP 
requirements is $329.04. This reduced rate is calculated by multiplying 
the reporting ratio of 0.980 by the full unadjusted payment rate for 
APC 0019.
    The proposed FY 2011 wage index for a provider located in CBSA 
35644 in New York is 1.3154. The proposed labor-related portion of the 
full national unadjusted payment is $264.99 (.60 * $335.76 * 1.3154). 
The proposed labor-related portion of the reduced national unadjusted 
payment is $259.69 (.60 * $329.04 * 1.3154). The proposed nonlabor-
related portion of the full national unadjusted payment is $134.30 (.40 
* $335.76). The proposed nonlabor-related portion of the reduced 
national unadjusted payment is $131.62 (.40 * $329.04). The sum of the 
labor-related and nonlabor-related portions of the full national 
adjusted payment is $399.29 ($264.99 + $134.30). The sum of the reduced 
national adjusted payment is $391.31 ($259.69 + $131.62).

I. Proposed Beneficiary Copayments

1. Background
    Section 1833(t)(3)(B) of the Act requires the Secretary to set 
rules for determining the unadjusted copayment amounts to be paid by 
beneficiaries for covered OPD services. Section 1833(t)(8)(C)(ii) of 
the Act specifies that the Secretary must reduce the national 
unadjusted copayment amount for a covered OPD service (or group of such 
services) furnished in a year in a manner so that the effective 
copayment

[[Page 46240]]

rate (determined on a national unadjusted basis) for that service in 
the year does not exceed a specified percentage. As specified in 
section 1833(t)(8)(C)(ii)(V) of the Act, for all services paid under 
the OPPS in CY 2010, and in calendar years thereafter, the percentage 
is 40 percent of the APC payment rate.
    Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered 
OPD service (or group of such services) furnished in a year, the 
national unadjusted copayment amount cannot be less than 20 percent of 
the OPD fee schedule amount. Until CY 2011, sections 1834(d)(2)(C)(ii) 
and 1834(d)(3)(C)(ii) of the Act further require that the copayment for 
screening flexible sigmoidoscopies and screening colonoscopies be equal 
to 25 percent of the payment amount. Since the beginning of the OPPS, 
we have applied the 25 percent copayment to screening flexible 
sigmoidoscopies and screening colonoscopies. However, section 4104 of 
the Affordable Care Act eliminated the coinsurance (to which section 
1833(t)(2)(B) refers as the ``copayment'') for preventive services that 
meet certain requirements, including flexible sigmoidoscopies and 
screening colonscopies, and waived the Part B deductible for screening 
colonoscopies that become diagnostic during the procedure. We discuss 
our proposal to implement this provision in section XII.B. of this 
proposed rule.
2. Proposed OPPS Copayment Policy
    For CY 2011, we are proposing to determine copayment amounts for 
new and revised APCs using the same methodology that we implemented 
beginning in CY 2004. (We refer readers to the November 7, 2003 OPPS 
final rule with comment period (68 FR 63458).) In addition, we are 
proposing to use the same standard rounding principles that we have 
historically used in instances where the application of our standard 
copayment methodology would result in a copayment amount that is less 
than 20 percent and cannot be rounded, under standard rounding 
principles, to 20 percent. (We refer readers to the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66687) in which we discuss our 
rationale for applying these rounding principles.) The national 
unadjusted copayment amounts for services payable under the OPPS that 
would be effective January 1, 2011, are shown in Addenda A and B to 
this proposed rule. As discussed in section XVI.D. of this proposed 
rule, for CY 2011, the Medicare beneficiary's minimum unadjusted 
copayment and national unadjusted copayment for a service to which a 
reduced national unadjusted payment rate applies would equal the 
product of the reporting ratio and the national unadjusted copayment, 
or the product of the reporting ratio and the minimum unadjusted 
copayment, respectively, for the service.
3. Proposed Calculation of an Adjusted Copayment Amount for an APC 
Group
    Individuals interested in calculating the national copayment 
liability for a Medicare beneficiary for a given service provided by a 
hospital that met or failed to meet its HOP QDRP requirements should 
follow the formulas presented in the following steps.
    Step 1. Calculate the beneficiary payment percentage for the APC by 
dividing the APC's national unadjusted copayment by its payment rate. 
For example, using APC 0019, $67.16 is 20 percent of the full national 
unadjusted payment rate of $335.76. For APCs with only a minimum 
unadjusted copayment in Addendum A and B of this proposed rule, the 
beneficiary payment percentage is 20 percent.
    The formula below is a mathematical representation of Step 1 and 
calculates national copayment as a percentage of national payment for a 
given service.
    B is the beneficiary payment percentage.

B = National unadjusted copayment for APC/national unadjusted payment 
rate for APC

    Step 2. Calculate the appropriate wage-adjusted payment rate for 
the APC for the provider in question, as indicated in Steps 2 through 4 
under section II.H. of this proposed rule. Calculate the rural 
adjustment for eligible providers as indicated in Step 6 under section 
II.H. of this proposed rule.
    Step 3. Multiply the percentage calculated in Step 1 by the payment 
rate calculated in Step 2. The result is the wage-adjusted copayment 
amount for the APC.
    The formula below is a mathematical representation of Step 3 and 
applies the beneficiary percentage to the adjusted payment rate for a 
service calculated under section II.H. of this proposed rule, with and 
without the rural adjustment, to calculate the adjusted beneficiary 
copayment for a given service.

Wage-adjusted copayment amount for the APC = Adjusted Medicare Payment 
* B
Wage-adjusted copayment amount for the APC (SCH or EACH) = (Adjusted 
Medicare Payment * 1.071) * B

    Step 4. For a hospital that failed to meet its HOP QDRP 
requirements, multiply the copayment calculated in Step 3 by the 
reporting ratio of 0.980.
    The proposed unadjusted copayments for services payable under the 
OPPS that would be effective January 1, 2011, are shown in Addenda A 
and B to this proposed rule. We note that the national unadjusted 
payment rates and copayment rates shown in Addenda A and B to this 
proposed rule reflect the full market basket conversion factor 
increase, as discussed in section XVI.D. of this proposed rule.

III. Proposed OPPS Ambulatory Payment Classification (APC) Group 
Policies

A. Proposed OPPS Treatment of New HCPCS and CPT Codes

    CPT and Level II HCPCS codes are used to report procedures, 
services, items, and supplies under the hospital OPPS. Specifically, 
CMS recognizes the following codes on OPPS claims: (1) Category I CPT 
codes, which describe medical services and procedures; (2) Category III 
CPT codes, which describe new and emerging technologies, services, and 
procedures; and (3) Level II HCPCS codes, which are used primarily to 
identify products, supplies, temporary procedures, and services not 
described by CPT codes. CPT codes are established by the American 
Medical Association (AMA) and the Level II HCPCS codes are established 
by the CMS HCPCS Workgroup. These codes are updated and changed 
throughout the year. CPT and HCPCS code changes that affect the OPPS 
are published both through the annual rulemaking cycle and through the 
OPPS quarterly update Change Requests (CRs). CMS releases new Level II 
HCPCS codes to the public or recognizes the release of new CPT codes by 
the AMA and makes these codes effective (that is, the codes can be 
reported on Medicare claims) outside of the formal rulemaking process 
via OPPS quarterly update CRs. This quarterly process offers hospitals 
access to codes that may more accurately describe items or services 
furnished and/or provides payment or more accurate payment for these 
items or services in a timelier manner than if CMS waited for the 
annual rulemaking process. We solicit comments on these new codes and 
finalize our proposals related to these codes through our annual 
rulemaking process. In Table 12 below, we summarize our proposed 
process for updating codes through our OPPS quarterly update CRs, 
seeking public comments, and finalizing their treatment under the OPPS.

[[Page 46241]]

[GRAPHIC] [TIFF OMITTED] TP03AU10.487

    This process is discussed in detail below and we have separated our 
discussion into two sections based on whether we are proposing to 
solicit public comments in this CY 2011 OPPS/ASC proposed rule on a 
specific group of the CPT and Level II HCPCS codes or whether we are 
proposing to solicit public comments on another specific group of the 
codes in the CY 2011 OPPS/ASC final rule with comment period. We note 
that we sought public comments in the CY 2010 OPPS/ASC final rule with 
comment period on the new CPT and Level II HCPCS codes that were 
effective January 1, 2010. We also sought public comments in the CY 
2010 OPPS/ASC final rule with comment period on the new Level II HCPCS 
codes effective October 1, 2009. These new codes with an effective date 
of October 1, 2009, or January 1, 2010, were flagged with comment 
indicator ``NI'' (New code, interim APC assignment; comments will be 
accepted on the interim APC assignment for the new code) in Addendum B 
to the CY 2010 OPPS/ASC final rule with comment period to indicate that 
we were assigning them an interim payment status and an APC and payment 
rate, if applicable, which were subject to public comment following 
publication of the CY 2010 OPPS/ASC final rule with comment period. We 
will respond to public comments and finalize our proposed OPPS 
treatment of these codes in the CY 2011 OPPS/ASC final rule with 
comment period.
1. Proposed Treatment of New Level II HCPCS Codes and Category I CPT 
Vaccine Codes and Category III CPT Codes for Which We Are Soliciting 
Public Comments in This Proposed Rule
    Effective April 1 and July 1 of CY 2010, we make effective a total 
of 22 new Level II HCPCS codes, 4 new Category I CPT vaccine codes, and 
11 new Category III CPT codes that were not addressed in the CY 2010 
OPPS/ASC final rule with comment period that updated the OPPS. Twenty-
two new Level II HCPCS codes are effective for the April and July 2010 
updates, and of the 22 new HCPCS codes, a total of 14 Level II HCPCS 
codes are newly recognized for separate payment under the OPPS.
    Through the April 2010 OPPS quarterly update CR (Transmittal 1924, 
Change Request 6857, dated February 26, 2010), we allowed separate 
payment for a total of six of the 22 Level II HCPCS codes. 
Specifically, as displayed in Table 13 below, these included HCPCS code 
C9258 (Injection, telavancin, 10 mg), C9259 (Injection, pralatrexate, 1 
mg), C9260 (Injection, ofatumumab, 10 mg), C9261 (Injection, 
ustekinumab, 1 mg), C9262 (Fludarabine phosphate, oral, 1 mg), and 
C9263 (Injection, ecallantide, 1 mg).
    In addition to the six HCPCS C-codes, five new HCPCS G-codes were 
made effective on April 1, 2010. We did not recognize the five new 
HCPCS G-codes for separate payment under the OPPS because they were 
either paid under another Medicare payment system or were noncovered 
services under Medicare. Specifically, we assigned HCPCS G0432 
(Infectious agent antigen detection by enzyme immunoassay (EIA) 
technique, qualitative or semi-quantitative, multiple-step method, HIV-
1 or HIV-2, screening), G0433 (Infectious agent antigen detection by 
enzyme-linked immunosorbent assay

[[Page 46242]]

(ELISA) technique, antibody, HIV-1 or HIV-2, screening), G0435 
(Infectious agent antigen detection by rapid antibody test of oral 
mucosa transudate, HIV-1 or HIV-2, screening), and G9143 (Warfarin 
responsiveness testing by genetic technique using any method, any 
number of specimen(s)), to status indicator ``A'' (Not paid under OPPS. 
Paid by fiscal intermediaries/MACs under a fee schedule or payment 
system other than OPPS) to indicate that these services are paid under 
the Medicare Clinical Laboratory Fee Schedule (CLFS). Further, we did 
not recognize for separate payment HCPCS G9147 (Outpatient Intravenous 
Insulin Treatment (OIVIT) and assigned it to status indicator ``E'' 
(Not paid by Medicare when submitted on outpatient claims (any 
outpatient bill type)) because this service is nationally a noncovered 
service under Medicare.
[GRAPHIC] [TIFF OMITTED] TP03AU10.488

    Through the July 2010 OPPS quarterly update CR (Transmittal 1980, 
Change Request 6996, dated June 4, 2010), which included HCPCS codes 
that were made effective July 1, 2010, we allowed separate payment for 
8 of the 22 new Level II HCPCS codes. Specifically, as displayed in 
Table 14, we provided separate payment for HCPCS codes C9264 
(Injection, tocilizumab, 1 mg), C9265 (Injection, romidepsin, 1 mg), 
C9266 (Injection, collagenase clostridium histolyticum, 0.1 mg), C9267 
(Injection, von Willebrand factor complex (human), Wilate, per 100 IU 
VWF: RCO), C9268 (Capsaicin, patch, 10cm2), C9367 (Skin substitute, 
Endoform Dermal Template, per square centimeter), Q2025 (Fludarabine 
phosphate oral, 10mg), and C9800 (Dermal injection procedure(s) for 
facial lipodystrophy syndrome (LDS) and provision of Radiesse or 
Sculptra dermal filler, including all items and supplies).
    We note that HCPCS code C9262 was made effective April 1, 2010, and 
deleted June 30, 2010, when it was replaced with HCPCS code Q2025. As 
discussed in section V.A.3. of this proposed rule, pass-through status 
began for this drug on April 1, 2010. Because HCPCS code Q2025 
describes the same drug as HCPCS code C9262, we are continuing its 
pass-through status and assigning the HCPCS Q-code to the same APC and 
status indicator as its predecessor HCPCS C-code, as shown in Table 14. 
Specifically, HCPCS code Q2025 is assigned to APC 9262 and status 
indicator ``G.''

[[Page 46243]]

    Of the 12 HCPCS codes that were made effective July 1, 2010, we did 
not recognize for separate payment four HCPCS codes. Specifically, we 
did not recognize HCPCS codes G0428 (Collagen Meniscus Implant 
procedure for filling meniscal defects (e.g., CMI, collagen scaffold, 
Menaflex)), G0429 (Dermal filler injection(s) for the treatment of 
facial lipodystrophy syndrome (LDS) (e.g., as a result of highly active 
antiretroviral therapy), Q2026 (Injection, Radiesse, 0.1 ml), and Q2027 
(Injection, Sculptra, 0.1 ml). Under the hospital OPPS, we have 
assigned HCPCS code G0428 to status indicator ``E'' (Not paid by 
Medicare when submitted on outpatient claims (any outpatient bill 
type)) because this service is nationally noncovered by Medicare. 
Further, because HCPCS code C9800 describes both the injection 
procedure and the dermal filler supplies, we have assigned HCPCS codes 
G0429, Q2026, and Q2027 to status indicator ``B'' to indicate that 
these HCPCS codes are not recognized by OPPS when submitted on an 
outpatient hospital Part B bill type 12x and 13x. Specifically, 
hospitals must report HCPCS code C9800 to report the dermal filler 
supplies and the dermal filler injection procedure. Under the hospital 
OPPS, we have assigned HCPCS code C9800 to APC 0135 with a status 
indicator ``T''. We refer readers to Table 14 below for a complete list 
of the HCPCS codes that were made effective July 1, 2010.
[GRAPHIC] [TIFF OMITTED] TP03AU10.489

    For CY 2011, we are proposing to continue our established policy of 
recognizing Category I CPT vaccine codes for which FDA approval is 
imminent and Category III CPT codes that the AMA releases in January of 
each year for implementation in July through the OPPS quarterly update 
process. Under the OPPS, Category I vaccine codes and Category III CPT 
codes that are released on the AMA Web site in January are made 
effective in July of the same year through the July quarterly update 
CR, consistent with the AMA's implementation date for the codes. 
Through the July 2010 OPPS quarterly update CR, we allow separate 
payment for 10 of the 11 new Category III CPT codes effective July 1, 
2010. Specifically, as displayed in Table 15 below, we allow separate 
payment for CPT codes 0223T (Acoustic cardiography, including automated 
analysis of combined acoustic and electrical intervals; single, with 
interpretation and report), 0224T (Multiple, including serial trended 
analysis and limited reprogramming of device parameter--AV or VV delays 
only, with interpretation and report), 0225T (Multiple, including 
serial trended analysis and limited reprogramming of device parameter--
AV and VV delays, with interpretation and report), 0226T (Anoscopy, 
high resolution (HRA) (with magnification and chemical agent 
enhancement); diagnostic, including collection of specimen(s) by 
brushing or washing when performed), 0227T (Anoscopy, high resolution 
(HRA) (with magnification and chemical agent enhancement); with 
biopsy(ies)), 0228T (Injection(s), anesthetic agent and/or steroid, 
transforaminal epidural, with ultrasound guidance, cervical or 
thoracic; single level), 0229T (Injection(s), anesthetic agent and/or 
steroid, transforaminal epidural, with ultrasound guidance, cervical or 
thoracic; each additional level (List separately in addition to code 
for primary procedure)), 0230T (Injection(s), anesthetic agent and/or 
steroid, transforaminal epidural, with ultrasound guidance, lumbar or 
sacral; single level), 0231T (Injection(s),

[[Page 46244]]

anesthetic agent and/or steroid, transforaminal epidural, with 
ultrasound guidance, lumbar or sacral; each additional level (List 
separately in addition to code for primary procedure)), and 0232T 
(Injection(s), platelet rich plasma, any tissue, including image 
guidance, harvesting and preparation when performed). We note that CMS 
has issued a noncoverage determination (NCD) specifically for chronic, 
non-healing cutaneous wounds and acute surgical wounds when the 
autologous platelet rich plasma (PRP) is applied directly to the closed 
incision or for dehiscent wounds. Category III CPT code 0232T has been 
assigned to APC 0340 to provide a payment amount when payment is 
appropriate, both under the NCD provisions and any local coverage 
determinations. Under the hospital OPPS, Category III CPT code 0233T 
(Skin advanced glycation endproducts (AGE) measurement by multi-
wavelength fluorescent spectroscopy) has been assigned to status 
indicator ``A'' and hospital payment for this test will be made under 
the MPFS.
    Further, CMS does not recognize the four new H1N1 Category I CPT 
vaccine codes that are effective on July 1, 2010, for separate payment 
under the OPPS because we already recognize an existing HCPCS G-code 
for reporting the H1N1 vaccine, specifically HCPCS code G9142 
(Influenza a (h1n1) vaccine, any route of administration), which is 
effective September 1, 2009. We have assigned HCPCS code G9142 to 
status indicator ``E'' under the OPPS because the vaccine is expected 
to be free. Consequently, Category I CPT vaccine codes 90664 (Influenza 
virus vaccine, pandemic formulation, live, for intranasal use), 90666 
(Influenza virus vaccine, pandemic formulation, split virus, 
preservative free, for intramuscular use), 90667 (Influenza virus 
vaccine, pandemic formulation, split virus, adjuvanted, for 
intramuscular use), and 90668 (Influenza virus vaccine, pandemic 
formulation, split virus, for intramuscular use), are assigned to 
status indicator ``E'' (Not paid under OPPS or any other Medicare 
payment system). These codes and their status indicators are listed in 
Table 15 below.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

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    For CY 2011, we are soliciting public comments on the proposed 
status indicators and the proposed APC assignments and payment rates, 
if applicable, for the Level II HCPCS codes and the Category I vaccine 
codes and Category III CPT codes that are newly recognized in April or 
July 2010 through the respective OPPS quarterly update CRs. These codes 
are listed in Tables 13, 14, and 15 of this proposed rule. We are 
proposing to finalize their status indicators and their APC assignments 
and payment rates, if applicable, in the CY 2011 OPPS/ASC final rule 
with comment period. Because the July 2010 OPPS quarterly update CR is 
issued close to the publication of this proposed rule, the Level II 
HCPCS codes and the Category I vaccine and Category III CPT codes 
implemented through the July 2010 OPPS quarterly update CR could not be 
included in Addendum B to this proposed rule, but these codes are 
listed in Tables 14 and 15, respectively. We are proposing to 
incorporate them into Addendum B to the CY 2011 OPPS/ASC final rule 
with comment period, which is consistent with our annual OPPS update 
policy. The Level II HCPCS codes implemented or modified through the 
April 2010 OPPS update CR and displayed in Table 13 are included in 
Addendum B to this proposed rule, where their proposed CY 2011 payment 
rates also are shown.
2. Proposed Process for New Level II HCPCS Codes and Category I and 
Category III CPT Codes for Which We Will Be Soliciting Public Comments 
on the CY 2011 OPPS/ASC Final Rule With Comment Period
    As has been our practice in the past, we incorporate those new 
Category I and III CPT codes and new Level II HCPCS codes that are 
effective January 1 in the final rule with comment period updating the 
OPPS for the following calendar year. These codes are released to the 
public via the CMS HCPCS (for Level II HCPCS codes) and AMA Web sites 
(for CPT codes), and also through the January OPPS quarterly update 
CRs. In the past, we also have released new Level II HCPCS codes that 
are effective October 1 through the October OPPS quarterly update CRs 
and incorporated these new codes in the final rule with comment period 
updating the OPPS for the following calendar year. All of these codes 
are flagged with comment indicator ``NI'' in Addendum B to the OPPS/ASC 
final rule with comment period to indicate that we are assigning them 
an interim payment status which is subject to public comment. 
Specifically, the status indicator and the APC assignment, and payment 
rate, if applicable, for all such codes flagged with comment indicator 
``NI'' are open to public comment in the final rule with comment 
period, and we respond to these comments in the OPPS/ASC final rule 
with comment period for the next calendar year's OPPS/ASC update. We 
are proposing to continue this process for CY 2011. Specifically, for 
CY 2011, we are proposing to include in Addendum B to the CY 2011 OPPS/
ASC final rule with comment period the new Category I and III CPT codes 
effective January 1, 2011 (including those Category I vaccine and 
Category III CPT codes that were released by the AMA in July 2010) that 
would be incorporated in the January 2011 OPPS quarterly update CR and 
the new Level II HCPCS codes, effective October 1, 2010, or January 1, 
2011, that would be released by CMS in its October 2010 and January 
2011 OPPS quarterly update CRs. These codes would be flagged with 
comment indicator ``NI'' in Addendum B to the CY 2011 OPPS/ASC final 
rule with comment period to indicate that we have assigned them an 
interim OPPS payment status. Their status indicators and their APC 
assignments and payment rates, if applicable, would be open to public 
comment in the CY 2011 OPPS/ASC final rule with comment period and 
would be finalized in the CY 2012 OPPS/ASC final rule with comment 
period.

B. Proposed OPPS Changes--Variations Within APCs

1. Background
    Section 1833(t)(2)(A) of the Act requires the Secretary to develop 
a classification system for covered hospital outpatient department 
services. Section 1833(t)(2)(B) of the Act provides that the Secretary 
may establish groups of covered OPD services within this classification 
system, so that services classified within each group are comparable 
clinically and with respect to the use of resources (and so that an 
implantable item is classified to the group that includes the services 
to which the item relates). In accordance with these provisions, we 
developed a grouping classification system, referred to as APCs, as set 
forth in Sec.  419.31 of the regulations. We use Level I and Level II 
HCPCS codes and descriptors to identify and group the services within 
each APC. The APCs are organized such that each group is homogeneous 
both clinically and in terms of resource use. Using this classification 
system, we have established distinct groups of similar services, as 
well as medical visits. We also have developed separate APC groups for 
certain medical devices, drugs, biologicals, therapeutic 
radiopharmaceuticals, and brachytherapy devices.
    We have packaged into payment for each procedure or service within 
an APC group the costs associated with those items or services that are 
directly related to and supportive of performing the main independent 
procedures or furnishing the services. Therefore, we do not make 
separate payment for these packaged items or services. For example, 
packaged items and services include: (1) Use of an operating, 
treatment, or procedure room; (2) use of a recovery room; (3) 
observation services; (4) anesthesia; (5) medical/surgical supplies; 
(6) pharmaceuticals (other than those for which separate payment may be 
allowed under the provisions discussed in section V. of this proposed 
rule); (7) incidental services such as venipuncture; and (8) guidance 
services, image processing services, intraoperative services, imaging 
supervision and interpretation services, diagnostic 
radiopharmaceuticals, and contrast media. Further discussion of 
packaged services is included in section II.A.3. of this proposed rule.
    In CY 2008, we implemented composite APCs to provide a single 
payment for groups of services that are typically performed together 
during a single clinical encounter and that result in the provision of 
a complete service (72 FR 66650 through 66652). Under CY 2010 OPPS 
policy, we provide composite APC payment for certain extended 
assessment and management services, low dose rate (LDR) prostate 
brachytherapy, cardiac electrophysiologic evaluation and ablation, 
mental health services, and multiple imaging services. Further 
discussion of composite APCs is included in section II.A.2.e. of this 
proposed rule.
    Under the OPPS, we generally pay for hospital outpatient services 
on a rate-per-service basis, where the service may be reported with one 
or more HCPCS codes. Payment varies according to the APC group to which 
the independent service or combination of services is assigned. Each 
APC weight represents the hospital median cost of the services included 
in that APC relative to the hospital median cost of the services 
included in APC 0606 (Level 3 Hospital Clinic Visits). The APC weights 
are scaled to APC 0606 because it is the middle level hospital clinic 
visit APC (that is, where the Level 3 hospital clinic visit CPT code of 
five levels of hospital clinic visits is assigned), and because middle 
level hospital clinic visits are among the most frequently

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furnished services in the hospital outpatient setting.
    Section 1833(t)(9)(A) of the Act requires the Secretary to review 
not less often than annually and revise the groups, the relative 
payment weights, and the wage and other adjustments to take into 
account changes in medical practice, changes in technology, the 
addition of new services, new cost data, and other relevant information 
and factors. Section 1833(t)(9)(A) of the Act, as amended by section 
201(h) of the BBRA, also requires the Secretary, beginning in CY 2001, 
to consult with an expert outside advisory panel composed of an 
appropriate selection of representatives of providers to review (and 
advise the Secretary concerning) the clinical integrity of the APC 
groups and the relative payment weights (the APC Panel recommendations 
for specific services for the CY 2011 OPPS and our responses to them 
are discussed in the relevant specific sections throughout this 
proposed rule).
    Finally, section 1833(t)(2) of the Act provides that, subject to 
certain exceptions, the items and services within an APC group cannot 
be considered comparable with respect to the use of resources if the 
highest median cost (or mean cost as elected by the Secretary) for an 
item or service in the group is more than 2 times greater than the 
lowest median cost (or mean cost, if so elected) for an item or service 
within the same group (referred to as the ``2 times rule''). We use the 
median cost of the item or service in implementing this provision. The 
statute authorizes the Secretary to make exceptions to the 2 times rule 
in unusual cases, such as low-volume items and services (but the 
Secretary may not make such an exception in the case of a drug or 
biological that has been designated as an orphan drug under section 526 
of the Federal Food, Drug, and Cosmetic Act).
2. Application of the 2 Times Rule
    In accordance with section 1833(t)(2) of the Act and Sec.  419.31 
of the regulations, we annually review the items and services within an 
APC group to determine, with respect to comparability of the use of 
resources, if the median cost of the highest cost item or service 
within an APC group is more than 2 times greater than the median of the 
lowest cost item or service within that same group. We are proposing to 
make exceptions to this limit on the variation of costs within each APC 
group in unusual cases, such as low-volume items and services for CY 
2011.
    During the APC Panel's February 2010 meeting, we presented median 
cost and utilization data for services furnished during the period of 
January 1, 2009 through September 30, 2009, about which we had concerns 
or about which the public had raised concerns regarding their APC 
assignments, status indicator assignments, or payment rates. The 
discussions of most service-specific issues, the APC Panel 
recommendations, if any, and our proposals for CY 2011 are contained 
mainly in sections III.C. and III.D. of this proposed rule.
    In addition to the assignment of specific services to APCs that we 
discussed with the APC Panel, we also identified APCs with 2 times 
violations that were not specifically discussed with the APC Panel but 
for which we are proposing changes to their HCPCS codes' APC 
assignments in Addendum B to this proposed rule. In these cases, to 
eliminate a 2 times violation or to improve clinical and resource 
homogeneity, we are proposing to reassign the codes to APCs that 
contain services that are similar with regard to both their clinical 
and resource characteristics. We also are proposing to rename existing 
APCs or create new clinical APCs to complement proposed HCPCS code 
reassignments. In many cases, the proposed HCPCS code reassignments and 
associated APC reconfigurations for CY 2011 included in this proposed 
rule are related to changes in median costs of services that were 
observed in the CY 2009 claims data newly available for CY 2011 
ratesetting. We also are proposing changes to the status indicators for 
some codes that are not specifically and separately discussed in this 
proposed rule. In these cases, we are proposing to change the status 
indicators for some codes because we believe that another status 
indicator would more accurately describe their payment status from an 
OPPS perspective based on the policies that we are proposing for CY 
2011.
    Addendum B to this proposed rule identifies with comment indicator 
``CH'' those HCPCS codes for which we are proposing a change to the APC 
assignment or status indicator that were initially assigned in the 
April 2010 Addendum B update (via Transmittal 1924, Change Request 
6857, dated February 26, 2010).
3. Proposed Exceptions to the 2 Times Rule
    As discussed earlier, we may make exceptions to the 2 times limit 
on the variation of costs within each APC group in unusual cases such 
as low-volume items and services. Taking into account the APC changes 
that we are proposing for CY 2011 based on the APC Panel 
recommendations discussed mainly in sections III.C. and III.D. of this 
proposed rule, the other proposed changes to status indicators and APC 
assignments as identified in Addendum B to this proposed rule, and the 
use of CY 2009 claims data to calculate the median costs of procedures 
classified in the APCs, we reviewed all the APCs to determine which 
APCs would not satisfy the 2 times rule. We used the following criteria 
to decide whether to propose exceptions to the 2 times rule for 
affected APCs:
     Resource homogeneity
     Clinical homogeneity
     Hospital outpatient setting
     Frequency of service (volume)
     Opportunity for upcoding and code fragments.
    For a detailed discussion of these criteria, we refer readers to 
the April 7, 2000 OPPS final rule with comment period (65 FR 18457 and 
18458).
    Table 16 of this proposed rule lists 17 APCs that we are proposing 
to exempt from the 2 times rule for CY 2011 based on the criteria cited 
above. For cases in which a recommendation by the APC Panel appeared to 
result in or allow a violation of the 2 times rule, we generally 
accepted the APC Panel's recommendation because those recommendations 
were based on explicit consideration of resource use, clinical 
homogeneity, hospital specialization, and the quality of the CY 2009 
claims data used to determine the APC payment rates that we are 
proposing for CY 2011. The median costs for hospital outpatient 
services for these and all other APCs that were used in the development 
of this proposed rule can be found on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp.

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C. New Technology APCs

1. Background
    In the November 30, 2001 final rule (66 FR 59903), we finalized 
changes to the time period a service was eligible for payment under a 
New Technology APC. Beginning in CY 2002, we retain services within New 
Technology APC groups until we gather sufficient claims data to enable 
us to assign the service to a clinically appropriate APC. This policy 
allows us to move a service from a New Technology APC in less than 2 
years if sufficient data are available. It also allows us to retain a 
service in a New Technology APC for more than 2 years if sufficient 
data upon which to base a decision for reassignment have not been 
collected.
    We note that the cost bands for New Technology APCs range from $0 
to $50 in increments of $10, from $50 to $100 in increments of $50, 
from $100 through $2,000 in increments of $100, and from $2,000 through 
$10,000 in increments of $500. These cost bands identify the APCs to 
which new technology procedures and services with estimated service 
costs that fall within those cost bands are assigned under the OPPS. 
Payment for each APC is made at the mid-point of the APC's assigned 
cost band. For example, payment for New Technology APC 1507 (New 
Technology--Level VII ($500-$600)) is made at $550. Currently, there 
are 82 New Technology APCs, ranging from the lowest cost band assigned 
to APC 1491 (New Technology--Level IA ($0-$10)) through the highest 
cost band assigned to APC 1574 (New Technology--Level XXXVII ($9,500-
$10,000). In CY 2004 (68 FR 63416), we last restructured the New 
Technology APCs to make the cost intervals more consistent across 
payment levels and refined the cost bands for these APCs to retain two 
parallel sets of New Technology APCs, one set with a status indicator 
of ``S'' (Significant Procedures, Not Discounted when Multiple. Paid 
under OPPS; separate APC payment) and the other set with a status 
indicator of ``T'' (Significant Procedure, Multiple Reduction Applies. 
Paid under OPPS; separate APC payment). These current New Technology 
APC configurations allow us to price new technology services more 
appropriately and consistently.
    Every year we receive many requests for higher payment amounts 
under our New Technology APCs for specific procedures under the OPPS 
because they require the use of expensive equipment. We again are 
taking this opportunity to reiterate our response in general to the 
issue of hospitals' capital expenditures as they relate to the OPPS and 
Medicare.
    Under the OPPS, one of our goals is to make payments that are 
appropriate for the services that are necessary for the treatment of 
Medicare beneficiaries. The OPPS, like other Medicare payment systems, 
is budget neutral and increases are limited to the hospital inpatient 
market basket. We believe that our payment rates generally reflect the 
costs that are associated with providing care to Medicare beneficiaries 
in cost-efficient settings, and we believe that our rates are adequate 
to ensure access to services.
    For many emerging technologies there is a transitional period 
during which utilization may be low, often because providers are first 
learning about the techniques and their clinical utility. Quite often, 
parties request that Medicare make higher payment amounts under our New 
Technology APCs for new procedures in that transitional phase. These 
requests, and their accompanying estimates for expected total patient 
utilization, often reflect very low rates of patient use of expensive 
equipment, resulting in high per use costs for which requesters believe 
Medicare should make full payment. Medicare does not, and we believe 
should not, assume responsibility for more than its share of

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the costs of procedures based on Medicare beneficiary projected 
utilization and does not set its payment rates based on initial 
projections of low utilization for services that require expensive 
capital equipment. For the OPPS, we rely on hospitals to make informed 
business decisions regarding the acquisition of high cost capital 
equipment, taking into consideration their knowledge about their entire 
patient base (Medicare beneficiaries included) and an understanding of 
Medicare's and other payers' payment policies.
    We note that in a budget neutral environment, payments may not 
fully cover hospitals' costs in a particular circumstance, including 
those for the purchase and maintenance of capital equipment. We rely on 
providers to make their decisions regarding the acquisition of high 
cost equipment with the understanding that the Medicare program must be 
careful to establish its initial payment rates, including those made 
through New Technology APCS, for new services that lack hospital claims 
data based on realistic utilization projections for all such services 
delivered in cost-efficient hospital outpatient settings. As the OPPS 
acquires claims data regarding hospital costs associated with new 
procedures, we regularly examine the claims data and any available new 
information regarding the clinical aspects of new procedures to confirm 
that our OPPS payments remain appropriate for procedures as they 
transition into mainstream medical practice.
2. Proposed Movement of Procedures From New Technology APCs to Clinical 
APCs
    As we explained in the November 30, 2001 final rule (66 FR 59902), 
we generally keep a procedure in the New Technology APC to which it is 
initially assigned until we have collected sufficient data to enable us 
to move the procedure to a clinically appropriate APC. However, in 
cases where we find that our original New Technology APC assignment was 
based on inaccurate or inadequate information (although it was the best 
information available at the time), or where the New Technology APCs 
are restructured, we may, based on more recent resource utilization 
information (including claims data) or the availability of refined New 
Technology APC cost bands, reassign the procedure or service to a 
different New Technology APC that most appropriately reflects its cost.
    Consistent with our current policy, for CY 2011, we are proposing 
to retain services within New Technology APC groups until we gather 
sufficient data to enable us to assign the service to a clinically 
appropriate APC. The flexibility associated with this policy allows us 
to move a service from a New Technology APC in less than 2 years if 
sufficient data are available. It also allows us to retain a service in 
a New Technology APC for more than 2 years if sufficient data upon 
which to base a decision for reassignment have not been collected.
    Table 17 below lists the HCPCS codes and associated status 
indicators that we are proposing to reassign from a New Technology APC 
to a clinically appropriate APC or to a different New Technology APC 
for CY 2011. For CY 2010, there are four services described by a HCPCS 
G-code receiving payment through a New Technology APC. Specifically, 
HCPCS code G0416 (Surgical pathology, gross and microscopic examination 
for prostate needle saturation biopsy sampling, 1-20 specimens), is 
assigned to New Technology APC 1505 (New Technology--Level V ($300-
$400)); HCPCS code G0417 (Surgical pathology, gross and microscopic 
examination for prostate needle saturation biopsy sampling, 21-40 
specimens), is assigned to New Technology APC 1507 (New Technology--
Level VII ($500-$600)); G0418 (Surgical pathology, gross and 
microscopic examination for prostate needle saturation biopsy sampling, 
41-60 specimens), is assigned to New Technology APC 1511 (New 
Technology--Level XI ($900--$1000)); and HCPCS code G0419 (Surgical 
pathology, gross and microscopic examination for prostate needle 
saturation biopsy sampling, greater than 60 specimens), is assigned to 
New Technology APC 1513 (New Technology--Level XIII ($1100-$1200)). 
Based on the CY 2009 OPPS claims data available for this proposed rule, 
we believe that we have sufficient claims data to propose reassignment 
of HCPCS codes G0416 and G0417. Specifically, for HCPCS code G0416, our 
claims data show a median cost of approximately $113 based on 251 
single claims out of 1,373 total claims for this service in CY 2009. 
For HCPCS code G0417, our claims data show a median cost of 
approximately $489 based on 5 single claims out of 135 total claims. We 
discuss our identification of single procedure claims, including 
``pseudo'' single procedure claims, for ratesetting in section II.A.2. 
of this proposed rule. We believe we have sufficient claims data to 
propose the reassignment of HCPCS G-codes G0416 and G0417 to more 
appropriate APCs for CY 2011. Therefore, for CY 2011, we are proposing 
to reassign these procedures to more appropriate APCs. Specifically, we 
are proposing to reassign HCPCS G-code G0416 from New Technology APC 
1505 to clinical APC 0661 (Level V Pathology), which has an APC median 
cost of approximately $165, and HCPCS G-code G0417 from New Technology 
APC 1507 (New Technology--Level VII ($500 to $600)) to New Technology 
APC 1506 (New Technology--Level VI ($400-$500)). We believe that HCPCS 
G-code G0416 is comparable clinically and with respect to the use of 
resources as other pathology services currently assigned to APC 0661. 
We also believe that HCPCS G-code G0417 would be more appropriately 
placed in New Technology APC 1506 in light of the median cost data 
available to us. Specifically, the HCPCS median cost of approximately 
$489 for HCPCS code G0417 closely aligns with the APC median cost of 
approximately $489 for APC 1506. We believe that HCPCS code G0417 would 
be more appropriately placed in APC 1506 based on clinical and resource 
considerations. These services and their proposed APC assignments are 
displayed in Table 17 below.
    For CY 2011, we are proposing to continue the New Technology APC 
assignments for HCPCS G-codes G0418 and G0419, which is based on our 
understanding of the clinical and cost characteristics of the 
procedures described by these HCPCS codes. We do not believe we have 
enough claims data to assign these codes to a different APC. 
Specifically, our claims data show no single claims, out of 29 total 
claims, for HCPCS code G0418. Similarly, our data show no single 
claims, out of 3 total claims, for HCPCS code G0419. While we believe 
that these services always will be low volume, given the number of 
specimens being collected, we believe that we should continue their New 
Technology payments for another year to see if more claims data become 
available for HCPCS codes G0418 and G0419. Specifically, we are 
proposing to continue to assign HCPCS G-code G0418 to New Technology 
APC 1511 (New Technology--Level XI ($900-$1,000)) and HCPCS G-code 
G0419 to New Technology APC 1513 (New Technology--Level XIII ($1,100-
$1,200)).

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D. Proposed OPPS APC-Specific Policy: Skin Repair (APCs 0134 and 0135)

    At the August 2009 APC Panel meeting, one public presenter 
requested that the APC Panel recommend that CMS reassign the Apligraf 
application CPT codes, specifically CPT codes 15340 (Tissue cultured 
allogeneic skin substitute; first 25 sq cm or less) and 15341 (Tissue 
cultured allogeneic skin substitute; each additional 25 sq cm, or part 
thereof), from APC 0134 (Level II Skin Repair) to APC 0135 (Level III 
Skin Repair). The same presenter requested that CMS continue to assign 
the Dermagraft application CPT codes, specifically CPT codes 15365 
(Tissue cultured allogeneic dermal substitute, face, scalp, eyelids, 
mouth, neck, ears, orbits, genitalia, hands, feet, and/or multiple 
digits; first 100 sq cm or less, or 1% of body area of infants and 
children) and 15366 (Tissue cultured allogeneic dermal substitute, 
face, scalp, eyelids, mouth, neck, ears, orbits, genitalia, hands, 
feet, and/or multiple digits; each additional 100 sq cm, or each 
additional 1% of body area of infants and children, or part thereof), 
to APC 0134. The public presenter believed that the CY 2010 proposal to 
continue to assign both the Apligraf and the Dermagraft application CPT 
codes to APC 0134 would create a financial incentive favoring the 
Dermagraft application. Specifically, the presenter explained that CPT 
instructions allow the separate reporting of the CPT codes for site 
preparation and debridement when Dermagraft is applied, while the CPT 
instructions for Apligraf application codes specify that site 
preparation and debridement cannot be separately reported. The 
presenter believed that this reporting difference and the resulting 
expected differences in the associated application procedure costs 
could be addressed by assigning the Apligraf application CPT codes to a 
higher paying APC than the Dermagraft application CPT codes, instead of 
the same APC as CMS proposed for CY 2010.
    During the discussion, the APC Panel members were provided with the 
historical information on the coding and APC assignments for the skin 
substitute application procedures assigned to APCs 0134 and 0135. 
Specifically, the Apligraf application CPT codes 15340 and 15341, the 
Dermagraft application CPT codes 15365 and 15366, as well as the Oasis 
application CPT codes 15430 (Acellular xenograft implant; first 100 sq 
cm or less, or 1% of body area of infants and children) and 15431 
(Acellular xenograft implant; each additional 100 sq cm, or each 
additional 1% of body area of infants and children, or part thereof), 
were at one time assigned to the same APC level (Level II Skin Repair). 
However, because of violations of the two times rule, CMS reconfigured 
the skin repair APCs and reassigned the Oasis application CPT codes 
15430 and 15431 to APC 0135 (Level III Skin Repair) in CY 2008.
    At the August 2009 APC Panel meeting, panel members debated whether 
the differences in sizes in each product's application CPT codes and 
the ability to bill separately for site preparation and debridement for 
Dermagraft application required different APC placement for any of the 
skin substitute application codes. We note that the long descriptors 
for the Apligraf application CPT codes 15340 and 15341 are scaled to 
``25 sq cm,'' whereas the Oasis application CPT codes 15430 and 15431 
and the Dermagraft application CPT codes 15365 and 15366 are scaled to 
``100 sq cm.'' After review of median cost data from the CY 2008 
hospital outpatient claims available at that time (those processed from 
January 1, 2008 through December 31, 2009), the APC Panel recommended 
that CMS continue to assign all six skin substitute application CPT 
codes to their existing APCs for CY 2010. In addition, because of the 
variable sizes associated with the skin repair application CPT codes, 
the Panel requested that CMS provide data at the next Panel meeting on 
the frequency of primary and add-on CPT codes billed for the Apligraf, 
Oasis, and Dermagraft applications in order to assess the variability 
in billing for the application of these products. In addition, because 
of the CPT instructions allowing site preparation and debridement to be 
reported separately only for the Dermagraft application, the Panel 
requested median cost data for site preparation and debridement.
    We accepted the APC Panel's recommendation to continue to assign 
the skin repair CPT codes for the application of Apligraf, Oasis, and 
Dermagraft skin substitutes to the same procedural APCs for CY 2010 as 
their CY 2009 assignments. As a result, we continued to assign the 
Apligraf application CPT codes 15340 and 15341 and the Dermagraft 
application CPT codes 15365 and 15366 to APC 0134 and assigned the 
Oasis application CPT codes 15430 and 15431 to APC 0135 for CY 2010.
    At the February 2010 APC Panel meeting, CMS presented the results 
of the data requested at the August 2009 meeting to the APC Panel. In 
response to data on the frequency of primary and add-on CPT codes, 
based on our analysis of the available CY 2009 hospital outpatient 
claims data on frequency of primary and add-on CPT codes billed for the 
Apligraf, Oasis, and Dermagraft applications (claims processed from 
January 1 through September 30, 2009), we found that hospitals report 
the application of Apligraf with only the primary code (CPT code 15340) 
on 77 percent of claims, while the add-on CPT code 15341 is billed in 
addition to the primary code on another 23 percent of claims. 
Specifically, our data showed that for the Apligraf application, there 
were a total of 8,614 claims with only the primary CPT code 15340 
reported, and 2,545 claims with the add-on CPT code 15341 also reported 
on the same date of service. We note that each unit of the add-on CPT 
code is paid at 50 percent of the payment for the primary code in 
addition to the full payment for the primary code. We also found in our 
analysis that, on claims with the Dermagraft and Oasis application CPT 
codes, hospitals report the primary code only in approximately 98 to 99 
percent of the cases. In addition, in response to the request for data 
for site preparation and debridement that may be reported

[[Page 46251]]

separately for the Dermagraft application, we found that approximately 
87 percent of procedures for the application of Dermagraft were 
reported without debridement or site preparation on the same day. 
Similarly, we found that the Apligraf and Oasis procedures were rarely 
reported with the site preparation or debridement CPT procedure codes 
on the same day. Specifically, we found that the CPT procedure code for 
the application of Apligraf was reported without site preparation or 
debridement in approximately 94 percent of these cases, and that the 
CPT procedure code for application of Oasis was reported without site 
preparation or debridement in approximately 95 percent of these cases. 
Our data analysis also showed that the CPT median costs for the 
Apligraf application CPT code 15340 and the Dermagraft application CPT 
code 15365 are very similar. Specifically, the CPT code-specific median 
cost of CPT code 15340 is approximately $234 for the Apligraf 
application and approximately $237 for CPT code 15365 for the 
Dermagraft application. In contrast, the CPT median cost for the Oasis 
application primary CPT code 15430 of approximately $299 is higher.
    At the February 2010 APC Panel meeting, a public presenter again 
requested that the APC Panel recommend that CMS reassign the Apligraf 
application CPT codes 15340 and 15341 from APC 0134 to APC 0135. The 
presenter indicated that the additional payment for site preparation 
and debridement procedures that may be reported separately with the 
Dermagraft application can significantly affect the total payment for 
the procedure. The presenter also provided data on the use of each 
product in relation to the size of the wounds treated, and concluded 
that the size of the wound treated does not affect the resources used. 
After further review of the available CY 2009 hospital outpatient 
claims data, the APC Panel recommended that CPT codes 15340 and 15341 
remain in APC 0134.
    We are accepting the recommendation of the APC Panel and are 
proposing to continue to assign the CPT skin repair codes for the 
application of Apligraf, Dermagraft, and Oasis skin substitutes to the 
same procedural APCs as their CY 2010 assignments for CY 2011. We also 
are proposing to continue to pay separately for the Apligraf, 
Dermagraft, and Oasis products themselves in CY 2011. Specifically, we 
are proposing to continue to assign the Apligraf application CPT codes 
15340 and 15341 and the Dermagraft application CPT codes 15365 and 
15366 to APC 0134, with a proposed APC median cost of approximately 
$222. We are proposing to continue to assign the Oasis application CPT 
codes 15430 and 15431 to APC 0135, with a proposed APC median cost of 
approximately $325.
    For CY 2011, we also are proposing to create two new Level II HCPCS 
G-codes to report the application of Apligraf or Dermagraft specific to 
the lower extremities in order to provide appropriate and consistent 
payment for these services as they are commonly furnished, consistent 
with the CY 2011 proposal for the MPFS. (We refer readers to the CY 
2011 MPFS proposed rule for additional information regarding the MPFS 
proposal.) The proposed HCPCS codes are: GXXX1 (Application of tissue 
cultured allogeneic skin substitute or dermal substitute; for use on 
lower limb, includes the site preparation and debridement if performed; 
first 25 sq cm or less); and GXXX2 (Application of tissue cultured 
allogeneic skin or dermal substitute; for use on lower limb, includes 
the site preparation and debridement if performed; each additional 25 
sq cm). As indicated in the HCPCS G-code descriptors, these codes would 
not allow separate reporting of CPT codes for site preparation or 
debridement. We believe the descriptors of these proposed HCPCS G-codes 
more specifically reflect the characteristics of the application of 
Apligraf or Dermagraft to the lower limb so that reporting would result 
in more accurate cost data for OPPS ratesetting and, ultimately, more 
appropriate payment. Consistent with the proposed CY 2011 APC 
assignment for the Apligraf and Dermagraft application CPT codes, we 
are proposing to assign new HCPCS codes GXXX1 and GXXX2 to APC 0134, 
with a proposed APC median cost of approximately $222. We are 
specifically interested in public comment on the appropriateness of 
recognizing these proposed new HCPCS G-codes under the OPPS and their 
proposed APC assignments.

IV. Proposed OPPS Payment for Devices

A. Pass-Through Payments for Devices

1. Expiration of Transitional Pass-Through Payments for Certain Devices
    Section 1833(t)(6)(B)(iii) of the Act requires that, under the 
OPPS, a category of devices be eligible for transitional pass-through 
payments for at least 2, but not more than 3, years. This pass-through 
payment eligibility period begins with the first date on which 
transitional pass-through payments may be made for any medical device 
that is described by the category. We may establish a new device 
category for pass-through payment in any quarter. Under our established 
policy, we base the pass-through status expiration dates for the 
category codes on the date on which a category is in effect. The date 
on which a category is in effect is the first date on which pass-
through payment may be made for any medical device that is described by 
such category. We propose and finalize the dates for expiration of 
pass-through status for device categories as part of the OPPS annual 
update.
    We also have an established policy to package the costs of the 
devices that are no longer eligible for pass-through payments into the 
costs of the procedures with which the devices are reported in the 
claims data used to set the payment rates (67 FR 66763). Brachytherapy 
sources, which are now separately paid in accordance with section 
1833(t)(2)(H) of the Act, are an exception to this established policy.
    There currently are no device categories eligible for pass-through 
payment, and there are no categories for which we would propose 
expiration of pass-through status in CY 2011. If we create new device 
categories for pass-through payment status during the remainder of CY 
2010 or during CY 2011, we will propose future expiration dates in 
accordance with the statutory requirement that they be eligible for 
pass-through payments for at least 2, but not more than 3, years from 
the date on which pass-through payment for any medical device described 
by the category may first be made.
2. Proposed Provisions for Reducing Transitional Pass-Through Payments 
to Offset Costs Packaged Into APC Groups
a. Background
    We have an established policy to estimate the portion of each APC 
payment rate that could reasonably be attributed to the cost of the 
associated devices that are eligible for pass-through payments (66 FR 
59904). We deduct from the pass-through payments for identified device 
categories eligible for pass-through payments an amount that reflects 
the portion of the APC payment amount that we determine is associated 
with the cost of the device, defined as the device APC offset amount, 
as required by section 1833(t)(6)(D)(ii) of the Act. We have 
consistently employed an established methodology to estimate the 
portion of each APC payment rate that could reasonably be attributed to 
the cost of an associated device eligible for pass-through payment, 
using claims data from the period used for the most

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recent recalibration of the APC rates (72 FR 66751 through 66752). We 
establish and update the applicable device APC offset amounts for 
eligible pass-through device categories through the transmittals that 
implement the quarterly OPPS updates.
    We currently have published a list of all procedural APCs with the 
CY 2010 portions (both percentages and dollar amounts) of the APC 
payment amounts that we determine are associated with the cost of 
devices, on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp. The dollar amounts are used as 
the device APC offset amounts. In addition, in accordance with our 
established practice, the device APC offset amounts in a related APC 
are used in order to evaluate whether the cost of a device in an 
application for a new device category for pass-through payment is not 
insignificant in relation to the APC payment amount for the service 
related to the category of devices, as specified in our regulations at 
Sec.  419.66(d).
    As of CY 2009, the costs of implantable biologicals without pass-
through status are packaged into the payment for the procedures in 
which they are inserted or implanted because implantable biologicals 
without pass-through status are not separately paid (73 FR 68633 
through 68636). For CY 2010, we finalized a new policy to specify that 
the pass-through evaluation process and pass-through payment 
methodology for implantable biologicals that are surgically inserted or 
implanted (through a surgical incision or a natural orifice) and that 
are newly approved for pass-through status beginning on or after 
January 1, 2010, be the device pass-through process and payment 
methodology only. As a result, for CY 2010, we included implantable 
biologicals in our calculation of the device APC offset amounts (74 FR 
60476). We calculated and set the device APC offset amount for a newly 
established device pass-through category, which could include a newly 
eligible implantable biological, beginning in CY 2010 using the same 
methodology we have historically used to calculate and set device APC 
offset amounts for device categories eligible for pass-through payment 
(72 FR 66751 through 66752), with one modification. Because implantable 
biologicals are considered devices rather than drugs for purposes of 
pass-through evaluation and payment under our established policy, the 
device APC offset amounts include the costs of implantable biologicals. 
For CY 2010, we also finalized a policy to utilize the revised device 
APC offset amounts to evaluate whether the cost of an implantable 
biological in an application for a new device category for pass-through 
payment is not insignificant in relation to the APC payment amount for 
the service related to the category of devices. Further, for CY 2010, 
we also no longer used the ``policy-packaged'' drug APC offset amounts 
for evaluating the cost significance of implantable biological pass-
through applications under review and for setting the APC offset 
amounts that would apply to pass-through payment for those implantable 
biologicals, effective for new pass-through status determinations 
beginning in CY 2010 (74 FR 60463).
b. Proposed Policy
    For CY 2011, we are proposing to continue our policy that the pass-
through evaluation process and pass-through payment methodology for 
implantable biologicals that are surgically inserted or implanted 
(through a surgical incision or a natural orifice) and that are newly 
approved for pass-through status beginning on or after January 1, 2010, 
be the device pass-through process and payment methodology only. The 
rationale for this policy is provided in the CY 2010 OPPS/ASC final 
rule with comment period (74 FR 60471 through 60477). We also are 
proposing to continue our established policies for calculating and 
setting the device APC offset amounts for each device category eligible 
for pass-through payment. We also are proposing to continue to review 
each new device category on a case-by-case basis to determine whether 
device costs associated with the new category are already packaged into 
the existing APC structure. If device costs packaged into the existing 
APC structure are associated with the new category, we would deduct the 
device APC offset amount from the pass-through payment for the device 
category. As stated earlier, these device APC offset amounts also would 
be used in order to evaluate whether the cost of a device in an 
application for a new device category for pass-through payment is not 
insignificant in relation to the APC payment amount for the service 
related to the category of devices (Sec.  419.66(d)).
    We also are proposing to continue our policy established in CY 2010 
to include implantable biologicals in our calculation of the device APC 
offset amounts. In addition, we are proposing to continue to calculate 
and set any device APC offset amount for a new device pass-through 
category that includes a newly eligible implantable biological 
beginning in CY 2011 using the same methodology we have historically 
used to calculate and set device APC offset amounts for device 
categories eligible for pass-through payment, and to include the costs 
of implantable biologicals in the calculation of the device APC offset 
amounts, as we did for CY 2010.
    In addition, we are proposing to update, on the CMS Web site at 
http://www.cms.gov/HospitalOutpatientPPS, the list of all procedural 
APCs with the final CY 2011 portions of the APC payment amounts that we 
determine are associated with the cost of devices so that this 
information is available for use by the public in developing potential 
CY 2011 device pass-through payment applications and by CMS in 
reviewing those applications.
    In summary, for CY 2011, consistent with the policy established for 
CY 2010, we are proposing to continue the following policies related to 
pass-through payment for devices: (1) Treating implantable biologicals, 
that are surgically inserted or implanted (through a surgical incision 
or a natural orifice) and that are newly approved for pass-through 
status on or after January 1, 2010, as devices for purposes of the OPPS 
pass-through evaluation process and payment methodology; (2) including 
implantable biologicals in calculating the device APC offset amounts; 
(3) using the device APC offset amounts to evaluate whether the cost of 
a device (defined to include implantable biologicals) in an application 
for a new device category for pass-through payment is not insignificant 
in relation to the APC payment amount for the service related to the 
category of devices; and (4) reducing device pass-through payments 
based on device costs already included in the associated procedural 
APCs, when we determine that device costs associated with the new 
category are already packaged into the existing APC structure.

B. Proposed Adjustment to OPPS Payment for No Cost/Full Credit and 
Partial Credit Devices

1. Background
    In recent years, there have been several field actions on and 
recalls of medical devices as a result of implantable device failures. 
In many of these cases, the manufacturers have offered devices without 
cost to the hospital or with credit for the device being replaced if 
the patient required a more expensive device. In order to ensure that 
payment rates for procedures involving devices reflect only the full 
costs of those devices, our

[[Page 46253]]

standard rate-setting methodology for device-dependent APCs uses only 
claims that contain the correct device code for the procedure, do not 
contain token charges, do not contain the ``FB'' modifier signifying 
that the device was furnished without cost or with a full credit, and 
do not contain the ``FC'' modifier signifying that the device was 
furnished with partial credit. As discussed in section II.A.2.d.(1) of 
this proposed rule, we are proposing to continue to use our standard 
rate-setting methodology for device-dependent APCs for CY 2011.
    To ensure equitable payment when the hospital receives a device 
without cost or with full credit, in CY 2007 we implemented a policy to 
reduce the payment for specified device-dependent APCs by the estimated 
portion of the APC payment attributable to device costs (that is, the 
device offset) when the hospital receives a specified device at no cost 
or with full credit (71 FR 68071 through 68077). Hospitals are 
instructed to report no cost/full credit cases using the ``FB'' 
modifier on the line with the procedure code in which the no cost/full 
credit device is used. In cases in which the device is furnished 
without cost or with full credit, the hospital is instructed to report 
a token device charge of less than $1.01. In cases in which the device 
being inserted is an upgrade (either of the same type of device or to a 
different type of device) with a full credit for the device being 
replaced, the hospital is instructed to report as the device charge the 
difference between its usual charge for the device being implanted and 
its usual charge for the device for which it received full credit. In 
CY 2008, we expanded this payment adjustment policy to include cases in 
which hospitals receive partial credit of 50 percent or more of the 
cost of a specified device. Hospitals are instructed to append the 
``FC'' modifier to the procedure code that reports the service provided 
to furnish the device when they receive a partial credit of 50 percent 
or more of the cost of the new device. We reduce the OPPS payment for 
the implantation procedure by 100 percent of the device offset for no 
cost/full credit cases when both a specified device code is present on 
the claim and the procedure code maps to a specified APC. Payment for 
the implantation procedure is reduced by 50 percent of the device 
offset for partial credit cases when both a specified device code is 
present on the claim and the procedure code maps to a specified APC. 
Beneficiary copayment is based on the reduced payment amount when 
either the ``FB'' or the ``FC'' modifier is billed and the procedure 
and device codes appear on the lists of procedures and devices to which 
this policy applies. We refer readers to the CY 2008 OPPS/ASC final 
rule with comment period for more background information on the ``FB'' 
and ``FC'' payment adjustment policies (72 FR 66743 through 66749).
2. Proposed APCs and Devices Subject to the Adjustment Policy
    For CY 2011, we are proposing to continue to apply the existing 
policy of reducing OPPS payment for specified APCs by 100 percent of 
the device offset amount when a hospital furnishes a specified device 
without cost or with a full credit and by 50 percent of the device 
offset amount when the hospital receives partial credit in the amount 
of 50 percent or more of the cost for the specified device. Because the 
APC payments for the related services are specifically constructed to 
ensure that the full cost of the device is included in the payment, we 
continue to believe it is appropriate to reduce the APC payment in 
cases in which the hospital receives a device without cost, with full 
credit, or with partial credit, in order to provide equitable payment 
in these cases. (We refer readers to section II.A.2.d.(1) of this 
proposed rule for a description of our standard rate-setting 
methodology for device-dependent APCs.) Moreover, the payment for these 
devices comprises a large part of the APC payment on which the 
beneficiary copayment is based, and we continue to believe it is 
equitable that the beneficiary cost sharing reflects the reduced costs 
in these cases.
    We also are proposing to continue using the three criteria 
established in the CY 2007 OPPS/ASC final rule with comment period for 
determining the APCs to which this policy applies (71 FR 68072 through 
68077). Specifically, (1) all procedures assigned to the selected APCs 
must involve implantable devices that would be reported if device 
insertion procedures were performed; (2) the required devices must be 
surgically inserted or implanted devices that remain in the patient's 
body after the conclusion of the procedure (at least temporarily); and 
(3) the device offset amount must be significant, which, for purposes 
of this policy, is defined as exceeding 40 percent of the APC cost. We 
are proposing to continue to restrict the devices to which the APC 
payment adjustment would apply to a specific set of costly devices to 
ensure that the adjustment would not be triggered by the implantation 
of an inexpensive device whose cost would not constitute a significant 
proportion of the total payment rate for an APC. We continue to believe 
these criteria are appropriate because free devices and device credits 
are likely to be associated with particular cases only when the device 
must be reported on the claim and is of a type that is implanted and 
remains in the body when the beneficiary leaves the hospital. We 
believe that the reduction in payment is appropriate only when the cost 
of the device is a significant part of the total cost of the APC into 
which the device cost is packaged, and that the 40-percent threshold is 
a reasonable definition of a significant cost.
    We examined the offset amounts calculated from the CY 2011 proposed 
rule data and the clinical characteristics of APCs to determine whether 
the APCs to which the no cost/full credit and partial credit device 
adjustment policy applies in CY 2010 continue to meet the criteria for 
CY 2011, and to determine whether other APCs to which the policy does 
not apply in CY 2010 would meet the criteria for CY 2011. Based on the 
CY 2009 claims data available for this proposed rule, we are not 
proposing any changes to the APCs and devices to which this policy 
applies. Table 18 below lists the proposed APCs to which the payment 
adjustment policy for no cost/full credit and partial credit devices 
would apply in CY 2011 and displays the proposed payment adjustment 
percentages for both no cost/full credit and partial credit 
circumstances. We are proposing that the no cost/full credit adjustment 
for each APC to which this policy would continue to apply would be the 
device offset percentage for the APC (the estimated percentage of the 
APC cost that is attributable to the device costs that are packaged 
into the APC). We also are proposing that the partial credit device 
adjustment for each APC would continue to be 50 percent of the no cost/
full credit adjustment for the APC as shown in Table 18. Table 19 below 
lists the proposed devices to which this policy would apply in CY 2011. 
We will update the lists of APCs and devices to which the no cost/full 
credit and partial credit device adjustment policy would apply for CY 
2011, consistent with the three selection criteria discussed earlier in 
this section, based on the final CY 2009 claims data available for the 
CY 2011 OPPS/ASC final rule with comment period.
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V. Proposed OPPS Payment Changes for Drugs, Biologicals, and 
Radiopharmaceuticals

A. Proposed OPPS Transitional Pass-Through Payment for Additional Costs 
of Drugs, Biologicals, and Radiopharmaceuticals

1. Background
    Section 1833(t)(6) of the Act provides for temporary additional 
payments or ``transitional pass-through payments'' for certain drugs 
and biological agents. As enacted by the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113), this 
provision requires the Secretary to make additional payments to 
hospitals for current orphan drugs, as designated under section 526 of 
the Federal Food, Drug, and Cosmetic Act (Pub. L. 107-186); current 
drugs and biological agents and brachytherapy sources used for the 
treatment of cancer; and current radiopharmaceutical drugs and 
biological products. For those drugs and biological agents referred to 
as ``current,'' the transitional pass-through payment began on the 
first date the hospital OPPS was implemented.
    Transitional pass-through payments also are provided for certain 
``new'' drugs and biological agents that were not being paid for as an 
HOPD service as of December 31, 1996, and whose cost is ``not 
insignificant'' in relation to the OPPS payments for the procedures or 
services associated with the new drug or biological. For pass-through 
payment purposes, radiopharmaceuticals are included as ``drugs.'' Under 
the statute, transitional pass-through payments for a drug or 
biological described in section 1833(t)(6)(C)(i)(II) of the Act can be 
made for at least 2 years but not more than 3 years after the product's 
first payment as a hospital outpatient service under Part B. Proposed 
CY 2011 pass-through drugs and biologicals and their designated APCs 
are assigned status indicator ``G'' in Addenda A and B to this proposed 
rule.
    Section 1833(t)(6)(D)(i) of the Act specifies that the pass-through 
payment amount, in the case of a drug or biological, is the amount by 
which the amount determined under section 1842(o) of the Act for the 
drug or biological exceeds the portion of the otherwise applicable 
Medicare OPD fee schedule that the Secretary determines is associated 
with the drug or biological. If the drug or biological is covered under 
a competitive acquisition contract under section 1847B of the Act, the 
pass-through payment amount is determined by the Secretary to be equal 
to the average price for the drug or biological for all competitive 
acquisition areas and the year established under such section as 
calculated and adjusted by the Secretary.
    This methodology for determining the pass-through payment amount is 
set forth in Sec.  419.64 of the regulations, which specifies that the 
pass-through payment equals the amount determined under section 1842(o) 
of the Act minus the portion of the APC payment that CMS determines is 
associated with the drug or biological. Section 1847A of the Act 
establishes the use of the average sales price (ASP) methodology as the 
basis for payment for drugs and biologicals described in section 
1842(o)(1)(C) of the Act that are furnished on or after January 1, 
2005. The ASP methodology, as applied under the OPPS, uses several 
sources of data as a basis for payment, including the ASP, wholesale 
acquisition cost (WAC), and average wholesale price (AWP). In this 
proposed rule, the term ``ASP methodology'' and ``ASP-based'' are 
inclusive of all data sources and methodologies described therein. 
Additional information on the ASP methodology can be found on the CMS 
Web site at: http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice.
    As noted above, section 1833(t)(6)(D)(i) of the Act also states 
that if a drug or biological is covered under a competitive acquisition 
contract under section 1847B of the Act, the payment rate is equal to 
the average price for the drug or biological for all competitive 
acquisition areas and the year established as calculated and adjusted 
by the Secretary. Section 1847B of the Act establishes the payment 
methodology for Medicare Part B drugs and biologicals under the 
competitive acquisition program (CAP). The Part B drug CAP was 
implemented on July 1, 2006, and included approximately 190 of the most 
common Part B drugs provided in the physician's office setting. As we 
noted in the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68633), the Part B drug CAP program was suspended beginning in CY 2009 
(Medicare Learning Network (MLN) Matters Special Edition 0833, 
available via the Web site: http://www.medicare.gov). Therefore, there 
is no effective Part B drug CAP rate for pass-through drugs and 
biologicals as of January 1, 2009. Consistent with what we indicated in 
the CY 2010 OPPS/ASC final rule with comment period (74 FR 60466), if 
the program is reinstituted during CY 2011 and Part B drug CAP rates 
become available, we would again use the Part B drug CAP rate for pass-
through drugs and biologicals if they are a part of the Part B drug CAP 
program. Otherwise, we would continue to use the rate that would be 
paid in the physician's office setting for drugs and biologicals with 
pass-through status.
    For CYs 2005, 2006, and 2007, we estimated the OPPS pass-through 
payment amount for drugs and biologicals to be zero based on our 
interpretation that the ``otherwise applicable Medicare OPD fee 
schedule'' amount was equivalent to the amount to be paid for pass-
through drugs and biologicals under section 1842(o) of the Act (or 
section 1847B of the Act, if the drug or biological is covered under a 
competitive acquisition contract). We concluded for those years that 
the resulting difference between these two rates would be zero. For CYs 
2008 and 2009, we estimated the OPPS pass-through payment amount for 
drugs and biologicals to be $6.6 million and $23.3 million, 
respectively. For CY 2010, we estimated that the OPPS pass-through 
payment estimate for drugs and biologicals to be $35.5 million. Our 
proposed OPPS pass-through payment estimate for drugs and biologicals 
in CY 2011 is $15 million, which is discussed in section VI.B. of this 
proposed rule.
    The pass-through application and review process for drugs and 
biologicals is explained on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/04_passthrough_payment.asp.
2. Proposed Drugs and Biologicals With Expiring Pass-Through Status in 
CY 2010
    We are proposing that the pass-through status of 18 drugs and 
biologicals would expire on December 31, 2010, as listed in Table 20 of 
this proposed rule. All of these drugs and biologicals will have 
received OPPS pass-through payment for at least 2 years and no more 
than 3 years by December 31, 2010. These items were approved for pass-
through status on or before January 1, 2009. With the exception of 
those groups of drugs and biologicals that are always packaged when 
they do not have pass-through status, specifically diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals, our 
standard methodology for providing payment for drugs and biologicals 
with expiring pass-through status in an upcoming calendar year is to 
determine the product's estimated per day cost and compare it with the 
OPPS drug packaging threshold for that calendar year (which is proposed 
at $70 for CY 2011), as discussed further in section V.B.2 of this 
proposed rule. If the drug's or biological's estimated per day cost is

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less than or equal to the applicable OPPS drug packaging threshold, we 
would package payment for the drug or biological into the payment for 
the associated procedure in the upcoming calendar year. If the 
estimated per day cost of the drug or biological is greater than the 
OPPS drug packaging threshold, we would provide separate payment at the 
applicable relative ASP-based payment amount (which is proposed at 
ASP+6 percent for CY 2011, as discussed further in section V.B.3. of 
this proposed rule). Section V.B.2.d. of this proposed rule discusses 
the packaging of all nonpass-through contrast agents, diagnostic 
radiopharmaceuticals, and implantable biologicals.
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3. Proposed Drugs, Biologicals, and Radiopharmaceuticals With New or 
Continuing Pass-Through Status in CY 2011
    We are proposing to continue pass-through status in CY 2011 for 31 
drugs and biologicals. None of these products will have received OPPS 
pass-through payment for at least 2 years and no more than 3 years by 
December 31, 2010. These items, which were approved for pass-through 
status between April 1, 2009 and July 1, 2010, are listed in Table 21 
below. The APCs and HCPCS codes for these drugs and biologicals were 
assigned status indicator ``G'' in Addenda A and B to this proposed 
rule.
    Section 1833(t)(6)(D)(i) of the Act sets the amount of pass-through 
payment for pass-through drugs and biologicals (the pass-through 
payment amount) as the difference between the amount authorized under 
section 1842(o) of the Act (or, if the drug or biological is

[[Page 46259]]

covered under a CAP under section 1847B of the Act, an amount 
determined by the Secretary equal to the average price for the drug or 
biological for all competitive acquisition areas and the year 
established under such section as calculated and adjusted by the 
Secretary) and the portion of the otherwise applicable OPD fee schedule 
that the Secretary determines is associated with the drug or 
biological. Payment for drugs and biologicals with pass-through status 
under the OPPS is currently made at the physician's office payment rate 
of ASP+6 percent. We believe it is consistent with the statute to 
continue to provide payment for drugs and biologicals with pass-through 
status at a rate of ASP+6 percent in CY 2011, the amount that drugs and 
biologicals receive under section 1842(o) of the Act. Thus, for CY 
2011, we are proposing to pay for pass-through drugs and biologicals at 
ASP+6 percent, equivalent to the rate these drugs and biologicals would 
receive in the physician's office setting in CY 2011. We are proposing 
that a $0.00 pass-through payment amount would be paid for most pass-
through drugs and biologicals under the CY 2011 OPPS because the 
difference between the amount authorized under Section 1842(o) which is 
ASP+6 percent and the portion of the otherwise applicable OPD fee 
schedule that the Secretary determines is appropriate, proposed at 
ASP+6 percent is $0. In the case of pass-through contrast agents, 
diagnostic radiopharmaceuticals, and implantable biologicals, their 
pass-through payment amount would be equal to ASP+6 percent because, if 
not on pass-through status, payment for these products would be 
packaged into the associated procedures.
    In addition, we are proposing to continue to update pass-through 
payment rates on a quarterly basis on the CMS Web site during CY 2011 
if later quarter ASP submission (or more recent WAC or AWP information, 
as applicable) indicate that adjustments to the payment rates for these 
pass-through drugs or biologicals are necessary. For a full description 
of this policy, we refer readers to the CY 2006 OPPS/ASC final rule 
with comment period (70 FR 42722 and 42723). If the Part B drug CAP is 
reinstated during CY 2011, and a drug or biological that has been 
granted pass-through status for CY 2011 becomes covered under the Part 
B drug CAP, we are proposing to provide pass-though payment at the Part 
B drug CAP rate and to make the appropriate adjustments to the payment 
rates for these drugs and biologicals on a quarterly basis as 
appropriate. As is our standard methodology, we annually review new 
permanent HCPCS codes and delete temporary HCPCS C-codes if an 
alternate permanent HCPCS code is available for purposes of OPPS 
billing and payment.
    In CY 2011, as is consistent with our CY 2010 policy for diagnostic 
radiopharmaceuticals, we are proposing to provide payment for both 
diagnostic and therapeutic radiopharmaceuticals that are granted pass-
through status based on the ASP methodology. As stated above, for 
purposes of pass-through payment, we consider radiopharmaceuticals to 
be drugs under the OPPS and, therefore, if a diagnostic or therapeutic 
radiopharmaceutical receives pass-through status during CY 2011, we are 
proposing to follow the standard ASP methodology to determine its pass-
through payment rate that drugs receive under section 1842(o) of the 
Act, that is, ASP+6 percent. If ASP data are not available for a 
radiopharmaceutical, we are proposing to provide pass-through payment 
at WAC+6 percent, the equivalent payment provided to pass-through drugs 
and biologicals without ASP information. If WAC information is also not 
available, we are proposing to provide payment for the pass-through 
radiopharmaceutical at 95 percent of its most recent AWP.
    As discussed in more detail in section V.B.2.d. of this proposed 
rule, over the last 3 years, we implemented a policy whereby payment 
for all nonpass-through diagnostic radiopharmaceuticals, contrast 
agents, and implantable biologicals is packaged into payment for the 
associated procedure, and we are proposing to continue the packaging of 
these items, regardless of their per day cost, in CY 2011. As stated 
earlier, pass-through payment is the difference between the amount 
authorized under section 1842(o) of the Act (or, if the drug or 
biological is covered under a CAP under section 1847B of the Act, an 
amount determined by the Secretary equal to the average price for the 
drug or biological for all competitive acquisition areas and the year 
established under such section as calculated and adjusted by the 
Secretary) and the portion of the otherwise applicable OPD fee schedule 
that the Secretary determines is associated with the drug or 
biological. Because payment for a drug that is either a diagnostic 
radiopharmaceutical or a contrast agent (identified as a ``policy-
packaged'' drug, first described in the CY 2009 OPPS/ASC final rule 
with comment period (73 FR 68639)) or for an implantable biological 
(which we do consider to be a device for all payment purposes as 
discussed in sections V.A.4. and V.B.2.d. of the CY 2010 OPPS/ASC final 
rule with comment period (74 FR 60458)) would otherwise be packaged if 
the product did not have pass-through status, we believe the otherwise 
applicable OPPS payment amount would be equal to the ``policy-
packaged'' drug or device APC offset amount for the associated clinical 
APC in which the drug or biological is utilized. The calculation of the 
``policy-packaged'' drug and device APC offset amounts are described in 
more detail in sections IV.A.2. of this proposed rule. It follows that 
the copayment for the nonpass-through payment portion (the otherwise 
applicable fee schedule amount that we would also offset from payment 
for the drug or biological if a payment offset applies) of the total 
OPPS payment for those drugs and biologicals would, therefore, be 
accounted for in the copayment for the associated clinical APC in which 
the drug or biological is used. According to section 1833(t)(8)(E) of 
the Act, the amount of copayment associated with pass-through items is 
equal to the amount of copayment that would be applicable if the pass-
through adjustment was not applied. Therefore, as we did in CY 2010, we 
are proposing to continue to set the associated copayment amount for 
pass-through diagnostic radiopharmaceuticals, contrast agents, and 
implantable biologicals that would otherwise be packaged if the item 
did not have pass-through status to zero for CY 2011. The separate OPPS 
payment to a hospital for the pass-through diagnostic 
radiopharmaceutical, contrast agent, or implantable biological, after 
taking into account any applicable payment offset for the item due to 
the device or ``policy-packaged'' APC offset policy, is the item's 
pass-through payment, which is not subject to a copayment according to 
the statute. Therefore, we are proposing to not publish a copayment 
amount for these items in Addenda A and B to the proposed rule.
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4. Proposed Provisions for Reducing Transitional Pass-Through Payments 
for Diagnostic Radiopharmaceuticals and Contrast Agents to Offset Costs 
Packaged Into APC Groups
a. Background
    Prior to CY 2008, diagnostic radiopharmaceuticals and contrast 
agents were paid separately under the OPPS if their mean per day costs 
were greater than the applicable year's drug packaging threshold. In CY 
2008 (72 FR 66768), we began a policy of packaging payment for all 
nonpass-through diagnostic radiopharmaceuticals and contrast agents as 
ancillary and supportive items and services into their associated 
nuclear medicine procedures. Therefore, beginning in CY 2008, nonpass-
through diagnostic radiopharmaceuticals and contrast agents were not 
subject to the annual OPPS drug packaging threshold to determine their 
packaged or separately payable payment status, and instead all nonpass-
through diagnostic radiopharmaceuticals and contrast agents were 
packaged as a matter of policy. For CY 2011, we are proposing to 
continue to package payment for all nonpass-through diagnostic 
radiopharmaceuticals and contrast agents as discussed in section 
V.B.2.d. of this proposed rule.
b. Proposed Payment Offset Policy for Diagnostic Radiopharmaceuticals
    As previously noted, radiopharmaceuticals are considered to be 
drugs for OPPS pass-through payment purposes. As described above, 
section 1833(t)(6)(D)(i) of the Act specifies that the transitional 
pass-through payment amount for pass-through drugs and biologicals is 
the difference between the amount paid under section 1842(o) (or the 
Part B drug CAP rate) and the otherwise applicable OPD fee schedule 
amount. There is currently one radiopharmaceutical with pass-through 
status under the OPPS, HCPCS code A9582 (Iobenguane, I-123, diagnostic, 
per study dose, up to 10 millicuries). HCPCS code A9582 was granted 
pass-through status beginning April 1, 2009 and will continue on pass-
through status in CY 2011. We currently apply the established 
radiopharmaceutical payment offset policy to pass-through payment for 
this product. As described earlier in section V.A.3. of this proposed 
rule, new pass-through diagnostic radiopharmaceuticals will be paid at 
ASP+6 percent, while those without ASP information will be paid at 
WAC+6 percent or, if WAC is not available, payment will be based on 95 
percent of the product's most recently published AWP.
    As a payment offset is necessary in order to provide an appropriate 
transitional pass-through payment, we deduct from the payment for pass-
through radiopharmaceuticals an amount that reflects the portion of the 
APC payment associated with predecessor radiopharmaceuticals in order 
to ensure no duplicate radiopharmaceutical payment is made. In CY 2009, 
we established a policy to estimate the portion of each APC payment 
rate that could reasonably be attributed to the cost of predecessor 
diagnostic radiopharmaceuticals when considering a new diagnostic 
radiopharmaceutical for pass-through payment (73 FR 68638 through 
68641). Specifically, we utilize the ``policy-packaged'' drug offset 
fraction for APCs containing nuclear medicine procedures, calculated as 
1 minus (the cost from single procedure claims in the APC after 
removing the cost for ``policy-packaged'' drugs divided by the cost 
from single procedure claims in the APC). In the CY 2010 OPPS/ASC final 
rule with comment period (74 FR 60480 through 60484), we finalized a 
policy to redefine ``policy-packaged'' drugs as only nonpass-through 
diagnostic radiopharmaceuticals and contrast agents, as a result of the 
policy discussed in sections V.A.4. and V.B.2.d. of the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60471 through 60477 and 60495 
through 60499 respectively) that treats nonpass-through implantable 
biologicals that are surgically inserted or implanted (through a 
surgical incision or a natural orifice) and implantable biologicals 
that are surgically inserted or implanted (through a surgical incision 
or a natural orifice) with newly approved pass-through status beginning 
in CY 2010 or later as devices, rather than drugs. To determine the 
actual APC offset amount for pass-through diagnostic 
radiopharmaceuticals that takes into consideration the otherwise 
applicable OPPS payment amount, we multiply the ``policy-packaged'' 
drug offset fraction by the APC payment amount for the nuclear medicine 
procedure with which the pass-through diagnostic radiopharmaceutical is 
used and, accordingly, reduce the separate OPPS payment for the pass-
through diagnostic radiopharmaceutical by this amount.
    The Integrated Outpatient Code Editor processes claims for nuclear 
medicine procedures only when they are performed with a radiolabeled 
product. Therefore, the radiolabeled product edits in the Integrated 
Outpatient Code Editor require a hospital to report a diagnostic 
radiopharmaceutical with a nuclear medicine scan in order to receive 
payment for the nuclear medicine scan. We have received questions from 
hospitals on how to bill for a nuclear medicine scan when they receive 
a diagnostic radiopharmaceutical free of charge or with full credit. 
Currently, if a hospital receives a diagnostic radiopharmaceutical free 
of charge or with full credit and uses it to provide a nuclear medicine 
scan, the hospital could choose not to bill for both the nuclear 
medicine scan and the diagnostic radiopharmaceutical in order to bypass 
the radiolabeled product edits, but the hospital clearly would not 
receive OPPS payment for the scan or the diagnostic 
radiopharmaceutical. The hospital also could report the diagnostic 
radiopharmaceutical with the nuclear medicine scan and receive an APC 
payment that includes payment for the diagnostic radiopharmaceutical, 
but this would lead to inaccurate billing and incorrect payment. This 
is because the OPPS should not pay for a free item. We believe neither 
of the above alternatives is satisfactory.
    In order to ensure that the OPPS is making appropriate and 
equitable payments under such circumstances and that a hospital can 
comply with the required radiolabeled product edits, we are proposing 
for CY 2011 to instruct hospitals to report the ``FB'' modifier on the 
line with the procedure code for the nuclear medicine scan in the APCs 
listed in Table E3 in which the no cost/full credit diagnostic 
radiopharmaceutical is used. Modifier -FB is ``Item Provided Without 
Cost to Provider, Supplier or Practitioner, or Credit Received for 
Replacement Device (Examples, but not Limited to: Covered Under 
Warranty, Replaced Due to Defect, Free Samples).'' Although this 
modifier is specific to devices, it captures the concept of the 
hospital receiving a key component of the service without cost. In 
cases in which the diagnostic radiopharmaceutical is furnished without 
cost or with full credit, we are proposing to instruct the hospital to 
report a token charge of less than $1.01. We refer readers to the CY 
2008 OPPS/ASC final rule with comment period for more background 
information on the ``FB'' payment adjustment policies (72 FR 66743 
through 66749). We are proposing that when a hospital bills an -FB with 
the nuclear medicine scan, the payment amount for procedures in the 
APCs listed in Table 20 would be reduced by the full ``policy-
packaged'' offset amount appropriate for diagnostic

[[Page 46262]]

radiopharmaceuticals. As discussed in our CY 2009 OPPS/ASC final rule 
with comment period, the ``policy packaged'' offset amount that we 
calculate estimates the portion of each APC payment rate that could 
reasonably be attributed to the cost of predecessor diagnostic 
radiopharmaceuticals when considering a new diagnostic 
radiopharmaceutical for pass-through payment (73 FR 68638 through 
68641). As in our offset policy, discussed below, we believe it is 
appropriate to remove the ``policy packaged'' offset amount from 
payment for a nuclear medicine scan with a diagnostic 
radiopharmaceutical received at no cost or full credit which is billed 
using one of the APCs appearing in Table 22 below because it represents 
the portion of the APC payment attributable to diagnostic 
radiopharmaceuticals used in the performance of a nuclear medicine 
scan. Using the -FB modifier with radiolabeled products will allow the 
hospital to bill accurately for a diagnostic radiopharmaceutical 
received free of charge and will allow the hospital to comply with the 
radiolabeled product edits to ensure appropriate payment.
    At this time, we are not proposing to recognize modifier FC, which 
is defined as ``Partial credit received for replaced device,'' because 
we were unsure of the circumstances in which hospitals would receive a 
diagnostic radiopharmaceutical at reduced cost to replace a previously 
provided diagnostic radiopharmaceutical. We invite public comment on 
when a diagnostic radiopharmaceutical is provided for a significantly 
reduced price and whether the ``FC'' modifier is appropriate for 
radiolabeled products.
    We will continue to post annually on the CMS Web site at http://www.cms.gov/HospitalOutpatientPPS, a file that contains the APC offset 
amounts that would be used for that year for purposes of both 
evaluating cost significance for candidate pass-through device 
categories and drugs and biologicals, including diagnostic 
radiopharmaceuticals, and establishing any appropriate APC offset 
amounts. Specifically, the file will continue to provide, for every 
OPPS clinical APC, the amounts and percentages of APC payment 
associated with packaged implantable devices, including implantable 
biologicals; ``policy-packaged'' drugs, including diagnostic 
radiopharmaceuticals and contrast agents; and ``threshold-packaged'' 
drugs and biologicals, which are all other drugs, therapeutic 
radiopharmaceuticals, and nonimplantable biologicals.
    Table 22 below displays the proposed APCs to which nuclear medicine 
procedures would be assigned in CY 2011 and for which we expect that an 
APC offset could be applicable in the case of new diagnostic 
radiopharmaceuticals with pass-through status.
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c. Proposed Payment Offset Policy for Contrast Agents
    As described above, section 1833(t)(6)(D)(i) of the Act specifies 
that the transitional pass-through payment amount for pass-through 
drugs and biologicals is the difference between the amount paid under 
section 1842(o) (or the Part B drug CAP rate) and the otherwise 
applicable OPD fee schedule amount. There is currently one contrast 
agent with pass-through status under the OPPS, HCPCS code A9583 
(Injection, gadoxetate disodium, per ml). HCPCS code A9583 was granted 
pass-through status beginning January 1, 2010, and will continue with 
pass-through status in CY 2011. As described earlier in section V.A.3. 
of this proposed rule, new pass-through contrast agents would be paid 
at ASP+6 percent, while those without ASP information would be paid at 
WAC+6 percent or, if WAC is not available, payment would be based on 95 
percent of the product's most recently published AWP.
    We believe that a payment offset is necessary in order to provide 
an appropriate transitional pass-through payment for contrast agents 
because all of these items are packaged when they do not have pass-
through status. In accordance with our standard offset methodology, for 
CY 2011 we are proposing to deduct from the payment for pass-through 
contrast agents an amount that reflects the portion of the APC payment 
associated with predecessor contrast agents in order to ensure no 
duplicate contrast agent payment is made.
    In CY 2010, we established a policy to estimate the portion of each 
APC payment rate that could reasonably be attributed to the cost of 
predecessor contrast agents when considering new contrast agents for 
pass-through payment (74 FR 60482 through 60484). For CY 2011, we are 
proposing to continue to apply this same policy to contrast agents. 
Specifically, we are proposing to utilize the ``policy-packaged'' drug 
offset fraction for clinical APCs calculated as 1 minus (the cost from 
single procedure claims in the APC after removing the cost for 
``policy-packaged'' drugs divided by the cost from single procedure 
claims in the APC). As discussed above, in CY 2010, we finalized a 
policy to redefine ``policy-packaged'' drugs as only nonpass-through 
diagnostic radiopharmaceuticals and contrast agents (74 FR 60495 
through 60499). To determine the actual APC offset amount for pass-
through contrast agents that takes into consideration the otherwise 
applicable OPPS payment amount, we are proposing to multiply the 
``policy-packaged'' drug offset fraction by the APC payment amount for 
the procedure with which the pass-through contrast agent is used and, 
accordingly, reduce the separate OPPS payment for the pass-through 
contrast agent by this amount.
    We are proposing to continue to post annually on the CMS Web site 
at http://www.cms.gov/HospitalOutpatientPPS, a file that contains the 
APC offset amounts that would be used for that year for purposes of 
both evaluating cost significance for candidate pass-through device 
categories and drugs and biologicals, including contrast agents, and 
establishing any appropriate APC offset amounts. Specifically, the file 
will continue to provide, for every OPPS clinical APC, the amounts and 
percentages of APC payment associated with packaged implantable 
devices, ``policy-packaged'' drugs, and ``threshold-packaged'' drugs 
and biologicals.
    Proposed procedural APCs for which we expect a contrast agent 
offset could be applicable in the case of a pass-through contrast agent 
have been identified as any procedural APC with a ``policy-packaged'' 
drug amount greater than $20 that is not a nuclear medicine APC 
identified in Table 20 above, and these APCs are displayed in Table 23 
below. The methodology used to determine a proposed threshold cost for 
application of a contrast agent offset policy is described in detail in 
the CY 2010 OPPS/ASC final rule with comment period (70 FR 60483 
through 60484). For CY 2011, we are proposing to continue to recognize 
that when a contrast agent with pass-through status is billed with any 
procedural APC listed in Table 23, a specific offset based on the 
procedural APC would be applied to payment for the contrast agent to 
ensure that duplicate payment is not made for the contrast agent.
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B. Proposed OPPS Payment for Drugs, Biologicals, and 
Radiopharmaceuticals Without Pass-Through Status

1. Background
    Under the CY 2010 OPPS, we currently pay for drugs, biologicals, 
and radiopharmaceuticals that do not have pass-through status in one of 
two ways: Packaged payment into the payment for the associated service; 
or separate payment (individual APCs). We explained in the April 7, 
2000 OPPS final rule with comment period (65 FR 18450) that we 
generally package the cost of drugs and radiopharmaceuticals into the 
APC payment rate for the procedure or treatment with which the products 
are usually furnished. Hospitals do not receive separate payment for 
packaged items and supplies, and hospitals may not bill beneficiaries 
separately for any packaged items and supplies whose costs are 
recognized and paid within the national OPPS payment rate for the 
associated procedure or service. (Transmittal A-01-133, issued on 
November 20, 2001, explains in greater detail the rules regarding 
separate payment for packaged services.)
    Packaging costs into a single aggregate payment for a service, 
procedure, or episode-of-care is a fundamental principle that 
distinguishes a prospective payment system from a fee schedule. In 
general, packaging the costs of items and services into the payment for 
the primary procedure or service with which they are associated 
encourages hospital efficiencies and also enables hospitals to manage 
their resources with maximum flexibility.
    Section 1833(t)(16)(B) of the Act, as added by section 621(a)(2) of 
Public Law 108-173, set the threshold for establishing separate APCs 
for drugs and biologicals at $50 per administration for CYs 2005 and 
2006. Therefore, for CYs 2005 and 2006, we paid separately for drugs, 
biologicals, and radiopharmaceuticals whose per day cost exceeded $50 
and packaged the costs of drugs, biologicals, and radiopharmaceuticals 
whose per day cost was equal to or less than $50 into the procedures 
with which they were billed. For CY 2007, the packaging threshold for 
drugs, biologicals, and radiopharmaceuticals that were not new and did 
not have pass-through status was established at $55. For CYs 2008 and 
2009, the packaging threshold for drugs, biologicals, and 
radiopharmaceuticals that were not new and did not have pass-through 
status was established at $60. For CY 2010, the packaging threshold for 
drugs, biologicals, and radiopharmaceuticals that were not new and did 
not have pass-through status was established at $65. The methodology 
used to establish the $55 threshold for CY 2007, the $60 threshold for 
CYs 2008 and 2009, the $65 threshold for CY 2010, and our proposed 
approach for CY 2011 are discussed in more detail in section V.B.2.b. 
of this proposed rule.
2. Proposed Criteria for Packaging Payment for Drugs, Biologicals, and 
Radiopharmaceuticals
a. Background
    As indicated in section V.B.1. of this proposed rule, in accordance 
with section 1833(t)(16)(B) of the Act, the threshold for establishing 
separate APCs for payment of drugs and biologicals was set to $50 per 
administration during CYs 2005 and 2006. In CY 2007, we used the fourth 
quarter moving average Producer Price Index (PPI) levels for 
prescription preparations to trend the $50 threshold forward from the 
third quarter of CY 2005 (when the Pub. L. 108-173 mandated threshold 
became effective) to the third quarter of CY 2007. We then rounded the 
resulting dollar amount to the nearest $5 increment in order to 
determine the CY 2007 threshold amount of $55. Using the same 
methodology as that used in CY 2007 (which is discussed in more detail 
in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085 
through 68086)), we set the packaging threshold for establishing 
separate APCs for drugs and biologicals at $60 for CYs 2008 and 2009. 
For CY 2010 we set the packaging threshold at $65.
    Following the CY 2007 methodology, for CY 2011, we used updated 
fourth quarter moving average PPI levels to trend the $50 threshold 
forward from the third quarter of CY 2005 to the third quarter of CY 
2011 and again rounded the resulting dollar amount ($70.64) to the 
nearest $5 increment, which yielded a figure of $70. In performing this 
calculation, we used the most up-to-date forecasted, quarterly PPI 
estimates from CMS' Office of the Actuary (OACT). As actual inflation 
for past quarters replaced forecasted amounts, the PPI estimates for 
prior quarters have been revised (compared with those used in the CY 
2007 OPPS/ASC final rule with comment period) and have been 
incorporated into our calculation. Based on the calculations described 
above, we are proposing a packaging threshold for CY 2011 of $70. (For 
a more detailed discussion of the OPPS drug packaging threshold and the 
use of the PPI for prescription drugs, we refer readers to the CY 2007 
OPPS/ASC final rule with comment period (71 FR 68085 through 68086).)
b. Proposed Cost Threshold for Packaging of Payment for HCPCS Codes 
that Describe Certain Drugs, Nonimplantable Biologicals, and 
Therapeutic Radiopharmaceuticals (``Threshold-Packaged Drugs'')
    To determine their proposed CY 2011 packaging status, for this 
proposed rule, we calculated the per day cost of all drugs on a HCPCS 
code-specific basis (with the exception of those drugs and biologicals 
with multiple HCPCS codes that include different dosages as described 
in section V.B.2.c. of this proposed rule and excluding diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals that 
we are proposing to continue to package in CY 2011 as discussed in 
section V.B.2.d. of this proposed rule), nonimplantable biologicals, 
and therapeutic radiopharmaceuticals (collectively called ``threshold-
packaged'' drugs) that had a HCPCS code in CY 2009 and were paid (via 
packaged or separate payment) under the OPPS, using CY 2009 claims data 
processed before January 1, 2010. In order to calculate the per day 
costs for drugs, nonimplantable biologicals, and therapeutic 
radiopharmaceuticals to determine their proposed packaging status in CY 
2011, we used the methodology that was described in detail in the CY 
2006 OPPS proposed rule (70 FR 42723 through 42724) and finalized in 
the CY 2006 OPPS final rule with comment period (70 FR 68636 through 70 
FR 68638).
    To calculate the CY 2011 proposed rule per day costs, we used an 
estimated payment rate for each drug and nonimplantable biological 
HCPCS code of ASP+6 percent (which is the payment rate we are proposing 
for separately payable drugs and nonimplantable biologicals in CY 2011, 
as discussed in more detail in section V.B.3.b. of this proposed rule). 
We used the manufacturer submitted ASP data from the fourth quarter of 
CY 2009 (data that were used for payment purposes in the physician's 
office setting, effective April 1, 2010) to determine the proposed rule 
per day cost.
    As is our standard methodology, for CY 2011, we are proposing to 
use payment rates based on the ASP data from the fourth quarter of CY 
2009 for budget neutrality estimates, packaging determinations, impact 
analyses, and completion of Addenda A and B to this proposed rule 
because these are the most recent data available for use at the time of 
development of this proposed rule. These data are also the basis for 
drug payments in the physician's office

[[Page 46266]]

setting, effective April 1, 2010. For items that did not have an ASP-
based payment rate, such as some therapeutic radiopharmaceuticals, we 
used their mean unit cost derived from the CY 2009 hospital claims data 
to determine their per day cost. We are proposing to package items with 
a per day cost less than or equal to $70 and identified items with a 
per day cost greater than $70 as separately payable. Consistent with 
our past practice, we crosswalked historical OPPS claims data from the 
CY 2009 HCPCS codes that were reported to the CY 2010 HCPCS codes that 
we displayed in Addendum B to this proposed rule for payment in CY 
2011.
    Our policy during previous cycles of the OPPS has been to use 
updated ASP and claims data to make final determinations of the 
packaging status of HCPCS codes for drugs, nonimplantable biologicals, 
and therapeutic radiopharmaceuticals for the final rule with comment 
period. We note that it is also our policy to make an annual packaging 
determination for a HCPCS code only when we develop the OPPS/ASC final 
rule for the update year. Only HCPCS codes that are identified as 
separately payable in the final rule with comment period are subject to 
quarterly updates. For our calculation of per day costs of HCPCS codes 
for drugs and nonimplantable biologicals in the CY 2011 OPPS/ASC final 
rule with comment period, we are proposing to use ASP data from the 
first quarter of CY 2010, which is the basis for calculating payment 
rates for drugs and biologicals in the physician's office setting using 
the ASP methodology, effective July 1, 2010, along with updated 
hospital claims data from CY 2009. We note that we also would use these 
data for budget neutrality estimates and impact analyses for the CY 
2011 OPPS/ASC final rule with comment period. Payment rates for HCPCS 
codes for separately payable drugs and nonimplantable biologicals 
included in Addenda A and B to that final rule with comment period 
would be based on ASP data from the second quarter of CY 2010, which 
are the basis for calculating payment rates for drugs and biologicals 
in the physician's office setting using the ASP methodology, effective 
October 1, 2010. These rates would then be updated in the January 2011 
OPPS update, based on the most recent ASP data to be used for 
physician's office and OPPS payment as of January 1, 2011. For items 
that do not currently have an ASP-based payment rate, we would 
recalculate their mean unit cost from all of the CY 2009 claims data 
and updated cost report information available for the CY 2011 final 
rule with comment period to determine their final per day cost.
    Consequently, the packaging status of some HCPCS codes for drugs, 
nonimplantable biologicals, and therapeutic radiopharmaceuticals in the 
CY 2011 OPPS/ASC final rule with comment period using the updated data 
may be different from the same drug HCPCS code's packaging status 
determined based on the data used for this proposed rule. Under such 
circumstances, we are proposing to continue the established policies 
initially adopted for the CY 2005 OPPS (69 FR 65780) in order to more 
equitably pay for those drugs whose median cost fluctuates relative to 
the CY 2011 OPPS drug packaging threshold and the drug's payment status 
(packaged or separately payable) in CY 2010. Specifically, we are 
proposing for CY 2011 to apply the following policies to these HCPCS 
codes for drugs, nonimplantable biologicals, and therapeutic 
radiopharmaceuticals whose relationship to the $70 drug packaging 
threshold changes based on the final updated data:
     HCPCS codes for drugs and nonimplantable biologicals that 
were paid separately in CY 2010 and that were proposed for separate 
payment in CY 2011, and then have per day costs equal to or less than 
$70, based on the updated ASPs and hospital claims data used for the CY 
2011 final rule with comment period, would continue to receive separate 
payment in CY 2011.
     HCPCS codes for drugs and nonimplantable biologicals that 
were packaged in CY 2010 and that were proposed for separate payment in 
CY 2011, and then have per day costs equal to or less than $70, based 
on the updated ASPs and hospital claims data used for the CY 2011 final 
rule with comment period, would remain packaged in CY 2011.
     HCPCS codes for drugs and nonimplantable biologicals for 
which we proposed packaged payment in CY 2011 but then have per day 
costs greater than $70, based on the updated ASPs and hospital claims 
data used for the CY 2011 final rule with comment period, would receive 
separate payment in CY 2011. In the CY 2010 OPPS/ASC final rule (74 FR 
60485 through 60489), we implemented a policy to treat oral and 
injectable forms of 5-HT3 antiemetics comparable to all other threshold 
packaged drugs, nonimplantable biologicals, and therapeutic 
radiohpharmaceuticals under our standard packaging methodology of 
packaging drugs with a per day cost less than $70. For CY 2011, we are 
proposing to continue our policy of not exempting these 5-HT3 
antiemetic products from our standard packaging methodology and to 
package payment for all of the 5-HT3 antiemetics except palonosetron 
hydrochloride, consistent with their estimated per day costs from the 
CY 2009 claims data.
c. Proposed Packaging Determination for HCPCS Codes That Describe the 
Same Drug or Biological But Different Dosages
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66776), we began recognizing, for OPPS payment purposes, multiple HCPCS 
codes reporting different dosages for the same covered Part B drugs or 
biologicals in order to reduce hospitals' administrative burden by 
permitting them to report all HCPCS codes for drugs and biologicals. In 
general, prior to CY 2008, the OPPS recognized for payment only the 
HCPCS code that described the lowest dosage of a drug or biological. We 
extended this recognition to multiple HCPCS codes for several other 
drugs under the CY 2009 OPPS (73 FR 68665). During CYs 2008 and 2009, 
we applied a policy that assigned the status indicator of the 
previously recognized HCPCS code to the associated newly recognized 
code(s), reflecting the new code(s)' packaged or separately payable 
status. In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66775), we explained that once claims data were available for these 
previously unrecognized HCPCS codes, we would determine the packaging 
status and resulting status indicator for each HCPCS code according to 
the general, established HCPCS code-specific methodology for 
determining a code's packaging status for a given update year. However, 
we also stated that we planned to closely follow our claims data to 
ensure that our annual packaging determinations for the different HCPCS 
codes describing the same drug or biological did not create 
inappropriate payment incentives for hospitals to report certain HCPCS 
codes instead of others.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60490 
through 60491), we finalized a policy to make a single packaging 
determination for a drug, rather than an individual HCPCS code, when a 
drug has multiple HCPCS codes describing different dosages. We analyzed 
CY 2008 claims data for the HCPCS codes describing different dosages of 
the same drug or biological that were newly recognized in CY 2008 and 
found that our claims data would result in several different packaging 
determinations for different codes describing the same drug or 
biological. Furthermore, we found that

[[Page 46267]]

our claims data would include few units and days for a number of newly 
recognized HCPCS codes, resulting in our concern that these data 
reflected claims from only a small number of hospitals, even though the 
drug or biological itself may be reported by many other hospitals under 
the most common HCPCS code. Based on these findings from our first 
available claims data for the newly recognized HCPCS codes, we believed 
that adopting our standard HCPCS code-specific packaging determinations 
for these codes could lead to payment incentives for hospitals to 
report certain HCPCS codes instead of others, particularly because we 
do not currently require hospitals to report all drug and biological 
HCPCS codes under the OPPS in consideration of our previous policy that 
generally recognized only the lowest dosage HCPCS code for a drug or 
biological for OPPS payment. For CY 2011, we continue to believe that 
adopting the standard HCPCS code-specific packaging determinations for 
these codes could lead to payment incentives for hospitals to report 
certain HCPCS codes for drugs instead of others. Making packaging 
determinations on a drug-specific basis eliminates these incentives and 
allows hospitals flexibility in choosing to report all HCPCS codes for 
different dosages of the same drug or only the lowest dosage HCPCS 
code. Therefore, we are proposing to continue our policy to make 
packaging determinations on a drug-specific basis, rather than a HCPCS 
code-specific basis, for those HCPCS codes that describe the same drug 
or biological but different dosages in CY 2011.
    For CY 2011, in order to propose a packaging determination that is 
consistent across all HCPCS codes that describe different dosages of 
the same drug or biological, we aggregated both our CY 2009 claims data 
and our pricing information at ASP+6 percent across all of the HCPCS 
codes that describe each distinct drug or biological in order to 
determine the mean units per day of the drug or biological in terms of 
the HCPCS code with the lowest dosage descriptor. HCPCS codes J9093 
(cyclophosphamide, lyophilized, 100 mg), J9094 (cyclophosphamide, 
lyophilized, 200 mg), J9095 (cyclophosphamide, lyophilized, 500 mg), 
J9096 (cyclophosphamide, lyophilized, 1g), and J9097 (cyclophosphamide, 
lyophilized, 2g) did not have pricing information available for the ASP 
methodology and, as is our current policy for determining the packaging 
status of other drugs, we used the mean unit cost available from fourth 
quarter CY 2009 claims data to make the packaging determinations for 
these drugs. For all other drugs and biologicals that have HCPCS codes 
describing different dosages, we then multiplied the weighted average 
ASP+6 percent or mean unit cost payment amount across all dosage levels 
of a specific drug or biological by the estimated units per day for all 
HCPCS codes that describe each drug or biological from our claims data 
to determine the estimated per day cost of each drug or biological at 
less than or equal to $70 (whereupon all HCPCS codes for the same drug 
or biological would be packaged) or greater than $70 (whereupon all 
HCPCS codes for the same drug or biological would be separately 
payable). The proposed packaging status of each drug and biological 
HCPCS code to which this methodology would apply is displayed in Table 
24.
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d. Proposed Packaging of Payment for Diagnostic Radiopharmaceuticals, 
Contrast Agents, and Implantable Biologicals (``Policy-Packaged'' Drugs 
and Devices)
    Prior to CY 2008, the methodology of calculating a product's 
estimated per day cost and comparing it to the annual OPPS drug 
packaging threshold was used to determine the packaging status of 
drugs, biologicals, and radiopharmaceuticals under the OPPS (except for 
our CYs 2005 through 2009 exemption for 5-HT3 antiemetics). However, as 
established in the CY 2008 OPPS/ASC final rule with comment period (72 
FR 66766 through 66768), we began packaging payment for all diagnostic 
radiopharmaceuticals and contrast agents into the payment for the 
associated procedure, regardless of their per day costs. In addition, 
in CY 2009 we adopted a policy that packaged the payment for nonpass-
through implantable biologicals into payment for the associated 
surgical procedure on the claim (73 FR 68633 through 68636). We refer 
to diagnostic radiopharmaceuticals and contrast agents collectively as 
``policy-packaged'' drugs and to implantable biologicals as devices 
because, in CY 2010, we began to treat implantable biologicals as 
devices for all OPPS payment purposes.
    According to our regulations at Sec.  419.2(b), as a prospective 
payment system, the OPPS establishes a national payment rate that 
includes operating and capital-related costs that are directly related 
and integral to performing a procedure or furnishing a service on an 
outpatient basis including, but not limited to, implantable 
prosthetics, implantable durable medical equipment, and medical and 
surgical supplies. Packaging costs into a single aggregate payment for 
a service, encounter, or episode-of-care is a fundamental principle 
that distinguishes a prospective payment system from a fee schedule. In 
general, packaging the costs of items and services into the payment for 
the primary procedure or service with which they are associated 
encourages hospital efficiencies and also enables hospitals to manage 
their resources with maximum flexibility.
    Prior to CY 2008, we noted that the proportion of drugs, 
biologicals, and radiopharmaceuticals that were separately paid under 
the OPPS had increased in recent years, a pattern that we also observed 
for procedural services under the OPPS. Our final CY 2008 policy that 
packaged payment for all nonpass-through diagnostic 
radiopharmaceuticals and contrast agents, regardless of their per day 
costs, contributed significantly to expanding the size of the OPPS 
payment bundles and is consistent with the principles of a prospective 
payment system.
    As discussed in more detail in the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68645 through 68649), we presented several 
reasons supporting our initial policy to package payment of diagnostic 
radiopharmaceuticals and contrast agents into their associated 
procedures on a claim. Specifically, we stated that we believed 
packaging was appropriate because: (1) The statutory requirement that 
we must pay separately for drugs and biologicals for which the per day 
cost exceeds $50 under section 1833(t)(16)(B) of the Act has expired; 
(2) we believe that diagnostic radiopharmaceuticals and contrast agents 
function effectively as supplies that enable the provision of an 
independent service; and (3) section 1833(t)(14)(A)(iii) of the Act 
requires that payment for specified covered outpatient drugs (SCODs) be 
set prospectively based on a measure of average hospital acquisition 
cost. For these reasons, we believe it is appropriate to continue to 
treat diagnostic radiopharmaceuticals and contrast agents differently 
from other SCODs for CY 2011. Therefore, we are proposing to continue 
packaging payment for all contrast agents and diagnostic 
radiopharmaceuticals, collectively referred to as ``policy-packaged'' 
drugs, regardless of their per day costs, for CY 2011. We also are 
proposing to continue to package the payment for diagnostic 
radiopharmaceuticals into the payment for the associated nuclear 
medicine procedure and to package the payment for contrast agents into 
the payment of the associated echocardiography imaging procedure, 
regardless of whether the contrast agent met the OPPS drug packaging 
threshold. We refer readers to the CY 2010 OPPS/ASC final rule with 
comment period for a detailed discussion of nuclear medicine and 
echocardiography services (74 FR 35269 through 35277).
    In CY 2009 (73 FR 68634), we began packaging the payment for all 
nonpass-through implantable biologicals into payment for the associated 
surgical procedure. Because implantable biologicals may sometimes 
substitute for nonbiological devices, we noted that if we were to 
provide separate payment for implantable biologicals without pass-
through status, we would potentially be providing duplicate device 
payment, both through the packaged nonbiological device cost already 
included in the surgical procedure's payment and separate biological 
payment. We concluded that we saw no basis for treating implantable 
biological and nonbiological devices without pass-through status 
differently for OPPS payment purposes because both are integral to and 
supportive of the separately paid surgical procedures in which either 
may be used. Therefore, in CY 2009, we adopted a final policy to 
package payment for all nonpass-through implantable biologicals that 
are surgically inserted or implanted (through a surgical incision or a 
natural orifice), like our longstanding policy that packages payment 
for all implantable nonbiological devices without pass-through status. 
We finalized a policy in CY 2010 to package payment for nonpass-through 
implantable biologicals that are surgically inserted or implanted 
(through a surgical incision or a natural orifice) into the body, known 
as devices. For CY 2011, we are proposing to continue to package 
payment for nonpass-through implantable biologicals that are surgically 
inserted or implanted (through a surgical incision or a natural 
orifice) into the body, referred to as devices. In accordance with this 
proposal, two of the products with expiring pass-through status for CY 
2011 are biologicals that are solely surgically implanted according to 
their FDA-approved indications. These products are described by HCPCS 
codes C9356 (Tendon, porous matrix of cross-linked collagen and 
glycosaminoglycan matrix (TenoGlide Tendon Protector Sheet), per square 
centimeter) and C9359 (Porous purified collagen matrix bone void filler 
(Integra Mozaik Osteoconductive Scaffold Putty, Integra OS 
Osteoconductive Scaffold Putty), per 0.5 cc). Like the two implantable 
biologicals with expiring pass-through status in CY 2010 that were 
discussed in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60459 through 60499), we believe that the two biologicals specified 
above with expiring pass-through status for CY 2011 differ from other 
biologicals paid under the OPPS in that they specifically function as 
surgically implanted devices. As a result of the CY 2010 packaged 
payment methodology for all nonpass-through implantable biologicals, we 
are proposing to package payment for HCPCS codes C9356 and C9359 and 
assign them status indicator ``N'' for CY 2011. In addition, any new 
biologicals without pass-through status that are surgically inserted or 
implanted (through a surgical incision or a natural orifice) would be 
packaged in CY 2011.

[[Page 46272]]

Moreover, for nonpass-through biologicals that may sometimes be used as 
implantable devices, we continue to instruct hospitals to not bill 
separately for the HCPCS codes for the products when used as 
implantable devices. This reporting ensures that the costs of these 
products that may be, but are not always, used as implanted biologicals 
are appropriately packaged into payment for the associated implantation 
procedures.
3. Proposed Payment for Drugs and Biologicals without Pass-Through 
Status That Are Not Packaged
a. Proposed Payment for Specified Covered Outpatient Drugs (SCODs) and 
Other Separately Payable and Packaged Drugs and Biologicals
    Section 1833(t)(14) of the Act defines certain separately payable 
radiopharmaceuticals, drugs, and biologicals and mandates specific 
payments for these items. Under section 1833(t)(14)(B)(i) of the Act, a 
``specified covered outpatient drug'' is a covered outpatient drug, as 
defined in section 1927(k)(2) of the Act, for which a separate APC has 
been established and that either is a radiopharmaceutical agent or is a 
drug or biological for which payment was made on a pass-through basis 
on or before December 31, 2002.
    Under section 1833(t)(14)(B)(ii) of the Act, certain drugs and 
biologicals are designated as exceptions and are not included in the 
definition of ``specified covered outpatient drugs,'' known as SCODs. 
These exceptions are--
     A drug or biological for which payment is first made on or 
after January 1, 2003, under the transitional pass-through payment 
provision in section 1833(t)(6) of the Act.
     A drug or biological for which a temporary HCPCS code has 
not been assigned.
     During CYs 2004 and 2005, an orphan drug (as designated by 
the Secretary).
    Section 1833(t)(14)(A)(iii) of the Act requires that payment for 
SCODs in CY 2006 and subsequent years be equal to the average 
acquisition cost for the drug for that year as determined by the 
Secretary, subject to any adjustment for overhead costs and taking into 
account the hospital acquisition cost survey data collected by the 
Government Accountability Office (GAO) in CYs 2004 and 2005. If 
hospital acquisition cost data are not available, the law requires that 
payment be equal to payment rates established under the methodology 
described in section 1842(o), section 1847A, or section 1847B of the 
Act, as calculated and adjusted by the Secretary as necessary. Most 
physician Part B drugs are paid pursuant to ASP+6 percent pursuant to 
section 1842(o) of the Act and section 1847A of the Act.
    Section 1833(t)(14)(E) of the Act provides for an adjustment in 
OPPS payment rates for overhead and related expenses, such as pharmacy 
services and handling costs. Section 1833(t)(14)(E)(i) of the Act 
required MedPAC to study pharmacy overhead and to make recommendations 
to the Secretary regarding whether, and if so how, a payment adjustment 
should be made to compensate hospitals for them. Section 
1833(t)(14)(E)(ii) of the Act authorizes the Secretary to adjust the 
weights for ambulatory procedure classifications for SCODs to take into 
account the findings of the MedPAC study.
    In the CY 2006 OPPS proposed rule (70 FR 42728), we discussed the 
June 2005 report by MedPAC regarding pharmacy overhead costs in HOPDs 
and summarized the findings of that study:
     Handling costs for drugs, biologicals, and 
radiopharmaceuticals administered in the HOPD are not insignificant;
     Little information is available about the magnitude of 
pharmacy overhead costs;
     Hospitals set charges for drugs, biologicals, and 
radiopharmaceuticals at levels that reflect their respective handling 
costs; and
     Hospitals vary considerably in their likelihood of 
providing services which utilize drugs, biologicals, or 
radiopharmaceuticals with different handling costs.
    As a result of these findings, MedPAC developed seven drug 
categories for pharmacy and nuclear medicine handling costs based on 
the estimated level of hospital resources used to prepare the products 
(70 FR 42729). Associated with these categories were two 
recommendations for accurate payment of pharmacy overhead under the 
OPPS.
    1. CMS should establish separate, budget neutral payments to cover 
the costs hospitals incur for handling separately payable drugs, 
biologicals, and radiopharmaceuticals.
    2. CMS should define a set of handling fee APCs that group drugs, 
biologicals, and radiopharmaceuticals based on attributes of the 
products that affect handling costs; CMS should instruct hospitals to 
submit charges for these APCs and base payment rates for the handling 
fee APCs on submitted charges reduced to costs.
    In response to the MedPAC findings, in the CY 2006 OPPS proposed 
rule (70 FR 42729), we discussed our belief that, because of the varied 
handling resources required to prepare different forms of drugs, it 
would be impossible to exclusively and appropriately assign a drug to a 
certain overhead category that would apply to all hospital outpatient 
uses of the drug. Therefore, our CY 2006 OPPS proposal included a 
proposal to establish three distinct Level II HCPCS C-codes and three 
corresponding APCs for drug handling categories to differentiate 
overhead costs for drugs and biologicals (70 FR 42730). We also 
proposed: (1) To combine several overhead categories recommended by 
MedPAC; (2) to establish three drug handling categories, as we believed 
that larger groups would minimize the number of drugs that may fit into 
more than one category and would lessen any undesirable payment policy 
incentives to utilize particular forms of drugs or specific preparation 
methods; (3) to collect hospital charges for these HCPCS C-codes for 2 
years; and (4) to ultimately base payment for the corresponding drug 
handling APCs on CY 2006 claims data available for the CY 2008 OPPS.
    In the CY 2006 OPPS final rule with comment period (70 FR 68659 
through 68665), we discussed the public comments we received on our 
proposal regarding pharmacy overhead. The overwhelming majority of 
commenters did not support our proposal and urged us not to finalize 
this policy, as it would be administratively burdensome for hospitals 
to establish charges for HCPCS codes for pharmacy overhead and to 
report them. Therefore, we did not finalize this proposal for CY 2006. 
Instead, we established payment for separately payable drugs and 
biologicals at ASP+6 percent, which we calculated by comparing the 
estimated aggregate cost of separately payable drugs and biologicals in 
our claims data to the estimated aggregate ASP dollars for separately 
payable drugs and biologicals, using the ASP as a proxy for average 
acquisition cost (70 FR 68642). Hereinafter, we refer to this 
methodology as our standard drug payment methodology. We concluded that 
payment for drugs and biologicals and pharmacy overhead at a combined 
ASP+6 percent rate would serve as the best proxy for the combined 
acquisition and overhead costs of each of these products.
    In the CY 2007 OPPS/ASC final rule with comment period (71 FR 
68091), we finalized our proposed policy to provide a single payment of 
ASP+6 percent for the hospital's acquisition cost for the drug or 
biological and all associated pharmacy overhead and handling costs. The 
ASP+6 percent rate that we

[[Page 46273]]

finalized was higher than the equivalent average ASP-based amount 
calculated from claims of ASP+4 percent according to our standard drug 
payment methodology, but we adopted payment at ASP+6 percent for 
stability while we continued to examine the issue of the costs of 
pharmacy overhead in the HOPD.
    In the CY 2008 OPPS/ASC proposed rule (72 FR 42735), in response to 
ongoing discussions with interested parties, we proposed to continue 
our methodology of providing a combined payment rate for drug and 
biological acquisition and pharmacy overhead costs. We also proposed to 
instruct hospitals to remove the pharmacy overhead charge for both 
packaged and separately payable drugs and biologicals from the charge 
for the drug or biological and report the pharmacy overhead charge on 
an uncoded revenue code line on the claim. We believed that this would 
provide us with an avenue for collecting pharmacy handling cost data 
specific to drugs in order to package the overhead costs of these items 
into the associated procedures, most likely drug administration 
services. Similar to the public response to our CY 2006 pharmacy 
overhead proposal, the overwhelming majority of commenters did not 
support our CY 2008 proposal and urged us to not finalize this policy 
(72 FR 66761). At its September 2007 meeting, the APC Panel recommended 
that hospitals not be required to separately report charges for 
pharmacy overhead and handling and that payment for overhead be 
included as part of drug payment. The APC Panel also recommended that 
CMS continue to evaluate alternative methods to standardize the capture 
of pharmacy overhead costs in a manner that is simple to implement at 
the organizational level (72 FR 66761). Because of concerns expressed 
by the APC Panel and public commenters, we did not finalize the 
proposal to instruct hospitals to separately report pharmacy overhead 
charges for CY 2008. Instead, in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66763), we finalized a policy of providing 
payment for separately payable drugs and biologicals and their pharmacy 
overhead at ASP+5 percent as a transition from their CY 2007 payment of 
ASP+6 percent to payment based on the equivalent average ASP-based 
payment rate calculated from hospital claims according to our standard 
drug payment methodology, which was ASP+3 percent for the CY 2008 OPPS/
ASC final rule with comment period. Hospitals continued to include 
charges for pharmacy overhead costs in the line-item charges for the 
associated drugs reported on claims.
    For CY 2009, we proposed to pay separately payable drugs and 
biologicals at ASP+4 percent, including both SCODs and other drugs 
without CY 2009 OPPS pass-through status, based on our standard drug 
payment methodology, and we also proposed to split the ``Drugs Charged 
to Patients'' cost center into two cost centers: One for drugs with 
high pharmacy overhead costs and one for drugs with low pharmacy 
overhead costs (73 FR 41492). We noted that we expected that CCRs from 
the proposed new cost centers would be available in 2 to 3 years to 
refine OPPS drug cost estimates by accounting for differential hospital 
markup practices for drugs with high and low overhead costs. After 
consideration of the public comments received and the APC Panel 
recommendations, we finalized a CY 2009 policy (73 FR 68659) to provide 
payment for separately payable nonpass-through drugs and biologicals 
based on costs calculated from hospital claims at a 1-year transitional 
rate of ASP+4 percent, in the context of an equivalent average ASP-
based payment rate of ASP+2 percent calculated according to our 
standard drug payment methodology from the final rule claims and cost 
report data. We did not finalize our proposal to split the single 
standard ``Drugs Charged to Patients'' cost center into two cost 
centers largely due to concerns raised to us by hospitals about the 
associated administrative burden. Instead, we indicated in the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68659) that we would 
continue to explore other potential approaches to improve our drug cost 
estimation methodology, thereby increasing payment accuracy for 
separately payable drugs and biologicals.
    In response to the CMS proposals for the CY 2008 and CY 2009 OPPS, 
a group of pharmacy stakeholders (hereinafter referred to as the 
pharmacy stakeholders), including some cancer hospitals, some 
pharmaceutical manufacturers, and some hospital and professional 
associations, commented that CMS should pay an acquisition cost of 
ASP+6 percent for separately payable drugs, should substitute ASP+6 
percent for the packaged cost of all packaged drugs and biologicals on 
procedure claims, and should redistribute the difference between the 
aggregate estimated packaged drug cost in claims and payment for all 
drugs, including packaged drugs at ASP+6 percent, as separate pharmacy 
overhead payments for separately payable drugs. They indicated that 
this approach would preserve the aggregate drug cost observed in the 
claims data, while significantly increasing payment accuracy for 
individual drugs and procedures by redistributing drug cost from 
packaged drugs. Their suggested approach would provide a separate 
overhead payment for each separately payable drug or biological at one 
of three different levels, depending on the pharmacy stakeholders' 
assessment of the complexity of pharmacy handling associated with each 
specific drug or biological (73 FR 68651 through 68652). Each 
separately payable drug or biological HCPCS code would be assigned to 
one of the three overhead categories, and the separate pharmacy 
overhead payment applicable to the category would be made when each of 
the separately payable drugs or biologicals was paid.
    In the CY 2010 OPPS/ASC proposed rule (74 FR 35332), we proposed to 
redistribute between one-third and one-half of the estimated overhead 
cost associated with coded packaged drugs and biologicals with an ASP 
which resulted in our proposal to pay for the acquisition and pharmacy 
overhead costs of separately payable drugs and biologicals that did not 
have pass-through payment status at ASP+4 percent. We calculated 
estimated overhead cost for coded packaged drugs and biologicals by 
determining the difference between the aggregate claims cost for coded 
packaged drugs and biologicals with an ASP and the ASP dollars (ASP 
multiplied by the drug's or biological's units in the claims data) for 
those same coded drugs and biologicals; this difference was our 
estimated overhead cost for coded packaged drugs and biologicals. In 
our rationale described in the CY 2010 OPPS/ASC proposed rule (74 FR 
35326 through 35333), we stated that we believed that approximately 
$150 million of the estimated $395 million total in pharmacy overhead 
cost included in our claims data for coded packaged drugs and 
biologicals with reported ASP data should be attributed to separately 
payable drugs and biologicals and that the $150 million serves as the 
adjustment for the pharmacy overhead costs of separately payable drugs 
and biologicals. As a result, we also proposed to reduce the cost of 
coded drugs and biologicals that is packaged into payment for 
procedural APCs to offset the $150 million adjustment to payment for 
separately payable drugs and biologicals. In addition, we proposed that 
any redistribution of

[[Page 46274]]

pharmacy overhead cost that may arise from CY 2010 final rule data 
would occur only from coded packaged drugs and biologicals with an ASP 
to separately payable drugs and biologicals, thereby maintaining the 
estimated total cost of drugs and biologicals.
    Using our CY 2010 proposed rule data, and applying our longstanding 
methodology for calculating the total cost of separately payable drugs 
and biologicals in our claims compared to the ASP dollars for the same 
drugs and biologicals, without applying the proposed overhead cost 
redistribution, we determined that the estimated aggregate cost of 
separately payable drugs and biologicals (status indicators ``K'' and 
``G''), including acquisition and pharmacy overhead costs, was 
equivalent to ASP-2 percent. Therefore, under the standard methodology 
for establishing payment for separately payable drugs and biologicals, 
we would have paid for those drugs and biologicals at ASP-2 percent for 
CY 2010, their equivalent average ASP-based payment rate. We also 
determined that the estimated aggregate cost of coded packaged drugs 
and biologicals with an ASP (status indicator ``N''), including 
acquisition and pharmacy overhead costs, was equivalent to ASP+247 
percent.
    While we had no way of assessing whether this current distribution 
of overhead cost to coded packaged drugs and biologicals with an ASP 
was appropriate, we acknowledged that the established method of 
converting billed charges to costs had the potential to ``compress'' 
the calculated costs to some degree. Further, we recognized that the 
attribution of pharmacy overhead costs to packaged or separately 
payable drugs and biologicals through our standard drug payment 
methodology of a combined payment for acquisition and pharmacy overhead 
costs depends, in part, on the treatment of all drugs and biologicals 
each year under our annual drug packaging threshold. Changes to the 
packaging threshold may result in changes to payment for the overhead 
cost of drugs and biologicals that do not reflect actual changes in 
hospital pharmacy overhead cost for those products. For these reasons, 
we stated that we believed some portion, but not all, of the total 
overhead cost that is associated with coded packaged drugs and 
biologicals (the difference between aggregate cost for those drugs on 
the claims and ASP for the same drugs), based on our standard drug 
payment methodology, should, at least for CY 2010, be attributed to 
separately payable drugs and biologicals.
    We acknowledged that the observed combined payment for acquisition 
and pharmacy overhead costs of ASP-2 percent for separately payable 
drugs and biologicals may be too low and ASP+247 percent for coded 
packaged drugs and biologicals with reported ASP data in the CY 2010 
claims data may be too high (74 FR 35328). We stated that a middle 
ground of approximately one-third to one-half of the total pharmacy 
overhead cost currently associated with coded packaged drugs and 
biologicals in the CY 2008 claims data would represent the most 
accurate redistribution of pharmacy overhead cost. We included a 
discussion of indirect overhead costs, such as administrative and 
general costs, capital costs, staff benefits, and other facility costs 
that do not vary across drugs, and direct overhead costs, including 
staff, supplies, and equipment that are directly attributable only to 
the storage, handling, preparation, and distribution of drugs and 
biologicals and which do vary, sometimes considerably, depending upon 
the drug being furnished. We presented analyses that modeled the 
redistribution of overhead costs in the packaged drugs to all drugs and 
biologicals based on overhead relative weights derived from industry 
and from MedPAC's recommended overhead relative weights and by 
assigning each drug, both packaged and separately paid, to a category 
of overhead complexity. Analyses relying on both sets of weights 
suggest that indirect costs are a sizable component of the overhead 
costs associated with all drugs and biologicals (74 FR 60505 to 60508).
    Within the one-third to one-half parameters, we proposed that 
reallocating $150 million in drug and biological cost observed in the 
claims data from coded packaged drugs and biologicals with an ASP to 
separately payable drugs and biologicals for CY 2010 would more 
appropriately distribute pharmacy overhead cost among packaged and 
separately payable drugs and biologicals. Based on this redistribution, 
we proposed a payment rate for separately payable drugs and biologicals 
of ASP+4 percent. Thus, we proposed a pharmacy overhead adjustment for 
separately payable drugs and biologicals in CY 2010 that would result 
in their payment at ASP+4 percent. Redistributing $150 million 
represented a reduction in cost of coded packaged drug and biologicals 
with reported ASP data in the CY 2010 proposed rule claims data of 27 
percent.
    We also proposed that any redistribution of pharmacy overhead cost 
that may arise from CY 2010 final rule data would occur only from some 
drugs and biologicals to other drugs and biologicals, thereby 
maintaining the estimated total cost of drugs and biologicals in our 
claims data (no redistribution of cost would occur from other services 
to drugs and biologicals or vice versa). We further proposed that the 
claims data for 340B hospitals be included in the calculation of 
payment for drugs and biologicals under the CY 2010 OPPS and that 340B 
hospitals would be paid the same amounts for separately payable drugs 
and biologicals as hospitals that do not participate in the 340B 
program. Finally, we proposed that, in accordance with our standard 
drug payment methodology, the estimated payments for separately payable 
drugs and biologicals would be taken into account in the calculation of 
the weight scaler that would apply to the relative weights for all 
procedural services (but would not apply to separately payable drugs 
and biologicals) paid under the OPPS, as required by section 
1833(t)(14)(H) of the Act.
    In the CY 2010 OPPS final rule with comment period, we adopted a 
transitional payment rate of ASP+4 percent based on a pharmacy overhead 
adjustment methodology for CY 2010 that redistributed $200 million from 
packaged drug cost to separately payable drug cost. This $200 million 
included the proposed $150 million redistribution from the pharmacy 
overhead cost of coded packaged drugs and biologicals for which an ASP 
is reported and an additional $50 million dollars from the total 
uncoded drug and biological cost to separately payable drugs and 
biologicals as a conservative estimate of the pharmacy overhead cost of 
uncoded packaged drugs and biologicals that should be appropriately 
associated with the cost of separately payable drugs and biologicals 
(74 FR 60517). We noted that our final CY 2010 payment policy for 
separately payable drugs and biologicals at ASP+4 percent fell within 
the range of ASP-3 percent, that would have resulted from no pharmacy 
overhead cost redistribution from packaged to separately payable drugs 
and biologicals, to ASP+7 percent, that would have resulted from 
redistribution of pharmacy overhead cost based on expansive assumptions 
about the nature of uncoded packaged drug and biological cost. We 
acknowledged that, to some unknown extent, there are pharmacy overhead 
costs being attributed to the items and services reported under the 
pharmacy revenue code without HCPCS codes that are likely pharmacy 
overhead for

[[Page 46275]]

separately payable drugs. With regard to uncoded packaged drug costs, 
we redistributed $50 million and stated that we could not know the 
amount of overhead associated with these drugs without making 
significant further assumptions about the amount of pharmacy overhead 
cost associated with the drugs and biologicals captured by these 
uncoded packaged drug costs. We finalized a policy of redistributing 
pharmacy overhead cost from some drugs and biologicals to other drugs 
and biologicals, thereby maintaining the estimated total cost of drugs 
and biologicals in our claims data (no redistribution of cost would 
occur from other services to drugs and biologicals or vice versa).
b. Proposed Payment Policy
    Section 1833(t)(14)(A)(iii) of the Act, as described above, 
continues to be applicable to determining payments for SCODs for CY 
2011. This provision requires that payment for SCODs be equal to the 
average acquisition cost for the drug for that year as determined by 
the Secretary, subject to any adjustment for overhead costs and taking 
into account the hospital acquisition cost survey data collected by the 
GAO in CYs 2004 and 2005. If hospital acquisition cost data are not 
available, section 1833(t)(14)(A)(iii)(II) of the Act requires that 
payment be equal to payment rates established under the methodology 
described in section 1842(o) of the Act, section 1847A of the Act 
(ASP+6 percent as paid for physician Part B drugs), or section 1847B of 
the Act (CAP), as the case may be, as calculated and adjusted by the 
Secretary as necessary. In accordance with sections 1842(o) and 1847A, 
payment for most Medicare Part B drugs furnished on or after January 1, 
2005, are paid based on the ASP methodology. Medicare Part B drugs 
generally fall into three categories: Physician drugs (drugs furnished 
incident to a physician's service), DME drugs (drugs furnished under 
the durable medical equipment benefit), and drugs specifically covered 
by statute (certain oral anti-cancer and immunosuppressive drugs). In 
addition, section 1833(t)(14)(E)(ii) of the Act authorizes, but does 
not require, the Secretary to adjust APC weights to take into account 
the 2005 MedPAC report relating to overhead and related expenses, such 
as pharmacy services and handling costs. As discussed in V.B.3.a. of 
this proposed rule, since CY 2006, we have used ASP data and costs 
estimated from charges on hospital claims data as a proxy for both the 
average hospital acquisition cost that the statute requires for payment 
of SCODs and the associated pharmacy overhead cost to establish a 
combined payment rate for acquisition cost and pharmacy overhead. Until 
CY 2010, we applied this methodology to payment for all separately 
payable drugs and biologicals without pass-through status, including 
both SCODs and other drugs and biologicals that do not meet the 
statutory definition of SCODs.
    However, for the CY 2010 OPPS, we revised the standard methodology 
to include an adjustment for pharmacy overhead. We acknowledged that 
the established method of converting billed charges to costs had the 
potential to ``compress'' the calculated costs to some degree. We 
recognized that the attribution of pharmacy overhead costs to packaged 
or separately payable drugs and biologicals through our standard drug 
payment methodology of a combined payment for acquisition and pharmacy 
overhead costs depends, in part, on the treatment of all drugs and 
biologicals each year under our annual drug packaging threshold. To 
some unknown extent, we believe that some pharmacy overhead costs are 
being attributed to packaged drugs and biologicals that are likely 
pharmacy overhead costs for separately payable drugs.
    For this CY 2011 OPPS/ASC proposed rule, using our standard 
methodology for determining the total cost of separately payable drugs 
in our CY 2009 claims data and comparing these costs to the ASP dollars 
(April 2010 ASP quarterly payment rates multiplied by units for the 
separately payable drugs and biologicals in the claims data) for the 
same drugs, we determined that the total payment for separately payable 
drugs (status indicators ``K'' and ``G''), including acquisition and 
pharmacy overhead costs, is ASP+0 percent, which also would be the ASP-
based payment rate under the standard methodology that we established 
in CY 2006. Additionally, we determined that the total aggregate cost 
for packaged drugs with a HCPCS code for which manufacturers report ASP 
data (status indicator ``N''), including acquisition and pharmacy 
overhead costs, is equivalent to ASP+283 percent. Finally, we 
determined that the total cost for both packaged drugs with a HCPCS 
code and separately payable drugs (status indicators ``N'', ``K'' and 
``G'') for which we also have ASP data, including acquisition and 
pharmacy overhead costs, is ASP+14 percent. Table 25 below displays our 
findings with regard to the percentage of ASP in comparison to the cost 
for packaged coded drugs and for separately payable coded drugs before 
application of the overhead adjustment methodology.

[[Page 46276]]

[GRAPHIC] [TIFF OMITTED] TP03AU10.505

    We believe that the combined payment for average acquisition and 
pharmacy overhead costs under our standard methodology may understate 
the cost of separately payable drugs and biologicals and related 
pharmacy overhead for those drugs and biologicals. Specifically, we 
believe payment at ASP+0 percent for such costs may not be sufficient. 
We also acknowledge that ASP+283 percent may overstate the combined 
acquisition and pharmacy overhead cost of packaged drugs and 
biologicals. Therefore, for CY 2011, we are proposing to continue our 
CY 2010 pharmacy overhead adjustment methodology. We are proposing to 
redistribute $150 million from the pharmacy overhead cost of coded 
packaged drugs and biologicals with reported ASP data and to 
redistribute $50 million from the cost of uncoded packaged drugs and 
biologicals without an ASP, for a total redistribution of $200 million 
in drug cost from the cost of coded and uncoded packaged drugs to the 
cost of separately payable drugs, as we did for the CY 2010 final rule. 
We estimate the overhead cost for coded packaged drugs to be $438 
million ($593 million in total cost for coded packaged drugs and 
biologicals with a reported ASP less $155 million in total ASP dollars 
for coded packaged drugs and biologicals with a reported ASP). Similar 
to the CY 2010 proposal, we are proposing that any redistribution of 
pharmacy overhead cost would occur only among drugs and biologicals in 
our claims data, that no redistribution of cost would occur from other 
services to drugs and biologicals or vice versa. We continue to believe 
that redistributing $200 million from packaged to separately payable 
drugs and biologicals is an appropriate redistribution of pharmacy 
overhead costs to address any charge compression in the standard 
methodology. This would result in a proposed CY 2011 payment rate for 
separately payable drugs and biologicals of ASP+6 percent. We emphasize 
that we are proposing a pharmacy overhead adjustment methodology based 
on a redistribution of overhead cost and that our proposal for payment 
at ASP+6 percent is a coincidental outcome of the proposed methodology 
to redistribute $200 million from packaged drugs to separately payable 
drugs. We are not proposing payment of ASP+6 percent for separately 
payable drugs as an alternative to payment of average acquisition costs 
based on a survey under section 1833(t)(14)(A)(iii)(I) of the Act. We 
continue to believe that the average sales price information collected 
under section 1847A (b)(1)(A) of the Act and our hospital claims data 
is a suitable proxy for the acquisition cost data. For a full 
explanation of our rationale for using ASP data and our hospital claims 
data as a suitable proxy for acquisition cost data we refer readers to 
the CY2010 OPPS/ASC final rule with comment period (74 FR 60515). We 
further note that, in past years, the proposed ASP+X amount decreased 
by at least 1 percentage point when we updated the ASP data, claims 
data, and cost report data between the proposed rule and the final rule 
with comment period, from ASP+5 to ASP+4 for example. Therefore, it is 
possible that this proposed methodology would result in an ASP+X amount 
that is different from ASP+6.

[[Page 46277]]

    As indicated in Table 25 above, if we were to propose to establish 
payment for separately payable drugs and biologicals under the standard 
methodology established in CY 2006 without applying a pharmacy overhead 
adjustment, we would propose to pay for separately payable drugs and 
biologicals at ASP+0 percent. However, because we are concerned about 
underpaying separately payable drugs and biologicals, we believe a 
pharmacy overhead adjustment using a redistribution methodology for 
determining the amount of payment for drugs and biologicals as we did 
for CY 2010 is appropriate. We believe the observed ASP+0 percent 
reflects some amount of charge compression and variability attributable 
to choice of a packaging threshold.
    We continue to believe that the methodology to redistribute $200 
million in drug overhead cost from packaged coded and uncoded drugs to 
separately payable drugs, while keeping the total cost of drugs in the 
claims data constant, continues to be appropriate for the reasons set 
forth in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60501 through 60517). Therefore, we are proposing to redistribute $200 
million in drug overhead costs from coded and uncoded packaged drugs to 
separately payable drugs while keeping the total cost of drugs in the 
claims data constant. Table 26 presents the ASP+X amount after 
redistribution of $150 million from the estimated overhead of $438 
million for coded packaged drugs with reported ASP data to separately 
payable drugs and biologicals and $50 million from uncoded packaged 
drug cost for which an estimate of overhead cannot be calculated, 
resulting in a total redistribution of $200 million in cost from 
packaged drugs and biologicals to separately payable drugs and 
biologicals.
[GRAPHIC] [TIFF OMITTED] TP03AU10.506

    We generally received positive comments on our CY 2010 proposal to 
redistribute $150 million of drug cost from packaged drugs and 
biologicals to separately payable drugs and biologicals to establish 
their final combined payment level. The general comment we received on 
our pharmacy overhead adjustment methodology was that the amount of 
drug cost that should be redistributed should be greater, a sentiment 
reiterated at the February 2010 APC Panel meeting and discussed in 
greater detail below. Commenters and presenters to the APC Panel 
specifically argued that our CY 2010 proposal had not acknowledged the 
potential overhead cost available for redistribution in the uncoded 
packaged drugs.
    We explain below our rationale for why we are not proposing to 
redistribute more cost from uncoded packaged drugs. Conversations with 
stakeholders and hospitals over the past year suggest that hospitals do 
not always report HCPCS codes for drugs for a variety of reasons 
including an internal practice not to code for packaged drugs, building 
the cost of the drugs into the associated procedure charge, lack of a 
HCPCS code for some drugs and biologicals, and purchased

[[Page 46278]]

vendor billing software functionality that removes codes. A key premise 
of our pharmacy overhead adjustment redistribution methodology was our 
assessment of the amount of drug cost in the claims data above 
aggregate ASP available as ``overhead'' for redistribution. Knowing the 
specific HCPCS codes for packaged drugs and their associated ASP allows 
us to assess the differential between aggregate ASP and claim cost for 
packaged drugs and to assess the intensity of pharmacy overhead 
associated with these drugs. The inability to know which drugs are 
captured by uncoded drug charges on a claim is challenging because we 
cannot know what is being charged or what the overhead complexity might 
be. Further, we understand that there is wide variation in how 
hospitals set charges for items and services in their chargemasters, 
sometimes charging separately for overhead (for example, paper cups, 
gloves, transportation, staff consultations) and sometimes including 
charges for those supplies in the charge for drugs. Therefore, we 
cannot be certain that the amount of uncoded pharmacy overhead cost is 
as high as the public has suggested or that hospitals mark up these 
uncoded drugs and biologicals in the same way as packaged drugs and 
biologicals with HCPCS codes.
    In addition, at its February 2010 meeting, the APC Panel 
recommended that CMS reallocate a larger portion of the pharmacy 
overhead costs from packaged drugs to separately payable drugs for CY 
2011. We do not accept the APC Panel's recommendation to redistribute a 
larger portion of the pharmacy overhead costs from packaged drugs to 
separately payable drugs because we also believe the analysis provided 
by the presenters at the February 2010 APC Panel meeting is 
insufficient to determine that it is appropriate to propose to 
redistribute more payment from uncoded packaged drugs and biologicals 
to separately paid drugs and biologicals. Although presenters at the 
APC Panel meeting acknowledged that CMS could not know the ASP for 
these uncoded drug costs, they provided analyses examining the 
proportion of estimated coded packaged drug cost relative to estimated 
uncoded packaged drug cost out of all packaged drug cost (both coded 
and uncoded) and concluded that uncoded and coded packaged drugs are 
probably the same drugs because hospitals tend to have roughly the same 
amount of estimated packaged drug cost in their claims data but wide 
variation on the proportion of coded packaged drugs. They also 
presented analyses stating that the relationship between pharmacy 
overhead and handling costs and the cost of drugs in the cost report 
data can be interpreted as providing a relationship between cost and 
overhead comparable to the ASP+X calculated for all drug cost in the 
claims data, if an aggregate ASP amount is assumed to be the same for 
uncoded drugs and biologicals as it is for coded packaged drugs. The 
presenters concluded that the uncoded packaged drug and biological cost 
accounts for exactly the same drugs and biologicals as those in the 
coded packaged drug and biological cost and that CMS could assume the 
same proportional amount of overhead cost that appears in the uncoded 
packaged drug and biological cost as observed in the coded packaged 
drug cost. They asked that CMS assume that uncoded packaged drugs and 
biologicals resemble coded packaged drugs and biologicals and treat 
them comparably for purposes of estimating ``overhead.'' We reviewed 
the presenters' analyses, but we believe the information they provided 
is insufficient in order to enable us to isolate the portion of the 
uncoded packaged drug and biological cost that is pharmacy overhead 
cost. In order to isolate the portion of uncoded packaged drug and 
biological cost that is pharmacy overhead cost, we believe that we 
would need more drug-specific information reported to us by hospitals, 
either through more reporting of packaged drugs on claims or through 
more granular cost centers on the cost report. We note that we 
investigated uncoded drugs further. We evaluated the services with 
which uncoded packaged drug cost appears in the claims data in an 
effort to assess how much uncoded drugs resemble coded packaged drugs. 
We found that most uncoded packaged drug costs appear with surgical 
services and that most coded packaged drug costs appear with medical 
services. In light of this information, we are not confident that the 
drugs captured by uncoded drug cost are the same drugs captured by 
coded packaged drug cost. Therefore, we do not believe we can assume 
that they are the same drugs, with comparable overhead and handling 
costs. Without being able to calculate an ASP for these drugs and 
without being able to gauge the magnitude of the overhead complexity 
associated with these drugs, we do not believe we should assume that 
the same amount of proportional overhead is available for 
redistribution for this proposed rule. We are not convinced that the 
same proportionate amount of overhead cost should be redistributed from 
the packaged uncoded drugs as the amount of overhead cost that is 
appropriate to redistribute for packaged coded drugs. In addition, we 
remain committed to using hospital claims data reported to us by 
hospitals to set the OPPS payment rates because it provides more 
specificity about the provided drugs and biologicals and would allow us 
to assess an overhead amount for those drugs.and biologicals. 
Therefore, we continue to propose to redistribute a conservative 
estimate, $50 million, in cost from uncoded packaged drugs to 
separately payable drugs and biologicals.
    Based on the reasons set forth above, and consistent with our 
rationale outlined in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60511 through 60512), we cannot be certain that we know 
what portion of the uncoded drugs and biologicals cost is acquisition 
cost versus pharmacy overhead costs, and we have no compelling reason 
to redistribute a greater amount of drug cost. Therefore, our proposal 
to redistribute $200 million in drug cost from packaged drugs to 
separately payable drugs, while maintaining the total cost of drugs in 
our claims data, consists of redistributing $150 million in 
``overhead'' cost from packaged coded drugs and biologicals with 
reported ASP data to separately payable drugs and biologicals and 
redistributing $50 million in drug cost from uncoded packaged drugs and 
biologicals to separately payable drugs and biologicals as a 
conservative estimate of potential overhead cost appearing in uncoded 
packaged drugs that should have been associated with separately payable 
drugs and biologicals.
    We have indicated that the basis for this CY 2011 proposal to 
redistribute $150 million dollars from packaged coded drugs and 
biologicals to separately payable drugs and biologicals as a pharmacy 
overhead adjustment is the same as our CY 2010 final policy. The CY 
2010 policy was based on our assessment that between one-third and one-
half of the overhead cost in coded packaged drugs could be attributable 
to charge compression due to our cost estimation methodology and our 
choice of a packaging threshold. We continue to believe that a precise 
amount of drug cost attributable to charge compression cannot be known 
precisely, but that $150 million is an appropriate adjustment. The 
current proposal for $150 million falls within the approximate one-
third to one-half range established in CY 2010 with updated CY 2009 
claim and cost report data, and we anticipate that the $150 million 
would

[[Page 46279]]

continue to roughly approximate one-third to one-half or thereabouts of 
overhead cost in the coded packaged drugs with updated ASP data, and 
claim and cost report data for the final rule. In order to redistribute 
the $150 million in pharmacy overhead from packaged costs of drugs and 
biologicals for which a HCPCS code was reported, we reduced the costs 
attributable to these items and services by multiplying the costs 
derived from the revenue center charges for packaged HCPCs codes by 
0.75 (a 25 percent reduction).
    To redistribute the $50 million in total cost from packaged costs 
of drugs and biologicals for which no HCPCS code was reported, we 
reduced the costs attributable to these items and services by 
multiplying the costs derived from revenue center charges for pharmacy 
by 0.92 (an 8 percent reduction). We note that for this CY 2011 OPPS/
ASC proposed rule, the $50 million in drug overhead cost that we 
propose to redistribute from packaged uncoded drugs and biologicals to 
separately payable drugs and biologicals is 8 percent, comparable to 
the CY 2010 final rule amount. We note that $50 million as a percent of 
uncoded drug cost may be close to the 8 percent range or thereabouts of 
uncoded drug and biological cost in the final rule with updated claim 
and cost data. In addition, although we have arrived at a proposed 
payment rate of ASP+6 percent, we emphasize that the ASP+6 percent 
amount may change when ASP+X is recalculated using updated ASP data and 
claims and cost report data for the CY 2011 OPPS/ASC final rule with 
comment period.
    We also note that, although it is CMS' longstanding policy under 
the OPPS to refrain from instructing hospitals on the appropriate 
revenue code to use to charge for specific services, we continue to 
encourage hospitals to bill all drugs and biologicals with HCPCS codes, 
regardless of whether they are separately payable or packaged. We 
believe that a practice of billing all drugs and biologicals with HCPCS 
codes under revenue code 0636 (Pharmacy--Extension of 025X; Drugs 
Requiring Detailed Coding) would be consistent with NUBC billing 
guidelines and would provide us with the most complete and detailed 
information for ratesetting. We note that we make packaging 
determinations for drugs annually based on cost information reported 
under HCPCS codes, and the OPPS ratesetting is best served when 
hospitals report charges for all items and services with HCPCS codes 
when they are available, whether or not Medicare makes separate payment 
for the items and services.
    The APC Panel also recommended that CMS evaluate the impact of 
changes in its drug payment policy on hospitals (categorized by type 
and size) of such a reallocation and present this analysis to the APC 
Panel at its next meeting. We accept this recommendation and will 
present this analysis to the APC Panel at its next meeting.
    The APC Panel also recommended that CMS continue to evaluate the 
impact of its drugs and biologicals overhead payment policy on 
hospitals. We accept this recommendation. We note that our regulatory 
impact analysis presented in section XXIII of this proposed rule 
includes some of the analysis requested in these last two 
recommendations.
    In conclusion, we are proposing for CY 2011 to continue our CY 2010 
redistribution methodology, to redistribute $150 million from the 
pharmacy overhead cost of coded packaged drugs and biologicals with an 
ASP and to redistribute $50 million from the cost of uncoded packaged 
drugs and biologicals for a total of $200 million from cost in coded 
and uncoded packaged drugs to separately payable drugs. We are 
proposing to redistribute pharmacy overhead cost among drugs and 
biologicals, thereby maintaining the estimated total cost of drugs and 
biologicals in our claims data (no redistribution of cost would occur 
from other services to drugs and biologicals or vice versa). The result 
of the proposed methodology when applied using April 2010 ASPs, data 
for claims for services furnished during CY 2009 and processed through 
the common working file before January 1, 2010, and the most current 
submitted cost reports as of January 1, 2010, is a proposed ASP+6 
percent amount for CY 2011. We are further proposing to continue to 
include the claims data for 340B hospitals in the calculation of 
payment for drugs and biologicals under the CY 2011 OPPS because 
excluding data from hospitals that participate in the 340B program from 
our ASP+X calculation, but paying those hospitals at that derived 
payment amount, would effectively redistribute payment to drugs or 
biologicals from payment for other services under the OPPS, and we do 
not believe this redistribution would be appropriate (74 FR 35332). In 
addition, we are proposing that 340B hospitals continue to be paid the 
same amounts for separately payable drugs and biologicals as hospitals 
that do not participate in the 340B program for CY 2011 because 
commenters have generally opposed differential payment for hospitals 
based on their 340B participation status. In addition, we are proposing 
to include claims from 340B hospitals in our assessment of average 
acquisition cost under section 1833(t)(14)(A)(iii) of the Act. We are 
proposing that the estimated payments for separately payable drugs and 
biologicals be taken into account in the calculation of the weight 
scaler that would apply to the relative weights for all procedural 
services (but would not apply to separately payable drugs and 
biologicals) paid under the OPPS, as required by section 1833(t)(14)(H) 
of the Act.
    Finally, we note that we continue to pursue the most appropriate 
methodology for establishing payment for drugs and biologicals under 
the OPPS and that we will continue to evaluate the appropriateness of 
this methodology in future years.
c. Proposed Payment Policy for Therapeutic Radiopharmaceuticals
    From the implementation of the collection of ASP information in CY 
2005, CMS exempted radiopharmaceutical manufacturers from reporting ASP 
data for all radiopharmaceuticals for payment purposes under the OPPS. 
(For more information, we refer readers to the CY 2005 OPPS final rule 
with comment period (69 FR 65811) and the CY 2006 OPPS final rule with 
comment period (70 FR 68655).) Consequently, we did not have ASP data 
for radiopharmaceuticals for consideration for OPPS ratesetting until 
we began collecting ASP for therapeutic radiopharmaceuticals for CY 
2010. In accordance with section 1833(t)(14)(B)(i)(I) of the Act, we 
have classified radiopharmaceuticals under the OPPS as SCODs. As such, 
we have paid for radiopharmaceuticals at average acquisition cost as 
determined by the Secretary and subject to any adjustment for overhead 
costs. For CYs 2006 and 2007, we used mean unit cost data from hospital 
claims to determine each radiopharmaceutical's packaging status and 
implemented a temporary policy to pay for separately payable 
radiopharmaceuticals based on the hospital's charge for each 
radiopharmaceutical adjusted to cost using the hospital's overall CCR. 
The methodology of providing separate radiopharmaceutical payment based 
on charges adjusted to cost through application of an individual 
hospital's overall CCR for CYs 2006 and 2007 was finalized as an 
interim proxy for average acquisition cost.
    In CY 2008, we packaged payment for all diagnostic 
radiopharmaceuticals and

[[Page 46280]]

we proposed and finalized a methodology to provide prospective payment 
for therapeutic radiopharmaceuticals (defined as those Level II HCPCS 
codes that include the term ``therapeutic'' along with a 
radiopharmaceutical in their long code descriptors) using mean costs 
derived from the CY 2006 claims data, where the costs were determined 
using our standard methodology of applying hospital-specific 
departmental CCRs to radiopharmaceutical charges, defaulting to 
hospital-specific overall CCRs only if appropriate departmental CCRs 
were unavailable (72 FR 66772). Following issuance of the CY 2009 OPPS/
ASC proposed rule, section 142 of the Medicare Improvements for 
Patients and Providers Act of 2008 (Pub. L. 110-275) amended section 
1833(t)(16)(C) of the Act, as amended by section 106(a) of the 
Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110-173), 
to further extend the payment period for therapeutic 
radiopharmaceuticals based on hospital's charges adjusted to cost 
through December 31, 2009. Therefore, for CY 2009, we finalized a 
policy to continue to pay hospitals for therapeutic 
radiopharmaceuticals at charges adjusted to cost through the end of CY 
2009.
    For CY 2010, we proposed and finalized a policy to pay for 
separately paid therapeutic radiopharmaceuticals under the ASP 
methodology adopted for separately payable drugs and biologicals. We 
allowed manufacturers to submit the ASP data in a patient-specific dose 
or patient-ready form in order to properly calculate the ASP amount for 
a given HCPCS code. This resulted in payment for therapeutic 
radiopharmaceuticals at ASP+4 percent for CY 2010 for products for 
which the manufacturer submitted ASP. We also finalized a policy to 
base therapeutic radiopharmaceutical payment on CY 2008 mean unit cost 
data derived from hospital claims if ASP information was unavailable.
    We believe that the rationale outlined in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60524 through 60525) continues to 
be appropriate in for nonpass-through separately payable therapeutic 
radiopharmaceuticals in CY 2011. Therefore, we are proposing to 
continue to pay all nonpass-through, separately payable therapeutic 
radiopharmaceuticals under the ASP+X payment level established using 
the proposed pharmacy overhead adjustment based on a redistribution 
methodology to set payment for separately payable drugs and biologicals 
(as discussed in section V.B.3.b.) based on ASP information, if 
available, for a ``patient ready'' dose and updated on a quarterly 
basis for products for which manufacturers report ASP data. For a full 
discussion of how a ``patient ready'' dose is defined, we refer readers 
to the CY 2010 OPPS/ASC final rule with comment period, 74 FR 60520 
through 60521. We also are proposing to rely on CY 2009 mean unit cost 
data derived from hospital claims data for payment rates for 
therapeutic radiopharmaceuticals for which ASP data are unavailable and 
to update the payment rates for separately payable therapeutic 
radiopharmaceuticals, according to our usual process for updating the 
payment rates for separately payable drugs and biologicals, on a 
quarterly basis if updated ASP information is available.
4. Proposed Payment for Blood Clotting Factors
    For CY 2010, we provided payment for blood clotting factors under 
the same methodology as other nonpass-through separately payable drugs 
and biologicals under the OPPS and continued paying an updated 
furnishing fee. That is, for CY 2010, we provided payment for blood 
clotting factors under the OPPS at ASP+4 percent, plus an additional 
payment for the furnishing fee. We note that when blood clotting 
factors are provided in physicians' offices under Medicare Part B and 
in other Medicare settings, a furnishing fee is also applied to the 
payment. The CY 2010 updated furnishing fee is $0.170 per unit.
    For CY 2011, we are proposing to pay for blood clotting factors at 
ASP+6 percent, consistent with our proposed payment policy for other 
nonpass-through separately payable drugs and biologicals, and to 
continue our policy for payment of the furnishing fee using an updated 
amount. Because the furnishing fee update is based on the percentage 
increase in the Consumer Price Index (CPI) for medical care for the 12-
month period ending with June of the previous year and the Bureau of 
Labor Statistics releases the applicable CPI data after the MPFS and 
OPPS/ASC proposed rules are published, we are not able to include the 
actual updated furnishing fee in this proposed rule. Therefore, in 
accordance with our policy as finalized in the CY 2008 OPPS/ASC final 
rule with comment period (72 FR 66765), we would announce the actual 
figure for the percent change in the applicable CPI and the updated 
furnishing fee calculated based on that figure through applicable 
program instructions and posting on the CMS Web site at:  http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/.
5. Proposed Payment for Nonpass-Through Drugs, Biologicals, and 
Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims 
Data
    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173) does not address the OPPS payment in CY 2005 
and after for drugs, biologicals, and radiopharmaceuticals that have 
assigned HCPCS codes, but that do not have a reference AWP or approval 
for payment as pass-through drugs or biologicals. Because there is no 
statutory provision that dictated payment for such drugs, biologicals, 
and radiopharmaceuticals in CY 2005, and because we had no hospital 
claims data to use in establishing a payment rate for them, we 
investigated several payment options for CY 2005 and discussed them in 
detail in the CY 2005 OPPS final rule with comment period (69 FR 65797 
through 65799).
    For CYs 2005 to 2007, we implemented a policy to provide separate 
payment for new drugs, biologicals, and radiopharmaceuticals with HCPCS 
codes (specifically those new drug, biological, and radiopharmaceutical 
HCPCS codes in each of those calendar years that did not crosswalk to 
predecessor HCPCS codes) but which did not have pass-through status, at 
a rate that was equivalent to the payment they received in the 
physician's office setting, established in accordance with the ASP 
methodology for drugs and biologicals, and based on charges adjusted to 
cost for radiopharmaceuticals. For CYs 2008 and 2009, we finalized a 
policy to provide payment for new drugs (excluding contrast agents and 
diagnostic radiopharmaceuticals) and biologicals (excluding implantable 
biologicals for CY 2009) with HCPCS codes, but which did not have pass-
through status and were without OPPS hospital claims data, at ASP+5 
percent and ASP+4 percent, respectively, consistent with the final OPPS 
payment methodology for other separately payable drugs and biologicals. 
New therapeutic radiopharmaceuticals were paid at charges adjusted to 
cost based on the statutory requirement for CY 2008 and CY 2009 and 
payment for new diagnostic radiopharmaceuticals was packaged in both 
years. For CY 2010, we continued to provide payment for new drugs 
(excluding contrast agents), and nonimplantable biologicals with HCPCS 
codes that do not have pass-through status and are without OPPS 
hospital

[[Page 46281]]

claims data, at ASP+4 percent, consistent with the CY 2010 payment 
methodology for other separately payable nonpass-through drugs, and 
nonimplantable biologicals. We also finalized a policy to extend the CY 
2009 payment methodology to new therapeutic radiopharmaceutical HCPCS 
codes, consistent with our final policy providing separate payment for 
therapeutic radiopharmaceuticals in the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60581 through 60526), that do not crosswalk 
to CY 2009 HCPCS codes, do not have pass-through status, and are 
without OPPS hospital claims data, at ASP+4 percent.
    For CY 2011, we are proposing to continue the CY 2010 payment 
methodology for new drugs (excluding contrast agents and diagnostic 
radiopharmaceuticals), nonimplantable biologicals, and therapeutic 
radiopharmaceuticals that meet the following conditions: those drugs, 
biologicals and therapeutic radiopharmaceuticals that have HCPCS codes 
that do not crosswalk to CY 2010 HCPCS codes, those that do not have 
pass-through status, and those that are without OPPS hospital claims 
data. We are proposing to provide payment for new CY 2011 drugs 
(excluding contrast agents and diagnostic radiopharmaceuticals), 
nonimplantable biologicals, and therapeutic radiopharmaceuticals, at 
ASP+6 percent, consistent with the proposed CY 2011 payment methodology 
for other separately payable nonpass-through drugs, nonimplantable 
biololgicals, and therapeutic radiopharmaceuticals. We believe this 
proposed policy would ensure that new nonpass-through drugs, 
nonimplantable biologicals, and therapeutic radiopharmaceuticals would 
be treated like other drugs, nonimplantable biologicals, and 
therapeutic radiopharmaceuticals under the OPPS, unless they are 
granted pass-through status. Only if they are pass-through drugs, 
nonimplantable biologicals, or therapeutic radiopharmaceuticals would 
they receive a different payment for CY 2011, generally equivalent to 
the payment these drug and biologicals would receive in the physician's 
office setting, consistent with the requirements of the statute.
    We are proposing to continue our CY 2010 policy of packaging 
payment for all new nonpass-through diagnostic radiopharmaceuticals, 
contrast agents, and implantable biologicals with HCPCS codes but 
without claims data (those new CY 2011 diagnostic radiopharmaceutical, 
contrast agent, and implantable biological HCPCS codes that do not 
crosswalk to predecessor HCPCS codes), consistent with the proposed 
packaging of all existing nonpass-through diagnostic 
radiopharmaceuticals, contrast agents and implantable biologicals, as 
discussed in more detail in section V.B.2.d and IV.A.2. of this 
proposed rule.
    In accordance with the OPPS ASP methodology, in the absence of ASP 
data, for CY 2011, we are proposing to continue the policy we 
implemented beginning in CY 2005 of using the WAC for the product to 
establish the initial payment rate for new nonpass-through drugs and 
biologicals with HCPCS codes, but which are without OPPS claims data. 
However, we note that if the WAC is also unavailable, we would make 
payment at 95 percent of the product's most recent AWP. We also are 
proposing to assign status indicator ``K'' to HCPCS codes for new drugs 
and nonimplantable biologicals without OPPS claims data and for which 
we have not granted pass-through status. We further note that, with 
respect to new items for which we do not have ASP data, once their ASP 
data become available in later quarter submissions, their payment rates 
under the OPPS would be adjusted so that the rates would be based on 
the ASP methodology and set to the finalized ASP-based amount (proposed 
for CY 2011 at ASP+6 percent) for items that have not been granted 
pass-through status. This proposed policy would ensure that new 
nonpass-through drugs, nonimplantable biologicals, and therapeutic 
radiopharmaceuticals would be treated like other drugs, nonimplantable 
biologicals, and therapeutic radiopharmaceuticals under the OPPS, 
unless they are granted pass-through status. Only if they are pass-
through drugs, nonimplantable biologicals, or therapeutic 
radiopharmaceuticals would they receive a different payment for CY 
2010, generally equivalent to the payment these drugs and biologicals 
would receive in the physician's office setting, consistent with the 
requirements of the statute.
    We also are proposing to continue our CY 2010 policy to base 
payment for new therapeutic radiopharmaceuticals with HCPCS codes, but 
which do not have pass-through status and are without claims data, on 
the WACs for these products if ASP data for these therapeutic 
radiopharmaceuticals are not available. If the WACs are also 
unavailable, we are proposing to make payment for a new therapeutic 
radiopharmaceutical at 95 percent of the product's most recent AWP 
because we would not have mean costs from hospital claims data upon 
which to base payment. Analogous to new drugs and biologicals, we are 
proposing to continue our policy of assigning status indicator ``K'' to 
HCPCS codes for new therapeutic radiopharmaceuticals without OPPS 
claims data for which we have not granted pass-through status.
    Consistent with other ASP-based payments, for CY 2011, we are 
proposing to announce any changes to the payment amounts for new drugs 
and biologicals in the CY 2011 OPPS/ASC final rule with comment period 
and also on a quarterly basis on the CMS Web site during CY 2011 if 
later quarter ASP submissions (or more recent WACs or AWPs) indicate 
that changes to the payment rates for these drugs and biologicals are 
necessary. The payment rates for new therapeutic radiopharmaceuticals 
would also be changed accordingly, based on later quarter ASP 
submissions. We note that the new CY 2011 HCPCS codes for drugs, 
biologicals, and therapeutic radiopharmaceuticals are not available at 
the time of development of this proposed rule. However, they will be 
included in Addendum B to the CY 2011 OPPS/ASC final rule with comment 
period. They will be assigned comment indicator ``NI'' in Addendum B to 
reflect that their interim final OPPS treatment is open to public 
comment on the CY 2011 OPPS/ASC final rule with comment period.
    There are several nonpass-through drugs and biologicals that were 
payable in CY 2009 and/or CY 2010, for which we do not have CY 2009 
hospital claims data available for this proposed rule and for which 
there are no other HCPCS codes that describe different doses of the 
same drug. These drugs and biologicals do have pricing information 
available for the ASP methodology. We note that there are currently no 
therapeutic radiopharmaceuticals in this category. In order to 
determine the packaging status of these products for CY 2011, we 
calculated an estimate of the per day cost of each of these items by 
multiplying the payment rate for each product based on ASP+6 percent, 
similar to other nonpass-through drugs and biologicals paid separately 
under the OPPS, by an estimated average number of units of each product 
that would typically be furnished to a patient during one 
administration in the hospital outpatient setting. We are proposing to 
package items for which we estimated the per administration cost to be 
less than or equal to $70, which is the general packaging threshold 
that we are proposing for drugs, nonimplantable biologicals, and

[[Page 46282]]

therapeutic radiopharmaceuticals in CY 2011. We are proposing to pay 
separately for items with an estimated per day cost greater than $70 
(with the exception of diagnostic radiopharmaceuticals, contrast agents 
and implantable biologicals, which we are proposing to continue to 
package regardless of cost (as discussed in more detail in section 
V.B.2.d of this proposed rule) in CY 2011. We are proposing that the CY 
2011 payment for separately payable items without CY 2009 claims data 
would be ASP+6 percent, similar to payment for other separately payable 
nonpass-through drugs and biologicals under the OPPS. In accordance 
with the ASP methodology used in the physician's office setting, in the 
absence of ASP data, we are proposing to use the WAC for the product to 
establish the initial payment rate. However, we note that if the WAC is 
also unavailable, we would make payment at 95 percent of the most 
recent AWP available.
    The proposed estimated units per day and status indicators for 
these items are displayed in Table 27 below.
[GRAPHIC] [TIFF OMITTED] TP03AU10.507

    Finally, there were five drugs and biologicals, shown in Table 28 
below, that were payable in CY 2009, but for which we lacked CY 2009 
claims data and any other pricing information for the ASP methodology 
for this proposed rule. In CY 2009, for similar items without CY 2007 
claims data and without pricing information for the ASP methodology, we 
previously stated that we were unable to determine their per day cost 
and we packaged these items for the year, assigning these items status 
indicator ``N.''
    For CY 2010, we finalized a policy to change the status indicator 
for drugs and biologicals to status indicator ``E'' (Not paid by 
Medicare when submitted on outpatient claims (any outpatient bill 
type)) that we understood were not currently sold or had been 
identified as obsolete. In addition, we noted that we would provide 
separate payment for these drugs and biologicals if pricing information 
reflecting recent sales becomes available mid-year in CY 2010 for the 
ASP methodology. If pricing information became available, we would 
assign the products status indicator ``K'' and pay for them separately 
for the remainder of CY 2010.
    For CY 2011, we are proposing to continue our CY 2010 policy to 
assign status indicator ``E'' to drugs and biologicals that lack CY 
2009 claims data and pricing information for the ASP methodology. All 
drugs and biologicals without CY 2009 hospital claims data and data 
based on the ASP methodology that are assigned status indicator ``E'' 
on this basis at the time of this proposed rule for CY 2011 are 
displayed in Table 26 below. If pricing information becomes available, 
we are proposing to assign the products status indicator ``K'' and pay 
for them separately for the remainder of CY 2011.

[[Page 46283]]

[GRAPHIC] [TIFF OMITTED] TP03AU10.508

VI. Proposed Estimate of OPPS Transitional Pass-Through Spending for 
Drugs, Biologicals, Radiopharmaceuticals, and Devices

A. Background

    Section 1833(t)(6)(E) of the Act limits the total projected amount 
of transitional pass-through payments for drugs, biologicals, 
radiopharmaceuticals, and categories of devices for a given year to an 
``applicable percentage'' (defined below) of total program payments 
estimated to be made under section 1833(t) of the Act for all covered 
services furnished for that year under the hospital OPPS. For a year 
(or portion of a year) before CY 2004, the applicable percentage means 
2.5 percent; for CY 2004 and subsequent years, the applicable 
percentage means a percentage specified by the Secretary up to (but not 
to exceed) 2.0 percent.
    If we estimate before the beginning of the calendar year that the 
total amount of pass-through payments in that year would exceed the 
applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a 
uniform reduction in the amount of each of the transitional pass-
through payments made in that year to ensure that the limit is not 
exceeded. We make an estimate of pass-through spending to determine not 
only whether payments exceed the applicable percentage, but also to 
determine the appropriate reduction to the conversion factor for the 
projected level of pass-through spending in the following year in order 
to ensure that total estimated pass-through spending for the 
prospective payment year is budget neutral as required by section 
1883(t)(6)(E) of the Act.
    For devices, developing an estimate of pass-through spending in CY 
2011 entails estimating spending for two groups of items. The first 
group of items consists of device categories that were recently made 
eligible for pass-through payment and that would continue to be 
eligible for pass-through payment in CY 2011. The CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66778) describes the methodology 
we have used in previous years to develop the pass-through spending 
estimate for known device categories continuing into the applicable 
update year. The second group contains items that we know are newly 
eligible, or project would be newly eligible, for device pass-through 
payment in the remaining quarters of CY 2010 or beginning in CY 2011. 
As discussed in section V.A.4. of the CY 2010 final rule with comment 
period (74 FR 60529), beginning in CY 2010, the pass-through evaluation 
process and pass-through payment for implantable biologicals newly 
approved for pass-through payment beginning on or after January 1, 
2010, that are always surgically inserted or implanted (through a 
surgical incision or a natural orifice) is the device pass-through 
process and payment methodology only. Therefore, we are proposing that 
the estimate of pass-through spending for implantable biologicals newly 
eligible for pass-through payment beginning in CY 2011 be included in 
the pass-through spending estimate for this second group of device 
categories. The sum of the proposed CY 2011 pass-through estimates for 
these two groups of device categories equals the total proposed CY 2011 
pass-through spending estimate for device categories with pass-through 
status.
    For devices eligible for pass-through payment, section 
1833(t)(6)(D)(ii) of the Act establishes the pass-through payment 
amount as the amount by which the hospital's charges for the device, 
adjusted to cost, exceeds the portion of the otherwise applicable 
Medicare OPD fee schedule that the Secretary determines is associated 
with the device. As discussed in section IV.A.2. of this proposed rule, 
we deduct from the pass-through payment for an identified device 
category eligible for pass-through payment an amount that reflects the 
portion of the APC payment amount that we determine is associated with 
the cost of the device, defined as the device APC offset amount, when 
we believe that predecessor device costs for the device category newly 
approved for pass-through payment are already packaged into the 
existing APC structure. For each device category that becomes newly 
eligible for device pass-through payment, including implantable 
biologicals from CY 2010 forward, we estimate pass-through spending to 
be the difference between payment for the device category and the 
device APC offset amount, if applicable, for the procedures that would 
use the device. If we determine that predecessor device costs for the 
new device category are not already included in the existing APC 
structure, the pass-through spending estimate for the device category 
would be the full payment at charges adjusted to cost.
    For drugs and biologicals eligible for pass-through payment, 
section 1833(t)(6)(D)(i) of the Act establishes the pass-through 
payment amount as the amount by which the amount authorized under 
section 1842(o) of the Act (or, if the drug or biological is covered 
under a competitive acquisition contract under section 1847B of the 
Act, an amount determined by the Secretary equal to the average price 
for the drug or biological for all competitive acquisition areas and 
year established under such section as calculated and adjusted by the 
Secretary) exceeds the portion of the otherwise applicable fee schedule 
amount that the Secretary determines is associated with the drug or 
biological. Because we are proposing to pay for most nonpass-through 
separately payable drugs and nonimplantable biologicals under the CY 
2011 OPPS at ASP+6 percent, which represents the otherwise applicable 
fee schedule amount associated with most pass-through drugs and 
biologicals, and

[[Page 46284]]

because we are proposing to pay for CY 2011 pass-through drugs and 
nonimplantable biologicals at ASP+6 percent or the Part B drug CAP 
rate, if applicable, our proposed estimate of drug and nonimplantable 
biological pass-through payment for CY 2011 would be zero. Furthermore, 
payment for certain drugs, specifically diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals 
without pass-through status, would always be packaged into payment for 
the associated procedures because these products would never be 
separately paid. However, all pass-through diagnostic 
radiopharmaceuticals, contrast agents, and those implantable 
biologicals with pass-through status approved prior to CY 2010 would be 
paid at ASP+6 percent or the Part B drug CAP rate, if applicable, like 
other pass-through drugs and biologicals. Therefore, our proposed 
estimate of pass-through payment for all diagnostic 
radiopharmaceuticals and contrast agents and those implantable 
biologicals with pass-through status approved prior to CY 2011 is not 
zero.
    In section V.A.4. of this proposed rule, we discuss our policy to 
determine if the cost of certain ``policy-packaged'' drugs, including 
diagnostic radiopharmaceuticals and contrast agents, are already 
packaged into the existing APC structure. If we determine that a 
``policy-packaged'' drug approved for pass-through payment resembles 
predecessor diagnostic radiopharmaceuticals or contrast agents already 
included in the costs of the APCs that would be associated with the 
drug receiving pass-through payment, we are proposing to offset the 
amount of pass-through payment for diagnostic radiopharmaceuticals and 
contrast agents. For these drugs, the APC offset amount would be the 
portion of the APC payment for the specific procedure performed with 
the pass-through diagnostic radiopharmaceutical or contrast agent that 
is attributable to diagnostic radiopharmaceuticals or contrast agents, 
which we refer to as the ``policy-packaged'' drug APC offset amount. If 
we determine that an offset is appropriate for a specific diagnostic 
radiopharmaceutical or contrast agent receiving pass-through payment, 
we would reduce our estimate of pass-through payment for these drugs by 
this amount. We have not established a policy to offset pass-through 
payment for implantable biologicals when approved for pass-through 
payment as a drug or biological, that is, for CY 2009 and earlier, so 
we would consider full payment at ASP+6 percent for these implantable 
biologicals receiving biological pass-through payment as of CY 2011 in 
our proposed estimate of CY 2011 pass-through spending for drugs and 
biologicals.
    We note that the Part B drug CAP program has been suspended 
beginning January 1, 2009. We refer readers to the Medicare Learning 
Network (MLN) Matters Special Edition article SE0833 for more 
information on this suspension. As of the publication of this proposed 
rule, the Part B drug CAP program has not been reinstituted. Therefore, 
for this proposed rule, we are proposing to continue to not have an 
effective Part B drug CAP rate for pass-through drugs and biologicals. 
Similar to pass-through estimates for devices, the first group of drugs 
and biologicals requiring a pass-through payment estimate consists of 
those products that were recently made eligible for pass-through 
payment and that would continue to be eligible for pass-through payment 
in CY 2011. The second group contains drugs and nonimplantable 
biologicals that we know are newly eligible, or project would be newly 
eligible, in the remaining quarters of CY 2010 or beginning in CY 2011. 
The sum of the CY 2011 pass-through estimates for these two groups of 
drugs and biologicals would equal the total CY 2010 pass-through 
spending estimate for drugs and biologicals with pass-through status.

B. Proposed Estimate of Pass-Through Spending

    We are proposing to set the applicable pass-through payment 
percentage limit at 2.0 percent of the total projected OPPS payments 
for CY 2011, consistent with our OPPS policy from CY 2004 through CY 
2010 (74 FR 60530).
    For the first group of devices for pass-through payment estimate 
purposes, there currently are no device categories receiving pass-
through payment in CY 2010 that would continue for payment during CY 
2011. Therefore, we are proposing a device pass-through payment 
estimate for the first group of pass-through device categories of $0.
    We also are proposing for CY 2011 to continue to employ the device 
pass-through process and payment methodology for implantable 
biologicals that are always surgically inserted or implanted (through a 
surgical incision or a natural orifice) that we used for CY 2010. We 
are proposing to consider existing implantable biologicals approved for 
pass-through payment under the drugs and biologicals pass-through 
provision prior to CY 2010 as drugs and biologicals for pass-through 
payment estimate purposes until they expire from pass-through status. 
Therefore, the proposed pass-through spending estimate for the first 
group of pass-through devices does not include implantable biologicals 
that were granted pass-through status prior to CY 2010. Finally, we are 
proposing to continue to provide payment for implantable biologicals 
newly eligible for pass-through payment beginning in CY 2010 or CY 2011 
based on hospital charges adjusted to cost that is applicable for pass-
through device categories, rather than the ASP methodology that is 
applicable to pass-through drugs and biologicals. Therefore, we are 
proposing that the estimate of pass-through spending for implantable 
biologicals first paid as pass-through devices in CY 2011 would be 
based on the payment methodology for pass-through devices and would be 
included in the device pass-through spending estimate.
    In estimating our proposed CY 2011 pass-through spending for device 
categories in the second group, that is, device categories that we knew 
at the time of the development of the proposed rule would be newly 
eligible for pass-through payment in CY 2011 (of which there are none), 
additional device categories (including categories that describe 
implantable biologicals) that we estimated could be approved for pass-
through status subsequent to the development of the proposed rule and 
before January 1, 2011, and contingent projections for new categories 
(including categories that describe implantable biologicals in the 
second through fourth quarters of CY 2011), we are proposing to use the 
general methodology described in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66778), while also taking into account recent 
OPPS experience in approving new pass-through device categories. While 
there are no new device categories (including categories that describe 
implantable biologicals) for CY 2011 of which we are aware at the time 
of development of this proposed rule, there are possible new device 
categories for pass-through payment based on current applications. 
Therefore, the estimate of CY 2011 pass-through spending for this 
second group of device categories is $72.1 million.
    Employing our established methodology that the estimate of pass-
through device spending in CY 2011 incorporates CY 2011 estimates of 
pass-through spending for known device categories continuing in CY 
2011, those known or projected to be first effective January 1, 2011, 
and those device categories projected to be approved during subsequent 
quarters of CY 2010

[[Page 46285]]

or CY 2011, our proposed CY 2011 estimate of total pass-through 
spending for device categories is $72.1 million.
    To estimate CY 2011 proposed pass-through spending for drugs and 
biologicals in the first group, specifically those drugs (including 
radiopharmaceuticals and contrast agents) and biologicals (including 
implantable biologicals) recently made eligible for pass-through 
payment and continuing on pass-through status for CY 2011, we are 
proposing to utilize the most recent Medicare physician's office data 
regarding their utilization, information provided in the respective 
pass-through applications, historical hospital claims data, 
pharmaceutical industry information, and clinical information regarding 
those drugs or biologicals, in order to project the CY 2011 OPPS 
utilization of the products.
    For the known drugs and biologicals (excluding diagnostic 
radiopharmaceuticals, contrast agents, and implantable biologicals) 
that would be continuing on pass-through status in CY 2011, we then 
estimate the proposed pass-through payment amount as the difference 
between ASP+6 percent or the Part B drug CAP rate, as applicable, and 
ASP+6 percent, aggregated across the projected CY 2011 OPPS utilization 
of these products, which is zero for this group of drugs and 
biologicals. Because payment for a diagnostic radiopharmaceutical or 
contrast agent would be packaged if the product were not paid 
separately due to its pass-through status, we include in the pass-
through estimate the difference between payment for the drug or 
biological at ASP+6 percent (or WAC+6 percent, or 95 percent of AWP, if 
ASP information is not available) and the ``policy-packaged'' drug APC 
offset amount, if we determined that the diagnostic radiopharmaceutical 
or contrast agent approved for pass-through payment resembles 
predecessor diagnostic radiopharmaceuticals or contrast agents already 
included in the costs of the APCs that would be associated with the 
drug receiving pass-through payment. Because payment for an implantable 
biological eligible for pass-through payment in CY 2009 and continuing 
on pass-through status in CY 2011 would be packaged if the product were 
not paid separately due to its pass-through status and because we had 
not established a pass-through payment offset policy for implantable 
biologicals when approved for pass-through payment as biologicals, that 
is, for CY 2009 and earlier, we are including in the proposed pass-
through spending estimate the full payment for these implantable 
biologicals at ASP+6 percent (or WAC+6 percent or 95 percent of AWP, if 
ASP information is not available). Based on these results, we are 
proposing the spending estimate for this first group of drugs and 
biologicals to be $9 million, while we are proposing our spending 
estimate for the second group of drugs and biologicals to be $5.8 
million.
    To estimate CY 2011 pass-through spending for drugs and 
nonimplantable biologicals in the second group (that is, drugs and 
nonimplantable biologicals that we knew at the time of development of 
this proposed rule would be newly eligible for pass-through payment in 
CY 2011, additional drugs and nonimplantable biologicals that we 
estimated could be approved for pass-through status subsequent to the 
development of this proposed rule and before January 1, 2011, and 
projections for new drugs and nonimplantable biologicals that could be 
initially eligible for pass-through payment in the second through 
fourth quarters of CY 2011), we are proposing to use utilization 
estimates from pass-through applicants, pharmaceutical industry data, 
clinical information, recent trends in the per unit ASPs of hospital 
outpatient drugs, and projected annual changes in service volume and 
intensity as our basis for making the CY 2011 proposed pass-through 
payment estimate. We also are considering the most recent OPPS 
experience in approving new pass-through drugs and nonimplantable 
biologicals. Consistent with our policy established in CY 2010 (74 FR 
60531 through 60532), we also are proposing to include new implantable 
biologicals that we expect to be approved for pass-through status as 
devices beginning in CY 2011 in the second group of items considered 
for device pass-through estimate purposes. Therefore, we are not 
proposing to include implantable biologicals in the second group of 
items in the proposed drug and biological pass-through spending 
estimate.
    Based on the results of these analyses, we are proposing that the 
spending estimate for this second group of drugs and biologicals to be 
$5.8 million.
    As described in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60476), under our current policy, beginning in CY 2010, 
implantable biologicals that are surgically inserted or implanted 
(through a surgical incision or a natural orifice) and that were not 
receiving pass-through payment as biologicals prior to January 1, 2010, 
will be evaluated under the device pass-through process and paid 
according to the device payment methodology. We are proposing to 
continue to consider implantable biologicals approved for pass-through 
payment under the drug and biological pass-through provision prior to 
CY 2010 as drugs and biologicals for pass-through payment estimate 
purposes. These implantable biologicals that have been approved for 
pass-through status prior to CY 2010 continue to be considered drugs 
and biologicals until they expire from pass-through status. Therefore, 
the pass-through spending estimate for the first group of pass-through 
device categories does not include implantable biologicals that have 
been granted pass-through status prior to CY 2010.
    Consistent with the current policy established in the CY 2010 OPPS/
ASC final rule with comment period (74 FR 60476), we are proposing to 
continue to provide that payment for implantable biologicals newly 
eligible for pass-through payment beginning in CY 2011 is based on 
hospital charges adjusted to cost, rather than the ASP methodology that 
is applicable to pass-through drugs and biologicals. Therefore, we are 
proposing that the estimate of pass-through spending for implantable 
biologicals first paid as pass-through devices in CY 2011 would be 
based on the payment methodology for pass-through devices, and would be 
included in the proposed CY 2011 device pass-through spending estimate 
for the second group of pass-through device categories.
    The proposed CY 2011 pass-through spending estimate for the first 
group of pass-through device categories is $0. The proposed estimate of 
CY 2010 pass-through spending for the second group of pass-through 
device categories is $72.1 million. Our proposed CY 2011 estimate of 
total pass-through spending for device categories is $72.1 million.
    The estimate for pass-through spending for the first group of drugs 
and biologicals is $9.0 million for CY 2011. The estimate for pass-
through spending for the second group of drugs and biologicals is $5.8 
million for CY 2011. As discussed in section V.A. of this proposed 
rule, radiopharmaceuticals are considered drugs for pass-through 
purposes. Therefore, we have included radiopharmaceuticals in our 
proposed CY 2011 pass-through spending estimate for drugs and 
biologicals. Our proposed CY 2011 estimate of total pass-through 
spending for drugs and biologicals is $14.8 million.
    In summary, in accordance with the methodology described above in 
this section, we estimate that total pass-through spending for the 
device categories and the drugs and biologicals that are continuing to 
receive pass-through payment in CY 2011 and those

[[Page 46286]]

device categories, drugs, and nonimplantable biologicals that first 
become eligible for pass-through payment during CY 2011 would be 
approximately $86.9 million, which represents 0.20 percent of total 
OPPS projected total payments for CY 2011. We estimate that pass-
through spending in CY 2011 would not amount to 2.0 percent of total 
projected OPPS CY 2011 program spending.

VII. Proposed OPPS Payment for Brachytherapy Sources

A. Background

    Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) 
of Public Law 108-173 (MMA), mandated the creation of additional groups 
of covered OPD services that classify devices of brachytherapy 
consisting of a seed or seeds (or radioactive source) (``brachytherapy 
sources'') separately from other services or groups of services. The 
additional groups must reflect the number, isotope, and radioactive 
intensity of the brachytherapy sources furnished and include separate 
groups for palladium-103 and iodine-125 sources.
    Section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of 
Public Law 108-173, established payment for brachytherapy sources 
furnished from January 1, 2004 through December 31, 2006, based on a 
hospital's charges for each brachytherapy source furnished adjusted to 
cost. Under section 1833(t)(16)(C) of the Act, charges for the 
brachytherapy sources may not be used in determining any outlier 
payments under the OPPS for that period in which payment is based on 
charges adjusted to cost. Consistent with our practice under the OPPS 
to exclude items paid at cost from budget neutrality consideration, 
these items were excluded from budget neutrality for that time period 
as well.
    In our CY 2007 annual OPPS rulemaking, we proposed and finalized a 
policy of prospective payment based on median costs for the 11 
brachytherapy sources for which we had claims data. We based the 
prospective payment rates on median costs for each source from our CY 
2005 claims data (71 FR 68102 through 71 FR 68115).
    Subsequent to publication of the CY 2007 OPPS/ASC final rule with 
comment period, section 107 of Public Law 109-432 (MIEA-TRHCA) amended 
section 1833 of the Act. Specifically, section 107(a) of Public Law 
109-432 amended section 1833(t)(16)(C) of the Act by extending the 
payment period for brachytherapy sources based on a hospital's charges 
adjusted to cost for one additional year, through December 31, 2007. 
Therefore, we continued to pay for brachytherapy sources based on 
charges adjusted to cost for CY 2007.
    Section 107(b)(1) of Public Law 109-432 amended section 
1833(t)(2)(H) of the Act by adding a requirement for the establishment 
of separate payment groups for ``stranded and non-stranded'' 
brachytherapy sources furnished on or after July 1, 2007, in addition 
to the existing requirements for separate payment groups based on the 
number, isotope, and radioactive intensity of brachytherapy sources 
under section 1833(t)(2)(H) of the Act. Section 107(b)(2) of Public Law 
109-432 authorized the Secretary to implement this requirement by 
``program instruction or otherwise.'' We note that public commenters 
who responded to the CY 2007 OPPS/ASC proposed rule asserted that 
stranded sources, which they described as embedded into the stranded 
suture material and separated within the strand by material of an 
absorbable nature at specified intervals, had greater production costs 
than non-stranded sources (71 FR 68113 through 68114).
    As a result of the statutory requirement to create separate groups 
for stranded and non-stranded sources as of July 1, 2007, we 
established several coding changes through a transmittal, effective 
July 1, 2007 (Transmittal 1259, dated June 1, 2007). Based on public 
comments received on the CY 2007 OPPS/ASC proposed rule and industry 
input, we were aware of three sources available in stranded and non-
stranded forms at that time: iodine-125; palladium-103; and cesium-131 
(72 FR 42746). We created six new HCPCS codes to differentiate the 
stranded and non-stranded versions of iodine, palladium, and cesium 
sources.
    In Transmittal 1259, we indicated that if we receive information 
that any of the other sources now designated as non-stranded are also 
FDA-approved and marketed as a stranded source, we would create a code 
for the stranded source. We also established two ``Not Otherwise 
Specified'' (NOS) codes for billing stranded and non-stranded sources 
that are not yet known to us and for which we do not have source-
specific codes. We established HCPCS code C2698 (Brachytherapy source, 
stranded, not otherwise specified, per source) for stranded NOS sources 
and HCPCS code C2699 (Brachytherapy source, non-stranded, not otherwise 
specified, per source) for non-stranded NOS sources.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66784), we again finalized prospective payment for brachytherapy 
sources, beginning in CY 2008, with payment rates determined using the 
CY 2006 claims-based costs per source for each brachytherapy source. 
Consistent with our policy regarding APC payments made on a prospective 
basis, we finalized the policy in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66686) to subject the cost of brachytherapy 
sources to the outlier provision of section 1833(t)(5) of the Act, and 
also to subject brachytherapy source payment weights to scaling for 
purposes of budget neutrality. Therefore, brachytherapy sources could 
receive outlier payments if the costs of furnishing brachytherapy 
sources met the criteria for outlier payment, that is, if brachytherapy 
sources are paid prospectively. In addition, as noted in the CY 2008 
OPPS/ASC final rule with comment period (72 FR 66683), implementation 
of prospective payment for brachytherapy sources would provide 
opportunities for hospitals to receive additional payments under 
certain circumstances through the 7.1 percent rural SCH adjustment 
(discussed in section II.E. of this proposed rule).
    For CY 2008, we also proposed and finalized a policy regarding 
payment for new brachytherapy sources for which we have no claims data 
(72 FR 42749 and 72 FR 66786, respectively). We indicated we would 
assign future new HCPCS codes for new brachytherapy sources to their 
own APCs, with prospective payment rates set based on our consideration 
of external data and other relevant information regarding the expected 
costs of the sources to hospitals. Finally, we proposed and finalized 
our policy to discontinue using status indicator ``H'' (Pass-Through 
Device Categories. Separate cost based pass-through payment; not 
subject to copayment) because we would not be paying charges adjusted 
to costs after December 31, 2007, and instead adopted a policy of using 
status indicator ``K'' (which includes, among others, ``Brachytherapy 
Sources. Paid under OPPS; separate APC payment'') for CY 2008 (72 FR 
42749 and 72 FR 66785, respectively).
    After we finalized these policies for CY 2008, section 106(a) of 
Public Law 110-173 (MMSEA) extended the charges-adjusted-to-cost 
payment methodology for brachytherapy sources for an additional 6 
months, through June 30, 2008. Because our final CY 2008 policies paid 
for brachytherapy sources at prospective rates based on median costs, 
we were unable to implement these policies during this extension.

[[Page 46287]]

    In the CY 2009 OPPS/ASC proposed rule (73 FR 41502), we again 
proposed prospective payment rates for brachytherapy sources for CY 
2009. We proposed to pay for brachytherapy sources at prospective rates 
based on their source-specific median costs as calculated from CY 2007 
claims data available for CY 2009 ratesetting. Subsequent to issuance 
of the CY 2009 OPPS/ASC proposed rule, Public Law 110-275 (MIPPA) was 
enacted on July 15, 2008. Section 142 of Public Law 110-275 amended 
section 1833(t)(16)(C) of the Act, as amended by section 106(a) of 
Public Law 110-173 (MMSEA), to further extend the payment period for 
brachytherapy sources based on a hospital's charges adjusted to cost 
from July 1, 2008 through December 31, 2009. Therefore, we continued to 
pay for brachytherapy sources at charges adjusted to cost in CY 2008 
from July 1 through December 31, and we maintained the assignment of 
status indicator ``H'' to brachytherapy sources for claims processing 
purposes in CY 2008. For CY 2009, we continued to pay for all 
separately payable brachytherapy sources based on a hospital's charges 
adjusted to cost. Because brachytherapy sources are paid at charges 
adjusted to cost, we did not subject them to outlier payments under 
section 1833(t)(5) of the Act, or subject brachytherapy source payment 
weights to scaling for purposes of budget neutrality. Moreover, during 
the CY 2009 period of payment at charges adjusted to cost, 
brachytherapy sources were not eligible for the 7.1 percent rural SCH 
adjustment (as discussed in detail in section II.E. of this proposed 
rule).
    Furthermore, for CY 2009, we did not adopt the policy we 
established in the CY 2008 OPPS/ASC final rule with comment period of 
paying stranded and non-stranded NOS codes for brachytherapy sources, 
HCPCS codes C2698 and C2699, based on a rate equal to the lowest 
stranded or non-stranded prospective payment for such sources. Also, 
for CY 2009, we did not adopt the policy we established in the CY 2008 
OPPS/ASC final rule with comment period regarding payment for new 
brachytherapy sources for which we have no claims data. NOS HCPCS codes 
C2698 and C2699 and newly established specific source codes were paid 
at charges adjusted to cost through December 31, 2009, consistent with 
the provisions of section 142 of Public Law 110-275.
    For CY 2009, we finalized our proposal to create new status 
indicator ``U'' (Brachytherapy Sources. Paid under OPPS; separate APC 
payment) for brachytherapy source payment, instead of using status 
indicator ``K'' as proposed and finalized for CY 2008 for prospective 
payment, or status indicator ``H,'' used during the period of charges 
adjusted to cost payment. As noted in the CY 2009 OPPS/ASC final rule 
with comment period (73 FR 68670), assigning a status indicator, such 
as status indicator ``K,'' to several types of items and services with 
potentially differing payment policies added unnecessary complexity to 
our operations. Status indicator ``U'' is used only for brachytherapy 
sources, regardless of their specific payment methodology for any 
period of time.
    Under section 142 of Public Law 110-275, payment for brachytherapy 
sources was mandated at charges adjusted to cost only through CY 2009. 
In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60533 
through 60537), we adopted for CY 2010 the general OPPS prospective 
payment methodology for brachytherapy sources, consistent with section 
1833(t)(2)(C) of the Act.

B. Proposed OPPS Payment Policy

    As we have previously stated (72 FR 66780, 73 FR 41502, and 74 FR 
60533 and 60534), we believe that adopting the general OPPS prospective 
payment methodology for brachytherapy sources is appropriate for a 
number of reasons. The general OPPS payment methodology uses median 
costs based on claims data to set the relative payment weights for 
hospital outpatient services. This payment methodology results in more 
consistent, predictable, and equitable payment amounts per source 
across hospitals by eliminating some of the extremely high and low 
payment amounts resulting from payment based on hospitals' charges 
adjusted to cost. We believe the OPPS prospective payment methodology 
would also provide hospitals with incentives for efficiency in the 
provision of brachytherapy services to Medicare beneficiaries. 
Moreover, this approach is consistent with our payment methodology for 
the vast majority of items and services paid under the OPPS.
    We are proposing to use the median costs from CY 2009 claims data 
for setting the proposed CY 2011 payment rates for brachytherapy 
sources, as we are proposing for most other items and services that 
will be paid under the CY 2011 OPPS. We are proposing to continue the 
other payment policies for brachytherapy sources we finalized in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60537). We are 
proposing to pay for the stranded and non-stranded NOS codes, HCPCS 
codes C2698 and C2699, at a rate equal to the lowest stranded or non-
stranded prospective payment rate for such sources, respectively, on a 
per source basis (as opposed, for example, to a per mCi), which is 
based on the policy we established in the CY 2008 OPPS/ASC final rule 
with comment period (72 FR 66785). The proposed payment methodology for 
NOS sources would provide payment to a hospital for new sources, and at 
the same time encourage interested parties to quickly bring new sources 
to our attention so that specific coding and payment could be 
established.
    We also are proposing to continue the policy we implemented in the 
CY 2010 OPPS/ASC final rule with comment period (74 FR 60537) regarding 
payment for new brachytherapy sources for which we have no claims data, 
based on the same reasons we discussed in the CY 2008 OPPS/ASC final 
rule with comment period (72 FR 66786; which was superseded by section 
142 of Pub. L. 110-275). That policy is intended to enable us to assign 
future new HCPCS codes for new brachytherapy sources to their own APCs, 
with prospective payment rates set based on our consideration of 
external data and other relevant information regarding the expected 
costs of the sources to hospitals.
    Consistent with our policy regarding APC payments made on a 
prospective basis, as we did for CY 2010, we are proposing to subject 
brachytherapy sources to outlier payments under section 1833(t)(5) of 
the Act, and also to subject brachytherapy source payment weights to 
scaling for purposes of budget neutrality. Therefore, brachytherapy 
sources could receive outlier payments if the costs of furnishing 
brachytherapy sources meet the criteria for outlier payment, that is, 
if they are prospectively paid. In addition, as noted in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60534), implementation 
of prospective payments for brachytherapy sources would provide 
opportunities for hospitals to receive additional payments in CY 2010 
under certain circumstances through the 7.1 percent rural adjustment, 
as described in section II.E. of this proposed rule.
    Therefore, we are proposing to pay for brachytherapy sources at 
prospective payment rates based on their source-specific median costs 
for CY 2011. The separately payable brachytherapy source HCPCS codes, 
long descriptors, APCs, status indicators, and approximate APC median 
costs that we are proposing for CY 2011 are presented in Table 29 
below.
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    We continue to invite hospitals and other parties to submit 
recommendations to us for new HCPCS codes to describe new brachytherapy 
sources consisting of a radioactive isotope, including a detailed 
rationale to support recommended new sources. Such recommendations 
should be directed to the Division of Outpatient Care, Mail Stop C4-05-
17, Centers for Medicare and Medicaid Services, 7500 Security 
Boulevard, Baltimore, MD 21244. We will continue to add new 
brachytherapy source codes and descriptors to our systems for payment 
on a quarterly basis.

VIII. Proposed OPPS Payment for Drug Administration Services

A. Background

    In CY 2005, in response to the recommendations made by public 
commenters and the hospital industry, OPPS transitioned from Level II 
HCPCS Q-codes to the use of CPT codes for drug administration services. 
These CPT codes allowed specific reporting of services regarding the 
number of hours for an infusion and provided consistency in coding 
between Medicare and other payers. (For a discussion regarding coding 
and payment for drug administration services prior to CY 2005, we refer 
readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66787).)
    While hospitals began adopting CPT codes for outpatient drug 
administration services in CY 2005, physicians paid under the MPFS were 
using HCPCS G-codes in CY 2005 to report office-based drug 
administration services. These HCPCS G-codes were developed in 
anticipation of substantial revisions to the drug administration CPT 
codes by the CPT Editorial Panel that were expected for CY 2006.
    In CY 2006, as anticipated, the CPT Editorial Panel revised its 
coding structure for drug administration services and incorporated new 
concepts, such as initial, sequential, and concurrent services, into a 
structure that previously distinguished services based on type of 
administration (chemotherapy/nonchemotherapy), method of administration 
(injection/infusion/push), and for infusion services, first hour and 
additional hours. For CY 2006, we implemented the CY 2006 drug 
administration CPT codes that did not reflect the concepts of initial, 
sequential, and concurrent services under the OPPS, and we created 
HCPCS C-codes that generally paralleled the CY 2005 CPT codes for 
reporting these other services.
    For CY 2007, as a result of public comments on the proposed rule 
and feedback from the hospital community and the APC Panel, we 
implemented the full set of CPT codes for drug administration services, 
including codes incorporating the concepts of initial, sequential, and 
concurrent services. In addition, the CY 2007 update process offered us 
the first opportunity to consider data gathered from the use of CY 2005 
CPT codes for purposes of ratesetting. For CY 2007, we used CY 2005 
claims data to implement a six-level APC structure for drug 
administration services. In CY 2008, we continued to use the full set 
of CPT codes for drug administration services and continued our 
assignment of drug administration services to this six-level APC 
structure.
    For CY 2009, we continued to allow hospitals to use the full set of 
CPT codes for drug administration services but moved from a six-level 
APC structure to a five-level APC structure. We note that, while there 
were changes in the CPT numerical coding for nonchemotherapy drug 
administration services in CY 2009, the existing CPT codes were only 
renumbered, and there were no significant changes to the code 
descriptors themselves. As we discussed in the CY 2009 OPPS/ASC final 
rule with comment period (73 FR 68672), the CY 2009 ratesetting process 
afforded us the first opportunity to examine hospital claims data for 
the full set of CPT codes that reflected the concepts of initial, 
sequential, and concurrent services. For CY 2009, we performed our 
standard annual OPPS review of the clinical and resource 
characteristics of the drug administration CPT codes assigned to the 
six-level CY 2008 APC structure based on the CY 2007 claims data 
available for the CY 2009 OPPS/ASC proposed rule. As a result of our 
hospital cost analysis and detailed clinical review, we adopted a five-
level APC structure for CY 2009 drug administration services to more 
appropriately reflect their resource utilization in APCs that also 
group clinically similar services. As we noted in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68671), these APCs generally 
demonstrated the clinically expected and actually observed comparative 
relationships between the median costs of different types of drug 
administration services, including initial and additional services; 
chemotherapy and other diagnostic, prophylactic, or therapeutic 
services; injections and infusions; and simple and complex methods of 
drug administration.
    After analyzing the assignment of CPT codes for drug administration 
into the five-level APC structure by utilizing our standard annual OPPS 
review for clinical cohesiveness and resource homogeneity, we continued 
our five-level APC structure for payment for drug administration 
services in the HOPD for CY 2010. In addition, we used the full set of 
CPT codes for drug administration and included all separately payable 
drug administration add-on codes on the CY 2010 bypass list in order to 
create pseudo single claims for these codes that would enable us to use 
the claims data to set payment rates for them. As we stated in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60538) since CY 
2007, we continue to update the bypass methodology to reflect changing 
drug administration HCPCS codes that are recognized under the OPPS.

[[Page 46290]]

B. Proposed Coding and Payment for Drug Administration Services

    For CY 2011, we are proposing to continue to use the full set of 
CPT codes for reporting drug administration services and to continue to 
pay separately for the same set of drug administration codes under the 
CY 2011 OPPS as were paid separate in the CY 2010 OPPS. As a part of 
our standard annual review, we analyzed the CY 2009 claims data that 
reflect assignments of CPT codes for drug administration into the five-
level APC structure and have found that the assignment of separately 
paid drug administration codes to five APCs continues to appropriately 
reflect the relative resources required to furnish these services. In 
addition, as has been our standard policy since the CY 2007 OPPS (71 FR 
68117), we are proposing to continue to include all separately payable 
drug administration add-on codes on the bypass list so that we can use 
the cost data we derive from claims for these codes to establish 
payment rates for them.
    Since this approach was first adopted for CY 2007, we have updated 
and expanded the bypass methodology to reflect changing drug 
administration HCPCS codes that are recognized under the OPPS. We 
placed all of the add-on CPT codes for drug administration services, 
including the sequential infusion and intravenous push codes, on the 
bypass list in CY 2009 (73 FR 68513) in order to continue this 
framework for transforming these otherwise unusable multiple bills into 
``pseudo'' single claims that can be used for OPPS ratesetting 
purposes. We believe that this longstanding methodology results in 
appropriate payment rates for the add-on CPT codes for drug 
administration; therefore, we are proposing to continue to use this 
methodology for the CY 2011 OPPS because we believe this methodology 
takes into account all of the packaging on claims for drug 
administration services and therefore provides a reasonable framework 
for developing median costs for drug administration services that are 
often provided in combination with one another (74 FR 60539).
    At its February 2010 meeting, the APC Panel recommended that CMS 
make CPT code 96368 (Intravenous infusion, for therapy, prophylaxis, or 
diagnosis (specify substance or drug); concurrent infusion (List 
separately in addition to code for primary procedure) and CPT code 
93676 (Therapeutic, prophylactic, or diagnostic injection (specify 
substance or drug); each additional sequential intravenous push of the 
same substance/drug provided in a facility (List separately in addition 
to code for primary, separately payable procedure) separately payable 
for the CY 2011 OPPS at an appropriate payment rate as determined by 
CMS. We are not proposing to accept this APC Panel recommendation 
because these two codes each describe services that, by definition, are 
always provided in conjunction with an initial drug administration code 
and therefore are appropriately packaged into the payment for the 
separately payable services that they usually accompany. These services 
have been packaged since the inception of the OPPS, and we continue to 
believe they are appropriately packaged into the payment for the 
separately payable services without which, under CPT guidelines and 
definitions, they cannot be appropriately reported. We refer readers to 
section II.A.3. of this proposed rule for a more detailed discussion of 
payment for packaged services.
    Table 30 below displays the proposed configuration of the five drug 
administration APCs for CY 2011 and the proposed median cost for each 
of the proposed drug administration APCs. We believe the updated CY 
2009 claims data and the most recent cost report data for the drug 
administration CPT show that these codes share sufficiently similar 
clinical and resource characteristics to justify their continued 
placement in the five levels of drug administration APCs that were in 
effect in the CY 2010 OPPS. The median cost for each of the separately 
paid drug administration CPT codes is contained in the CPT median cost 
file that is provided as supporting documentation to this proposed rule 
at the Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/. The 
proposed CY 2011 payment rate for each of the proposed drug 
administration APCs is contained in Addendum B of this proposed rule.
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IX. Proposed OPPS Payment for Hospital Outpatient Visits

A. Background

    Currently, hospitals report visit HCPCS codes to describe three 
types of OPPS services: clinic visits; emergency department visits; and 
critical care services. For OPPS purposes, we recognize clinic visit 
codes as those codes defined in the CPT code book to report evaluation 
and management (E/M) services provided in the physician's office or in 
an outpatient or other ambulatory facility. We recognize emergency 
department visit codes as those codes used to report E/M services 
provided in the emergency department. Emergency department visit codes 
consist of five CPT codes that apply to Type A emergency departments 
and five Level II HCPCS codes that apply to Type B emergency 
departments. For OPPS purposes, we recognize critical care codes as 
those CPT codes used by hospitals to report critical care services that 
involve the ``direct delivery by a physician(s) of medical care for a 
critically ill or critically injured patient,'' as defined by the CPT 
code book. In Transmittal 1139, Change Request 5438, dated December 22, 
2006, we stated that, under the OPPS, the time that can be reported as 
critical care is the time spent by a physician and/or hospital staff 
engaged in active face-to-face critical care of a critically ill or 
critically injured patient. Under the OPPS, we also recognize HCPCS 
code G0390 (Trauma response team associated with hospital critical care 
service) for the reporting of a trauma response in association with 
critical care services.
    We are proposing to continue to recognize these CPT and HCPCS codes 
describing clinic visits, Type A and Type B emergency department 
visits, critical care services, and trauma team activation provided in 
association with critical care services for CY 2011. These codes are 
listed below in Table 31.
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    During the February 2010 APC Panel meeting, the APC Panel 
recommended that CMS continue to report on clinic and emergency 
department visits and observation services in the claims data, and that 
if CMS identifies changes in patterns of utilization or cost, it bring 
those issues before the Visits and Observation Subcommittee for future 
consideration. The APC Panel also recommended that the work of the 
Visits and Observation Subcommittee continue. We are adopting these 
recommendations and plan to provide the requested data and analyses to 
the APC Panel at an upcoming meeting.

B. Proposed Policies for Hospital Outpatient Visits

1. Clinic Visits: New and Established Patient Visits
    As reflected in Table 31, hospitals use different CPT codes for 
clinic visits based on whether the patient being treated is a new 
patient or an established patient. Beginning in CY 2009, we refined the 
definitions of a new patient and an established patient to reflect 
whether or not the patient has been registered as an inpatient or 
outpatient of the hospital within the past 3 years. A patient who has 
been registered as an inpatient or outpatient of the hospital within 
the 3 years prior to a visit would be considered to be an established 
patient for that visit, while a patient who has not been registered as 
an inpatient or outpatient of the hospital within the 3 years prior to 
a visit would be considered to be a new patient for that visit. We 
refer readers to the CY 2009 OPPS/ASC final rule with comment period 
(73 FR 68677 through 68680) for a full discussion of the refined 
definitions.
    We continue to believe that defining new or established patient 
status based on whether the patient has been registered as an inpatient 
or outpatient of the hospital within the 3 years prior to a visit will 
reduce hospitals' administrative burden associated with reporting 
appropriate clinic visit CPT codes. For CY 2011, we are proposing to 
continue recognizing the refined definitions of a new patient and an 
established patient, and applying our policy of calculating median 
costs for clinic visits under the OPPS using historical hospital claims 
data. As discussed in section II.A.2.e.(1) of this proposed rule and 
consistent with our CY 2010 policy, when calculating the median costs 
for the clinic visit APCs (0604 through 0608), we would utilize our 
methodology that excludes those claims for visits that are eligible for 
payment through the extended assessment and management composite APC 
8002 (Level I Extended Assessment and Management Composite). We 
continue to believe that this approach results in the most accurate 
cost estimates for APCs 0604 through 0608 for CY 2011.
2. Emergency Department Visits
    Since CY 2007, we have recognized two different types of emergency 
departments for payment purposes under the OPPS--Type A emergency 
departments and Type B emergency departments. As described in greater 
detail below, by providing payment for two types of emergency 
departments, we recognize, for OPPS payment purposes, both the CPT 
definition of an emergency department, which requires the facility to 
be available 24 hours, and the requirements for emergency departments 
specified in the provisions of the Emergency Medical Treatment and 
Labor Act (EMTALA) (Pub. L. 99-272), which do not stipulate 24-hour 
availability but do specify other obligations for hospitals that offer 
emergency services. For more detailed information on the EMTALA 
provisions, we refer readers to the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68680).
    In the CY 2007 OPPS/ASC final rule with comment period (71 FR 
68132), we finalized the definition of a Type A emergency department to 
distinguish it from a Type B emergency department. A Type A emergency 
department must be available to provide services 24 hours a day, 7 days 
a week, and meet one or both of the following requirements related to 
the EMTALA definition of a dedicated emergency department specified at 
42 CFR 489.24(b), specifically: (1) It is licensed by the State in 
which it is located under the applicable State law as an emergency room 
or emergency department; or (2) it is held out to the public (by name, 
posted signs, advertising, or other means) as a place that provides 
care for emergency medical conditions on an urgent basis without 
requiring a previously scheduled appointment. For CY 2007 (71 FR 
68140), we assigned the five CPT E/M emergency department visit codes 
for services provided in Type A emergency departments to five created 
Emergency Visit APCs, specifically APC 0609 (Level 1 Emergency Visits), 
APC 0613 (Level 2 Emergency Visits), APC 0614 (Level 3 Emergency 
Visits), APC 0615 (Level 4 Emergency Visits), and APC 0616 (Level 5 
Emergency Visits). We defined a Type B emergency department as any 
dedicated emergency department that incurred EMTALA obligations but did 
not meet the CPT definition of an emergency department. For example, a 
hospital department that may be characterized as a Type B emergency 
department would meet the definition of a dedicated emergency 
department but may not be available 24 hours a day, 7 days a week. 
Hospitals with such dedicated emergency departments incur EMTALA 
obligations with respect to an individual who presents to the 
department and requests, or has a request made on his or her behalf, 
examination or treatment for a medical condition.
    To determine whether visits to Type B emergency departments have 
different resource costs than visits to either clinics or Type A 
emergency departments, in the CY 2007 OPPS/ASC final rule with comment 
period (71 FR 68132), we finalized a set of five HCPCS G-codes for use 
by hospitals to report visits to all entities that meet the definition 
of a dedicated emergency department under the EMTALA regulations but 
that are not Type A emergency departments. These codes are called 
``Type B emergency department visit codes.'' In the CY 2007 OPPS/ASC 
final rule with comment period (71 FR 68132), we explained that these 
new HCPCS G-codes would serve as a vehicle to capture median cost and 
resource differences among visits provided by Type A emergency 
departments, Type B emergency departments, and clinics. We stated that 
the reporting of specific HCPCS G-codes for emergency department visits 
provided in Type B emergency departments would permit us to 
specifically collect and analyze the hospital resource costs of visits 
to these facilities in order to determine if, in the future, a proposal 
for an alternative payment policy might be warranted. We expected 
hospitals to adjust their charges appropriately to reflect differences 
in Type A and Type B emergency department visit costs.
    As we noted in the CY 2009 OPPS/ASC final rule with comment period 
(73 FR 68681), the CY 2007 claims data used for that rulemaking were 
from the first year of claims data available for analysis that included 
hospitals' cost data for these new Type B emergency department HCPCS 
visit codes. Based on our analysis of the CY 2007 claims data, we 
confirmed that the median costs of Type B emergency department visits 
were less than the median costs of Type A emergency department visits 
for all but the level 5 visit. In other words, the median costs from 
the CY 2007 hospital claims represented real differences in the 
hospital resource costs for the same level of visits in a

[[Page 46297]]

Type A or Type B emergency department. Therefore, for CY 2009, we 
adopted the August 2008 APC Panel recommendation to assign levels 1 
through 4 Type B emergency department visits to their own APCs and to 
assign the level 5 Type B emergency department visit to the same APC as 
the level 5 Type A emergency department visit.
    As discussed in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60548 through 60551), analyses of CY 2008 hospitals' cost data 
from claims data used for CY 2010 ratesetting for the emergency 
department HCPCS G-codes demonstrated that the pattern of relative cost 
differences between Type A and Type B emergency department visits was 
largely consistent with the distributions we observed in the CY 2007 
data, with the exception that, in the CY 2008 data, we observed a 
relatively lower HCPCS code-specific median cost associated with level 
5 Type B emergency department visits compared to the HCPCS code-
specific median cost of level 5 Type A emergency department visits. As 
a result, for CY 2010, we finalized a policy to continue to pay levels 
1 through 4 Type B emergency department visits through four levels of 
APCs, and to pay for level 5 Type B emergency department visits through 
new APC 0630 (Level 5 Type B Emergency Department Visit), to which the 
level 5 Type B emergency department visit HCPCS code is the only 
service assigned.
    Based on the CY 2009 claims data available for this proposed rule, 
we note that the pattern of relative cost differences between Type A 
and Type B emergency department visits is consistent with the 
distributions we observed in the CY 2008 claims data, as demonstrated 
in Table 32 below. Therefore, we are proposing to continue to pay for 
Type B emergency department visits in CY 2011 based on their median 
costs through five levels of APCs: APC 0626 (Level 1 Type B Emergency 
Department Visit), APC 0627 (Level 2 Type B Emergency Department 
Visit), APC 0628 (Level 3 Type B Emergency Department Visit), APC 0629 
(Level 4 Type B Emergency Department Visit), and APC 0630. As we stated 
in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60550), 
we continue to believe that this configuration pays appropriately for 
each level of Type B emergency department visits based on estimated 
resource costs from more recent claims data. We also note that, as 
discussed in section II.A.2.e.(1) of this proposed rule and consistent 
with our CY 2010 policy, when calculating the median costs for the 
emergency department visit and critical care APCs (0609 through 0617 
and 0626 through 0630), we are proposing to utilize our methodology 
that excludes those claims for visits that are eligible for payment 
through the extended assessment and management composite APC 8002. We 
believe that this approach will result in the most accurate cost 
estimates for APCs 0604 through 0608 for CY 2011.
    Table 32 below displays the proposed median costs for each level of 
Type B emergency department visit APCs under the proposed CY 2011 
configuration, compared to the proposed median costs for each level of 
clinic visit APCs and each level of Type A emergency department visit 
APCs.
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    During the February 2010 APC Panel meeting, the APC Panel requested 
that CMS provide information about the common diagnoses and services 
furnished with critical care services. We are accepting the APC Panel's 
recommendation and will provide the requested information at an 
upcoming meeting of the APC Panel.
3. Visit Reporting Guidelines
    Since April 7, 2000, we have instructed hospitals to report 
facility resources for clinic and emergency department hospital 
outpatient visits using the CPT E/M codes and to develop internal 
hospital guidelines for reporting the appropriate visit level. Because 
a national set of hospital-specific codes and guidelines do not 
currently exist, we have advised hospitals that each hospital's 
internal guidelines that determine the levels of clinic and emergency 
department visits to be reported should follow the intent of the CPT 
code descriptors, in that the guidelines should be designed to 
reasonably relate the intensity of hospital resources to the different 
levels of effort represented by the codes.
    As noted in detail in the CY 2008 OPPS/ASC final rule with comment 
period (72 FR 66802 through 66805), we observed a normal and stable 
distribution of clinic and emergency department visit levels in 
hospital claims over the past several years. The data indicated that 
hospitals, on average, were billing all five levels of visit codes with 
varying frequency, in a consistent pattern over time. Overall, both the 
clinic and emergency department visit distributions indicated that 
hospitals were billing consistently over time and in a manner that 
distinguished between visit levels, resulting in relatively normal 
distributions nationally for the OPPS, as well as for specific classes 
of hospitals. The results of these analyses were generally consistent 
with our

[[Page 46298]]

understanding of the clinical and resource characteristics of different 
levels of hospital outpatient clinic and emergency department visits. 
In the CY 2008 OPPS/ASC proposed rule (72 FR 42764 through 42765), we 
specifically invited public comment as to whether a pressing need for 
national guidelines continued at this point in the maturation of the 
OPPS, or if the current system where hospitals create and apply their 
own internal guidelines to report visits was currently more practical 
and appropriately flexible for hospitals. We explained that, although 
we have reiterated our goal since CY 2000 of creating national 
guidelines, this complex undertaking for these important and common 
hospital services was proving more challenging than we initially 
anticipated as we received new and expanded information from the public 
on current hospital reporting practices that led to appropriate payment 
for the hospital resources associated with clinic and emergency 
department visits. We stated our belief that many hospitals had worked 
diligently and carefully to develop and implement their own internal 
guidelines that reflected the scope and types of services they provided 
throughout the hospital outpatient system. Based on public comments, as 
well as our own knowledge of how clinics operate, it seemed unlikely 
that one set of straightforward national guidelines could apply to the 
reporting of visits in all hospitals and specialty clinics. In 
addition, the stable distribution of clinic and emergency department 
visits reported under the OPPS over the past several years indicated 
that hospitals, both nationally in the aggregate and grouped by 
specific hospital classes, were generally billing in an appropriate and 
consistent manner as we would expect in a system that accurately 
distinguished among different levels of service based on the associated 
hospital resources.
    Therefore, we did not propose to implement national visit 
guidelines for clinic or emergency department visits for CY 2008. Since 
publication of the CY 2008 OPPS/ASC final rule with comment period, we 
have again examined the distribution of clinic and Type A emergency 
department visit levels based upon updated CY 2009 claims data 
available for this CY 2011 proposed rule and confirmed that we continue 
to observe a normal and stable distribution of clinic and emergency 
department visit levels in hospital claims. We continue to believe 
that, based on the use of their own internal guidelines, hospitals are 
generally billing in an appropriate and consistent manner that 
distinguishes among different levels of visits based on their required 
hospital resources. As a result of our updated analyses, we are 
encouraging hospitals to continue to report visits during CY 2011 
according to their own internal hospital guidelines. In the absence of 
national guidelines, we will continue to regularly reevaluate patterns 
of hospital outpatient visit reporting at varying levels of 
disaggregation below the national level to ensure that hospitals 
continue to bill appropriately and differentially for these services. 
As originally noted in detail in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66648), we continue to expect that hospitals will 
not purposely change their visit guidelines or otherwise upcode clinic 
and emergency department visits for purposes of extended assessment and 
management composite APC payment.
    In addition, we note our continued expectation that hospitals' 
internal guidelines will comport with the principles listed in the CY 
2008 OPPS/ASC final rule with comment period (72 FR 66805). We 
encourage hospitals with more specific questions related to the 
creation of internal guidelines to contact their servicing fiscal 
intermediary or MAC.
    We appreciate all of the comments we have received in the past from 
the public on visit guidelines, and we encourage continued submission 
of comments throughout the year that would assist us and other 
stakeholders interested in the development of national guidelines. 
Until national guidelines are established, hospitals should continue 
using their own internal guidelines to determine the appropriate 
reporting of different levels of clinic and emergency department 
visits. While we understand the interest of some hospitals in having us 
move quickly to promulgate national guidelines that would ensure 
standardized reporting of hospital outpatient visit levels, we believe 
that the issues and concerns identified both by us and others are 
important and require serious consideration prior to the implementation 
of national guidelines.
    Because of our commitment to provide hospitals with 6 to 12 months 
notice prior to implementation of national guidelines, we would not 
implement national guidelines prior to CY 2012. Our goal is to ensure 
that OPPS national or hospital-specific visit guidelines continue to 
facilitate consistent and accurate reporting of hospital outpatient 
visits in a manner that is resource-based and supportive of appropriate 
OPPS payments for the efficient and effective provision of services to 
beneficiaries during visits in hospital outpatient settings.

X. Proposed Payment for Partial Hospitalization Services

A. Background

    Partial hospitalization is an intensive outpatient program of 
psychiatric services provided to patients as an alternative to 
inpatient psychiatric care for individuals who have an acute mental 
illness. Sections 1861(ff)(1) and (ff)(2) of the Act specify the items 
and services that are defined as partial hospitalization services and 
the conditions under which Medicare payment for the items and services 
will be made. Section 1861(ff)(3) of the Act specifies that a partial 
hospitalization program (PHP) is one that is furnished by a hospital or 
community mental health center (CMHC) that meets the requirements 
specified under that subsection of the Act.
    Section 1301(a) of the recently enacted Health Care and Education 
Reconciliation Act of 2010 (HCERA 2010) (Pub. L. 111-152, enacted on 
March 30, 2010) revised the definition of a CMHC set forth at section 
1861(ff)(3)(B) of the Act by adding a provision that the CMHC, 
effective on the first day of the first calendar quarter that begins at 
least 12 months after the date of enactment (that is, April 1, 2011), 
must provide at least 40 percent of its services to individuals who are 
not eligible for benefits under Title XVIII of the Act (Medicare). 
Section 1301(b) of HCERA 2010 amended the description of a PHP to 
specify that the program must be a distinct and organized intensive 
ambulatory treatment service offering less than 24-hour daily care 
``other than in an individual's home or in an inpatient or residential 
setting.'' We discuss our proposal to incorporate these two provisions 
of HCERA 2010 in our regulations under section X.C. of this proposed 
rule.
    Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the 
authority to designate the HOPD services to be covered under the OPPS. 
The existing Medicare regulations at 42 CFR 419.21 that implement this 
provision specify that payments under the OPPS will be made for partial 
hospitalization services furnished by CMHCs as well as those services 
furnished by hospitals to their outpatients. Section 1833(t)(2)(C) of 
the Act requires the Secretary to establish relative payment weights 
for covered

[[Page 46299]]

HOPD services (and any APCs) based on median (or mean, at the election 
of the Secretary) hospital costs using data on claims from 1996 and 
data from the most recent available cost reports. Because a day of care 
is the unit that defines the structure and scheduling of partial 
hospitalization services, we established a per diem payment methodology 
for the PHP APCs, effective for services furnished on or after August 
1, 2000 (65 FR 18452 through 18455).
    From CY 2003 through CY 2006, the median per diem cost for CMHCs 
fluctuated significantly from year to year (from a high of $685 in CY 
2003 to a low of $154 in CY 2006), while the median per diem cost for 
hospital-based PHPs remained relatively constant ($177-$225). We 
believe that CMHCs may have increased and decreased their charges in 
response to Medicare payment policies.
    Due to these significant fluctuations and declines in CMHC PHP 
median per diem costs, in developing the CY 2008 update, we began an 
effort to strengthen the PHP benefit through extensive data analysis 
and policy and payment changes (72 FR 66670 through 66676). 
Specifically, we proposed and finalized two refinements to the 
methodology for computing the PHP median. First, we remapped 10 revenue 
codes that are common among hospital-based PHP claims to the most 
appropriate cost centers. Secondly, we refined our methodology for 
calculating PHP per diem costs by computing the median using a per day 
methodology. A complete discussion of these refinements can be found in 
the CY 2008 OPPS/ASC final rule with comment period (72 FR 66671 
through 66672).
    In CY 2009, we implemented several regulatory, policy, and payment 
changes, including a two-tiered payment approach for PHP services under 
which we pay one amount for days with 3 services (APC 0172 (Level I 
Partial Hospitalization)) and a higher amount for days with 4 or more 
services (APC 0173 (Level II Partial Hospitalization)). We refer 
readers to section X.C.2. of the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68688 through 68693) for a full discussion of the 
two-tiered payment system. In addition, for CY 2009, we finalized our 
policy to deny payment for any PHP claims for days when fewer than 3 
units of therapeutic services are provided. As noted in the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68694), we believe that 
3 services should be the minimum number of services allowed in a PHP 
day because a day with 1 or 2 services does not meet the statutory 
intent of a PHP. Three services are a minimum threshold that will take 
into consideration unforeseen circumstances, such as medical 
appointments, while maintaining the integrity of the PHP benefit.
    Furthermore, for CY 2009, we revised the regulations at 42 CFR 
410.43 to codify existing basic PHP patient eligibility criteria and to 
add a reference to current physician certification requirements at 42 
CFR 424.24 to conform our regulations to our longstanding policy (73 FR 
68694 through 68695). We believe these changes have helped to 
strengthen the PHP benefit. We also revised the partial hospitalization 
benefit to include several coding updates. We refer readers to section 
X.C.2. of the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68694 through 68697) for a full discussion of these requirements.
    For CY 2010, we retained the two-tiered payment approach for PHP 
services and used only hospital-based PHP data in computing the per 
diem payment rates. We used only hospital-based PHP data because we 
were concerned about further reducing both PHP APC per diem payment 
rates without knowing the impact of the policy and payment changes we 
made in CY 2009. Because of the 2-year lag between data collection and 
rulemaking, the changes we made in CY 2009 are reflected for the first 
time in the claims data that we are using to determine proposed payment 
rates for this CY 2011 rulemaking.

B. Proposed PHP APC Update for CY 2011

    For CY 2011, we used CY 2009 claims data and computed median per 
diem costs in the following three categories: (1) All days; (2) days 
with 3 services; and (3) days with 4 or more services. These proposed 
median per diem costs were computed separately for CMHC PHPs and 
hospital-based PHPs and are shown in Table 33 below.
[GRAPHIC] [TIFF OMITTED] TP03AU10.517

    Using CY 2009 data and the refined methodology for computing PHP 
per diem costs that we adopted in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66672), we computed a median per diem cost from 
all claims for CY 2011 of $132.28. The data indicate that, although 
CMHCs provided more days with 4 or more services in CY 2009 than in CY 
2008, their median per diem cost for 4 or more services ($123.35) is 
substantially lower than the median per diem cost for the same units of 
service provided in hospital-based PHPs ($235.58). The median per diem 
cost for claims containing 4 or more services for all PHP claims, 
regardless of site of service, is $131.56. Medians for claims 
containing 3 services is $118.19 for CMHC PHPs, $184.47 for hospital-
based PHPs, and $140.96 for all PHP service claims, regardless of site 
of service.
    These data, along with data from previous years, show the shift in 
cost and utilization for CMHCs and hospital-based PHPs under the two-
tiered

[[Page 46300]]

payment system. Since CY 2009 (using 2007 data), CMHC costs decreased 
from $139 in CY 2009 to $118 in CY 2011 for Level I services (3 
services) and from $172 in CY 2009 to $123 in CY 2011 for Level II 
services (4 or more services). For hospital-based PHPs, costs increased 
from $157 in CY 2009 to $184 in CY 2011 for Level I services (3 
services) and from $200 in CY 2009 to $236 in CY 2011 for Level II 
services (4 or more services). For the past two years, we have based 
the PHP APC per diem payment rates on only hospital-based PHP data 
because including the CMHC data would have lowered the PHP APC per diem 
rates and raised concerns about appropriate payment for PHP services. 
Specifically, we were concerned about paying hospital-based PHP 
programs a rate that is lower than what their cost structure reflects, 
which in turn could lead to hospital-based program closures and 
possible access problems. We also were concerned about further reducing 
the payment rates without knowing the impact of the policy and payment 
changes we made in CY 2009.
    Because the CMHC cost data has significantly decreased again this 
year, we believe that we can no longer ignore the pattern and continue 
to base the PHP payment rates using only hospital-based data. We are 
confident that the CY 2009 claims data reflect that CMHCs continue to 
have a lower cost structure than hospitals and not the impact of CY 
2009 policies. Therefore, we believe that we cannot continue to treat 
these two provider types the same in terms of payment, particularly 
because their cost differences continue to be so disparate. We also 
believe that we need to continue to protect hospital-based PHPs from 
receiving inadequate payments, given that they offer the widest access 
to PHP services because they are located across the country. We believe 
that the results of our analysis of the claims data indicate a need to 
establish payment rates for each provider type based on its own unique 
cost structures.
    Therefore, for CY 2011, we are proposing to compute four separate 
PHP APC per diem payment rates, two for CMHC PHPs (for Level I and 
Level II services using only CMHC data) and two for hospital-based PHPs 
(Level I and Level II services using only hospital-based PHP data). 
Creating the proposed four payment rates (two for CMHC PHPs and two for 
hospital-based PHPs) would support continued access to the PHP benefit, 
including a more intensive level of care, while also providing 
appropriate payment based on the unique cost structures of CMHC PHPs 
and hospital-based PHPs. We request public comments on our proposal to 
provide four separate PHP APC per diem payment rates, two for CMHC PHPs 
and two for hospital-based PHPs.
    The proposed APCs median per diem costs for PHP services for CY 
2011 are as follows:
[GRAPHIC] [TIFF OMITTED] TP03AU10.518

    We note that this proposal is consistent with the recommendation by 
several commenters in the CY 2010 OPPS/ASC final rule with comment 
period that CMS adopt two additional payment rates that are site 
specific APCs for PHP services, where the hospital-based PHP APCs for 
Level I services (3 services) and Level II services (4 or more 
services) would be established using only hospital-based data and the 
CMHC PHP APCs for Level I services (3 services) and Level II services 
(4 or more services) would be established using only CMHC data (74 FR 
60557).

C. Proposed Changes to Regulations To Incorporate Provisions of HCERA 
2010

    As stated in section X.A. of this proposed rule, section 1301 of 
HCERA 2010 made a change to the statutory definition of a CMHC and a 
change to the description of what constitutes a PHP. Specifically, 
section 1301(a) of HCERA 2010 revised the definition of a CMHC set 
forth at section 1861(ff)(3)(B) of the Act by adding a provision to the 
existing provisions under which a CMHC, effective on the first day of 
the first calendar quarter that begins at least 12 months after the 
date of enactment (that is, April 1, 2011), must provide at least 40 
percent of its services to individuals who are not eligible for 
benefits under Title XVIII of the Act (Medicare). Section 1301(b) of 
HCERA 2010 amended the description of a PHP to specify that the program 
must be a distinct and organized intensive ambulatory treatment service 
offering less than 24-hour daily care ``other than

[[Page 46301]]

in an individual's home or in an inpatient or residential setting.''
    Our existing regulations at 42 CFR 410.2 incorporate the statutory 
definitions of ``Community mental health center (CMHC)'' and ``Partial 
hospitalization services.'' We are proposing to revise the definition 
of a CMHC in Sec.  410.2 to include the additional requirement provided 
for under the amendment made by section 1301(a) of HCERA 2010. Under 
existing Sec.  410.2, we define ``partial hospitalization services'' to 
mean ``a distinct and organized intensive ambulatory treatment program 
that offers less than 24-hour daily care and furnishes the services 
described in Sec.  410.43.'' We are proposing to revise this definition 
to incorporate the amendment made by section 1301(b) of HCERA 2010 to 
describe partial hospitalization services as a distinct and organized 
intensive ambulatory treatment program that offers less than 24-hour 
daily care ``other than in an individual's home or in an inpatient 
residential setting'' and furnishes the services described in Sec.  
410.43.

D. Proposed Separate Threshold for Outlier Payments to CMHCs

    In the November 7, 2003 final rule with comment period (68 FR 63469 
through 63470), we indicated that, given the difference in PHP charges 
between hospitals and CMHCs, we did not believe it was appropriate to 
make outlier payments to CMHCs using the outlier percentage target 
amount and threshold established for hospitals. Prior to that time, 
there was a significant difference in the amount of outlier payments 
made to hospitals and CMHCs for PHP services. In addition, further 
analysis indicated that using the same OPPS outlier threshold for both 
hospitals and CMHCs did not limit outlier payments to high cost cases 
and resulted in excessive outlier payments to CMHCs. Therefore, 
beginning in CY 2004, we established a separate outlier threshold for 
CMHCs. The separate outlier threshold for CMHCs has resulted in more 
commensurate outlier payments.
    In CY 2004, the separate outlier threshold for CMHCs resulted in 
$1.8 million in outlier payments to CMHCs. In CY 2005, the separate 
outlier threshold for CMHCs resulted in $0.5 million in outlier 
payments to CMHCs. In contrast, in CY 2003, more than $30 million was 
paid to CMHCs in outlier payments. We believe this difference in 
outlier payments indicates that the separate outlier threshold for 
CMHCs has been successful in keeping outlier payments to CMHCs in line 
with the percentage of OPPS payments made to CMHCs.
    As noted in section II.F. of this proposed rule, we are proposing 
to continue our policy of identifying 1.0 percent of the aggregate 
total payments under the OPPS for outlier payments for CY 2011. We are 
proposing that a portion of that 1.0 percent, an amount equal to 0.04 
percent of outlier payments (or 0.0004 percent of total OPPS payments), 
would be allocated to CMHCs for PHP outliers. As discussed in section 
II.F. of this proposed rule, we are proposing to set a dollar threshold 
in addition to an APC multiplier threshold for OPPS outlier payments. 
However, because the PHP APC is the only APC for which CMHCs may 
receive payment under the OPPS, we would not expect to redirect outlier 
payments by imposing a dollar threshold. Therefore, we are not 
proposing to set a dollar threshold for CMHC outliers. As noted in 
section II.F. of this proposed rule, we are proposing to set the 
outlier threshold for CMHCs for CY 2011 at 3.40 times the APC payment 
amount and the CY 2011 outlier payment percentage applicable to costs 
in excess of the threshold at 50 percent. Specifically, we are 
proposing to establish that if a CMHC's cost for partial 
hospitalization services, paid under either APC 0172 or APC 0173, 
exceeds 3.40 times the payment for APC 0173, the outlier payment would 
be calculated as 50 percent of the amount by which the cost exceeds 
3.40 times the APC 0173 payment rate.

XI. Proposed Procedures That Will Be Paid Only as Inpatient Procedures

A. Background

    Section 1833(t)(1)(B)(i) of the Act gives the Secretary broad 
authority to determine the services to be covered and paid for under 
the OPPS. Before implementation of the OPPS in August 2000, Medicare 
paid reasonable costs for services provided in the HOPD. The claims 
submitted were subject to medical review by the fiscal intermediaries 
to determine the appropriateness of providing certain services in the 
outpatient setting. We did not specify in our regulations those 
services that were appropriate to provide only in the inpatient setting 
and that, therefore, should be payable only when provided in that 
setting.
    In the April 7, 2000 final rule with comment period (65 FR 18455), 
we identified procedures that are typically provided only in an 
inpatient setting and, therefore, would not be paid by Medicare under 
the OPPS. These procedures comprise what is referred to as the 
``inpatient list.'' The inpatient list specifies those services for 
which the hospital will be paid only when provided in the inpatient 
setting because of the nature of the procedure, the underlying physical 
condition of the patient, or the need for at least 24 hours of 
postoperative recovery time or monitoring before the patient can be 
safely discharged. As we discussed in that rule and in the November 30, 
2001 final rule with comment period (66 FR 59856), we may use any of a 
number of criteria we have specified when reviewing procedures to 
determine whether or not they should be removed from the inpatient list 
and assigned to an APC group for payment under the OPPS when provided 
in the hospital outpatient setting. Those criteria include the 
following:
     Most outpatient departments are equipped to provide the 
services to the Medicare population.
     The simplest procedure described by the code may be 
performed in most outpatient departments.
     The procedure is related to codes that we have already 
removed from the inpatient list.
    In the November 1, 2002 final rule with comment period (67 FR 
66741), we added the following criteria for use in reviewing procedures 
to determine whether they should be removed from the inpatient list and 
assigned to an APC group for payment under the OPPS:
     A determination is made that the procedure is being 
performed in numerous hospitals on an outpatient basis; or
     A determination is made that the procedure can be 
appropriately and safely performed in an ASC, and is on the list of 
approved ASC procedures or has been proposed by us for addition to the 
ASC list.
    The list of codes that we are proposing to be paid by Medicare in 
CY 2011 only as inpatient procedures is included as Addendum E to this 
proposed rule.

B. Proposed Changes to the Inpatient List

    For the CY 2011 OPPS, we are proposing to use the same methodology 
as described in the November 15, 2004 final rule with comment period 
(69 FR 65835) to identify a subset of procedures currently on the 
inpatient list that are being performed a significant amount of the 
time on an outpatient basis. Using this methodology, we identified 
three procedures that met the criteria for potential removal from the 
inpatient list. We then clinically reviewed these three potential 
procedures for possible

[[Page 46302]]

removal from the inpatient list and found them to be appropriate 
candidates for removal from the inpatient list. During the February 
2010 meeting of the APC Panel, we solicited the APC Panel's input on 
the appropriateness of removing the following three procedures from the 
CY 2011 inpatient list: CPT codes 21193 (Reconstruction of mandibular 
rami; horizontal, vertical, C, or L osteotomy; without bone graft); 
21395 (Open treatment of orbital floor blowout fracture; periorbital 
approach with bone graft (includes obtaining graft)); and 25909 
(Amputation, forearm, through radius and ulna; reamputation). Following 
the discussion at its February 2010 meeting, the APC Panel recommended 
that CMS remove from the CY 2011 inpatient list the three CPT codes 
that we had identified: CPT codes 21193, 21395, and 25909.
    For the CY 2011 OPPS, we are proposing to accept the APC Panel's 
recommendations to remove the procedures described by CPT codes 21193, 
21395, and 25909 from the inpatient list because we agree with the APC 
Panel that the procedures may be appropriately provided as hospital 
outpatient procedures for some Medicare beneficiaries. The three 
procedures that we are proposing to remove from the inpatient list for 
CY 2011 and their CPT codes, long descriptors, and proposed APC 
assignments are displayed in Table 36 below.
[GRAPHIC] [TIFF OMITTED] TP03AU10.519

XII. Proposed OPPS Nonrecurring Technical and Policy Changes and 
Clarifications

A. Physician Supervision

1. Background
    In the CY 2000 OPPS final rule with comment period (65 FR 18524-
18526), we amended our regulations to establish, as a condition of 
payment, the requirements for physician supervision of diagnostic and 
therapeutic services provided to hospital outpatients incident to a 
physician's service. We adopted physician supervision policies as a 
condition of payment to ensure that Medicare pays for high quality 
hospital outpatient services provided to beneficiaries in a safe and 
effective manner and consistent with Medicare requirements. We 
clarified and restated the various payment requirements for physician 
supervision of therapeutic and diagnostic services through notice and 
comment rulemaking in the CY 2009 OPPS/ASC proposed rule and final rule 
with comment period (73 FR 41518 through 41519 and 73 FR 68702 through 
68704, respectively). In response to concerns about our policy 
restatement that were expressed following the publication of the CY 
2009 final rule with comment period, we met with stakeholders and 
further delineated our physician supervision policies for both 
therapeutic and diagnostic services in the CY 2010 OPPS/ASC proposed 
rule and final rule with comment period (74 FR 35365 and 74 FR 60679 
through 60680, respectively).
    While we received and responded to many comments in the course of 
the CY 2010 rulemaking, addressing supervision for both diagnostic and 
therapeutic services, it was not until after publication of the CY 2010 
OPPS/ASC final rule with comment period that we received substantial 
comments from the CAH community in response to a technical correction 
we made to codify our long standing view that CAHs are subject to the 
supervision policy for payment of therapeutic services in the 
regulations at 42 CFR 410.27. In addition, the broader hospital 
community continues to indicate that it would prefer that we modify the 
current supervision policy to permit a lower level of supervision for 
therapeutic services.
    By way of introduction, we have defined supervision in the hospital 
outpatient setting by drawing on the three levels of supervision that 
we defined for the physician office setting at Sec.  410.32(b): 
general, direct and personal supervision. Over time, we have tailored 
these definitions to apply them in the hospital outpatient setting, but 
we have maintained the following premises. General supervision means 
that a service is furnished under the overall direction and control of 
the physician, but his or her physical presence is not required during 
the performance of the procedure. Direct supervision means that the 
physician is physically present on site and is immediately available to 
furnish assistance and direction throughout the performance of the 
procedure. However, it does not mean the physician must be present in 
the same room when the procedure is being performed. Personal 
supervision means the physician is present in the room when the service 
is being performed.
a. Outpatient Therapeutic Services
    As set forth in the CY 2000 OPPS final rule with comment period 
establishing the hospital outpatient prospective payment system, direct 
supervision is the standard for supervision of hospital outpatient 
therapeutic services covered and paid by Medicare in hospitals and 
provider based departments (PBDs) of hospitals. In that rule, we 
defined ``direct supervision'' to mean that ``the

[[Page 46303]]

physician must be present and on the premises of the location and 
immediately available to furnish assistance and direction throughout 
the performance of the procedure. It does not mean that the physician 
must be present in the room when the procedure is performed.'' In the 
CY 2000 OPPS final rule with comment period, we finalized regulation 
text in Sec.  410.27(f) specifying that direct supervision is required 
in PBDs of hospitals. In the preamble discussion we emphasized the 
importance of the direct supervision requirement for off-campus 
provider based departments. We also stated that the language of Sec.  
410.27(f) ``applies to services furnished at an entity that is located 
off the campus of a hospital that we designate as having provider-based 
status as a department of a hospital in accordance with Sec.  413.65.'' 
We disagreed with commenters that the requirement for direct 
supervision in the off campus provider-based hospital department was 
more stringent than that required on the hospital campus. We noted that 
section 1861(s)(2)(B) of the Act authorizes payment for hospital 
services incident to physicians' services furnished to outpatients. We 
stated that ``we require that hospital services and supplies furnished 
to outpatients that are incident to physician services be furnished on 
a physician's order by hospital personnel and under a physician's 
supervision'' (65 FR 18525). We further stated that ``we assume the 
physician supervision requirement is met on hospital premises because 
staff physicians would always be nearby within the hospital.''
    In manual guidance, we have clarified that we expect services 
incident to physicians' services to be performed under direct 
supervision. We provide in Section 20.5.1, Chapter 6, of the Medicare 
Benefit Policy Manual (Pub. 100-04) that services and supplies must be 
furnished on a physician's order and delivered under supervision. 
Section 20.5.1 indicates further that each occasion of a service by a 
nonphysician does not need to also be the occasion of the actual 
rendition of a personal professional service by the physician 
responsible for the care of the patient. Nevertheless, as stipulated in 
that same section of the Manual ``during any course of treatment 
rendered by auxiliary personnel, the physician must personally see the 
patient periodically and sufficiently often enough to assess the course 
of treatment and the patient's progress and, where necessary, to change 
the treatment regimen.''
    In the CY 2009 OPPS/ASC proposed rule and final rule with comment 
period, we provided a restatement and clarification of the requirements 
for physician supervision of hospital outpatient diagnostic and 
therapeutic services that were set forth in the CY 2000 OPPS final rule 
with comment period. We chose to restate the existing physician 
supervision policy for hospital outpatient therapeutic services in part 
because we were concerned that some stakeholders may have misunderstood 
our use of the term ``assume'' in the following statement, ``We assume 
the physician requirement is met on hospital premises because staff 
physicians would always be nearby within the hospital. The effect of 
the regulations in this final rule is to extend this assumption to a 
department of a hospital that is located on the campus of the 
hospital'' (65 FR 18525). We were concerned that stakeholders might 
believe that this statement meant that we do not require any 
supervision in the hospital or in an on-campus PBD for hospital 
outpatient therapeutic services, or that we only require general 
supervision for those services.
    In our policy restatement in the CY 2009 OPPS/ASC rulemaking, we 
reiterated that direct supervision is the standard for physician 
supervision, as set forth in the CY 2000 OPPS final rule with comment 
period, for supervision of hospital outpatient therapeutic services 
covered and paid by Medicare in hospitals and PBDs of hospitals. We 
stated clearly that we expect direct physician supervision of all 
hospital outpatient therapeutic services, regardless of their on-campus 
or off-campus location, but indicated that we would continue to 
emphasize the physician supervision requirements in off-campus PBDs as 
we did in the CY 2000 OPPS final rule with comment period. We noted 
that if there were problems with outpatient care in a hospital or in an 
on-campus PBD where direct supervision was not in place (that is, the 
expectation of direct supervision was not met), we would consider that 
to be a quality concern.
    After we published the CY 2009 OPPS/ASC final rule with comment 
period, we received significantly more public feedback than during the 
rulemaking cycle about our restatement of our supervision policy for 
both diagnostic and therapeutic services. We met with stakeholders in 
the early part of 2009 as we prepared for the CY 2010 rulemaking cycle, 
as well as reviewed all public input that we received, to craft a 
response to these concerns regarding the supervision requirements. For 
therapeutic services, we considered the concerns of various 
stakeholders along with our position that direct supervision for 
therapeutic services is appropriate and aligned with the statutory 
requirement that Medicare only makes payment for therapeutic services 
in the hospital outpatient setting that are ``incident to'' physician 
services.
    In the CY 2010 OPPS/ASC final rule with comment period, we 
finalized our proposal to allow, in addition to clinical psychologists, 
certain other nonphysician practitioners to directly supervise services 
that they may perform themselves under their State license and scope of 
practice and hospital-granted or CAH-granted privileges. The 
nonphysician practitioners that were permitted to provide direct 
supervision of therapeutic services under the CY 2010 OPPS/ASC final 
rule with comment period are physician assistants, nurse practitioners, 
clinical nurse specialists, certified nurse-midwives, and licensed 
clinical social workers. These nonphysician practitioners may directly 
supervise outpatient therapeutic services that they may personally 
furnish in accordance with State law and all additional requirements, 
including the Medicare coverage rules relating to their services 
specified in our regulations at 42 CFR 410.71, 410.73, 410.74, 410.75, 
410.76, and 410.77 (for example, requirements for collaboration with, 
or general supervision by, a physician). In implementing the new 
benefits for pulmonary rehabilitation, cardiac rehabilitation, and 
intensive cardiac rehabilitation added by the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA, Pub. L. 110-275), we 
required that direct supervision of services furnished in the hospital 
outpatient department must be provided by a doctor of medicine or 
osteopathy as required by statute.
    For services furnished on a hospital's main campus, we finalized a 
modification of our proposed definition of ``direct supervision'' in 
new paragraph (a)(1)(iv)(A) of Sec.  410.27 that allows for the 
supervisory physician or nonphysician practitioner to be anywhere on 
the hospital campus. Therefore, as of CY 2010, direct supervision on 
the hospital or CAH campus or in an on-campus PBD means that ``the 
supervisory physician or nonphysician practitioner must be present on 
the same campus and immediately available to furnish assistance and 
direction throughout the performance of the procedure.'' Because the 
term ``in the hospital or CAH'' applies broadly to ``incident to'' 
requirements such as the site-of-service requirement for therapeutic 
services provided by the hospital directly and under arrangement, we 
also established

[[Page 46304]]

a definition of ``in the hospital'' in new paragraph Sec.  410.27(g) as 
meaning areas in the main building(s) of a hospital or CAH that are 
under the ownership, financial, and administrative control of the 
hospital or CAH; that are operated as part of the hospital; and for 
which the hospital bills the services furnished under the hospital's or 
CAH's CMS Certification Number (CCN). In the preamble to the CY 2010 
OPPS/ASC final rule with comment period, as part of the discussion of 
various public comments on the definition of the hospital campus, and 
on the supervision requirement specifically, we stated that we would 
recognize other areas or structures of the hospital's campus that are 
not part of the hospital, such as physician offices, rural health 
centers, skilled nursing facilities, or other entities that participate 
separately under Medicare to be part of the hospital's campus.
    In the CY 2010 OPPS/ASC final rule with comment period, we also 
finalized our proposal to add paragraph (a)(1)(iv)(B) to Sec.  410.27. 
This paragraph updated our previous regulation at Sec.  410.27(f) to 
reflect that, for off-campus PBDs of hospitals, the physician or 
nonphysician practitioner must be present in the off-campus PBD, as 
defined in Sec.  413.65, and immediately available to furnish 
assistance and direction throughout the performance of the procedure. 
It does not mean that the physician or nonphysician practitioner must 
be in the room when the procedure is performed. In addition, we 
finalized the proposed technical change to clarify the language in 
Sec.  410.27(f) by removing the phrase ``present and on the premises of 
the location'' and replacing it with the phrase ``present in the off-
campus provider-based department.''
    Finally, we finalized a technical correction to the title of Sec.  
410.27 to read ``Outpatient hospital or CAH services and supplies 
incident to a physician service: Conditions,'' to clarify in the title 
that the requirements for payment of hospital outpatient therapeutic 
services incident to a physician or nonphysician practitioner service 
in that section apply to both hospitals and CAHs. Similarly, we 
included the phrase ``hospital or CAH'' throughout the text of Sec.  
410.27 wherever the text referred only to ``hospital.'' We viewed this 
as a technical correction because the statute applies the same 
regulations to hospitals and CAHs when appropriate. Specifically, the 
definition of ``hospital'' in section 1861(e) of the Act expressly 
excludes CAHs ``unless the context otherwise requires.'' Accordingly, 
we do not believe it is necessary for a regulation to reference 
specifically the applicability to CAHs for those regulations to be 
appropriate given the ``context'' for CAHs. Although payment to CAHs is 
authorized under section 1834(g) of the Act, many of the payment rules 
applicable to hospitals paid under sections 1886(d) and 1833(t) of the 
Act apply to CAHs.
    We believe that the supervision requirements should apply in the 
context of CAHs because they represent appropriate safety and quality 
requirements for Medicare payment of outpatient services. In the early 
part of this year, the CAH community asserted that the CAH CoPs offer 
more flexibility in staffing requirements than the rule requiring 
direct supervision, and that the CAH CoPs address the general 
availability of physician and nonphysician practitioners on the CAH 
campus. The hospital CoPs at 42 CFR 482.22 require hospital medical 
staff to be composed of doctors of medicine or osteopathy and, in 
accordance with State law, may also be composed of other practitioners 
appointed by the governing body. They also require 24 hour nursing 
services that are provided by or supervised by a registered nurse. 
Under section 1820(c)(2)(B) of the Act, among other criteria, a CAH 
must meet the same staffing requirements as would apply under section 
1861(e) of the Act to a hospital located in a rural area. However, 
there are some exceptions to these staffing requirements. Section 
1820(c)(2)(B)(iv) of the Act specifies that the CAH need not meet 
hospital staffing requirements under section 1861(e) of the Act 
regarding the days and hours in which it is open and fully staffed; the 
facility may provide certain services under arrangement at an off-site 
location; that inpatient care may be provided by a physician assistant, 
nurse practitioner, or clinical nurse specialist subject to the 
oversight of a physician, who need not be present in the facility.
    The CAH CoPs in 42 CFR 485.631 are specific in recognizing the 
statutory authority to be staffed by nonphysician practitioners rather 
than physicians, provided a doctor of medicine or osteopathy, nurse 
practitioner, clinical nurse specialist, or physician assistant is 
available to furnish patient care services at all times the CAH 
operates. The requirement that the practitioner ``be available'' in 
Sec.  485.631 has been interpreted to mean that the nonphysician 
practitioner or physician is available by phone, but not necessarily 
physically present on the CAH campus. The CAH CoPs also specify 
standards for emergency personnel under Sec.  485.618, requiring that a 
doctor of medicine or osteopathy, or a nonphysician practitioner such 
as a physician assistant, a nurse practitioner, or a clinical nurse 
specialist, with training or experience in emergency care, be on call 
and immediately available by telephone or radio contact, and available 
on site within 30 minutes, on a 24-hour a day basis in most areas.
    However, in the Medicare program, payment requirements are 
frequently different from those identified in the CoPs because the two 
sets of rules serve very separate and distinct purposes. CoPs apply 
largely at the facility level, while payment regulations apply at the 
service level. Payment regulations, such as requirements for how 
contracted entities providing services to hospital patients, support 
program goals of appropriate and accurate payment for quality services. 
In contrast, for all providers including CAHs, the CoPs authorize 
hospitals to participate in the Medicare program. We establish CoPs as 
minimum standards for patient health and safety, and CoPs focus on 
creating a foundation to ensure quality and safe care for beneficiaries 
throughout a given facility, irrespective of the payment system or 
service provided. CoPs do not ensure that payment is appropriate for 
specific types of purchased services nor can they substitute for 
payment requirements since that is not their function.
    In summary, requirements established for purposes of payment 
frequently differ from the requirements established by the CoPs for 
many providers, including hospitals and CAHs. Whereas payment 
regulations establish basic parameters defining the services being 
purchased, CoPs (including both the hospital CoPs and the CAH CoPs) 
establish standards to ensure a minimum level of quality and safety for 
operating as a hospital or a CAH. The minimum standards established as 
CoPs are not always adequate to address the particular quality, safety 
and other requirements for payment for a service or group of services.
b. Outpatient Diagnostic Services
    As we stated in the CY 2009 OPPS/ASC and CY 2000 OPPS proposed 
rules and final rules with comment period, section 1861(s)(2)(C) of the 
Act authorizes payment for diagnostic services that are furnished to a 
hospital outpatient for the purpose of diagnostic study. We have 
further defined the requirements for diagnostic services furnished to 
hospital outpatients, including requirements for physician supervision 
of diagnostic services, in Sec. Sec.  410.28 and 410.32 of our 
regulations. For CY 2010, we finalized a proposal to require that all 
hospital outpatient

[[Page 46305]]

diagnostic services provided directly or under arrangement, whether 
provided in the hospital, in a PBD of a hospital, or at a nonhospital 
location, follow the physician supervision requirements for individual 
tests as listed in the MPFS Relative Value File in order to receive 
payment. The existing definitions of general and personal supervision 
as defined in Sec. Sec.  410.32(b)(3)(i) and (b)(3)(iii) also apply. 
For services furnished directly or under arrangement in the hospital or 
on-campus PBD, ``direct supervision'' means that the physician must be 
present on the same campus and immediately available to furnish 
assistance and direction throughout the performance of the procedure. 
For the purposes of Sec.  410.28, as for the general purposes of Sec.  
410.27, the definition of ``in the hospital'' as incorporated in Sec.  
410.27(g) applies.
    These policies are an extension of the supervision requirements for 
outpatient diagnostic tests performed in a provider-based department 
that were adopted at the inception of the OPPS in the CY 2000 OPPS 
final rule with comment period. The MPFS Relative Value File is updated 
quarterly and is available on the CMS Web site at: http://www.cms.gov/PhysicianFeeSched/. For diagnostic services not listed in the MPFS, we 
have indicated that Medicare contractors, in consultation with their 
medical directors, would define appropriate supervision levels in order 
to determine whether claims for these services are reasonable and 
necessary.
    We note that the current requirement in Sec. Sec.  410.28(e)(1) and 
(e)(2) that physician supervision of diagnostic services provided in 
the hospital or in any provider-based department follow the levels for 
diagnostic services established under the MPFS explicitly applies to 
hospitals that are paid pursuant to section 1833(t) of the Act, which 
is the statutory authority for the OPPS. Because Medicare makes 
payments to CAHs pursuant to section 1834(g) of the Act, at this time, 
CAHs are not subject to this supervision requirement.
2. Issues Regarding the Supervision of Hospital Outpatient Services 
Raised by Hospitals and Other Stakeholders
    Following the adoption of our policies in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60575 through 60591), beginning 
in January 2010, we began to receive a sizable amount of 
correspondence, as well as numerous phone calls, and questions through 
other public avenues, including the regular open door forum calls, from 
the rural hospital and CAH community indicating its belief that the 
requirement for direct supervision for therapeutic services finalized 
in that rule is at odds with longstanding and prevailing practice in 
rural communities. These hospitals and their representatives stated 
that they generally function with a reduced level of supervision for 
the provision of therapeutic services and that while they furnish 
services under a physician's or appropriate nonphysician practitioner's 
order, frequently no physician or nonphysician practitioner is 
physically present anywhere in the CAH or small rural hospital while 
the therapeutic services are being furnished. CAHs, in particular, 
noted that the provisions in their CoPs allow a CAH to operate under 
the reduced staffing requirements specified above. Specifically, under 
the CoPs, CAHs must have a physician or one of several types of 
nonphysician practitioners available by phone at all times, but not on 
campus, and in most areas of the country, for emergencies, the CAH must 
have a physician or certain other nonphysician practitioners with 
training or experience in emergency care physically available onsite 
within 30 minutes.
    Both CAHs and rural hospitals have stated that the flexibility to 
allow nonphysician practitioners to supervise services that we 
authorized in the CY 2010 OPPS/ASC final rule with comment period is 
helpful for meeting the direct supervision requirement for all 
therapeutic services, but that a shortage of qualified practitioners in 
rural areas continues to make it difficult to staff a physician or 
nonphysician practitioner for supervision purposes. They also noted 
that a practitioner retained on the campus of a small rural hospital or 
CAH to meet supervision requirements may not have other patients or 
medical activities to complete. In an urban or large urban hospital, a 
practitioner would be able to see other patients or engage in other 
activities so long as those activities could be interrupted, such that 
they would be immediately available to supervise.
    In a series of questions and answers about supervision on the CMS 
Web site (http://www.cms.gov/HospitalOutpatientPPS/05_OPPSGuidance.asp#TopOfPage), we provided additional guidance regarding 
our regulations about who can supervise services in order to explain to 
CAHs and small rural hospitals the flexibility we believe exists within 
our requirement for direct supervision. For example, in that document, 
we state that we believe the emergency physician or non-physician 
practitioner, who would be the most likely practitioners staffing a 
small rural hospital or CAH, can directly supervise outpatient services 
so long as the emergency physician in the emergency department of the 
campus meets the other requirements of direct supervision. That is, the 
individual needs to be immediately available, so that, if needed, he or 
she could reasonably be interrupted to furnish assistance and direction 
in the delivery of therapeutic services provided elsewhere in the 
hospital. We believe that most emergency physicians can appropriately 
supervise many services within the scope of their knowledge, skills, 
licensure, and hospital-granted privileges, including observation 
services. With regard to whether an emergency physician or a 
nonphysician practitioner could be interrupted, such that the 
individual could be immediately available, we have stated that each 
hospital would need to assess the level of activity in their emergency 
department and determine whether at least one emergency physician or 
nonphysician practitioner could be interrupted to furnish assistance 
and direction in the treatment of outpatients.
    In their correspondence and discussion in public forums, CAHs and 
small rural hospitals explicitly have raised concerns about services 
that extend after regular operating hours, especially observation 
services. They also asserted that direct supervision is not clinically 
necessary for some services that have a significant monitoring 
component that is typically performed by nursing or other auxiliary 
staff typically, including IV hydration, blood transfusions, and 
chemotherapy. They stated that their facilities have protocols to 
safely deliver all of these services, including chemotherapy, relying 
on nursing or other hospital staff to provide the service and having a 
physician or non-physician practitioner available by phone to furnish 
assistance and direction throughout the duration of the therapeutic 
service.
    In the early part of this year, small rural hospitals and CAHs 
indicated that, regulations notwithstanding, many of them did not have 
appropriate staff arrangements to provide the required supervision of 
some services, particularly services being provided after hours or 
consisting of a significant monitoring component that lasted for an 
extended period of time. In response to rising concerns among the rural 
community about these rules and the inability of some hospitals to meet 
the direct supervision requirement, we issued a statement on March 15, 
2010, indicating that we would not enforce the rules for supervision of 
hospital outpatient therapeutic procedures

[[Page 46306]]

furnished in CAHs in CY 2010 (http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp#TopOfPage). We also stated that we would proactively 
revisit the rules surrounding the supervision of services furnished by 
CAHs in the CY 2011 OPPS/ASC proposed rule.
    With regard to diagnostic services, unlike supervision of 
therapeutic services, we have had only limited dialogue with various 
stakeholders about our CY 2010 policy to recognize the supervision 
levels for diagnostic services under the MPFS for the provision of 
diagnostic services in the hospital. Individual stakeholders have asked 
about supervision of specific diagnostic services and have noted that 
our requirement that the hospitals follow the supervision levels for 
diagnostic services in the hospital identified in the MPFS Relative 
Value Unit file has required some modest changes in hospital staffing 
practices. We also have received questions requesting clarification 
about related supervision requirements for nonphysician practitioners. 
We note that adopting the supervision levels defined under the MPFS for 
diagnostic services in 42 CFR 410.32 means that nonphysician 
practitioners that are not specifically excluded under Sec.  410.32(b) 
from the level of supervision required by the MPFS are subject to 
supervision by a physician at the level of supervision required by the 
diagnostic test. We also discussed in our CY 2010 OPPS/ASC final rule 
with comment period that diagnostic X-ray and other diagnostic tests 
must be furnished under the appropriate level of supervision by a 
physician as defined in section 1861(r) of the Act (74 FR 60588 through 
60590).
3. Proposed Policies for Supervision of Outpatient Therapeutic Services 
in Hospitals and CAHs
    As indicated in our March 15, 2010 statement, we are revisiting the 
issue of supervision of outpatient therapeutic services in CAHs to 
ensure a robust public discussion about supervision requirements for 
payment in hospital outpatient departments, including those located in 
rural communities, and CAH outpatient departments. In this proposed 
rule, we are proposing modest changes to our supervision policy for 
therapeutic services that reflect our continuing commitment to require 
direct supervision for the provision of therapeutic services in the 
hospital outpatient setting as a requirement for payment. We are 
proposing these changes for all hospitals, including CAHs, because we 
believe that Medicare should purchase a basic quality of service for 
all Medicare beneficiaries. Specifically, we are proposing to identify 
a limited set of services with a significant monitoring component that 
can extend for a sizable period of time, that are not surgical, and 
that typically have a low risk of complication after assessment at the 
beginning of the service, as ``nonsurgical extended duration 
therapeutic services.'' We are proposing for these services that there 
would be a requirement for direct supervision for the initiation of the 
service followed by general supervision for the remainder of the 
service. We are proposing to adopt the definition of ``general 
supervision'' in Sec.  410.32(b)(3)(i), which is the same definition of 
general supervision that we already recognize as appropriate for 
diagnostic services with a general supervision level requirement under 
the MPFS. Finally, at the end of this proposal, we include several 
discussion points designed to focus public comments and generate 
sufficient detail to assist us in crafting a final policy.
    In the CY 2010 OPPS/ASC final rule with comment period, we affirmed 
our belief that direct supervision is the appropriate supervision 
requirement for therapeutic services provided in the hospital 
outpatient setting. In that rule, we finalized a definition of direct 
supervision in the hospital or in an on-campus department of the 
hospital to mean that the physician or nonphysician practitioner is 
present on the same campus and immediately available to furnish 
assistance and direction throughout the performance of the procedure 
(74 FR 60591).
    In considering the significant correspondence from CAHs and rural 
communities, as well as public discussion on the issue of supervision 
through the open door forum and calls with individual hospitals and 
other hospital representatives, we sought to identify some means of 
offering flexibility within the supervision requirement to hospitals 
and CAHs, while continuing to ensure that Medicare purchases services 
delivered with a basic level of quality and safety and also fulfills 
the statutory requirement for payment of therapeutic outpatient 
services in the hospital that are provided ``incident to'' physician 
services. We recognize the concerns of CAHs and rural hospitals that it 
could be difficult to staff a physician or nonphysician practitioner on 
the campus of the CAH or small rural hospital to supervise services 
that have a significant monitoring component and lack an active 
component being performed by the physician or nonphysician 
practitioner, especially when these services extend into after business 
hours or overnight. CAHs and rural hospitals explicitly identified 
observation services, IV hydration, chemotherapy, and blood 
transfusions as the services that are particularly challenging to 
provide under direct supervision. Observation services, in particular, 
can extend for a significant period of time. Data from the 85X claims 
indicate that most observation care lasts longer than 12 hours and 
almost all such care ends within 48 hours, suggesting that observation 
care frequently extends after business hours and through the night.
    We recognize that any service with an extended duration and a 
significant monitoring component could challenge hospitals' ability to 
ensure direct supervision, and we decided to concentrate on these 
services. We set out to identify services with a significant monitoring 
component extending after business hours as identified by the CAHs and 
hospitals in rural communities and for which we could offer some 
flexibility in meeting the requirement for direct supervision of 
therapeutic services without compromising the quality and safety of 
services for which Medicare makes payment. One way to provide 
flexibility would be to allow a reduced level of supervision for part 
of these services. CAHs have already stated that their longstanding 
practice has been to provide therapeutic services under general 
supervision, which comports with the minimum requirements set forth in 
their CoPs to participate in the Medicare program that a physician or 
certain nonphysician practitioner must be available by phone but not 
physically present on the CAH campus. As defined in Sec.  
410.32(b)(3)(i), ``general supervision'' means the procedure is 
furnished under the physician's overall direction and control, but the 
physician's presence is not required during the performance of the 
procedure. We have established a requirement for direct supervision for 
all hospital outpatient services in our CY 2000 and CY 2010 rulemaking 
processes. However, we reasoned that, for certain extended duration 
services, we could adopt a general supervision requirement for some 
portion of the service, as long as we believed that such flexibility 
would not undermine the quality and safety of purchased services. 
Therefore, we are proposing to require, for a limited set of 
nonsurgical extended duration therapeutic services, direct supervision 
during the initiation of the service followed by general supervision 
for the remainder of the service.
    We are proposing to define ``initiation of the service'' as the 
beginning portion

[[Page 46307]]

of a service ending when the patient is stable and the supervising 
physician or appropriate nonphysician practitioner believes the 
remainder of the service can be delivered safely under their general 
direction and control without their physical presence on the hospital 
campus or in the PBD of the hospital. We considered further defining 
the term ``stable'' in this definition as there is an established 
definition in the EMTALA regulations at section 489.24(b). In those 
regulations, ``stabilized'' with respect to an emergency medical 
condition means ``that no material deterioration of the condition is 
likely, within reasonable medical probability, to result from or occur 
during the transfer for the individual from a facility * * *''. 
However, this language is set within the context of emergency services, 
not hospital outpatient therapeutic services generally, and we have 
been clear that supervision is more than emergency response. 
Ultimately, we were not certain that this definition would be 
appropriate for a payment requirement for supervision of outpatient 
therapeutic services.
    We also are not proposing to further define the term ``initiation'' 
or to set time limits on this portion of the service because we believe 
that the determination that a patient is sufficiently stable to 
transfer from direct supervision to general supervision, and the timing 
of that decision, are clinical judgments. Because some of the services 
identified for this proposed policy have the potential for shorter 
durations, such as an hour, we believe it is best to leave the 
determination of when to move from direct to general supervision to the 
discretion of the supervising physician or nonphysician practitioner. 
However, we are considering whether the point of transfer from direct 
supervision to general supervision should be documented in the medical 
record or identified in a hospital protocol, and we invite public 
comment on how CMS might review the physician or nonphysician 
practitioner's decision to move from direct to general supervision to 
monitor for proper billing should an adverse event occur.
    We considered four criteria when identifying the list of services 
to which this new policy of direct supervision during the initiation of 
the service followed by general supervision for the remainder of the 
service would apply. We first accepted the two criteria identified in 
correspondence and discussion with CAHs and rural hospitals, that the 
service be of extended duration, frequently extending beyond normal 
business hours, and that the service largely consist of a significant 
monitoring component typically conducted by nursing or other auxiliary 
staff. We added a third criterion that the service must be of 
sufficiently low risk, such that the service typically would not 
require direct supervision often during the service. We believe this 
criterion is appropriate because, as we have previously discussed, our 
requirement for direct supervision is grounded in the statutory 
``incident to'' payment authority, as well as the need to ensure that 
Medicare purchases services that represent a basic level of quality and 
safety. We have noted that, unlike an inpatient admission, the 
provision of outpatient services lacks certain safeguards such as a 
detailed medical history and a plan of care (74 FR 60578 through 
60588). Finally, we excluded all surgical services including recovery 
time from potential inclusion because, although monitoring of any 
patient in recovery is a key component of surgery, it is not the focus 
or a substantial component of the service and because we believe the 
surgeon should personally evaluate the patient's medical status during 
the recovery period.
    Using these four criteria, we identified a list of nonsurgical 
therapeutic services that have a tendency to last for a long period of 
time, that largely consist of monitoring, and that have a low risk that 
the physician's physical presence will be needed once the patient is 
stable. To identify this list of potential services, we reviewed all 
medical services, including the services and procedures specifically 
identified by CAHs and rural hospitals in their correspondence and 
public discussion. The proposed list of nonsurgical extended duration 
therapeutic services appears in Table 37 below. We explicitly did not 
include chemotherapy or blood transfusions in our proposed list of 
nonsurgical extended duration therapeutic services because we believe 
that these services require the physician's or nonphysician 
practitioner's recurrent physical presence in order to evaluate the 
patient's condition in the event it is necessary to redirect the 
service.
    We included observation services on the proposed list of 
nonsurgical extended duration services. In Section 20.6 of Chapter 2 of 
the Medicare Benefit Policy Manual (Pub. 100-02), we define observation 
care as ``a well-defined set of specific, clinically appropriate 
services, which include ongoing short term treatment, assessment, and 
reassessment before a decision can be made regarding whether patients 
will require further treatment as hospital inpatients or if they are 
able to be discharged from the hospital.'' Therefore, the acuity of 
patients receiving observation services and the amount of recurrent 
supervisory review that may be necessary for these services can vary 
significantly. Observation services can be of low acuity and can have a 
low probability that the supervising physician or nonphysician 
practitioner's physical presence would be needed to step in and perform 
the service or otherwise furnish assistance. We do note in Section 
290.5.1 of Chapter 4 of the Medicare Claims Processing Manual (Pub. 
100-04) that, for observation services, (a) ``the beneficiary must be 
in the care of a physician during the period of observation, as 
documented in the medical record by outpatient registration, discharge, 
and other appropriate progress notes that are timed, written, and 
signed by the physician, and (b) the medical record also must include 
documentation that the physician explicitly assessed patient risk to 
determine that the beneficiary would benefit from observation 
services.'' We would continue to expect hospitals and CAHs to fulfill 
these specific requirements associated with observation care, so the 
supervising physician or appropriate nonphysician practitioner must 
continue to evaluate the patient periodically and include written notes 
in the medical record.
BILLING CODE 4120-01-P

[[Page 46308]]

[GRAPHIC] [TIFF OMITTED] TP03AU10.520

BILLING CODE 4120-01-C

[[Page 46309]]

    In summary, we are proposing to require direct supervision as 
defined in Sec.  410.27(a)(1)(iv) during an initiation period, followed 
by a minimum standard of general supervision as defined in Sec.  
410.32(b)(3)(i) for the duration of the service, for a limited set of 
``nonsurgical extended duration therapeutic services'' identified in 
Table 37 above. We are proposing to add a new paragraph (a)(1)(v) to 
Sec.  410.27 for this provision. In new Sec.  410.27(a)(1)(v)(A), we 
are proposing to define ``nonsurgical extended duration therapeutic 
services'' as services that can last a significant period of time, have 
a substantial monitoring component, have a low risk of requiring the 
physician's or appropriate nonphysician practitioner's physical 
presence to furnish assistance and direction after the initiation of 
the service, and are not primarily surgical in nature. In new Sec.  
410.27(a)(1)(v)(B), we are proposing to define ``initiation of the 
service'' as the beginning portion of a service ending when the patient 
is stable and the supervising physician or appropriate nonphysician 
practitioner believes the remainder of the service can be delivered 
safely under his or her general direction and control without needing 
his or her physical presence on the hospital campus or in the PBD of 
the hospital. We note that in the CY 2010 OPPS/ASC final rule with 
comment period, in presenting the regulation text changes for Sec.  
410.27, paragraph (a)(2) (relating to PHP services) was inadvertently 
deleted from the Code of Federal Regulations. We are proposing to 
restore paragraph (a)(2) as it originally appeared in the regulations.
    In crafting this proposal, we considered other avenues to offer 
flexibility within our requirement for direct supervision. We summarize 
below the alternatives we considered in order to focus public comments 
and generate sufficient detail to assist us in developing the final 
policy. In addition to considering the proposed policy to permit 
general supervision after an initial period of direct supervision for a 
limited subset of services, we also considered offering hospitals the 
flexibility to broaden the list to include chemotherapy and blood 
transfusions, which some stakeholders also maintain do not require 
direct supervision. Because we were concerned that these services had a 
high probability of needing a physician or nonphysician practitioner to 
redirect the service, we reasoned that we would have to require 
hospitals to create internal guidelines specifying a supervision level 
and protocols for staffing that supervision level for every nonsurgical 
extended duration therapeutic service. We considered proposing minimum 
requirements for these internal supervision guidelines, including 
annual review and approval by a governing committee, periodic internal 
evaluation of implementation, and the ability to make these guidelines 
available to Medicare program auditors if requested. Further, these 
guidelines would be reviewed thoroughly by CMS should a quality issue 
arise. Given the complexity of services such as chemotherapy and blood 
transfusions, and the probability that the physician's or nonphysician 
practitioner's physical presence will be required during the service, 
we decided to propose a policy to ensure greater safety for these 
higher acuity services. We also chose not to pursue this internal 
guidelines option because we believed that hospitals would find these 
requirements onerous and that the policy would not necessarily provide 
the flexibility that CAHs and rural hospitals desire. We are seeking 
public comment on whether hospitals agree with our assessment about the 
challenge of crafting, maintaining, and implementing internal 
guidelines about supervision and whether general supervision is 
clinically appropriate and safe for chemotherapy, blood transfusions, 
and similar services.
    We also considered whether for payment purposes we should 
explicitly exclude outpatient CAH services from all supervision 
requirements. As discussed above, one of the grounds for applying the 
direct supervision requirement to outpatient therapeutic services 
furnished in hospitals is that these services are outpatient hospital 
services furnished ``incident to'' physicians' services under section 
1861(s)(2)(B) of the Act and paid under the OPPS pursuant to section 
1833(t) of the Act. In contrast, ``outpatient critical access hospital 
services'' are defined under section 1861(mm)(3) of the Act, and CAHs 
are reimbursed for outpatient CAH services based on their reasonable 
costs pursuant to section 1834(g) of the Act. We believe that 
outpatient CAH services are correctly viewed as being furnished 
``incident to'' physicians' services. Section 1861(mm)(3) of the Act 
defines ``outpatient critical access hospital services'' as ``medical 
and other health services furnished by a critical access hospital on an 
outpatient basis.'' The term ``medical and other health services'' is 
defined at section 1861(s) of the Act as including ``hospital services 
* * * incident to physicians' services rendered to outpatients.'' 
Furthermore, the same considerations regarding the need to ensure that 
services furnished to Medicare beneficiaries represent a basic level of 
quality and safety that apply to outpatient hospital services are 
equally applicable to outpatient CAH services. As a result, we believe 
it is appropriate to apply the same supervision requirements to 
outpatient therapeutic services furnished in hospitals and CAHs. We 
acknowledge that statutory provisions allow CAHs some flexibility in 
their staffing requirements to operate with more nursing staff and 
nonphysician practitioners rather than physicians if those are the 
practitioners that are available, and that our regulations recognize 
those reduced staffing requirements in the CoPs by establishing that, 
at a minimum, the physician or nonphysician practitioner must be 
available, but not necessarily on the CAH campus. Some have suggested, 
however, that these regulations which establish only minimal 
requirements reduce the quality and safety of CAH services and that 
CAHs should be required to disclose their reduced staffing levels to 
patients prior to providing services. Accordingly, we have elected not 
to propose to exempt CAHs from all direct supervision requirements 
because we believe that Medicare should purchase from CAHs services 
that are of the same basic level of safety and quality as from other 
hospitals, and because we also believe that both small rural hospitals 
paid under the OPPS through section 1833(t) of the Act and CAHs paid at 
reasonable cost under section 1834(g) of the Act have similar staffing 
and resource constraints. In fact, given that CAHs are reimbursed based 
on their reasonable costs, we reasoned that CAHs might be better able 
to hire staff to provide direct supervision. We welcome public comment 
on the topic of exempting CAHs from a direct supervision requirement 
for outpatient therapeutic services, including comments in response to 
our concerns about making such a proposal.
4. Supervision of Hospital Outpatient Diagnostic Services
    We have received limited correspondence and questions on our policy 
finalized in the CY 2010 OPPS/ASC final rule with comment period to 
adopt for outpatient hospital diagnostic services the physician 
supervision levels in Sec.  410.32(b)(3) established under the MPFS and 
indicated on the Practice Expense Relative Value Unit file. As 
discussed above, the CY 2010 policy applies to hospitals and not to 
CAHs. However, we have received questions asking whether nonphysician

[[Page 46310]]

practitioners previously performing diagnostic tests without physician 
supervision, within their State scope of practice and hospital-granted 
privileges, can continue to perform those tests without physician 
supervision. The CY 2010 policy now requires physician supervision of 
those services, unless the nonphysician practitioner is specifically 
exempted under Sec.  410.32(b)(2) or there is some other provision 
addressing supervision for that type of nonphysician practitioner. As 
part of a broader proposal addressing clinical nurse-midwives as 
defined in Sec.  410.77(b)(2) of the regulations, we are making a 
clarifying proposal in the CY 2011 MPFS proposed rule that clinical 
nurse-midwives should be excepted from requiring physician supervision 
for the diagnostic tests that they are authorized to perform under 
applicable State laws. Comments on that proposal should be submitted 
through the comment process for that proposed rule (CMS-1503-P).

B. Proposed Payment for Preventive Services

1. Definition of ``Preventive Services''
    Section 4104(a) of the Affordable Care Act revised section 
1861(ddd) of the Act by adding a new paragraph (3), which defines the 
term ``preventive services.'' Preventive services are defined as:
     Screening and preventive services currently described in 
section 1861(ww)(2) of the Act, except for electrocardiograms described 
in section 1861(ww)(2)(M) of the Act;
     An initial preventive physical examination (IPPE) as 
defined in section 1861(ww) of the Act; and
     Personalized prevention plan services (PPPS), also known 
as the ``Annual Wellness Visit,'' as defined in section 1861(hhh) of 
the Act (which was added by section 4103 of the Affordable Care Act).
    The services specified in the definition of ``preventive services'' 
at section 1861(ddd)(3)(A) of the Act, as cross-referenced to section 
1861(ww)(2) of the Act, excluding electrocardiograms, include the 
following:
     Pneumococcal, influenza, and hepatitis B vaccine and 
administration.
     Screening mammography.
     Screening pap smear and screening pelvic examination.
     Prostate cancer screening tests.
     Colorectal cancer screening tests.
     Diabetes outpatient self-management training (DSMT).
     Bone mass measurement.
     Screening for glaucoma.
     Medical nutrition therapy (MNT) services.
     Cardiovascular screening blood tests.
     Diabetes screening tests.
     Ultrasound screening for abdominal aortic aneurysm (AAA).
     Additional preventive services identified for coverage 
through the national coverage determination (NCD) process.
    We note that currently the only additional preventive service 
identified for coverage through the NCD process is HIV testing. A 
proposed national coverage determination for smoking cessation services 
for asymptomatic patients (CAG-00420N, ``Proposed Coverage Decision 
Memorandum for Counseling to Prevent Tobacco Use''), was released in 
May 2010 on the CMS Web site at: http://www.cms.gov/mcd/index_list.asp?list_type=nca. We will address the applicability of section 
4104 of the Affordable Care Act to these services if an NCD 
establishing them as additional preventive services is finalized before 
the CY 2011 OPPS/ASC final rule with comment period is issued.
    We are specifying our proposals to implement the coverage and 
payment provisions for PPPS in the CY 2011 Medicare Physician Fee 
Schedule (MPFS) proposed rule. Therefore, public comments on the 
proposed coverage of and payment for PPPS under the provisions of the 
Affordable Care Act should be submitted in response to the CY 2011 MPFS 
proposed rule. The implementing regulations regarding coverage of the 
IPPE are already established under existing 42 CFR 410.16 and remain 
unchanged by the Affordable Care Act. As discussed below in section 
XII.B.2. of this proposed rule, we are presenting our proposals for the 
application or waiver of the coinsurance requirements and the 
deductible for preventive services as provided for under sections 
4104(b) and (c) of the Affordable Care Act.
2. Coinsurance and Deductible for Preventive Services
    Sections 4104(b) and 10406 of the Affordable Care Act amended 
section 1833(a)(1) of the Act to require 100 percent payment for the 
IPPE and for those preventive services recommended by the United States 
Preventive Services Task Force (USPSTF) with a grade of A or B for any 
indication or population and that are appropriate for the individual. 
This requirement waives any coinsurance or copayment that would 
otherwise be applicable under section 1833(a)(1) of the Act for those 
items and services listed in section 1861(ww)(2) of the Act (excluding 
electrocardiograms) to which the USPSTF has given a grade of A or B. In 
addition, section 4103(c) of the Affordable Care Act waives the 
coinsurance or copayment for the annual wellness visit providing PPPS. 
The coinsurance or copayment represents the beneficiary's share of the 
payment to the provider or supplier for furnished services. Coinsurance 
generally refers to a percentage (for example, 20 percent) of the 
Medicare payment rate for which the beneficiary is liable and is 
applicable under the MPFS and ASC payment system, while copayment 
generally refers to an established amount that the beneficiary must pay 
that is not necessarily related to a particular percentage of the 
Medicare payment rate, and is applicable under the OPPS. We refer 
readers to the CY 2011 MPFS proposed rule for the proposed provisions 
related to payment for preventive services, including waiver of the 
deductible and copayment, under the MPFS, and to section XV.D.1.d. of 
this proposed rule for our proposals to implement the provisions 
related to payment for preventive services under the ASC payment 
system.
    Section 4104(c) of the Affordable Care Act amended section 
1833(b)(1) of the Act to waive the Part B deductible for preventive 
services described in section 1861(ddd)(3)(A) of the Act that have a 
grade of A or B from the USPSTF. In addition, section 4103(c)(4) of the 
Affordable Care Act waives the Part B deductible for the annual 
wellness visit providing PPPS. These provisions are effective for 
services furnished on and after January 1, 2011. We note that section 
101(b)(2) of the MIPPA previously amended section 1833(b) of the Act to 
waive the deductible for the IPPE, effective January 1, 2009.
    Not all preventive services described in paragraph (A) of section 
1861(ddd)(3) of the Act are recommended by the USPSTF with a grade of A 
or B, and therefore, some of the preventive services do not meet the 
criteria in sections 1833(a)(1) and 1833(b)(1) of the Act for the 
waiver of deductible and coinsurance. However, the changes made by 
section 4104 of the Affordable Care Act do not affect most of the pre-
existing specific provisions listed in existing Sec.  410.160(b) and 
Sec.  410.152 of the regulations (which reflect the provisions found in 
sections 1833(a) and 1833(b) of the Act) that waive the deductible and 
coinsurance for specific services. For example, section 1833(a)(1)(D) 
of the Act waives the coinsurance and section 1833(b)(3) of the Act 
waives the deductible for clinical laboratory tests (including those 
furnished for screening purposes).

[[Page 46311]]

Section 4104 of the Affordable Care Act does not change this provision 
and the waiver for both the deductible and coinsurance remains in place 
for all laboratory tests, regardless of whether the particular clinical 
laboratory test meets the criteria of section 4104 for waiver of 
deductible and coinsurance as a preventive service.
    The following preventive services listed in section 1833(ddd)(3)(A) 
of the Act are not recommended by the USPSTF with a grade of A or B for 
any indication or population: digital rectal examination provided as a 
prostate cancer screening service; glaucoma screening; diabetes 
outpatient self-management training; and barium enema provided as a 
colorectal cancer screening service.
    Specifically, HCPCS code G0102 (Prostate cancer screening; digital 
rectal exam), which does not have a grade of A or B from the USPSTF for 
any indication or population, will continue to be subject to the 
deductible and coinsurance. However, the deductible and coinsurance for 
HCPCS code G0103 (Prostate cancer screening; prostate specific antigen 
test (PSA)) will continue to be waived under section 1833(a)(1)(D) of 
the Act as a clinical laboratory test, even though it also does not 
have a grade of A or B from the USPSTF.
    Glaucoma screening services, described by HCPCS codes G0117 
(Glaucoma screening for high risk patients furnished by an optometrist 
or ophthalmologist) and G0118 (Glaucoma screening for high risk patient 
furnished under the direct supervision of an optometrist or 
ophthalmologist), will continue to be subject to the deductible and 
coinsurance requirements because these services are not recommended 
with a grade of A or B by the USPSTF for any indication or population. 
Similarly, diabetes outpatient self-management training is currently 
not rated by the USPSTF; therefore, the deductible and coinsurance 
requirements will continue to apply.
    Barium enemas provided as colorectal cancer screening tests, 
described by HCPCS codes G0106 (Colorectal cancer screening; 
alternative to G0104, screening sigmoidoscopy, barium enema) and G0120 
(Colorectal cancer screening; alternative to G0105, screening 
colonoscopy, barium enema) do not have a grade of A or B from the 
USPSTF for any indication or population. However, the deductible does 
not apply to barium enemas provided as colorectal cancer screening 
tests, because colorectal cancer screening tests are explicitly 
excluded from the deductible under section 1833(b)(8) of the Act. 
However, there is no specific exclusion of barium enemas from the 
coinsurance requirement at section 1833(b)(1) of the Act. Therefore, 
this requirement, as applicable, continues to apply to barium enemas. 
We note that the USPSTF has given a grade of A to colonoscopy, flexible 
sigmoidoscopy, and fecal occult blood screening tests, and that, as a 
result, these services qualify for the statutory waiver of both the 
deductible and coinsurance.
    We also note that the USPSTF ceased to make recommendations with 
regard to vaccines and vaccine administration after CY 1996, so as not 
to conflict with the recommendations of the CDC's Advisory Committee on 
Immunization Practices. However, the USPSTF's most recent vaccine 
recommendations, which were never withdrawn by the USPSTF, gave a grade 
of B to the influenza and pneumococcal vaccines and their 
administration and a grade of A to the hepatitis B vaccine and its 
administration. While sections 1833(a)(1) and 1833(b)(1) of the Act 
require that the preventive services receive a grade of A or B from the 
USPSTF for the coinsurance and deductible to be waived, the statute 
does not specify that the recommended grade must be furnished within 
any given timeframe. The USPSTF grades for these preventive services 
are the most current USPSTF grade and have never been withdrawn. 
Therefore, we believe that these preventive services meet the 
requirements of the statute for the waiver of the deductible and 
coinsurance. We also note that the CDC's Advisory Committee on 
Immunization Practices currently recommends influenza, pneumococcal, 
and hepatitis B vaccines.
    Table 38 below displays the HCPCS codes (paid under the OPPS or at 
reasonable cost) that we are proposing as ``preventive services'' under 
section 1861(ddd)(3)(A) of the Act. Table 38 also provides the most 
recent USPSTF grade, if any, that is the basis for our proposed policy 
with regard to waiver of the deductible and coinsurance, as applicable. 
In developing recommendations regarding preventive services, we 
recognize that the USPSTF may make recommendations that are specific to 
an indication or population, at times including characteristics such as 
gender and age in its recommendations. While we are proposing to waive 
the deductible and coinsurance for any Medicare covered preventive 
service recommended with a grade of A or B for any indication or 
population, with no limits on the indication or population as long as 
the USPSTF has recommended the preventive service for at least one 
indication and/or population with a grade of A or B, we note that all 
existing Medicare coverage policies for such services, including any 
limitations based on indication or population, continue to apply. In 
some cases, national coverage policies may currently limit Medicare 
coverage based on the indication or population, consistent with the 
USPSTF recommendations with a grade of A or B for the indication or 
population. In other cases where Medicare does not explicitly noncover 
preventive services for a specific population or indication, we would 
expect that, particularly in those cases where the USPSTF 
recommendation grade is a D (that is, the USPTF recommends against the 
service because there is moderate or high certainty that the service 
has no net benefit or that the harms outweigh the benefits), 
practitioners would only order those preventive services that are 
clinically appropriate for the beneficiary. If we have future concerns 
about the appropriateness of preventive services for an indication or 
population in light of the USPSTF's recommendations, we may consider 
using our authority under section 1834(n)(1) of the Act (as added by 
section 4105 of the Affordable Care Act) to modify Medicare coverage of 
any preventive service consistent with the recommendations of the 
USPSTF.
    We note that section 4103(c)(3)(A) of the Affordable Care Act 
excludes the PPPS from payment under the OPPS and establishes payment 
for the PPPS when performed in a hospital outpatient department under 
the MPFS. In this OPPS/ASC proposed rule, we are proposing to add a new 
Sec.  419.22(t) to the regulations to specify that the PPPS is excluded 
from payment under the OPPS. In the process of revising the regulations 
to reflect the exclusion of PPPS from the OPPS, we noticed the need for 
existing Sec.  419.21(e) to be updated to reflect that an IPPE may be 
performed within 12 months after the date of the individual's initial 
enrollment in Part B effective January 1, 2009. We also noticed that 
existing Sec.  419.22(m) of the regulations should be updated to 
reflect that a revised payment methodology for end-stage renal disease 
(ESRD) services will go into effect on January 1, 2011. Therefore, we 
also are proposing to revise Sec. Sec.  419.21(e) and 419.22(m). We 
refer readers to the CY 2011 MPFS proposed rule for a discussion of the 
proposed changes to Sec.  410.160(b) and Sec.  410.152 of the 
regulations to implement the provisions related to the

[[Page 46312]]

definition of preventive services and the waiver of the coinsurance and 
deductible for preventive services as specified by sections 4103 and 
4104 of the Affordable Care Act.
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[[Page 46317]]


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3. Extension of Waiver of Deductible to Services Furnished in 
Connection With or in Relation to a Colorectal Cancer Screening Test 
That Becomes Diagnostic or Therapeutic
    Section 4104(c) of the Affordable Care Act amended section 1833(b) 
of the Act to waive the Part B deductible for colorectal cancer 
screening tests that become diagnostic. Specifically, section 
4104(c)(2) of the Affordable Care Act waives the deductible with 
respect to a colorectal cancer screening test regardless of the code 
that is billed for the establishment of a diagnosis as a result of the 
test, or for the removal of tissue or other matter or other procedure 
that is furnished in connection with, as a result of, and in the same 
clinical encounter as a screening test.
    We are proposing that all surgical services furnished on the same 
date as a planned screening colonoscopy, planned flexible 
sigmoidoscopy, or barium enema be viewed as being furnished in 
connection with, as a result of, and in the same clinical encounter as 
the screening test. We believe that this interpretation is appropriate 
because we believe that it would be very rare for an unrelated surgery 
to occur on the same date as one of these scheduled screening tests. 
Moreover, we believe that the risk of improper expenditures would be 
very small under this policy because it is the deductible, and not the 
coinsurance, that is waived for the related procedures other than the 
screening tests. In the event of a legislative change to this policy 
(for example, a statutory change that would waive the coinsurance for 
these related services in addition to the deductible), we would 
reassess the appropriateness of this proposed definition of services 
that are furnished in connection with, as a result of, and in the same 
clinical encounter as the colorectal cancer screening test that becomes 
diagnostic. We also note that the annual deductible would likely be met 
when any surgical procedure (related or not) is performed on the same 
day as the scheduled screening test.
    We are proposing to implement this provision by creating a HCPCS 
modifier that providers would append to the diagnostic procedure code 
that is reported instead of the screening colonoscopy or screening 
flexible sigmoidoscopy HCPCS code or as a result of the barium enema 
when the screening test becomes a diagnostic service. The claims 
processing system would respond to the modifier by waiving the 
deductible for all surgical services on the same date as the diagnostic 
test. Coinsurance or copayment would continue to apply to the 
diagnostic test and to other services furnished in connection with, as 
a result of, and in the same clinical encounter as the screening test.

C. Payment for Pulmonary Rehabilitation, Cardiac Rehabilitation, and 
Intensive Cardiac Rehabilitation Services Furnished to Hospital 
Outpatients

    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60566 
through 60574), we addressed the provisions of section 144(a) of the 
Medicare Improvements for Patients and Providers Act (MIPPA, Pub. L. 
110-275). Section 144(a) provided for Medicare Part B coverage and 
payment for pulmonary and cardiac rehabilitation services furnished to 
beneficiaries with chronic obstructive pulmonary disease and certain 
other conditions, effective January 1, 2010. Medicare Part B coverage 
is provided for items and services under a cardiac rehabilitation (CR) 
program, a pulmonary rehabilitation (PR) program, and an intensive 
cardiac rehabilitation (ICR) program furnished in a physician's office, 
a hospital on an outpatient basis, or in other settings as the 
Secretary determines appropriate. We have received questions as to 
whether a CAH outpatient department is a covered setting for services 
furnished under these programs because the amendments made to the Act 
by section 144(a) of the MMA do not specifically define CAHs as 
hospitals for this benefit.
    In this proposed rule, we are clarifying that a CAH outpatient 
department is considered a covered setting for PR, CR and ICR programs, 
provided that the programs meet all of the regulatory requirements, 
including, but not limited to, direct supervision of all services by a 
physician, specified in 42 CFR 410.27(a)(1)(iv)(A) and 
410.47(a)(2)(ii). We can establish that CAHs are a covered setting 
because the law and implementing regulations specify that PR, CR and 
ICR services are covered in the hospital outpatient setting, and we 
define a hospital outpatient in the regulations and program 
instructions as ``a person * * * who * * * receives services * * * 
directly from the hospital or CAH'' (42 CFR 410.2 and the Medicare 
Benefit Policy Manual, Chapter 6, Section 20.2, available at the CMS 
Web site at: http://www.cms.gov/manuals/Downloads/bp102c06.pdf). We 
also note that under section 1861(e) of the Act, the context of the 
term ``hospital'' as used in the coverage provisions for PR, CR and ICR 
reflects the inclusion of CAHs.

D. Expansion of Multiple Procedure Reduction Under the Medicare 
Physician Fee Schedule (MPFS) to Therapy Services

    Hospitals are paid for outpatient physical therapy (which includes 
speech language pathology services) and outpatient occupational therapy 
under the Medicare Physician Fee Schedule (MPFS). Outpatient physical 
therapy (which includes speech language pathology services) and 
outpatient occupational therapy services, as described in section 
1833(a)(8) of the Act, are excluded from the OPPS by section 
1833(t)(1)(B)(iv) of the Act. Section 1833(a)(8) of the Act provides 
that outpatient physical and occupational therapy are to be paid as 
provided in section 1834(k)of the Act. Section 1834(k)(3) of the Act 
specifies that these services are paid under the fee schedule 
established under section 1848 of the Act and section 1848 of the Act 
establishes payment under the MPFS.
    For CY 2011, we are proposing to revise the MPFS to apply a 
multiple procedure reduction to payment for all outpatient physical and 
occupational therapy services paid under the MPFS. This proposal is 
contained in the CY 2011 MPFS proposed rule (CMS-1503-P, Medicare 
Program; Payment Policies under the Physician Fee Schedule and Other 
Revisions to Part B for CY 2011). To be considered in the development 
of the final policy for CY 2011, public comments on this issue should 
be submitted in response to the CY 2011 MPFS proposed rule.

XIII. Proposed OPPS Payment Status and Comment Indicators

A. Proposed OPPS Payment Status Indicator Definitions

    Payment status indicators (SIs) that we assign to HCPCS codes and 
APCs play an important role in determining payment for services under 
the OPPS. They indicate whether a service represented by a HCPCS code 
is payable under the OPPS or another payment system and also whether 
particular OPPS policies apply to the code. Our proposed CY 2011 status 
indicator assignments for APCs and HCPCS codes are shown in Addendum A 
and Addendum B, respectively, to this proposed rule.
    For CY 2011, we are not proposing to make any changes to the status 
indicators that were listed in Addendum D1 of the CY 2010 OPPS/ASC 
final rule with comment period.

[[Page 46318]]

These status indicators are listed in the tables under sections 
XIII.A.1., 2., 3., and 4. of this proposed rule.
1. Proposed Payment Status Indicators To Designate Services That Are 
Paid Under the OPPS
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BILLING CODE 4120-01-C
    Section 142 of Public Law 110-275 (MIPPA) required CMS to pay for 
therapeutic radiopharmaceuticals for the period of July 1, 2008, 
through December 31, 2009, at hospitals' charges adjusted to the costs. 
The status indicator ``H'' was assigned to therapeutic 
radiopharmaceuticals to indicate that an item was paid at charges 
adjusted to cost during CY 2009. In the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60593), we changed our policy to pay 
prospectively and separately for therapeutic radiopharmaceuticals with 
average per day costs greater than the CY 2010 drug packaging threshold 
of $65 under the OPPS. Therefore, we changed the status indicator for 
HCPCS codes used to report separately payable therapeutic 
radiopharmaceuticals from ``H'' to ``K,'' which indicated that an item 
is separately paid under the OPPS at the APC payment rate established 
for the item. We refer readers to section V.B.5. of the CY 2010 OPPS/
ASC final rule with comment period for discussion of the final CY 2010 
changes to our payment policy for therapeutic radiopharmaceuticals (74 
FR 60593). For CY 2011 OPPS, we are proposing to continue to pay for 
therapeutic radiopharmaceuticals under the OPPS at the APC payment rate 
established for the item. (We refer readers to our discussion of this 
proposal for payment of therapeutic radiopharmaceuticals in section 
V.B.3. of this proposed rule.)
    For CY 2010, we established a policy to consider implantable 
biologicals that are not on pass-through status as a biological before 
January 1, 2010, as devices for pass-through evaluation and payment 
beginning in CY 2010. Therefore, pass-through implantable biologicals 
were assigned a status indicator of ``H,'' while nonpass-through 
implantable biologicals were assigned a status indicator of ``N'' 
beginning in CY 2010. Those implantable biologicals that have been 
granted pass-through status under the drug and biological criteria 
prior to January 1, 2010, continued to be assigned a status indicator 
of ``G'' until they are proposed for expiration from pass-through 
status during our annual rulemaking cycle. In the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60593), we assigned status 
indicator ``K'' to nonimplantable biologicals and adjusted the 
definition of status indicator ``K'' accordingly. For CY 2011, we are 
not proposing any changes to current policy. We discuss our proposed 
treatment of drugs, biologicals, and radiopharmaceuticals with new or

[[Page 46320]]

continuing pass-through status in CY 2011 in section V.A.3. of this 
proposed rule, and we discuss our proposed treatment of drugs and 
biologicals with expiring pass-through status in CY 2010 including the 
specific implantable biologicals to which this policy is proposed to 
apply for CY 2011 OPPS in section V.A.2. of this proposed rule.
    The proposed CY 2011 status indicators are displayed in both the 
table above and in Addendum D1 to this proposed rule.
2. Proposed Payment Status Indicators To Designate Services That Are 
Paid Under a Payment System Other Than the OPPS
    We are not proposing any changes to the status indicators listed 
below for the CY 2011 OPPS.
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    The proposed CY 2011 status indicators displayed in the table above 
are also displayed in Addendum D1 to this proposed rule.
3. Proposed Payment Status Indicators To Designate Services That Are 
Not Recognized Under the OPPS But That May Be Recognized by Other 
Institutional Providers
    We are not proposing any changes to the status indicators listed 
below for the CY 2011 OPPS.

[[Page 46321]]

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    The proposed status indicators are also displayed in Addendum D1 to 
this proposed rule.
4. Proposed Payment Status Indicators To Designate Services That Are 
Not Payable by Medicare on Outpatient Claims
    We are not proposing any changes to the payment status indicators 
listed below for the CY 2011 OPPS.
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    Addendum B, with a complete listing of HCPCS codes including 
proposed payment status indicators for each code and proposed APC 
assignments for CY 2011, is available electronically on the CMS Web 
site under supporting documentation for this proposed rule at: http://www.cms.hhs.gov/HospitalOutpatientPPS/HORD/list.asp#TopOfPage.

B. Proposed Comment Indicator Definitions

    For the CY 2011 OPPS, we are proposing to use the same two comment 
indicators that are in effect for the CY 2010 OPPS.
     ``CH''--Active HCPCS codes in current and next calendar 
year; status indicator and/or APC assignment have changed or active 
HCPCS code that will be discontinued at the end of the current calendar 
year.
     ``NI''--New code for the next calendar year or existing 
code with substantial revision to its code descriptor in the next 
calendar year as compared to current calendar year, interim APC 
assignment; comments will be accepted on the interim APC assignment for 
the new code.
    We are using the ``CH'' indicator in this proposed rule to call 
attention to proposed changes in the payment status indicator and/or 
APC assignment for HCPCS codes for CY 2011 compared to their assignment 
as of June 30, 2010. We believe that using the ``CH'' indicator in this 
proposed rule will help facilitate the public's review of the changes 
that we are proposing for CY 2011. The use of the comment indicator 
``CH'' in association with a composite APC indicates that we have 
proposed a

[[Page 46322]]

change to the configuration of the composite APC in this proposed rule.
    We are proposing to use the ``CH'' comment indicator in the CY 2011 
OPPS/ASC final rule with comment period to indicate HCPCS codes for 
which the status indicator or APC assignment, or both, would change in 
CY 2011 compared to their assignment as of December 31, 2010.
    We are not proposing any changes to our policy regarding the use of 
comment indicator ``NI.'' In our CY 2010 OPPS/ASC final rule with 
comment period, we expanded the definition of comment indicator ``NI'' 
to include an existing code with a substantial revision to its code 
descriptor in the next calendar year as compared to the current 
calendar year to indicate that the code's CY 2010 OPPS treatment was 
open to public comment on the CY 2010 OPPS/ASC final rule with comment 
period.
    In the CY 2010 OPPS/ASC final rule with comment period, there are 
numerous instances in which the descriptor of a previously existing 
Category I CPT code was substantially revised for the next calendar 
year so that it described a new service or procedure that could have 
been assigned a new code number by the CPT Editorial Panel and that new 
code number would then had been assigned the ``NI'' comment indicator. 
We anticipate that, for CY 2011, not all new services or procedures 
will be assigned a new CPT code number, but instead will be described 
by an existing CPT code number with a substantially revised code 
descriptor. We are proposing to continue to assign the comment 
indicator ``NI'' to these codes in order to allow for comment on our 
proposed payment for these substantially revised codes. Like all codes 
labeled with comment indicator ``NI,'' in a final rule, we will respond 
to public comments and finalize their OPPS treatment in the CY 2012 
OPPS/ASC final rule with comment period. In accordance with our usual 
practice, CPT and Level II HCPCS code numbers that are new for CY 2011 
will also be labeled with comment indicator ``NI'' in Addendum B to the 
CY 2011 OPPS/ASC final rule with comment period.
    Only HCPCS codes with comment indicator ``NI'' in the CY 2011 OPPS/
ASC final rule with comment period will be subject to comment. HCPCS 
codes that do not appear with comment indicator ``NI'' in the CY 2011 
OPPS/ASC final rule with comment period will not be open to public 
comment, unless we specifically have requested additional comments 
elsewhere in the final rule with comment period. The CY 2011 treatment 
of HCPCS codes that appears in the CY 2011 OPPS/ASC final rule with 
comment period to which comment indicator ``NI'' is not appended will 
be open to public comment during the comment period for this proposed 
rule, and we will respond to those comments in the final rule with 
comment period.
    We are not proposing any changes to the definitions of the OPPS 
comment indicators for CY 2011. Their proposed definitions are listed 
in Addendum D2 to this proposed rule.

XIV. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

    MedPAC was established under section 1805 of the Act to advise the 
U.S. Congress on issues affecting the Medicare program. As required 
under the statute, MedPAC submits reports to Congress not later than 
March and June of each year that contain its Medicare payment policy 
recommendations. This section describes recent recommendations relevant 
to the OPPS that have been made by MedPAC.
    The March 2010 MedPAC ``Report to Congress: Medicare Payment 
Policy'' included the following recommendation relating specifically to 
the Medicare hospital OPPS:
    Recommendation 2A-1: The Congress should increase payment rates for 
the acute inpatient and outpatient prospective payment systems in 2011 
by the projected rate of increase in the hospital market basket index, 
concurrent with implementation of a quality incentive payment program.
    CMS Response: Subsequent to the issuance of the MedPAC report, 
Congress enacted the Affordable Care Act. Section 1833(t)(3)(F) as 
added by section 3401 of the Affordable Care Act and as amended by 
section 10319 of the Affordable Care Act and section 1105 of the HCERA 
provides that after determining the OPD fee schedule increase factor, 
the Secretary shall reduce such increase factor by 0.25 percentage 
point in 2011. As discussed in section II.B. of this proposed rule, we 
are proposing to increase the full CY 2011 conversion factor by the 
projected rate of increase in the hospital market basket less the 
mandated 0.25 percentage point reduction. Simultaneously, we are 
proposing for CY 2011 to reduce the annual update factor by 2.0 
percentage points for hospitals that are defined under section 
1886(d)(1)(B) of the Act and that do not meet the hospital outpatient 
quality data reporting required by section 1833(t)(17) of the Act. We 
would make this adjustment after the application of the 0.25 percentage 
point reduction. For the adjustment under section 1833(t)(17) of the 
Act, we are proposing to calculate two conversion factors: a full 
conversion factor based on the annual update factor, adjusted by the 
0.25 percentage point reduction required by the Affordable Care Act for 
CY 2011; and a reduced conversion factor that reflects the 2.0 
percentage points reduction to the annual update factor, as adjusted by 
the 0.25 percentage point reduction. CMS implemented the Hospital 
Outpatient Quality Data Reporting Program (HOP QDRP) in CY 2008 and is 
proposing to continue this program in CY 2011 (as discussed in section 
XVI. of this proposed rule).
    The full March 2010 MedPAC report can be downloaded from MedPAC's 
Web site at: http://www.medpac.gov/documents/Mar10_EntireReport.pdf.

B. APC Panel Recommendations

    Recommendations made by the APC Panel at its February 2010 meeting 
are discussed in the sections of this proposed rule that correspond to 
topics addressed by the APC Panel. The report and recommendations from 
the APC Panel's February 17-18, 2010 meeting are available on the CMS 
Web site at: http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.

C. OIG Recommendations

    The mission of the Office of the Inspector General (OIG), as 
mandated by Public Law 95-452, as amended, is to protect the integrity 
of the U.S. Department of Health and Human Services (HHS) programs, as 
well as the health and welfare of beneficiaries served by those 
programs. This statutory mission is carried out through a nationwide 
network of audits, investigations, and inspections. As of the 
publication of the proposed rule, there were no OIG reports that 
resulted in OIG recommendations for OPPS policy changes for CY 2011.

XV. Proposed Updates to the Ambulatory Surgical Center (ASC) Payment 
System

A. Background

1. Legislative Authority for the ASC Payment System
    Section 1832(a)(2)(F)(i) of the Act provides that benefits under 
Medicare Part B include payment for facility services furnished in 
connection with surgical procedures specified by the Secretary that are 
performed in an Ambulatory Surgical Center (ASC). To participate in the 
Medicare program as an ASC, a facility must meet the standards 
specified in section

[[Page 46323]]

1832(a)(2)(F)(i) of the Act, which are set forth in 42 CFR part 416, 
Subpart B and Subpart C of our regulations. The regulations at 42 CFR 
part 416, Subpart B describe the general conditions and requirements 
for ASCs, and the regulations at Subpart C explain the specific 
conditions for coverage for ASCs.
    Section 141(b) of the Social Security Act Amendments of 1994, 
Public Law 103-432, required establishment of a process for reviewing 
the appropriateness of the payment amount provided under section 
1833(i)(2)(A)(iii) of the Act for intraocular lenses (IOLs) that belong 
to a class of new technology intraocular lenses (NTIOLs). That process 
was the subject of a final rule entitled ``Adjustment in Payment 
Amounts for New Technology Intraocular Lenses Furnished by Ambulatory 
Surgical Centers,'' published on June 16, 1999, in the Federal Register 
(64 FR 32198).
    Section 626(b) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Public Law 108-173, added subparagraph 
(D) to section 1833(i)(2) of the Act, which required the Secretary to 
implement a revised ASC payment system to be effective not later than 
January 1, 2008. Section 626(c) of the MMA amended section 1833(a)(1) 
of the Act by adding new subparagraph (G), which requires that, 
beginning with implementation of the revised ASC payment system, 
payment for surgical procedures furnished in ASCs shall be 80 percent 
of the lesser of the actual charge for the services or the amount 
determined by the Secretary under the revised payment system.
    Section 5103 of the Deficit Reduction Act of 2005 (DRA), Public Law 
109-171, amended section 1833(i)(2) of the Act by adding new 
subparagraph (E) to place a limitation on payment amounts for surgical 
procedures furnished in ASCs on or after January 1, 2007, but before 
the effective date of the revised ASC payment system (that is, January 
1, 2008). Section 1833(i)(2)(E) of the Act provides that if the 
standard overhead amount under section 1833(i)(2)(A) of the Act for an 
ASC facility service for such surgical procedures, without application 
of any geographic adjustment, exceeds the Medicare payment amount under 
the hospital OPPS for the service for that year, without application of 
any geographic adjustment, the Secretary shall substitute the OPPS 
payment amount for the ASC standard overhead amount.
    Section 109(b) of the Medicare Improvements and Extension Act of 
2006 of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA), Public 
Law 109-432, amended section 1833(i)(2)(D) of the Act, in part, by 
redesignating clause (iv) as clause (v) and adding a new clause (iv) 
and by adding new section 1833(i)(7)(A). These amendments provide the 
Secretary the authority to require ASCs to submit data on quality 
measures and to reduce the annual update by 2 percentage points for an 
ASC that fails to submit data as required by the Secretary on selected 
quality measures. Section 109(b) of the MIEA-TRHCA also amended section 
1833(i) of the Act by adding new section 1833(i)(7)(B), which requires 
that, to the extent the Secretary establishes such an ASC quality 
reporting program, certain quality of care reporting requirements 
mandated for hospitals paid under the OPPS, under sections 
1833(t)(17)(B), (C), (D) and (E) of the Act, as added by section 109(a) 
of the MIEA-TRHCA, be applied in a similar manner to ASCs unless 
otherwise specified by the Secretary.
    Sections 4104 and 10406 of the Affordable Care Act amend sections 
1833(a)(1) and (b)(1) of the Act to waive the coinsurance and the Part 
B deductible for those preventive services described in section 
1861(ww)(2) of the Act (excluding electrocardiograms) that are 
recommended by the United States Preventive Services Task Force 
(USPSTF) with a grade of A or B for any indication or population and 
that are appropriate for the individual. Section 4104(c) of the 
Affordable Care Act amends section 1833(b)(1) of the Act to waive the 
Part B deductible for colorectal cancer screening tests that become 
diagnostic. These provisions apply to these items and services 
furnished in an ASC on or after January 1, 2011.
    Section 3401(k) of the Affordable Care Act amends section 
1833(i)(2)(D) of the Act to require that, effective for CY 2011 and 
subsequent years, any annual update under the ASC payment system be 
reduced by a productivity adjustment, which is equal to the 10-year 
moving average of changes in annual economy-wide private nonfarm 
business multi-factor productivity (as projected by the Secretary for 
the 10-year period ending with the applicable fiscal year, year, cost 
reporting period, or other annual period). Application of this 
productivity adjustment to the ASC payment system may result in the 
update to the ASC payment system being less than zero for a year and 
may result in payment rates under the ASC payment system for a year 
being less than such payment rates for the preceding year.
    For a detailed discussion of the legislative history related to 
ASCs, we refer readers to the June 12, 1998 proposed rule (63 FR 32291 
through 32292).
2. Prior Rulemaking
    On August 2, 2007, we published in the Federal Register (72 FR 
42470) the final rule for the revised ASC payment system, effective 
January 1, 2008 (the ``August 2, 2007 final rule''). In that final 
rule, we revised our criteria for identifying surgical procedures that 
are eligible for Medicare payment when furnished in ASCs and adopted 
the method we would use to set payment rates for ASC covered surgical 
procedures and covered ancillary services furnished in association with 
those covered surgical procedures beginning in CY 2008. We also 
established a policy for treating new and revised HCPCS and CPT codes 
under the ASC payment system. This policy is consistent with the OPPS 
to the extent possible (72 FR 42533). Additionally, we established a 
standard ASC ratesetting methodology that bases payment for most 
services on the list of ASC covered surgical procedures on the OPPS 
relative payment weight multiplied by an ASC conversion factor. We also 
established modifications to this methodology for subsets of services, 
such as device-intensive services (where the estimated device portion 
of the ASC payment is the same as that paid under the OPPS) and 
services that are predominantly performed in the office setting and 
covered ancillary radiology services (where ASC payment may be based on 
the MPFS non-facility practice expense (PE) Relative Value Units 
(RVUs)). Additionally, we established a policy for updating the 
conversion factor, the relative payment weights, and the ASC payment 
rates on an annual basis. We also annually update the list of 
procedures for which Medicare would not make an ASC payment.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66827), we updated and finalized the CY 2008 ASC rates and lists of 
covered surgical procedures and covered ancillary services. We also 
made regulatory changes to 42 CFR Parts 411, 414, and 416 related to 
our final policies to provide payments to physicians who perform 
noncovered ASC procedures in ASCs based on the facility PE RVUs, to 
exclude covered ancillary radiology services and covered ancillary 
drugs and biologicals from the categories of designated health services 
(DHS) that are subject to the physician self-referral prohibition, and 
to reduce ASC

[[Page 46324]]

payments for surgical procedures when the ASC receives full or partial 
credit toward the cost of the implantable device. In the CY 2009 OPPS/
ASC final rule with comment period (73 FR 68722), we updated and 
finalized the CY 2009 ASC rates and lists of covered surgical 
procedures and covered ancillary services.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60596), we updated and finalized the CY 2010 ASC rates and lists of 
covered surgical procedures and covered ancillary services. We also 
corrected some of those ASC rates in a correction notice published in 
the Federal Register on December 31, 2009 (74 FR 69502). In that 
correction notice, we revised the ASC rates to reflect changes in the 
MPFS conversion factor and PE RVUs listed for some CPT codes in 
Addendum B to the CY 2010 MPFS final rule with comment period (74 FR 
62017), which were incorrect due to methodological errors and, 
consequently, were corrected in a correction notice to that final rule 
with comment period (74 FR 65449). We also are publishing a second 
correction notice in the Federal Register around the time of this 
proposed rule to address changes to the ASC rates resulting from 
corrections to the PE RVUs identified subsequent to publication of the 
December 31, 2009 correction notice. Finally, we are publishing a 
notice around the time of this proposed rule in the Federal Register to 
reflect changes to CY 2010 ASC payment rates for certain ASC services 
due to changes to the OPPS and MPFS under ACA. It also reflects 
technical changes to the ASC payment rates announced in prior 
correction notices.
3. Policies Governing Changes to the Lists of Codes and Payment Rates 
for ASC Covered Surgical Procedures and Covered Ancillary Services
    The August 2, 2007 final rule established our policies for 
determining which procedures are ASC covered surgical procedures and 
covered ancillary services. Under Sec. Sec.  416.2 and 416.166 of the 
regulations, subject to certain exclusions, covered surgical procedures 
are surgical procedures that are separately paid under the OPPS, that 
would not be expected to pose a significant risk to beneficiary safety 
when performed in an ASC, and that would not be expected to require 
active medical monitoring and care at midnight following the procedure 
(``overnight stay''). We adopted this standard for defining which 
surgical procedures are covered surgical procedures under the ASC 
payment system as an indicator of the complexity of the procedure and 
its appropriateness for Medicare payment in ASCs. We use this standard 
only for purposes of evaluating procedures to determine whether or not 
they are appropriate for Medicare beneficiaries in ASCs. We define 
surgical procedures as those described by Category I CPT codes in the 
surgical range from 10000 through 69999, as well as those Category III 
CPT codes and Level II HCPCS codes that crosswalk or are clinically 
similar to ASC covered surgical procedures (72 FR 42478). We note that 
we added over 800 surgical procedures to the list of covered surgical 
procedures for ASC payment in CY 2008, the first year of the revised 
ASC payment system, based on the criteria for payment that we adopted 
in the August 2, 2007 final rule as described above in this section. 
Patient safety and health outcomes continue to be important to us as 
more health care moves to the ambulatory care setting. Therefore, as we 
gain additional experience with the ASC payment system, we are 
interested in any information the public may have regarding the 
comparative patient outcomes of surgical care provided in ambulatory 
settings, including HOPDs, ASCs, and physicians' offices, particularly 
with regard to the Medicare population.
    In the August 2, 2007 final rule, we also established our policy to 
make separate ASC payments for the following ancillary items and 
services when they are provided integral to ASC covered surgical 
procedures: brachytherapy sources; certain implantable items that have 
pass-through status under the OPPS; certain items and services that we 
designate as contractor-priced, including, but not limited to, 
procurement of corneal tissue; certain drugs and biologicals for which 
separate payment is allowed under the OPPS; and certain radiology 
services for which separate payment is allowed under the OPPS. These 
covered ancillary services are specified in Sec.  416.164(b) and, as 
stated previously, are eligible for separate ASC payment (72 FR 42495). 
Payment for ancillary items and services that are not paid separately 
under the ASC payment system is packaged into the ASC payment for the 
covered surgical procedure.
    We update the lists of, and payment rates for, covered surgical 
procedures and covered ancillary services, in conjunction with the 
annual proposed and final rulemaking process to update the OPPS and the 
ASC payment system (Sec.  416.173; 72 FR 42535). In addition, as 
discussed in detail below in section XV.B., because we base ASC payment 
policies for covered surgical procedures, drugs, biologicals, and 
certain other covered ancillary services on the OPPS payment policies, 
we also provide quarterly updates for ASC services throughout the year 
(January, April, July, and October), just as we do for the OPPS. The 
updates are to implement newly created Level II HCPCS and Category III 
CPT codes for ASC payment and to update the payment rates for 
separately paid drugs and biologicals based on the most recently 
submitted ASP data. New Category I CPT codes, except vaccine codes, are 
released only once a year and, therefore, are implemented through the 
January quarterly update. New Category I CPT vaccine codes are released 
twice a year and thus are implemented through the January and July 
quarterly updates.
    In our annual updates to the ASC list of, and payment rates for, 
covered surgical procedures and covered ancillary services, we 
undertake a review of excluded surgical procedures (including all 
procedures newly proposed for removal from the OPPS inpatient list), 
new procedures, and procedures for which there is revised coding, to 
identify any that we believe meet the criteria for designation as ASC 
covered surgical procedures or covered ancillary services. Updating the 
lists of covered surgical procedures and covered ancillary services, as 
well as their payment rates, in association with the annual OPPS 
rulemaking cycle is particularly important because the OPPS relative 
payment weights and, in some cases, payment rates, are used as the 
basis for the payment of covered surgical procedures and covered 
ancillary services under the revised ASC payment system. This joint 
update process ensures that the ASC updates occur in a regular, 
predictable, and timely manner.

B. Proposed Treatment of New Codes

1. Proposed Process for Recognizing New Category I and Category III CPT 
Codes and Level II HCPCS Codes
    CPT and Level II HCPCS codes are used to report procedures, 
services, items, and supplies under the ASC payment system. 
Specifically, we recognize the following codes on ASC claims: (1) 
Category I CPT codes, which describe medical services and procedures; 
(2) Category III CPT codes, which describe new and emerging 
technologies, services, and procedures; and (3) Level II HCPCS codes, 
which are used primarily to identify products, supplies, temporary 
procedures, and services not described by CPT codes. CPT codes are 
established by the

[[Page 46325]]

American Medical Association (AMA) and the Level II HCPCS codes are 
established by the CMS HCPCS Workgroup. These codes are updated and 
changed throughout the year. CPT and HCPCS code changes that affect 
ASCs are addressed both through the ASC quarterly update Change 
Requests (CRs) and through the annual rulemaking cycle. CMS releases 
new Level II HCPCS codes to the public or recognizes the release of new 
CPT codes by the AMA and makes these codes effective (that is, the 
codes are recognized on Medicare claims) outside of the formal 
rulemaking process via ASC quarterly update CRs. This quarterly process 
offers ASCs access to codes that may more accurately describe items or 
services furnished and/or provides payment or more accurate payment for 
these items or services in a more timely manner than if we waited for 
the annual rulemaking process. We solicit comments on the new codes 
recognized for ASC payment and finalize our proposals related to these 
codes through our annual rulemaking process.
    We finalized a policy in the August 2, 2007 final rule to evaluate 
each year all new Category I and Category III CPT codes and Level II 
HCPCS codes that describe surgical procedures, and to make preliminary 
determinations in the annual OPPS/ASC final rule with comment period 
regarding whether or not they meet the criteria for payment in the ASC 
setting and, if so, whether they are office-based procedures (72 FR 
42533 through 42535). In addition, we identify new codes as ASC covered 
ancillary services based upon the final payment policies of the revised 
ASC payment system.
    In Table 39 below, we summarize our proposed process for updating 
the HCPCS codes recognized under the ASC payment system.
[GRAPHIC] [TIFF OMITTED] TP03AU10.531

    This process is discussed in detail below and we have separated our 
discussion based on whether we are proposing to solicit public comments 
in this CY 2011 proposed rule on a specific group of the CPT and Level 
II HCPCS codes (and respond to those comments in the CY 2011 OPPS/ASC 
final rule with comment period) or whether we are proposing to solicit 
public comments on another specific group of the codes in the CY 2011 
final rule with comment period (and respond to those comments in the CY 
2012 OPPS/ASC final rule with comment period). We sought public 
comments in the CY 2010 OPPS/ASC final rule with comment period on the 
new CPT and HCPCS codes that were effective January 1, 2010. These new 
codes were flagged with comment indicator ``N1'' in Addendum AA and BB 
to the CY 2010 OPPS/ASC final rule with comment period to indicate that 
we were assigning them an interim payment status and payment rate, if 
applicable, which were subject to public comment following publication 
of the CY 2010 OPPS/ASC final rule with comment period. We will respond 
to public

[[Page 46326]]

comments and finalize our proposed ASC treatment of these codes in the 
CY 2011 OPPS/ASC final rule with comment period.
2. Proposed Treatment of New Level II HCPCS Codes and Category III CPT 
Codes Implemented in April and July 2010 for Which We Are Soliciting 
Public Comments in This Proposed Rule
    In the April and July CRs, we made effective for April 1 or July 1, 
2010, a total of 14 new Level II HCPCS codes and 7 new Category III CPT 
codes that were not addressed in the CY 2010 OPPS/ASC final rule with 
comment period. (We note that one Level II HCPCS code, C9262, that was 
added in the April 2010 CR, was deleted June 30, 2010 and replaced with 
Q2025 effective July 1, 2010). The 13 new Level II HCPCS codes describe 
covered ancillary services.
    Through the April 2010 ASC quarterly update (Transmittal 1943, CR 
6866, dated April 6, 2010), we added six new drug and biological Level 
II HCPCS codes to the list of covered ancillary services. Specifically, 
as displayed in Table 40, these included HCPCS codes C9258 (Injection, 
telavancin, 10 mg), C9259 (Injection, pralatrexate, 1 mg), C9260 
(Injection, ofatumumab, 10 mg), C9261 (Injection, ustekinumab, 1 mg), 
C9262 (Fludarabine phosphate, oral, 1 mg), and C9263 (Injection, 
ecallantide, 1 mg).
    Through the July 2010 quarterly update (Transmittal 1984, Change 
Request 7008, dated June 11, 2010), we are adding seven new drug and 
biological Level II HCPCS codes to the list of covered ancillary 
services. Specifically, as displayed in Table 41, we provide separate 
payment for HCPCS codes C9264 (Injection, tocilizumab, 1 mg), C9265 
(Injection, romidepsin, 1 mg), C9266 (Injection, collagenase 
clostridium histolyticum, 0.1 mg), C9267 (Injection, von Willebrand 
factor complex (human), Wilate, per 100 IU VWF: RCO), C9268 (Capsaicin, 
patch, 10cm2), C9367 (Skin substitute, Endoform Dermal Template, per 
square centimeter), and Q2025 (Fludarabine phosphate oral, 10mg). As 
noted above, HCPCS code C9262 was made effective April 1, 2010, and 
deleted June 30, 2010, when it was replaced with HCPCS code Q2025.
    We assigned payment indicator ``K2'' (Drugs and biologicals paid 
separately when provided integral to a surgical procedure on the ASC 
list; payment based on OPPS rate) to these 13 new Level II to indicate 
that they are separately paid when provided in ASCs. In this CY 2011 
OPPS/ASC proposed rule, we are soliciting public comment on the 
proposed CY 2010 ASC payment indicators and payment rates for the drugs 
and biologicals, as listed in Tables 40 and 41 below. Those HCPCS codes 
became payable in ASCs, beginning in April or July 2010, respectively, 
and are paid at the ASC rates posted for the appropriate calendar 
quarter on the CMS Web site at http://www.cms.gov/ASCPayment/.
    The codes listed in Table 40 are included in Addendum BB to this 
proposed rule. (We note that Level II HCPCS code C9262 was deleted June 
30, 2010, and replaced with Q2025 effective July 1, 2010, and therefore 
is not included in Addendum BB and is not open to public comment. 
Instead, Level II HCPCS code Q2025 is open for public comment.)
    However, because HCPCS codes that become effective for July (listed 
in Table 41) are not available to us in time for incorporation into the 
Addenda to the OPPS/ASC proposed rule, our policy is to include these 
HCPCS codes and their proposed payment indicators and payment rates in 
the preamble to the proposed rule but not in the Addenda to the 
proposed rule. These codes and their final payment indicators and rates 
will be included in the appropriate Addendum to the CY 2011 OPPS/ASC 
final rule with comment period. Thus, the codes implemented by the July 
2010 ASC quarterly update CR and their proposed CY 2011 payment rates 
(based on July 2010 ASP data) that are displayed in Table 41 are not 
included in Addendum BB to this proposed rule. We are proposing to 
include these services reported using the new Level II HCPCS codes 
displayed in Tables 40 and 41 as covered ancillary services for payment 
to ASCs for CY 2011. The final list of covered ancillary services and 
the associated payment weights and payment indicators will be included 
in Addendum BB to the CY 2011 OPPS/ASC final rule with comment period, 
consistent with our annual update policy.
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[[Page 46327]]

[GRAPHIC] [TIFF OMITTED] TP03AU10.532

    Through the July 2010 quarterly update CR, we also implemented ASC 
payment for seven new Category III CPT codes and one new Level II HCPCS 
code as ASC covered surgical procedures, effective July 1, 2010. These 
codes are listed in Table 42 below, along with their proposed payment 
indicators and proposed payment rates for CY 2011. Because new Category 
III CPT and Level II HCPCS codes that become effective for July are not 
available to us in time for incorporation into the Addenda to the OPPS/
ASC proposed rule, our policy is to include the codes, their proposed 
payment indicators, and proposed payment rates in the preamble to the 
proposed rule but not in the Addenda to the proposed rule. These codes 
and their final payment indicators and rates will be included in the 
Addenda to the OPPS/ASC final rule with comment period. The new mid-
year codes for the covered surgical procedures implemented in July 2010 
are displayed in Table 42 below, along with their proposed payment 
indicators and proposed payment rates. These codes and their final 
payment indicators and rates will be included in Addendum AA to the CY 
2011 OPPS/ASC final rule with comment period.

[[Page 46328]]

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[[Page 46329]]

    For CY 2011, we are soliciting public comments on the proposed 
payment indicators and the payment rates, if applicable, for the new 
Level II HCPCS codes and Category III CPT codes that were newly 
recognized in April or July 2010 through the respective quarterly 
update CRs. These codes are listed in Tables 40, 41, and 42 of this 
proposed rule. We are proposing to finalize their payment indicators 
and their payment rates, if applicable, in the CY 2011 OPPS/ASC final 
rule with comment period.
3. Proposed Process for New Level II HCPCS Codes and Category I and III 
CPT Codes for Which We Will Be Soliciting Public Comments in the CY 
2011 OPPS/ASC Final Rule With Comment Period
    As has been our practice in the past, we incorporate those new 
Category I and Category III CPT codes and new Level II HCPCS codes that 
are effective January 1 in the final rule with comment period updating 
the ASC payment system for the following calendar year. These codes are 
released to the public via the CMS HCPCS (for Level II HCPCS codes) and 
AMA Web sites (for CPT codes), and also through the January ASC 
quarterly update CRs. In the past, we also have released new Level II 
HCPCS codes that are effective October 1 through the October ASC 
quarterly update CRs and incorporated these new codes in the final rule 
with comment period updating the ASC payment system for the following 
calendar year. All of these codes are flagged with comment indicator 
``NI'' in Addenda AA and BB to the OPPS/ASC final rule with comment 
period to indicate that we are assigning them an interim payment status 
which is subject to public comment. Specifically, the payment indicator 
and payment rate, if applicable, for all such codes flagged with 
comment indicator ``NI'' are open to public comment in the OPPS/ASC 
final rule with comment period, and we respond to these comments in the 
final rule with comment period for the next calendar year's OPPS/ASC 
update. We are proposing to continue this process for CY 2011.
    For CY 2011, we are proposing to include in Addenda AA and BB to 
the CY 2011 OPPS/ASC final rule with comment period the new Category I 
and III CPT codes effective January 1, 2011 (including those Category 
III CPT codes that were released by the AMA in July 2010) that would be 
incorporated in the January 2011 ASC quarterly update CR and the new 
Level II HCPCS codes, effective October 1, 2010 or January 1, 2011, 
that would be released by CMS in its October 2010 and January 2011 ASC 
quarterly update CRs. These codes would be flagged with comment 
indicator ``NI'' in Addenda AA and BB to the CY 2011 OPPS/ASC final 
rule with comment period to indicate that we have assigned them an 
interim payment status. Their payment indicators and payment rates, if 
applicable, would be open to public comment in the CY 2011 OPPS/ASC 
final rule with comment period and would be finalized in the CY 2012 
OPPS/ASC final rule with comment period.

C. Proposed Update to the Lists of ASC Covered Surgical Procedures and 
Covered Ancillary Services

1. Covered Surgical Procedures
a. Proposed Additions to the List of ASC Covered Surgical Procedures
    We are proposing to update the list of ASC covered surgical 
procedures by adding five procedures to the list. These five procedures 
were among those excluded from the ASC list for CY 2010 because we 
believed they did not meet the definition of a covered surgical 
procedure based on our expectation that they would pose a significant 
safety risk to Medicare beneficiaries or would require an overnight 
stay if performed in ASCs. We conducted a review of all HCPCS codes 
that currently are paid under the OPPS, but not included on the ASC 
list of covered surgical procedures, to determine if changes in 
technology and/or medical practice changed the clinical appropriateness 
of these procedures for the ASC setting. We determined that these five 
procedures could be safely performed in the ASC setting and are 
therefore proposing to include them on the list of ASC covered surgical 
procedures for CY 2011.
    The five procedures that we are proposing to add to the ASC list of 
covered surgical procedures, including their HCPCS code long 
descriptors and proposed CY 2010 payment indicators, are displayed in 
Table 43 below.

[[Page 46330]]

[GRAPHIC] [TIFF OMITTED] TP03AU10.534

b. Proposed Covered Surgical Procedures Designated as Office-Based
(1) Background
    In the August 2, 2007 ASC final rule, we finalized our policy to 
designate as ``office-based'' those procedures that are added to the 
ASC list of covered surgical procedures in CY 2008 or later years that 
we determine are performed predominantly (more than 50 percent of the 
time) in physicians' offices based on consideration of the most recent 
available volume and utilization data for each individual procedure 
code and/or, if appropriate, the clinical characteristics, utilization, 
and volume of related codes. In that rule, we also finalized our policy 
to exempt all procedures on the CY 2007 ASC list from application of 
the office-based classification (72 FR 42512). The procedures that were 
added to the ASC list of covered surgical procedures beginning in CY 
2008 that we determined were office-based were identified in Addendum 
AA to that rule by payment indicator ``P2'' (Office-based surgical 
procedure added to ASC list in CY 2008 or later with MPFS non-facility 
PE RVUs; payment based on OPPS relative payment weight); ``P3'' 
(Office-based surgical procedures added to ASC list in CY 2008 or later 
with MPFS non-facility PE RVUs; payment based on MPFS non-facility PE 
RVUs); or ``R2'' (Office-based surgical procedure added to ASC list in 
CY 2008 or later without MPFS non-facility PE RVUs; payment based on 
OPPS relative payment weight), depending on whether we estimated it 
would be paid according to the standard ASC payment methodology based 
on its OPPS relative payment weight or at the MPFS non-facility PE RVU 
amount.
    Consistent with our final policy to annually review and update the 
list of surgical procedures eligible for payment in ASCs, each year we 
identify surgical procedures as either temporarily or permanently 
office-based after taking into account updated volume and utilization 
data.
(2) Proposed Changes to Covered Surgical Procedures Designated as 
Office-Based for CY 2011
    In developing this proposed rule, we followed our policy to 
annually review and update the surgical procedures for which ASC 
payment is made and to identify new procedures that may be

[[Page 46331]]

appropriate for ASC payment, including their potential designation as 
office-based. We reviewed CY 2009 volume and utilization data and the 
clinical characteristics for all surgical procedures that are assigned 
payment indicator ``G2'' in CY 2010, as well as for those procedures 
assigned one of the temporary office-based payment indicators, 
specifically ``P2*,'' ``P3*,'' or ``R2*'' in the CY 2010 ASC final rule 
with comment period (74 FR 60605 through 60608). We also examined the 
data for the five procedures that we are proposing to add to the ASC 
list of covered surgical procedures for CY 2011 (listed in Table 43 
above) to determine if these procedures should be designated as office-
based.
    Our review of the CY 2009 volume and utilization data resulted in 
our identification of six surgical procedures that we believe meet the 
criteria for designation as office-based. The data indicate that the 
procedures are performed more than 50 percent of the time in 
physicians' offices. Our medical advisors believe the services are of a 
level of complexity consistent with other procedures performed 
routinely in physicians' offices. The six procedures we are proposing 
to permanently designate as office-based are listed in Table 44 below. 
We note that four of these procedures are procedures that we also are 
proposing to add to the ASC list of covered surgical procedures for CY 
2011: CPT code 37205; CPT code 37206; CPT code 37210; and CPT code 
50593. The other two procedures are already on the ASC list of covered 
surgical procedures.

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[[Page 46332]]

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[[Page 46333]]


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    We also reviewed CY 2009 volume and utilization data and other 
information for the six procedures proposed for temporary office-based 
status in the CY 2010 OPPS/ASC proposed rule (74 FR 35382) and 
finalized for temporary office-based status in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60607). Among these six 
procedures, there were almost no claims data for three procedures: CPT 
code 0099T (Implantation of intrastromal corneal ring segments); CPT 
code 0124T (Conjunctival drug placement); and CPT code 67229 (Treatment 
of extensive or progressive retinopathy, one or more sessions; preterm 
infant (less than 37 weeks gestation at birth), performed from birth up 
to 1 year of age (e.g., retinopathy of prematurity), photocoagulation 
or cryotherapy). Consequently, we are proposing to maintain their 
temporary office-based designations for CY 2011. We also are proposing 
to maintain in CY 2011 the temporary office-based designation for the 
four codes that became effective in the July 2010 ASC quarterly update: 
CPT code 0226T (Angoscopy, high resolution (HRA) (with magnification 
and chemical agent enhancement); diagnostic, including collection of 
specimen(s) by brushing or washing when performed); CPT code 0227T 
(Angoscopy, high resolution (HRA) (with magnification and chemical 
agent enhancement); with biopsy(ies)); CPT code 0232T (Injection(s), 
platelet rich plasma, any tissue, including image guidance, harvesting 
and preparation when performed); and HCPCS code C9800 (Dermal injection 
procedure(s) for facial lipodystrophy syndrome (LDS) and provision of 
Radiesse or Sculptra dermal filler, including all items and supplies), 
because no data are available for these codes at this time.
    As a result of our review of the remaining three procedures that 
have temporary office-based designations for CY 2010 for which we do 
have claims data, we are proposing to make permanent the office based 
designations for all of them for CY 2011. The three surgical procedure 
codes are: CPT code 46930 (Destruction of internal hemorrhoid(s) by 
thermal energy (e.g., infrared coagulation, cautery, radiofrequency)); 
CPT code 64455 (Injection(s), anesthetic agent and/or steroid, plantar 
common digital nerve(s) (eg, Morton's neuroma)); and CPT code 64632 
(Destruction by neurolytic agent; plantar common digital nerve). The 
volume and utilization data for these CPT codes are sufficient to 
support our determination that these procedures are performed 
predominantly in physicians' offices. Therefore, we are proposing to 
make permanent the office-based designations for the 3 procedures for 
CY 2011.
    The procedures that we are proposing to permanently designate as 
office-based for CY 2011 that were temporarily designated as office-
based procedures in CY 2010 are displayed in Table 45 below. The 
procedures that we are proposing to temporarily designate as office-
based for CY 2011 are displayed in Table 46 below. The procedures for 
which the proposed office-based designation for CY 2011 is temporary 
also are indicated by an asterisk in Addendum AA to this proposed rule.

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    Displayed in Table 47 below are new (or substantially revised) CY 
2010 HCPCS codes to which we assigned temporary office-based payment 
indicators in the CY 2010 OPPS/ASC final rule with comment period (74 
FR 60608). As explained in section XV.B.1. of that final rule with 
comment period (74 FR 60599 and 60607), we reviewed all of the newly 
created HCPCS codes that became available after the issuance of the CY 
2009 OPPS/ASC proposed rule that are used to report surgical procedures 
in CY 2010 to evaluate their appropriateness for the ASC list of 
covered surgical procedures. Of the procedures reported by new or 
substantially revised CY 2010 HCPCS codes that we determined should not 
be excluded from the ASC list based on our clinical review, including 
assessment of available utilization and volume data for any closely 
related procedures and consideration of other available information, we 
determined that 16 of the procedures would predominantly be performed 
in physicians' offices. However, because we had no utilization data for 
the procedures specifically described by these new HCPCS codes, we made 
the office-based designations temporary rather than permanent and

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stated that we would reevaluate the procedures when data become 
available (74 FR 60607 through 60608). The temporary payment indicators 
for the 16 office-based procedures displayed in Table 47 were interim 
designations and were open to public comment during the 60-day comment 
period following the release of the CY 2010 OPPS/ASC final rule with 
comment period. We will respond to public comments received during that 
60-day comment period as well as the comment period following this 
proposed rule in the CY 2011 OPPS/ASC final rule with comment period.

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c. ASC Covered Surgical Procedures Designated as Device-Intensive
(1) Background
    As discussed in the August 2, 2007 final rule (72 FR 42503 through 
42508), we adopted a modified payment methodology for calculating the 
ASC payment rates for covered surgical procedures that are assigned to 
the subset of OPPS device-dependent APCs with a device offset 
percentage greater than 50 percent of the APC cost under the OPPS, in 
order to ensure that payment for the procedure is adequate to provide 
packaged payment for the high-cost implantable devices used in those 
procedures. We assigned payment indicators ``H8'' (Device-intensive 
procedure on ASC list in CY 2007; paid at adjusted rate) and ``J8'' 
(Device-intensive procedure added to ASC list in CY 2008 or later; paid 
at adjusted rate) to identify the procedures that were eligible for ASC 
payment calculated according to the modified methodology, depending on 
whether the procedure was included on the ASC list of covered surgical 
procedures prior to CY 2008 and, therefore, subject to transitional 
payment as discussed in the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68739 through 68742). The device-intensive procedures for 
which the modified rate calculation methodology applies in CY 2010 were 
displayed in Table 68 and in Addendum AA to the CY 2010 OPPS/ASC final 
rule with comment period (74 FR 60610 through 60611 and 60692 through 
60752).
(2) Proposed Changes to List of Covered Surgical Procedures Designated 
as Device Intensive for CY 2011
    We are proposing to update the ASC list of covered surgical 
procedures that are eligible for payment according to the device-
intensive procedure payment methodology for CY 2011, consistent with 
the proposed OPPS device-dependent APC update, reflecting the proposed 
APC assignments of procedures, designation of APCs as device dependent, 
and APC device offset percentages based on the CY 2009 OPPS claims and 
cost report data available for the proposed rule. The OPPS device-
dependent APCs are discussed further in section II.A.2.d.(1) of this 
proposed rule. The ASC covered surgical procedures that we are 
proposing to designate as device-intensive and that would be subject to 
the device-intensive procedure payment methodology for CY 2011 are 
listed in Table 48 below. The CPT code, the CPT code short descriptor, 
the proposed CY 2011 ASC payment indicator, the proposed CY 2011 OPPS 
APC assignment and title, and the proposed CY 2011 OPPS APC device 
offset percentage are also listed in Table 48 below. Each proposed 
device-intensive procedure is assigned payment indicator ``H8'' or 
``J8'' depending on whether it was subject to transitional payment 
prior to CY 2011, and all of these procedures are included in Addendum 
AA to this proposed rule.

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d. ASC Treatment of Surgical Procedures Proposed for Removal From the 
OPPS Inpatient List for CY 2011
    As we discussed in the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68724), we adopted a policy to include in our annual 
evaluation procedures proposed for removal from the OPPS inpatient list 
for possible inclusion on the ASC list of covered surgical procedures. 
We evaluated each of the three procedures we are proposing to remove 
from the OPPS inpatient list for CY 2011 according to the criteria for 
exclusion from the list of covered ASC surgical procedures. We believe 
that all of these procedures should continue to be excluded from the 
ASC list of covered surgical procedures for CY 2011 because they would 
be expected to pose a significant risk to beneficiary safety or to 
require an overnight stay in ASCs. A full discussion about the APC 
Panel's recommendations regarding the procedures we are proposing to 
remove from the OPPS inpatient list for CY 2011 and the procedures we 
are proposing to remove from the OPPS inpatient list for CY 2011 may be 
found in section XI.B. of this proposed rule. The HCPCS codes for these 
three procedures and their long descriptors are listed in Table 49 
below.

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2. Covered Ancillary Services
    Consistent with the established ASC payment system policy, we are 
proposing to update the ASC list of covered ancillary services to 
reflect the proposed payment status for the services under the CY 2011 
OPPS. Maintaining consistency with the OPPS may result in proposed 
changes to ASC payment indicators for some covered ancillary items and 
services because of changes that are being proposed under the OPPS for 
CY 2011. For example, a covered ancillary service that was separately 
paid under the revised ASC payment system in CY 2010 may be proposed 
for packaged status under the CY 2011 OPPS and, therefore, also under 
the ASC payment system for CY 2011. Comment indicator ``CH,'' discussed 
in section XV.F. of this proposed rule, is used in Addendum BB to this 
proposed rule to indicate covered ancillary services for which we are 
proposing a change in the ASC payment indicator to reflect a proposed 
change in the OPPS treatment of the service for CY 2011.
    Except for the Level II HCPCS codes listed in Table 41 of this 
proposed rule, all ASC covered ancillary services and their proposed 
payment indicators for CY 2011 are included in Addendum BB to this 
proposed rule.

D. Proposed ASC Payment for Covered Surgical Procedures and Covered 
Ancillary Services

1. Proposed Payment for Covered Surgical Procedures
a. Background
    Our ASC payment policies for covered surgical procedures under the 
revised ASC payment system are fully described in the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66828 through 66831). Under our 
established policy for the revised ASC payment system, the ASC standard 
ratesetting methodology of multiplying the ASC relative payment weight 
for the procedure by the ASC conversion factor for that same year is 
used to calculate the national unadjusted payment rates for procedures 
with payment indicator ``G2.'' For procedures assigned payment 
indicator ``A2,'' our final policy established blended rates to be used 
during the transitional period and, beginning in CY 2011, ASC rates 
calculated according to the ASC standard ratesetting methodology. The 
rate calculation established for device intensive procedures (payment 
indicators ``H8'' and ``J8'') is structured so that the packaged device 
payment amount is the same as under the OPPS, and only the service 
portion of the rate is subject to the ASC standard ratesetting 
methodology. In the CY 2010 OPPS/ASC final rule with comment period (74 
FR 60596 through 60629), we updated the CY 2009 ASC payment rates for 
ASC covered surgical procedures with payment indicators of ``A2,'' 
``G2,'' ``H8,'' and ``J8'' using CY 2008 data, consistent with the CY 
2010 OPPS update. Payment rates for device-intensive procedures also 
were updated to incorporate the CY 2010 OPPS device offset percentages.
    Payment rates for office-based procedures (payment indicators 
``P2,'' ``P3,'' and ``R2'') are the lower of the MPFS non-facility PE 
RVU amount (we refer readers to the CY 2011 MPFS proposed rule) or the 
amount calculated using the ASC standard ratesetting methodology for 
the procedure. In the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60596 through 60629), we updated the payment amounts for office-
based procedures (payment indicators ``P2,'' ``P3,'' and ``R2'') using 
the most recent available MPFS and OPPS data. We compared the estimated 
CY 2010 rate for each of the office-based procedures, calculated 
according to the ASC standard ratesetting methodology, to the MPFS 
nonfacility PE RVU amount (multiplied by the conversion factor) to 
determine which was lower and, therefore, would be the CY 2010 payment 
rate for the procedure according to the final policy of the revised ASC 
payment system (Sec.  416.171(d)).
b. Proposed Update to ASC-Covered Surgical Procedure Payment Rates for 
CY 2011
    We are proposing to update ASC payment rates for CY 2011 using the 
established rate calculation methodologies under Sec.  416.171. Under 
Sec.  416.171(c)(4), the transitional payment rates are no longer used 
for CY 2011 and subsequent calendar years for a covered surgical 
procedure designated in accordance with Sec.  416.166. Thus, we are 
proposing to calculate CY 2011 payments for procedures formerly subject 
to the transitional payment methodology (payment indicators ``A2'' and 
``H8'') using the proposed CY 2011 ASC rate calculated according to the 
ASC standard ratesetting methodology, incorporating the device-
intensive procedure methodology, as appropriate, for procedures 
assigned ASC payment indicator ``H8.'' We are not proposing to modify 
the payment indicators for procedures that were subject to transitional 
payment prior to CY 2011 but will consider doing so in future 
rulemaking. We are proposing to continue to use the amount calculated 
under the ASC standard ratesetting methodology for procedures assigned 
payment indicator ``G2.''
    We are proposing that payment rates for office-based procedures 
(payment indicators ``P2,'' ``P3,'' and ``R2'') and device-intensive 
procedures that were not subject to transitional payment (payment 
indicator ``J8'') be calculated according to our established policies, 
incorporating the device-intensive procedure methodology as 
appropriate. Thus, we are proposing to update the payment amounts for 
device-intensive procedures based on the CY 2011 OPPS proposal that 
reflects updated OPPS device offset percentages, and to make payment 
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the lesser of the CY 2011 proposed MPFS non-facility PE RVU amount or 
the proposed CY 2011 ASC payment amount calculated according to the 
standard ratesetting methodology.
c. Proposed Adjustment to ASC Payments for No Cost/Full Credit and 
Partial Credit Devices
    Our ASC policy with regard to payment for costly devices implanted 
in ASCs at no cost or with full or partial credit as set forth in Sec.  
416.179 is consistent with the OPPS policy. The proposed CY 2011 OPPS 
APCs and devices subject to the adjustment policy are discussed in 
section IV.B.2. of this proposed rule. The established ASC policy 
includes adoption of the OPPS policy for reduced payment to providers 
when a specified device is furnished without cost or with full or 
partial credit for the cost of the device for those ASC covered 
surgical procedures that are assigned to APCs under the OPPS to which 
this policy applies. We refer readers to the CY 2009 OPPS/ASC final 
rule with comment period for a full discussion of the ASC payment 
adjustment policy for no cost/full credit and partial credit devices 
(73 FR 68742 through 68745).
    Consistent with the OPPS, we are proposing to update the list of 
ASC covered device intensive procedures and devices that would be 
subject to the no cost/full credit and partial credit device adjustment 
policy for CY 2011. Table 50 below displays the ASC covered device-
intensive procedures that we are proposing would be subject to the no 
cost/full credit and partial credit device adjustment policy for CY 
2011. Specifically, when a procedure that is listed in Table 50 is 
performed to implant a device that is listed in Table 51 below, where 
that device is furnished at no cost or with full credit from the 
manufacturer, the ASC would append the HCPCS ``FB'' modifier on the 
line with the procedure to implant the device. The contractor would 
reduce payment to the ASC by the device offset amount that we estimate 
represents the cost of the device when the necessary device is 
furnished without cost to the ASC or with full credit. We would provide 
the same amount of payment reduction based on the device offset amount 
in ASCs that would apply under the OPPS under the same circumstances. 
We continue to believe that the reduction of ASC payment in these 
circumstances is necessary to pay appropriately for the covered 
surgical procedure being furnished by the ASC.
    We also are proposing to reduce the payment for implantation 
procedures listed in Table 50 by one-half of the device offset amount 
that would be applied if a device was provided at no cost or with full 
credit, if the credit to the ASC is 50 percent or more of the cost of 
the new device. The ASC would append the HCPCS ``FC'' modifier to the 
HCPCS code for a surgical procedure listed in Table 50 when the 
facility receives a partial credit of 50 percent or more of the cost of 
a device listed in Table 51 below. In order to report that they 
received a partial credit of 50 percent or more of the cost of a new 
device, ASCs would have the option of either: (1) Submitting the claim 
for the device replacement procedure to their Medicare contractor after 
the procedure's performance but prior to manufacturer acknowledgment of 
credit for the device, and subsequently contacting the contractor 
regarding a claim adjustment once the credit determination is made; or 
(2) holding the claim for the device implantation procedure until a 
determination is made by the manufacturer on the partial credit and 
submitting the claim with the ``FC'' modifier appended to the 
implantation procedure HCPCS code if the partial credit is 50 percent 
or more of the cost of the replacement device. Beneficiary coinsurance 
would continue to be based on the reduced payment amount.
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d. Proposed Waiver of Coinsurance and Deductible for Certain Preventive 
Services
    As discussed in detail in section XII.B. of this proposed rule and 
in the CY 2011 MPFS proposed rule, sections 4104(b) and 10406 of the 
Affordable Care Act amended section 1833(a)(1) of the Act, in pertinent 
part, to waive the coinsurance for those preventive services described 
in section 1861(ww)(2) of the Act (excluding electrocardiograms) that 
are recommended by the USPSTF with a grade of A or B for any indication 
or population and that are appropriate for the individual. Section 
4104(c) of the Affordable Care Act amended section 1833(b)(1) of the 
Act to waive the Part B deductible for these preventive services. These 
provisions apply to these items and services furnished in ASCs on or 
after January 1, 2011. In section XII.B. of this proposed rule and in 
the CY 2011 MPFS proposed rule, we are proposing to define the 
preventive services to which this provision applies and to apply the 
criteria specified in section 4104 of the Affordable Care Act for the 
waiver of coinsurance and deductible.
    Table 52 identifies the ASC covered surgical and ancillary services 
that are included in the proposed definition of preventive services in 
section XII.B. of this proposed rule and in the CY 2011 MPFS proposed 
rule. All of the ASC covered surgical and ancillary services that are 
included in the chart below are preventive services that are 
recommended by the USPSTF with a grade of A or B. Therefore, we are

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proposing to update Sec.  416.160(a)(4) and add new Sec.  416.160(a)(5) 
on the scope and basis of the ASC regulations and to update Sec.  
410.152(l) in this proposed rule to reflect the waiver of coinsurance 
and deductible for these services. We refer readers to the CY 2011 MPFS 
proposed rule for a discussion of the proposed changes to Sec.  
410.160(b) and proposed additional changes to Sec.  410.152 of our 
regulations to implement the provisions related to the definition of 
preventive services and the waiver of the coinsurance and deductible 
for preventive services as specified by sections 4103, 4104, and 10406 
of the Affordable Care Act.
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    Section 4104(c) of the Affordable Care Act amended section 1833(b) 
of the Act to waive the Part B deductible for colorectal cancer 
screening tests that become diagnostic. Specifically, section 
4104(c)(2) of the Affordable Care Act waives the deductible with 
respect to a colorectal cancer screening test ``regardless of the code 
that is billed for the establishment of a diagnosis as a result of the 
test, or for the removal of tissue or other matter or other procedure 
that is furnished in connection with, as a result of, and in the same 
clinical encounter as a screening test.'' As discussed in section 
XII.B. of this proposed rule and in the CY 2011 MPFS proposed rule, we 
are proposing that all surgical services furnished on the same date as 
a planned screening colonoscopy or planned flexible sigmoidoscopy would 
be considered as being ``furnished in connection with, as a result of, 
and in the same clinical encounter as the screening test.'' We believe 
that this interpretation is appropriate because we believe that it 
would be very rare for an unrelated surgery to occur on the same date 
as one of these scheduled screening tests. Moreover, we believe that 
the risk of improper expenditures would be very small under this policy 
because it is the deductible, and not the coinsurance, that is waived 
for the related procedures other than the screening tests. In the event 
of a legislative change to this policy (for example, a statutory change 
that would waive the coinsurance for these related services in addition 
to the deductible), we would reassess the appropriateness of this 
proposed definition of services that are furnished in connection with, 
as a result of, and in the same clinical encounter as the colorectal 
cancer screening test that becomes diagnostic. We also note that the 
annual deductible would likely be met when any surgical procedure 
(related or not) is performed on the same day as the scheduled 
screening test.
    We are proposing to implement this provision by creating a HCPCS 
modifier that ASCs would append to the diagnostic procedure code that 
is reported instead of the screening colonoscopy or screening flexible 
sigmoidoscopy HCPCS code. The claims

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processing system would respond to the modifier by waiving the 
deductible for all surgical services on the same date as the diagnostic 
test. Coinsurance or copayment would continue to apply to the 
diagnostic test and to other services furnished in connection with, as 
a result of, and in the same clinical encounter as the screening test.
2. Proposed Payment for Covered Ancillary Services
a. Background
    Our final payment policies under the revised ASC payment system for 
covered ancillary services vary according to the particular type of 
service and its payment policy under the OPPS. Our overall policy 
provides separate ASC payment for certain ancillary items and services 
integrally related to the provision of ASC covered surgical procedures 
that are paid separately under the OPPS and provides packaged ASC 
payment for other ancillary items and services that are packaged under 
the OPPS. Thus, we established a final policy to align ASC payment 
bundles with those under the OPPS (72 FR 42495).
    Our ASC payment policies provide separate payment for drugs and 
biologicals that are separately paid under the OPPS at the OPPS rates, 
while we pay for separately payable radiology services at the lower of 
the MPFS non-facility PE RVU (or technical component) amount or the 
rate calculated according to the ASC standard ratesetting methodology 
(72 FR 42497). In all cases, ancillary items and services must be 
provided integral to the performance of ASC covered surgical procedures 
for which the ASC bills Medicare, in order for those ancillary services 
also to be paid.
    ASC payment policy for brachytherapy sources generally mirrors the 
payment policy under the OPPS. We finalized our policy in the CY 2008 
OPPS/ASC final rule with comment period (72 FR 42499) to pay for 
brachytherapy sources applied in ASCs at the same prospective rates 
that were adopted under the OPPS or, if OPPS rates were unavailable, at 
contractor-priced rates. Subsequent to publication of that rule, 
section 106 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 
(Pub. L. 110-173) mandated that, for the period January 1, 2008 through 
June 30, 2008, brachytherapy sources be paid under the OPPS at charges 
adjusted to cost. Therefore, consistent with our final overall ASC 
payment policy, we paid ASCs at contractor-priced rates for 
brachytherapy sources provided in ASCs during that period of time. 
Beginning July 1, 2008, brachytherapy sources applied in ASCs were to 
be paid at the same prospectively set rates that were finalized in the 
CY 2008 OPPS/ASC final rule with comment period (72 FR 67165 through 
67188). Immediately prior to the publication of the CY 2009 OPPS/ASC 
proposed rule, section 142 of the Medicare Improvements for Patients 
and Providers Act of 2008 (Pub. L. 110-275) amended section 
1833(t)(16)(C) of the Act (as amended by section 106 of the Medicare, 
Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110-173) to extend 
the requirement that brachytherapy sources be paid under the OPPS at 
charges adjusted to cost through December 31, 2009. Therefore, 
consistent with final ASC payment policy, ASCs continued to be paid at 
contractor-priced rates for brachytherapy sources provided integral to 
ASC covered surgical procedures during that period of time.
    Other separately paid covered ancillary services in ASCs, 
specifically corneal tissue acquisition and device categories with OPPS 
pass-through status, do not have prospectively established ASC payment 
rates according to the final policies of the revised ASC payment system 
(72 FR 42502 and 42509; Sec.  416.164(b)). Under the revised ASC 
payment system, corneal tissue acquisition is paid based on the 
invoiced costs for acquiring the corneal tissue for transplantation. As 
discussed in section IV.A.1. of this proposed rule, new pass-through 
device categories may be established on a quarterly basis, but 
currently there are no OPPS device pass-through categories that would 
continue for OPPS pass-through payment (and, correspondingly, separate 
ASC payment) in CY 2011.
b. Proposed Payment for Covered Ancillary Services for CY 2011
    For CY 2011, we are proposing to update the ASC payment rates and 
make changes to ASC payment indicators as necessary to maintain 
consistency between the OPPS and ASC payment system regarding the 
packaged or separately payable status of services and the proposed CY 
2011 OPPS and ASC payment rates. The proposed CY 2011 OPPS payment 
methodologies for separately payable drugs and biologicals and 
brachytherapy sources are discussed in sections V. and VII. of this 
proposed rule, respectively, and we are proposing to set the CY 2011 
ASC payment rates for those services equal to the proposed CY 2011 OPPS 
rates.
    Consistent with established ASC payment policy (72 FR 42497), the 
proposed CY 2011 payment for separately payable covered radiology 
services is based on a comparison of the CY 2011 proposed MPFS non-
facility PE RVU amounts (we refer readers to the CY 2011 MPFS proposed 
rule) and the proposed CY 2011 ASC payment rates calculated according 
to the ASC standard ratesetting methodology and then set at the lower 
of the two amounts. Alternatively, payment for a radiology service may 
be packaged into the payment for the ASC covered surgical procedure if 
the radiology service is packaged under the OPPS. The payment 
indicators in Addendum BB indicate whether the proposed payment rates 
for radiology services are based on the MPFS nonfacility PE RVU amount 
or the ASC standard rate setting methodology, or whether payment for a 
radiology service is packaged into the payment for the covered surgical 
procedure (payment indicator ``N1''). Radiology services that we are 
proposing to pay based on the ASC standard ratesetting methodology are 
assigned payment indicator ``Z2'' (Radiology service paid separately 
when provided integral to a surgical procedure on ASC list; payment 
based on OPPS relative payment weight) and those for which the proposed 
payment is based on the MPFS non-facility PE RVU amount are assigned 
payment indicator ``Z3'' (Radiology service paid separately when 
provided integral to a surgical procedure on ASC list; payment based on 
MPFS non-facility PE RVUs).
    All covered ancillary services and their proposed payment 
indicators are listed in Addendum BB to this proposed rule.

E. New Technology Intraocular Lenses (NTIOLs)

1. Background
    In the CY 2007 OPPS/ASC final rule with comment period (71 FR 
68176), we finalized our current process for reviewing applications to 
establish new active classes of new technology intraocular lenses 
(NTIOLs) and for recognizing new candidate intraocular lenses (IOLs) 
inserted during or subsequent to cataract extraction as belonging to a 
NTIOL class that is qualified for a payment adjustment. Specifically, 
we established the following process:
     We announce annually in the Federal Register a document 
that proposes the update of ASC payment rates for the following 
calendar year, a list of all requests to establish new NTIOL classes 
accepted for review during the calendar year in which the proposal is 
published and the deadline for submission of public comments

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regarding those requests. In accordance with section 141(b)(3) of 
Public Law 103-432 and our regulations at Sec.  416.185(b), the 
deadline for receipt of public comments is 30 days following 
publication of the list of requests.
     In the Federal Register document that finalizes the update 
of ASC payment rates for the following calendar year, we--
    [deg] Provide a list of determinations made as a result of our 
review of all new class requests and public comments; and
    [deg] Announce the deadline for submitting requests for review of 
an application for a new NTIOL class for the following calendar year.
    In determining whether a lens belongs to a new class of NTIOLs and 
whether the ASC payment amount for insertion of that lens in 
conjunction with cataract surgery is appropriate, we expect that the 
insertion of the candidate IOL would result in significantly improved 
clinical outcomes compared to currently available IOLs. In addition, to 
establish a new NTIOL class, the candidate lens must be distinguishable 
from lenses already approved as members of active or expired classes of 
NTIOLs that share a predominant characteristic associated with improved 
clinical outcomes that was identified for each class. Furthermore, in 
the CY 2007 OPPS/ASC final rule with comment period (71 FR 68227), we 
finalized our proposal to base our determinations on consideration of 
the following factors set out at Sec.  416.195:
     The IOL must have been approved by the FDA and claims of 
specific clinical benefits and/or lens characteristics with established 
clinical relevance in comparison with currently available IOLs must 
have been approved by the FDA for use in labeling and advertising;
     The IOL is not described by an active or expired NTIOL 
class; that is, it does not share the predominant, class-defining 
characteristic associated with improved clinical outcomes with 
designated members of an active or expired NTIOL class; and
     Evidence demonstrates that use of the IOL results in 
measurable, clinically meaningful, improved outcomes in comparison with 
use of currently available IOLs. According to the statute, and 
consistent with previous examples provided by CMS, superior outcomes 
that we consider include the following:
    [cir] Reduced risk of intraoperative or postoperative complication 
or trauma;
    [cir] Accelerated postoperative recovery;
    [cir] Reduced induced astigmatism;
    [cir] Improved postoperative visual acuity;
    [cir] More stable postoperative vision; and/or
    [cir] Other comparable clinical advantages, such as--
    [cir] Reduced dependence on other eyewear (for example, spectacles, 
contact lenses, and reading glasses);
    [cir] Decreased rate of subsequent diagnostic or therapeutic 
interventions, such as the need for YAG laser treatment;
    [cir] Decreased incidence of subsequent IOL exchange; and
    [cir] Decreased blurred vision, glare, other quantifiable symptom 
or vision deficiency.
    For a request to be considered complete, we require submission of 
the information that is found in the guidance document entitled 
``Application Process and Information Requirements for Requests for a 
New Class of New Technology Intraocular Lens (NTIOL)'' posted on the 
CMS Web site at: http://www.cms.gov/ASCPayment/08_NTIOLs.asp#TopOfPage.
    As we stated in the CY 2007 OPPS/ASC final rule with comment period 
(71 FR 68180), there are three possible outcomes from our review of a 
request for establishment of a new NTIOL class. As appropriate, for 
each completed request for consideration of a candidate IOL into a new 
class that is received by the established deadline, one of the 
following determinations is announced annually in the final rule 
updating the ASC payment rates for the next calendar year:
     The request for a payment adjustment is approved for the 
candidate IOL for 5 full years as a member of a new NTIOL class 
described by a new HCPCS code;
     The request for a payment adjustment is approved for the 
candidate IOL for the balance of time remaining as a member of an 
active NTIOL class; or
     The request for a payment adjustment is not approved.
    We also discussed our plan to summarize briefly in the final rule 
with comment period the evidence that we reviewed, the public comments, 
and the basis for our determinations in consideration of applications 
for establishment of a new NTIOL class. We established that when a new 
NTIOL class is created, we identify the predominant characteristic of 
NTIOLs in that class that sets them apart from other IOLs (including 
those previously approved as members of other expired or active NTIOL 
classes) and that is associated with improved clinical outcomes. The 
date of implementation of a payment adjustment in the case of approval 
of an IOL as a member of a new NTIOL class would be set prospectively 
as of 30 days after publication of the ASC payment update final rule, 
consistent with the statutory requirement.
2. NTIOL Application Process for Payment Adjustment
    In CY 2007, we posted an updated guidance document to the CMS Web 
site to provide process and information requirements for applications 
requesting a review of the appropriateness of the payment amount for 
insertion of an IOL to ensure that the ASC payment for covered surgical 
procedures includes payment that is reasonable and related to the cost 
of acquiring a lens that is approved as belonging to a new class of 
NTIOLs. This guidance document can be accessed on the CMS Web site at: 
http://www.cms.gov/ASCPayment/downloads/NTIOLprocess.pdf.
    We note that we have also issued a guidance document entitled 
``Revised Process for Recognizing Intraocular Lenses Furnished by 
Ambulatory Surgery Centers (ASCs) as Belonging to an Active Subset of 
New Technology Intraocular Lenses (NTIOLs).'' This guidance document 
can be accessed on the CMS Web site at: http://www.cms.gov/ASCPayment/Downloads/Request_for_inclusion_in_current_NTIOL_subset.pdf.
    This second guidance document provides specific details regarding 
requests for recognition of IOLs as belonging to an existing, active 
NTIOL class, the review process, and information required for a request 
to review. Currently, there is one active NTIOL class whose defining 
characteristic is the reduction of spherical aberration. We accept 
requests throughout the year to review the appropriateness of 
recognizing an IOL as a member of an active class of NTIOLs. That is, 
review of candidate lenses for membership in an existing, active NTIOL 
class is ongoing and not limited to the annual review process that 
applies to the establishment of new NTIOL classes. We ordinarily 
complete the review of such a request within 90 days of receipt of all 
information that we consider pertinent to our review, and upon 
completion of our review, we notify the requestor of our determination 
and post on the CMS Web site notification of a lens newly approved for 
a payment adjustment as an NTIOL belonging to an active NTIOL class 
when furnished in an ASC.

[[Page 46353]]

3. Classes of NTIOLs Approved and New Requests for Payment Adjustment
a. Background
    Since implementation of the process for adjustment of payment 
amounts for NTIOLs that was established in the June 16, 1999 Federal 
Register, we have approved three classes of NTIOLs, as shown in the 
following table, with the associated qualifying IOLs to date:
[GRAPHIC] [TIFF OMITTED] TP03AU10.552

b. Request to Establish New NTIOL Class for CY 2010 and Deadline for 
Public Comment
    As explained in the guidance document on the CMS Web site, the 
deadline for each year's requests for review of the appropriateness of 
the ASC payment amount for insertion of a candidate IOL as a member of 
a new class of NTIOLs is announced in the final rule updating the ASC 
and OPPS payment rates for that calendar year. Therefore, a request for 
review for a new class of NTIOLs for CY 2011 must have been submitted 
to CMS by March 8, 2010, the due date published in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60621). We received one request 
for review to establish a new NTIOL class for CY 2011 by the March 8, 
2010 due date. A summary of this request follows.
    Requestor/Manufacturer: Alcon Laboratories, Inc.
    Lens Model Number: Acrysof[supreg] Natural IOLs, Models: SN60WF, 
SN60AT, MN60MA, and MN60AC.
    Summary of the Request: Alcon Laboratories, Inc. (Alcon) submitted 
a request for CMS to determine that its Acrysof[supreg] Natural 
intraocular lenses meet the criteria for recognition as NTIOL and to 
concurrently establish a new class of NTIOLs for blue light filtering 
to improve driving safety under glare conditions, with these lenses as 
members. As part of its request, Alcon submitted descriptive 
information about the candidate IOLs as outlined in the guidance 
document that we make available on the CMS Web site for the 
establishment of a new class of NTIOLs, as well as information 
regarding approval of the candidate IOL by the

[[Page 46354]]

U.S Food and Drug Administration (FDA). This information included the 
approved labeling for the candidate lenses, a summary of the IOLs' 
safety and effectiveness, a copy of the FDA's approval notification, 
and instructions for their use. In addition, Alcon also submitted a 
number of studies in support of its claim that the blue light filtering 
design features of the candidate lenses would improve driving safety 
under glare conditions. We note that we have previously considered 
another candidate IOL for which ASC payment review was requested on the 
basis of blue light filtering properties. We discussed these lenses in 
the July 23, 2004 and March 25, 2005 NTIOL proposed and final rules 
published in the Federal Register (69 FR 44029 and 70 FR 15337, 
respectively).
    In its CY 2011 request, Alcon asserts that its request is based on 
new research and measurement technologies that demonstrate that the 
Acrysof[supreg] Natural IOLs with a blue light filtering chromophore 
filter light in a manner that approximates the human crystalline lens 
in the 400-475 nm blue light wavelength range to reduce glare that 
impairs the ability of the eye to differentiate objects from the 
background. Alcon further states that glare reduction can help 
beneficiaries avoid hazards that can be caused by glare. Alcon also 
states that at present, there are no active or expired NTIOL classes 
that describe IOLs similar to its IOL.
    We established in the CY 2007 OPPS/ASC final rule with comment 
period that when reviewing a request for recognition of an IOL as an 
NTIOL and a concurrent request to establish a new class of NTIOLs, we 
would base our determination on consideration of the three major 
criteria that are outlined in the discussion above. We have begun our 
review of Alcon's request to recognize its Acrysof[supreg] Natural IOLs 
as NTIOLs and concurrently establish a new class of NTIOLs. We are 
soliciting public comment on these candidate IOLs with respect to the 
established NTIOL criteria as discussed above.
    First, for an IOL to be recognized as an NTIOL we require that the 
IOL must have been approved by the FDA and claims of specific clinical 
benefits and/or lens characteristics with established clinical 
relevance in comparison with currently available IOLs must have been 
approved by the FDA for use in labeling and advertising. We note that 
FDA approval for the candidate lens was granted in May 2007 and that 
Alcon provided FDA approval documentation, including a copy of the 
FDA's approval notification, the FDA's summary of the IOL's safety and 
effectiveness, and the labeling approved by the FDA in its request for 
a new class of NTIOLs. The approved labels for the Alcon IOLs all 
state, ``Alcon's proprietary blue light filtering chromophore filters 
light in a manner that approximates the human crystalline lens in the 
400-475 nm blue light wavelength range.'' The FDA label does not 
otherwise reference specific clinical benefits or lens characteristics 
of blue light filtering on glare. We are interested in public comments 
on the specific clinical benefits or lens characteristics with 
established clinical relevance for the blue light filter effects on 
glare. Specifically, we are interested in public comments regarding the 
assertion that the specific blue light filter properties associated 
with the candidate IOLs improve driving safety via the reduction of 
glare.
    Second, we also require that the candidate IOL not be described by 
an active or expired NTIOL class; that is, it does not share the 
predominant, class-defining characteristic associated with improved 
clinical outcomes with designated members of an active or expired NTIOL 
class. As noted in the table above regarding active and expired NTIOL 
classes, since implementation of the NTIOL review process that was 
established in the June 16, 1999 Federal Register, we have approved 
three classes of NTIOLs: Multifocal and Reduction in Preexisting 
Astigmatism classes, both of which were created in 2000 and expired in 
2005, and the currently active Reduced Spherical Aberration class, 
which was created in 2006 and will expire in 2011. The class-defining 
characteristic specific to IOLs that are members of these classes is 
evident in the name assigned to the class. For example, IOLs recognized 
as members of the reduced spherical aberration class are characterized 
by their aspheric design that results in reduced spherical aberration. 
We refer readers to the table above for information about the NTIOL 
classes that have been created since the implementation of the review 
process. Based on this information, the candidate lens may not be 
described by an active or expired NTIOL class. Its proposed class-
defining characteristic and associated clinical benefits that were 
described in the submitted request, specifically the blue light 
filtering properties, may not be similar to the class-defining 
characteristics and associated benefits of the two expired NTIOL 
classes, the Multifocal and Reduction in Preexisting Astigmatism 
classes, or to the class-defining characteristic and associated 
benefits of the currently active Reduced Spherical Aberration class. We 
welcome public comments that address whether the proposed class-
defining characteristic and associated clinical benefits of the 
candidate Alcon IOLs are described by the expired or currently active 
NTIOL classes.
    Third, our NTIOL evaluation criteria also require that an applicant 
submit evidence demonstrating that use of the IOL results in 
measurable, clinically meaningful, improved outcomes in comparison to 
use of currently available IOLs. We note that in the CY 2007 OPPS/ASC 
final rule with comment period, we sought comments as to what 
constitutes currently available IOLs for purposes of such comparisons, 
and we received several comments in response to our solicitation (71 FR 
68178). We agreed with commenters that we should remain flexible with 
respect to our view of ``currently available lenses'' for purposes of 
reviewing NTIOL requests, in order to allow for consideration of 
technological advances in lenses over time. For purposes of reviewing 
this request to establish a new NTIOL class for CY 2011, we believe 
that foldable, spherical, monofocal IOLs made of acrylic, silicone, or 
polymethylmethacrylate materials represent the currently available 
lenses against which the candidate NTIOL to establish a new class 
should be compared. The Alcon request asserts that the proprietary blue 
light filtering chromophore incorporated into the design of the 
candidate lenses and asserted associated benefits makes them different 
from IOLs that are currently available in the U.S. market. We are again 
seeking public comment on our view of ``currently available lenses'' 
for the purposes of this CY 2011 review.
    We reviewed the evidence submitted as part of the request, 
including two peer-reviewed articles and two related clinical studies. 
The first of the submitted articles discussed the effect of the 
candidate lenses on glare disability, while the second article 
discussed the effects of glare on driving in simulated driving 
conditions. The requestor also submitted data from two clinical studies 
directly related to the submitted articles discussed above. One cross 
sectional study with a planned sample size of 70 subjects evaluated 
glare disability by comparing the candidate lenses against control 
lenses which did not include the blue light filtering chromophore. 
Results from this study suggest that subjects implanted with the 
applicant IOLs had significantly faster photostress recovery times than 
subjects who had control IOLs implanted without the blue light 
filtering chromophore. We note that this

[[Page 46355]]

cross sectional study is ongoing; consequently the preliminary results 
submitted with the request only reflect 40 subjects from the planned 
total sample size. The requestor also submitted data from a second 
clinical study with a total sample size of 34 that evaluated the 
benefit of the blue light filtering chromophore on driving performance 
in patients implanted with the candidate IOLs compared to patients 
implanted with non blue light filtering IOLs. The results from this 
study suggested that incorporation of the yellow chromophore into the 
design of the candidate lenses reduce glare disability and thereby 
improve the ability of older drivers implanted with the candidate 
lenses to drive safely. Overall, the evidence submitted provides us 
with important information that is critical to our review of this 
request. However, in making our decision as to whether to establish a 
new class of NTIOL based on the primary characteristic of the candidate 
lenses, we are also interested in what other information the public can 
contribute related to the asserted benefits of the blue light filtering 
optic. Specifically, we are seeking public comment and relevant data on 
the following:
     Are there other peer-reviewed data that would support or 
disprove the claims of clinical benefit made by the applicant?
     The presented studies compare the blue filtering optic to 
clear IOLs, are there other IOLs or other clinical alternatives for 
reducing glare?
     Is the sample size used in both studies sufficient 
considering all confounding variables including, but not limited to 
age, sex, race, time from surgery, status of eyes (which eye received 
the IOL or both eyes, for example) to conclude that a blue light 
filtering optic would reduce glare in the Medicare population?
     What kind of study design would be appropriate to prove 
the claim of significant clinical benefit due to glare reduction on 
which the new class would be based?
     Are the submitted data enough to clarify that the blue 
filtering optic is responsible for reduction in glare disability as 
asserted by applicant?
    We welcome public comments and relevant data specifically 
addressing whether use of the Alcon Acrysof[reg] Natural IOLs result in 
measurable, clinically meaningful, improved outcomes in comparison with 
use of currently available IOLs. Additionally, in accordance with our 
established NTIOL review process, we are seeking public comments on all 
of the review criteria for establishing a new NTIOL class that would be 
based on the ability of the Acrysof[reg] Natural IOLs to filter blue 
light and subsequently help beneficiaries avoid hazards that can be 
caused by glare while driving. All comments on this request must be 
received by September 2, 2010. The announcement of CMS's determination 
regarding this request will appear in the CY 2011 OPPS/ASC final rule 
with comment period. If a determination of membership of the candidate 
lens in a new or currently active NTIOL class is made, this 
determination will be effective 30 days following the date that the 
final rule with comment period is published in the Federal Register.
4. Proposed Payment Adjustment
    The current payment adjustment for a 5-year period from the 
implementation date of a new NTIOL class is $50. In the CY 2007 OPPS/
ASC final rule with comment period, we revised Sec.  416.200(a) through 
(c) to clarify how the IOL payment adjustment is made and how an NTIOL 
is paid after expiration of the payment adjustment, and made minor 
editorial changes to Sec.  416.200(d). For CY 2008, CY 2009, and CY 
2010, we did not revise the payment adjustment amount, and we are not 
proposing to revise the payment adjustment amount for CY 2011 in light 
of our limited experience with the revised ASC payment system, 
implemented initially on January 1, 2008.
5. Proposed ASC Payment for Insertion of IOLs
    In accordance with the final policies of the revised ASC payment 
system, for CY 2011, payment for IOL insertion procedures is 
established according to the standard payment methodology of the 
revised payment system, which multiplies the ASC conversion factor by 
the ASC payment weight for the surgical procedure to implant the IOL. 
CY 2011 ASC payment for the cost of a conventional lens is packaged 
into the payment for the associated covered surgical procedures 
performed by the ASC. The HCPCS codes for IOL insertion procedures were 
included in Table 53 below, and their proposed CY 2011 payment rates 
may be found in Addendum AA to this proposed rule.
[GRAPHIC] [TIFF OMITTED] TP03AU10.553


[[Page 46356]]



F. Proposed ASC Payment and Comment Indicators

1. Background
    In addition to the payment indicators that we introduced in the 
August 2, 2007 final rule, we also created final comment indicators for 
the ASC payment system in the CY 2008 OPPS/ASC final rule with comment 
period (72 FR 66855). We created Addendum DD1 to define ASC payment 
indicators that we use in Addenda AA and BB to provide payment 
information regarding covered surgical procedures and covered ancillary 
services, respectively, under the revised ASC payment system. The ASC 
payment indicators in Addendum DD1 are intended to capture policy-
relevant characteristics of HCPCS codes that may receive packaged or 
separate payment in ASCs, such as whether they were on the ASC list of 
covered services prior to CY 2008; payment designation, such as device-
intensive or office-based and the corresponding ASC payment 
methodology; and their classification as separately payable ancillary 
services including radiology services, brachytherapy sources, OPPS 
pass-through devices, corneal tissue acquisition services, drugs or 
biologicals, or NTIOLs.
    We also created Addendum DD2 that lists the ASC comment indicators. 
The ASC comment indicators used in Addenda AA and BB to the proposed 
rules and final rules with comment period serve to identify, for the 
revised ASC payment system, the status of a specific HCPCS code and its 
payment indicator with respect to the timeframe when comments will be 
accepted. The comment indicator ``NI'' is used in the OPPS/ASC final 
rule with comment period to indicate new HCPCS codes for the next 
calendar year for which the interim payment indicator assigned is 
subject to comment. The comment indicator ``NI'' is also assigned to 
existing codes with substantial revisions to their descriptors such 
that we consider them to be describing new services, as discussed in 
the CY 2010 OPPS/ASC final rule with comment period (74 FR 60622). We 
will respond to public comments and finalize the ASC treatment of all 
codes labeled with comment indicator ``NI'' in the CY 2011 OPPS/ASC 
final rule with comment period.
    The ``CH'' comment indicator is used in Addenda AA and BB to this 
CY 2011 proposed rule to indicate that a new payment indicator (in 
comparison with the indicator for the CY 2010 ASC April quarterly 
update) is proposed for assignment to an active HCPCS code for the next 
calendar year; an active HCPCS code is proposed for addition to the 
list of procedures or services payable in ASCs; or an active HCPCS code 
is proposed for deletion at the end of the current calendar year. The 
``CH'' comment indicators that are published in the final rule with 
comment period are provided to alert readers that a change has been 
made from one calendar year to the next, but do not indicate that the 
change is subject to comment. The full definitions of the payment 
indicators and comment indicators are provided in Addenda DD1 and DD2 
to this proposed rule.
2. Proposed ASC Payment and Comment Indicators
    We are not proposing any changes to the definitions of the ASC 
payment and comment indicators for CY 2011. We will consider proposing 
to modify the payment indicators for procedures that were subject to 
transitional payment prior to CY 2011 in future rulemaking. We refer 
readers to Addenda DD1 and DD2 to this proposed rule for the complete 
list.

G. ASC Policy and Payment Recommendations

    MedPAC was established under section 1805 of the Act to advise 
Congress on issues affecting the Medicare program. Subparagraphs (B), 
(C), and (D) of sections 1805(b)(1 of the Act require MedPAC to submit 
reports to Congress not later than March 1 and June 15 of each year 
that present its Medicare payment policy reviews and recommendations. 
The following section describes a recent MedPAC recommendation that is 
relevant to the ASC payment system.
    The March 2010 MedPAC ``Report to the Congress: Medicare Payment 
Policy'' included the following recommendation relating specifically to 
the ASC payment system for CY 2011:
    Recommendation 2C: The Congress should implement a 0.6 percent 
increase in payment rates for ambulatory surgical center services in 
calendar year 2011 concurrent with requiring ambulatory surgical 
centers to submit cost and quality data.
    CMS Response: In the August 2, 2007 final rule (72 FR 42518 through 
42519), we adopted a policy to update the ASC conversion factor for 
consistency with section 1833(i)(2)(C) of the Act, which requires that, 
if the Secretary has not updated the ASC payment amounts in a calendar 
year, the payment amounts shall be increased by the percentage increase 
in the Consumer Price Index for All Urban Consumers (CPI-U) as 
estimated by the Secretary for the 12-month period ending with the 
midpoint of the year involved. The statute set the update at zero for 
CY 2008 and CY 2009. We indicated that we planned to implement the 
annual updates through an adjustment to the conversion factor under the 
ASC payment system beginning in CY 2010 when the statutory requirement 
for a zero update no longer applies. Further, we noted that that we 
would update the conversion factor for the CY 2010 ASC payment system 
by the percentage increase in the CPI-U, consistent with our policy as 
codified under Sec.  416.171(a)(2).
    As we indicated in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60622), we did not require ASCs to submit cost data to 
the Secretary for CY 2010. We explained that the 2006 GAO report, 
``Medicare: Payment for Ambulatory Surgical Centers Should Be Based on 
the Hospital Outpatient Payment System'' (GAO-07-86), concluded that 
the APC groups in the OPPS reflect the relative costs of surgical 
procedures performed in ASCs in the same way they reflect the relative 
costs of the same procedures when they are performed in HOPDs. 
Consistent with the GAO findings, CMS is using the OPPS as the basis 
for the ASC payment system, which provides for an annual revision of 
the ASC payment rates under the budget neutral ASC payment system. In 
addition, we noted that, under the methodology of the revised ASC 
payment system, we do not utilize ASC cost information to set and 
revise the payment rates for ASCs but, instead, rely on the relativity 
of hospital outpatient costs developed for the OPPS, consistent with 
the recommendation of the GAO. Furthermore, we explained that we have 
never required ASCs to routinely submit cost data and expressed our 
concern that a new Medicare requirement for ASCs to do so could be 
administratively burdensome for ASCs. In 2009, MedPAC made a similar 
recommendation to that made in Recommendation 2C above. In light of 
that MedPAC recommendation, in the CY 2010 OPPS/ASC proposed rule (74 
FR 35391), we solicited public comment on the feasibility of ASCs 
submitting cost information to CMS, including whether costs should be 
collected from a sample or the universe of ASCs, the administrative 
burden associated with such an activity, the form that such a 
submission could take considering existing Medicare requirements for 
other types of facilities and the scope of ASC services, the expected 
accuracy of such cost information, and any other issues or

[[Page 46357]]

concerns of interest to the public on this topic.
    In the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60623), we summarized and responded to these comments. As noted in that 
final rule with comment period, commenters' expressed varied opinions 
regarding the feasibility of requiring ASCs to submit cost data to the 
Secretary. Some commenters believed that requiring ASC to submit such 
data would not be an insurmountable obstacle and pointed out that other 
small facilities submit cost reports to CMS. They stated that ASC cost 
reports are necessary to assess the adequacy of Medicare payments and 
evaluate the ASC update. Other commenters, however, opposed the 
requirement that ASCs submit cost data to CMS because they believed 
such a requirement would be unnecessary and administratively 
burdensome. Commenters generally supported a requirement that ASCs 
report quality data. We refer readers to the CY 2010 OPPS/ASC final 
rule with comment period for a full discussion of the comments we 
received on the feasibility of requiring ASCs to report cost and 
quality data (74 FR 60623). We responded that we would keep the 
commenters' perspectives in mind as we further consider the adequacy of 
the Medicare ASC payment rates and move toward implementation of ASC 
quality reporting.
    Consistent with our CY 2010 policy, we are proposing not to require 
ASCs to submit cost data to the Secretary for CY 2011. We continue to 
believe that our established methodology results in appropriate payment 
rates for ASCs. As noted in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60623), section 109(b) of the MIEA-TRHCA (Pub. L. 
109-432) gives the Secretary the authority to implement ASC quality 
measure reporting and to reduce the payment update for ASCs that fail 
to report those required measures. We restate our belief that promoting 
high quality care in the ASC setting through quality reporting is 
highly desirable and fully in line with our efforts under other payment 
systems. As discussed in section XVI.H. of this proposed rule, we are 
proposing not to require ASC quality data reporting for CY 2011, but 
our intention is to implement ASC quality reporting in a future 
rulemaking.
    Section 3006(f) of the Affordable Care Act, as added by section 
10301(a) of the Affordable Care Act, requires CMS to develop a plan on 
implementing a value-based purchasing program for ASCs that will 
consider measures of quality and efficiency in ASCs, among other 
requirements. The Secretary must submit a report to Congress containing 
this plan not later than January 1, 2011.

H. Calculation of the ASC Conversion Factor and ASC Payment Rates

1. Background
    In the August 2, 2007 final rule (72 FR 42493), we established our 
policy to base ASC relative payment weights and payment rates under the 
revised ASC payment system on APC groups and relative payment weights. 
Consistent with that policy and the requirement at section 
1833(i)(2)(D)(ii) of the Act that the revised payment system be 
implemented so that it would be budget neutral, the initial ASC 
conversion factor (CY 2008) was calculated so that estimated total 
Medicare payments under the revised ASC payment system in the first 
year would be budget neutral to estimated total Medicare payments under 
the prior (CY 2007) ASC payment system. That is, application of the ASC 
conversion factor was designed to result in aggregate Medicare 
expenditures under the revised ASC payment system in CY 2008 equal to 
aggregate Medicare expenditures that would have occurred in CY 2008 in 
the absence of the revised system, taking into consideration the cap on 
ASC payments in CY 2007 as required under section 1833(i)(2)(E) of the 
Act (72 FR 42522).
    We note that we consider the term ``expenditures'' in the context 
of the budget neutrality requirement under section 1833(i)(2)(D)(ii) of 
the Act to mean expenditures from the Medicare Part B Trust Fund. We do 
not consider expenditures to include beneficiary coinsurance and 
copayments. This distinction was important for the CY 2008 ASC budget 
neutrality model that considered payments across hospital outpatient, 
ASC, and MPFS payment systems. However, because coinsurance is almost 
always 20 percent for ASC services, this interpretation of expenditures 
has minimal impact for subsequent budget neutrality adjustments 
calculated within the revised ASC payment system.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66857 
through 66858), we set out a step-by-step illustration of the final 
budget neutrality adjustment calculation based on the methodology 
finalized in the August 2, 2007 final rule (72 FR 42521 through 42531) 
and as applied to updated data available for the CY 2008 OPPS/ASC final 
rule with comment period. The application of that methodology to the 
data available for the CY 2008 OPPS/ASC final rule with comment period 
resulted in a budget neutrality adjustment of 0.65.
    For CY 2008, we adopted the OPPS relative payment weights as the 
ASC relative payment weights for most services and, consistent with the 
final policy, we calculated the CY 2008 ASC payment rates by 
multiplying the ASC relative payment weights by the final CY 2008 ASC 
conversion factor of $41.401. For covered office-based surgical 
procedures and covered ancillary radiology services, the established 
policy is to set the relative payment weights so that the national 
unadjusted ASC payment rate does not exceed the MPFS unadjusted non-
facility PE RVU amount. Further, as discussed in the CY 2008 OPPS/ASC 
final rule with comment period (72 FR 66841 through 66843), we also 
adopted alternative rate setting methodologies for specific types of 
services (for example, device-intensive procedures).
    As discussed in the August 2, 2007 final rule (72 FR 42518) and as 
codified under Sec.  416.172(c) of the regulations, the revised ASC 
payment system accounts for geographic wage variation when calculating 
individual ASC payments by applying the pre-floor and pre-reclassified 
hospital wage indices to the labor-related share, which is 50 percent 
of the ASC payment amount. Beginning in CY 2008, CMS accounted for 
geographic wage variation in labor cost when calculating individual ASC 
payments by applying the pre-floor and pre-reclassified hospital wage 
index values that CMS calculates for payment, using updated Core Based 
Statistical Areas (CBSAs) issued by the Office of Management and Budget 
in June 2003. The reclassification provision provided at section 
1886(d)(10) of the Act is specific to hospitals. We believe the use of 
the most recent available raw pre-floor and pre-reclassified hospital 
wage indices results in the most appropriate adjustment to the labor 
portion of ASC costs. In addition, use of the unadjusted hospital wage 
data avoids further reductions in certain rural statewide wage index 
values that result from reclassification. We continue to believe that 
the unadjusted hospital wage indices, which are updated yearly and are 
used by many other Medicare payment systems, appropriately account for 
geographic variation in labor costs for ASCs.
    We note that in certain instances there might be urban or rural 
areas for which there is no IPPS hospital whose wage index data would 
be used to set the wage index for that area. For these areas, our 
policy has been to use the average of the wage indices for CBSAs (or 
metropolitan divisions as applicable)

[[Page 46358]]

that are contiguous to the area that has no wage index (where 
``contiguous'' is defined as sharing a border). We have applied a proxy 
wage index based on this methodology to ASCs located in CBSA 25980 
Hinesville-Fort Stewart, GA, and CBSA 22 Rural Massachusetts. For CY 
2011, we have identified another area, specifically, CBSA 11340 
Anderson, SC for which there is no IPPS hospital whose wage index data 
would be used to set the wage index for that area. Generally, we would 
use the methodology described above; however in this situation all of 
the areas contiguous to CBSA 11340 Anderson, SC are rural. Therefore, 
for this type of unique situation, we are proposing to set the ASC wage 
index by calculating the average of all wage indices for urban areas in 
the state. In other situations, where there are no IPPS hospitals 
located in a relevant labor market area, we would continue our current 
policy of calculating an urban or rural area's wage index by 
calculating the average of the wage indices for CBSAs (or metropolitan 
divisions where applicable) that are contiguous to the area with no 
wage index.
2. Proposed Calculation of the ASC Payment Rates
a. Updating the ASC Relative Payment Weights for CY 2011 and Future 
Years
    We update the ASC relative payment weights each year using the 
national OPPS relative payment weights (and MPFS non-facility PE RVU 
amounts, as applicable) for that same calendar year and uniformly scale 
the ASC relative payment weights for each update year to make them 
budget neutral (72 FR 42531 through 42532). Consistent with our 
established policy, we are proposing to scale the CY 2011 relative 
payment weights for ASCs according to the following method. Holding ASC 
utilization and the mix of services constant from CY 2008 for CY 2011, 
we are proposing to compare the total payment weight using the CY 2010 
ASC relative payment weights under the 75/25 blend (of the CY 2007 
payment rate calculated under the ASC standard ratesetting methodology 
and the ASC payment rate calculated under the ASC standard methodology) 
with the total payment weight using the CY 2011 ASC relative payment 
weights (calculated under the ASC standard rate setting methodology) to 
take into account the changes in the OPPS relative payment weights 
between CY 2010 and CY 2011. We would use the ratio of CY 2010 to CY 
2011 total payment weight (the weight scaler) to scale the ASC relative 
payment weights for CY 2011. The proposed CY 2011 ASC scaler is 0.9090 
and scaling would apply to the ASC relative payment weights of the 
covered surgical procedures and covered ancillary radiology services 
for which the ASC payment rates are based on OPPS relative payment 
weights.
    Scaling would not apply in the case of ASC payment for separately 
payable covered ancillary services that have a predetermined national 
payment amount (that is, their national ASC payment amounts are not 
based on OPPS relative payment weights), such as drugs and biologicals 
that are separately paid or services that are contractor-priced or paid 
at reasonable cost in ASCs. Any service with a predetermined national 
payment amount would be included in the ASC budget neutrality 
comparison, but scaling of the ASC relative payment weights would not 
apply to those services. The ASC payment weights for those services 
without predetermined national payment amounts (that is, those services 
with national payment amounts that would be based on OPPS relative 
payment weights if a payment limitation did not apply) would be scaled 
to eliminate any difference in the total payment weight between the 
current year and the update year.
    For any given year's ratesetting, we typically use the most recent 
full calendar year of claims data to model budget neutrality 
adjustments. We currently have available 98 percent of CY 2009 ASC 
claims data. To create an analytic file to support calculation of the 
weight scaler and budget neutrality adjustment for the wage index 
(discussed below), we summarized available CY 2009 ASC claims by 
provider and by HCPCS code. We created a unique supplier identifier 
solely for the purpose of identifying unique ASCs within the CY 2009 
claims data. We used the supplier zip code reported on the claim to 
associate State, county, and CBSA with each ASC. This file, available 
to the public as a supporting data file for this proposed rule, is 
posted on the CMS Web site at: http://www.cms.gov/ASCPayment/01_Overview.asp#TopOfPage.
b. Updating the ASC Conversion Factor
    Under the OPPS, we typically apply a budget neutrality adjustment 
for provider-level changes, most notably a change in the wage index 
values for the upcoming year, to the conversion factor. Consistent with 
our final ASC payment policy, for the CY 2011 ASC payment system, we 
are proposing to calculate and apply the pre-floor and pre-reclassified 
hospital wage indices that are used for ASC payment adjustment to the 
ASC conversion factor, just as the OPPS wage index adjustment is 
calculated and applied to the OPPS conversion factor (73 FR 41539). For 
CY 2011, we calculated this proposed adjustment for the ASC payment 
system by using the most recent CY 2009 claims data available and 
estimating the difference in total payment that would be created by 
introducing the CY 2011 pre-floor and pre-reclassified hospital wage 
indices. Specifically, holding CY 2009 ASC utilization and service-mix 
and CY 2010 national payment rates after application of the weight 
scaler constant, we calculated the total adjusted payment using the CY 
2010 pre-floor and pre-reclassified hospital wage indices and the total 
adjusted payment using the proposed CY 2011 pre-floor and pre-
reclassified hospital wage indices. We used the 50-percent labor-
related share for both total adjusted payment calculations. We then 
compared the total adjusted payment calculated with the CY 2010 pre-
floor and pre-reclassified hospital wage indices to the total adjusted 
payment calculated with the proposed CY 2011 pre-floor and pre-
reclassified hospital wage indices and applied the resulting ratio of 
1.0006 (the proposed CY 2011 ASC wage index budget neutrality 
adjustment) to the CY 2010 ASC conversion factor to calculate the 
proposed CY 2011 ASC conversion factor.
    Section 1833(i)(2)(C) of the Act requires that, if the Secretary 
has not updated the ASC payment amounts in a calendar year, the payment 
amounts shall be increased by the percentage increase in the CPI-U as 
estimated by the Secretary for the 12-month period ending with the 
midpoint of the year involved. Because the Secretary does update the 
ASC payment amounts annually, we adopted a policy, which we codified at 
Sec.  416.171(a)(2)(ii), to update the ASC conversion factor using the 
CPI-U for CY 2010 and subsequent calendar years. Therefore, the annual 
update to the ASC payment system is the CPI-U (referred to as the CPI-U 
update factor). Section 3401(k) of the Affordable Care Act amends 
section 1833(i)(2)(D) of the Act by adding a new clause (v) which 
requires that ``any annual update under [the ASC payment] system for 
the year * * * shall be reduced by the productivity adjustment 
described in section 1886(b)(3)(B)(xi)(II)'' (which we refer to as the 
MFP adjustment) effective with the calendar year beginning January 1, 
2011. Section 3401(k) of the Affordable Care Act states that 
application of the MFP adjustment to the ASC payment

[[Page 46359]]

system may result in the update to the ASC payment system being less 
than zero for a year and may result in payment rates under the ASC 
payment system for a year being less than such payment rates for the 
preceding year. We are proposing to revise Sec.  416.160 and Sec.  
416.171 to reflect this provision of the Affordable Care Act.
    In accordance with section 1833(i)(2)(C)(i) of the Act, before 
applying the MFP adjustment, the Secretary first determines the 
``percentage increase'' in the CPI-U, which we interpret cannot be a 
negative number. Thus, in the instance where the percentage change in 
the CPI-U for a year is negative, we are proposing to hold the CPI-U 
update factor for the ASC payment system to zero. Section 
1833(i)(2)(D)(v) of the Act, as added by section 3401(k) of the 
Affordable Care Act, then requires that the Secretary reduce the CPI-U 
update factor (which would be held to zero if the CPI-U percentage 
change is negative) by the MFP adjustment, and states that application 
of the MFP adjustment may reduce this percentage change below zero. If 
the application of the MFP adjustment to the CPI-U percentage increase 
would result in a MFP-adjusted CPI-U update factor that is less than 
zero, then the annual update to the ASC payment rates would be negative 
and payments would decrease relative to the prior year.
    Table 54 provides illustrative examples of how the MFP would be 
applied to the ASC payment system. These examples show the implication 
of a positive CPI-U update factor with a small MFP, a positive CPI-U 
update factor with a large MFP adjustment, and a CPI-U update factor of 
0. We discuss in greater detail the methodology for calculating the MFP 
for the ASC payment system and the other payment systems affected by 
the MFP adjustment (found in section 1886(b)(3)(B)(xi)(II) of the Act, 
as added by section 3401(a) of the Affordable Care Act) in the CY 2011 
MPFS proposed rule. Comments on the specific mathematical calculation 
of the MFP should be made to that proposed rule. Comments on the 
application of the MFP to the CPI-U update factor under the ASC payment 
system should be made to this proposed rule.
[GRAPHIC] [TIFF OMITTED] TP03AU10.554

    For this proposed rule, for the 12-month period ending with the 
midpoint of CY 2011, the Secretary estimates that the CPI-U is 1.6 
percent. The Secretary estimates that the MFP adjustment is 1.6. As 
discussed in the CY 2011 MPFS proposed rule, we are proposing to reduce 
the CPI-U of 1.6 percent by the MFP adjustment specific to this CPI-U, 
resulting in an MFP-adjusted CPI-U updated factor of 0 percent. 
Therefore, we are proposing to apply to the ASC conversion factor a 0 
percent MFP-adjusted update.
    For CY 2011, we also are proposing to adjust the CY 2010 ASC 
conversion factor ($41.873) by the wage adjustment for budget 
neutrality of 1.0006 in addition to the MFP-adjusted update factor of 0 
discussed above, which results in a proposed CY 2011 ASC conversion 
factor of $41.898.
3. Display of Proposed ASC Payment Rates
    Addenda AA and BB to this proposed rule display the proposed 
updated ASC payment rates for CY 2011 for covered surgical procedures 
and covered ancillary services, respectively. These addenda contain 
several types of information related to the proposed CY 2011 payment 
rates. Specifically, in Addendum AA, a ``Y'' in the column titled 
``Subject to Multiple Procedure Discounting'' indicates that the 
surgical procedure would be subject to the multiple procedure payment 
reduction policy. As discussed in the CY 2008 OPPS/ASC final rule with 
comment period (72 FR 66829 through 66830), most covered surgical 
procedures are subject to a 50-percent reduction in the ASC payment for 
the lower-paying procedure when more than one procedure is performed in 
a single operative session. Display of the comment indicator ``CH'' in 
the column titled ``Comment Indicator'' indicates a proposed change in 
payment policy for the item or service, including identifying 
discontinued HCPCS codes, designating items or services newly payable 
under the ASC payment system, and identifying items or services with 
changes in the ASC payment indicator for CY 2011.
    The values displayed in the column titled ``CY 2011 Payment 
Weight'' are the proposed relative payment weights for each of the 
listed services for CY 2011. The payment weights for all covered 
surgical procedures and covered ancillary services whose ASC payment 
rates are based on OPPS relative payment weights are scaled for budget 
neutrality. Thus, scaling was not applied to the device portion of the 
device intensive procedures, services that are paid at the MPFS 
nonfacility PE RVU amount, separately payable covered ancillary 
services that have a predetermined national payment amount, such as 
drugs and biologicals that are separately paid under the OPPS, or 
services that are contractor-priced or paid at reasonable cost in ASCs.
    To derive the proposed CY 2011 payment rate displayed in the ``CY 
2011 Payment'' column, each ASC payment weight in the ``CY 2011 Payment 
Weight'' column is multiplied by the proposed CY 2011 conversion factor 
of $41.898. The conversion factor includes a budget neutrality 
adjustment for changes in the wage index values and the CPI-U update 
factor as reduced by the productivity adjustment (as discussed in 
section XV.H.2.b. of this proposed rule).
    In Addendum BB, there are no relative payment weights displayed in 
the ``CY 2011 Payment Weight'' column for items and services with 
predetermined national payment

[[Page 46360]]

amounts, such as separately payable drugs and biologicals. The ``CY 
2011 Payment'' column displays the proposed CY 2011 national unadjusted 
ASC payment rates for all items and services. The proposed CY 2011 ASC 
payment rates listed in the Addendum AA for separately payable drugs 
and biologicals are based on ASP data used for payment in physicians' 
offices in April 2010.

XVI. Reporting Quality Data for Annual Payment Rate Updates

A. Background

1. Overview
    CMS has implemented quality measure reporting programs for multiple 
settings of care. These programs promote higher quality, more efficient 
health care for Medicare beneficiaries. The quality data reporting 
program for hospital outpatient care, known as the Hospital Outpatient 
Quality Data Reporting Program (HOP QDRP), has been generally modeled 
after the program for hospital inpatient services, the Reporting 
Hospital Quality Data for Annual Payment Update (RHQDAPU) program. Both 
of these quality reporting programs for hospital services, as well as 
the program for physicians and other eligible professionals, known as 
the Physician Quality Reporting Initiative (PQRI), have financial 
incentives for the reporting of quality data to CMS. CMS also has 
implemented quality reporting programs for home health agencies and 
skilled nursing facilities that are based on conditions of 
participation, and an end-stage renal disease quality reporting program 
that is based on conditions for coverage.
2. Hospital Outpatient Quality Data Reporting Under Section 109(a) of 
MIEA-TRHCA
    Section 109(a) of the MIEA-TRHCA (Pub. L. 109-432) amended section 
1833(t) of the Act by adding a new paragraph (17) which affects the 
annual payment update factor applicable to OPPS payments for services 
furnished by hospitals in outpatient settings on or after January 1, 
2009. Section 1833(t)(17)(A) of the Act states that subsection (d) 
hospitals (as defined under section 1886(d)(1)(B) of the Act) that fail 
to report data required for the quality measures selected by the 
Secretary in the form and manner required by the Secretary under 
section 1833(t)(17)(B) of the Act will incur a 2.0 percentage point 
reduction to their annual payment update factor. Section 1833(t)(17)(B) 
of the Act requires that hospitals submit quality data in a form and 
manner, and at a time, that the Secretary specifies. Section 
1833(t)(17)(A)(ii) of the Act specifies that any reduction would apply 
only to the payment year involved and would not be taken into account 
in computing the applicable annual payment update factor for a 
subsequent payment year.
    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
(including medication errors) furnished by hospitals in outpatient 
settings, that these measures reflect consensus among affected parties 
and, to the extent feasible and practicable, that these measures 
include measures set forth by one or more national consensus building 
entities. The National Quality Forum (NQF) is a voluntary consensus 
standard setting organization that is composed of a diverse 
representation of consumer, purchaser, provider, academic, clinical, 
and other health care stakeholder organizations. NQF was established to 
standardize health care quality measurement and reporting through its 
consensus development process. We generally prefer to adopt NQF-
endorsed measures for CMS quality reporting programs. However, we 
believe that consensus among affected parties also can be reflected by 
other means, including: consensus achieved during the measure 
development process; consensus shown through broad acceptance and use 
of measures; and consensus through public comment. We also note that 
section 1833(t)(17) of the Act does not require that each measure we 
adopt for the HOP QDRP be endorsed by a national consensus building 
entity, or by the NQF specifically.
    Section 1833(t)(17)(C)(ii) of the Act allows the Secretary to 
``[select] measures that are the same as (or a subset of) the measures 
for which data are required to be submitted under section 
1886(b)(3)(B)(viii)'' of the Act (the RHQDAPU program). As we stated in 
the CY 2009 OPPS/ASC final rule with comment period (73 FR 68758 
through 68759), we do not believe that we should, without further 
analysis, adopt the RHQDAPU program measures as the measures for the 
HOP QDRP. We continue to believe that it is most appropriate and 
desirable to adopt measures that specifically apply to the hospital 
outpatient setting for the HOP QDRP.
    Section 1833(t)(17)(D) of the Act gives the Secretary the authority 
to replace measures or indicators as appropriate, such as when all 
hospitals are effectively in compliance or when the measures or 
indicators have been subsequently shown not to represent the best 
clinical practice. Section 1833(t)(17)(E) of the Act requires the 
Secretary to establish procedures for making data submitted under the 
HOP QDRP available to the public. Such procedures include providing 
hospitals with the opportunity to review their data before these data 
are released to the public.
3. ASC Quality Data Reporting Under Section 109(b) of MIEA-TRHCA
    Section 109(b) of the MIEA-TRHCA amended section 1833(i) of the Act 
by redesignating clause (iv) as clause (v) and adding new clause (iv) 
to paragraph (2)(D) and by adding new paragraph (7). Section 
1833(i)(2)(D)(iv) of the Act authorizes, but does not require, the 
Secretary to implement the revised ASC payment system ``so as to 
provide for a reduction in any annual update for failure to report on 
quality measures'' beginning with payment for ASC services furnished on 
or after January 1, 2009.
    Section 1833(i)(7)(A) of the Act states that the Secretary may 
provide that any ASC that fails to report data required for the quality 
measures selected by the Secretary in the form and manner required by 
the Secretary under section 1833(i)(7) of the Act will incur a 
reduction in any annual payment update of 2.0 percentage points. 
Section 1833(i)(7)(A) of the Act also specifies that a reduction for 
one year cannot be taken into account in computing the annual ASC 
payment update for a subsequent year.
    Section 1833(i)(7)(B) of the Act provides that, ``[e]xcept as the 
Secretary may otherwise provide,'' the hospital outpatient quality data 
provisions of subparagraphs (B) through (E) of section 1833(t)(17) of 
the Act, summarized above, shall apply to ASCs in a similar manner to 
the manner in which they apply under these paragraphs to hospitals 
under the HOP QDRP. We did not implement an ASC quality reporting 
program for CY 2008 (72 FR 66875) or for CY 2009 (73 FR 68780), or for 
CY 2010 (74 FR 60656).
    We refer readers to section XVI.F. of this proposed rule for 
further discussion of ASC quality data reporting.
4. HOP QDRP Quality Measures for the CY 2009 Payment Determination
    For the CY 2009 annual payment update, we required HOP QDRP 
reporting using seven quality measures--five Emergency Department (ED) 
Acute Myocardial Infarction (AMI) Cardiac Care measures and two 
Surgical Care measures. These measures address care provided to a large 
number of adult patients in hospital outpatient settings across a 
diverse set of conditions, and

[[Page 46361]]

were selected for the initial set of HOP QDRP measures based on their 
relevance as a set to all HOPDs.
    Specifically, in order for hospitals to receive the full OPPS 
payment update for services furnished in CY 2009, in the CY 2008 OPPS/
ASC final rule with comment period (72 FR 66865 and 66871), we required 
that subsection (d) hospitals paid under the OPPS submit data on the 
following seven measures for hospital outpatient services furnished on 
or after April 1, 2008: (1) ED-AMI-1: Aspirin at Arrival; (2) ED-AMI-2: 
Median Time to Fibrinolysis; (3) ED-AMI-3: Fibrinolytic Therapy 
Received within 30 Minutes of Arrival; (4) ED-AMI-4: Median Time to 
Electrocardiogram (ECG); (5) ED-AMI-5: Median Time to Transfer for 
Primary PCI; (6) PQRI 20: Surgical Care-Timing of Antibiotic 
Prophylaxis; and (7) PQRI 21: Surgical Care-Selection of 
Antibiotic.
5. HOP QDRP Quality Measures for the CY 2010 Payment Determination
    For the CY 2010 payment update, we required continued submission of 
data on the existing seven measures discussed above (73 FR 68761), and 
adopted four new imaging measures (73 FR 68766). For CY 2010, we also 
changed the measure designations for the existing seven measures to an 
``OP-'' format. For example, the designations of ED-AMI-2 and 
ED-AMI-3 were changed to OP-1 and OP-2 so that the eleven measures for 
the CY 2010 payment update were designated as OP-1 through OP-11. This 
change allowed us to maintain a consistent sequential designation 
system that we could expand as we add additional measures.
    The four imaging measures that we adopted beginning with the CY 
2010 payment determination (OP-8: MRI Lumbar Spine for Low Back Pain, 
OP-9: Mammography Follow-up Rates, OP-10: Abdomen CT--Use of Contrast 
Material, and OP-11: Thorax CT--Use of Contrast Material) are claims-
based measures that CMS will calculate using Medicare Part B claims 
data without imposing upon hospitals the burden of additional chart 
abstraction. For purposes of the CY 2010 payment determination, we will 
calculate these measures using CY 2008 Medicare administrative claims 
data.
    In the CY 2009 OPPS/ASC proposed rule, OP-10 had two submeasures 
listed: OP-10a: CT Abdomen--Use of contrast material excluding calculi 
of the kidneys, ureter, and/or urinary tract, and OP-10b: CT Abdomen--
Use of contrast material for diagnosis of calculi in the kidneys, 
ureter, and or urinary tract. In the CY 2009 OPPS/ASC final rule with 
comment period (73 FR 68766), we finalized OP-10 (previously known as 
OP-10a): Abdomen CT--Use of Contrast Material. To clarify, we are 
calculating OP-10 excluding patients with impaired renal functions 
because they are not candidates for an abdominal CT with contrast. This 
exclusion is described in greater detail in the Specifications Manual 
for Hospital Outpatient Department Quality Measures (HOPD 
Specifications Manual) located at the QualityNet Web site (http://www.QualityNet.org).
    The complete set of 11 measures to be used for the CY 2010 payment 
determination is listed at 73 FR 68766.
6. HOP QDRP Quality Measures, Technical Specification Updates, and Data 
Publication for the CY 2011 Payment Determination
a. Quality Measures
    For the CY 2011 payment determination, we required hospitals to 
continue to submit data on the existing 11 HOP QDRP measures. These 
measures continue to address areas of topical importance regarding the 
quality of care provided in HOPDs, and reflect consensus among affected 
parties. Seven of these 11 measures are chart-abstracted measures in 
two areas of importance that are also measured for the inpatient 
setting: AMI cardiac care and surgical care. The remaining four 
measures address imaging efficiency in HOPDs.
    For the CY 2011 payment determination, we did not add any new HOP 
QDRP measures. We indicated our sensitivity to the burden upon HOPDs 
associated with chart abstraction and stated that we seek to minimize 
the collection burden associated with quality measurement. We also 
stated that we will continue to assess whether we can collect data on 
additional quality measures through mechanisms other than chart 
abstraction, such as from Medicare administrative claims data and EHRs.
    The complete set of 11 measures that will be used for the CY 2011 
payment determination is listed at 74 FR 60637.
b. Maintenance of Technical Specifications for Quality Measures
    Technical specifications for each HOP QDRP measure are listed in 
the HOPD Specifications Manual, which is posted on the CMS QualityNet 
Web site at http://www.QualityNet.org. We maintain the technical 
specifications for the measures by updating this HOPD Specifications 
Manual and including detailed instructions and calculation algorithms. 
In some cases where the specifications are available elsewhere, we may 
include links to Web sites hosting technical specifications. These 
resources are for hospitals to use when collecting and submitting data 
on required measures.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68766 
through 68767), we established a subregulatory process for updates to 
the technical specifications that we use to calculate HOP QDRP 
measures. This process is used when changes to the measure 
specifications are necessary due to changes in scientific evidence or 
in the measure as endorsed by the consensus entity. Changes of this 
nature may not coincide with the timing of our regulatory actions, but 
nevertheless require inclusion in the measure specifications so that 
the HOP QDRP measures are calculated based on the most up-to-date 
scientific and consensus standards. We indicated that notification of 
changes to the measure specifications on the QualityNet Web site, 
http://www.QualityNet.org, and in the HOPD Specifications Manual that 
occurred as a result of changes in scientific evidence or national 
consensus would occur no less than 3 months before any changes become 
effective for purposes of reporting under the HOP QDRP.
    The HOPD Specifications Manual is released every 6 months and 
addenda are released as necessary providing at least 3 months of 
advance notice for insubstantial changes such as changes to ICD-9, CPT, 
NUBC, and HCPCS codes, and at least 6 months notice for substantive 
changes to data elements that would require significant systems 
changes.
c. Publication of HOP QDRP Data
    Section 1833(t)(17)(E) of the Act requires that the Secretary 
establish procedures to make data collected under the HOP QDRP program 
available to the public. It also states that such procedures must 
ensure that a hospital has the opportunity to review the data that are 
to be made public with respect to the hospital prior to such data being 
made public. To meet these requirements, data that a hospital has 
submitted for the HOP QDRP are typically displayed on CMS Web sites 
such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov after a preview period. The Hospital 
Compare Web site is an interactive Web tool that assists beneficiaries 
by providing information on hospital quality of care. This information 
encourages beneficiaries to work with their doctors and hospitals to 
discuss the quality of care hospitals provide to

[[Page 46362]]

patients, thereby providing an additional incentive to hospitals to 
improve the quality of care that they furnish.
    In general, we strive to display hospital quality measures on the 
Hospital Compare Web site as soon as possible after they have been 
adopted and are available to CMS for reporting. However, information 
that may not be easily understood by the public and information with 
unresolved display issues or pending design considerations may be made 
available on other non-interactive CMS Web sites such as http://www.cms.hhs.gov/HospitalQualityInits/. Publicly reporting the 
information in this manner, though not on the Hospital Compare Web 
site, allows CMS to meet the requirement under section 1833(t)(17)(E) 
of the Act for establishing procedures to make quality data submitted 
available to the public following a preview period. We are proposing 
that, under circumstances when we have to display hospital quality 
information on non-interactive CMS Web sites for reasons discussed 
earlier, affected parties would be notified via CMS listserves, CMS e-
mail blasts, national provider calls, and QualityNet announcements 
regarding the release of preview reports followed by the posting of 
data on a Web site other than Hospital Compare. The release of preview 
reports allows CMS to meet the requirement under section 1833(t)(17)(E) 
of the Act for establishing procedures to make quality data submitted 
available to the public following a preview period.
    CMS also requires hospitals to complete and submit a registration 
form (``participation form'') in order to participate in the HOP QDRP. 
With submission of this form, participating hospitals agree that they 
will allow CMS to publicly report the quality measures, including those 
that CMS calculates using Medicare claims, as required by the Act and 
the HOP QDRP.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68778), we established that, for CY 2010, hospitals sharing the same 
CMS Certification Number (CCN, previously known as the Medicare 
Provider Number (MPN)) must combine data collection and submission 
across their multiple campuses for the clinical measures for public 
reporting purposes. We finalized the policy that, under the HOP QDRP, 
we will publish quality data by the corresponding CCN. This approach is 
consistent with the approach taken under the RHQDAPU program. In the CY 
2009 OPPS/ASC final rule with comment period, we also stated that we 
intend to indicate instances where data from two or more hospitals are 
combined to form the publicly reported measures on the Web site.
    In the CY 2010 OPPS/ASC final rule with comment period, we 
finalized our CY 2010 policy regarding publication of HOP QDRP data (74 
FR 60652 through 60654). Section 1833(t)(17)(E) of the Act requires 
that the Secretary establish procedures to make data collected under 
the HOP QDRP available to the public; however, this section does not 
require that such data be validated before it is made public. We 
explained that, initially, we decided not to post ``[i]nformation from 
non-validated data, including the initial reporting period (April--June 
2008)'' as discussed in the CY 2008 OPPS/ASC final rule with comment 
period (72 FR 66874). We noted, however, that data submitted by 
hospitals are publicly reported regardless of whether those data are 
successfully validated for payment determination purposes under 
existing procedures for the RHQDAPU program. We also noted that, in the 
CY 2009 OPPS/ASC final rule with comment period, we stated that we 
intended to make the information collected under the HOP QDRP available 
to the public in 2010 (73 FR 68778).
    In the CY 2010 OPPS/ASC proposed rule (74 FR 35404), we proposed to 
make data collected for quarters beginning with the third quarter of CY 
2008 (July--September 2008) under the HOP QDRP publicly available, 
regardless of whether those data have been validated for payment 
determination purposes. In the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60654), we finalized our proposal to publicly report HOP 
QDRP data on Hospital Compare in 2010 with some modifications in the 
periods of time to be reported. For measures OP-1 through OP-5, we will 
publicly report data periods beginning with the 3rd quarter of 2008. 
For measures OP-6 and OP-7, we will publicly report data periods 
beginning with the 3rd quarter of 2009. For measures OP-8 through OP-
11, we will report CY 2010 payment determination calculations using CY 
2008 claims.

B. Proposed Expansion of HOP QDRP Quality Measures for the CY 2012, CY 
2013, and CY 2014 Payment Determinations

1. Considerations in Expanding and Updating Quality Measures Under the 
HOP QDRP
    In general, when selecting measures for the HOP QDRP program, we 
take into account several considerations and goals. These include: (a) 
Expanding the types of measures beyond process of care measures to 
include an increased number of outcome measures, efficiency measures, 
and patients' experience-of-care measures; (b) expanding the scope of 
hospital services to which the measures apply; (c) considering the 
burden on hospitals in collecting chart-abstracted data; (d) 
harmonizing the measures used in the HOP QDRP program with other CMS 
quality programs to align incentives and promote coordinated efforts to 
improve quality; (e) seeking to use measures based on alternative 
sources of data that do not require chart abstraction or that utilize 
data already being reported by many hospitals, such as data that 
hospitals report to clinical data registries, or all-payer claims data 
bases; and (f) weighing the relevance and utility of the measures 
compared to the burden on hospitals in submitting data under the HOP 
QDRP program.
    Specifically, we give priority to quality measures that assess 
performance on: (a) Conditions that result in the greatest mortality 
and morbidity in the Medicare population; (b) conditions that are high 
volume and high cost for the Medicare program; and (c) conditions for 
which wide cost and treatment variations have been reported, despite 
established clinical guidelines. We have used and continue to use these 
criteria to guide our decisions regarding what measures to add to the 
HOP QDRP measure set.
    In the CY 2009 OPPS/ASC final rule with comment period, we adopted 
four claims-based quality measures that do not require a hospital to 
submit chart-abstracted clinical data (73 FR 68766). This supports our 
goal of expanding the measures for the HOP QDRP while minimizing the 
burden upon hospitals and, in particular, without significantly 
increasing the chart abstraction burden. In addition to claims-based 
measures, we are considering registries \1\ and EHRs as alternative 
ways to collect data from hospitals. Many hospitals submit data to and 
participate in existing registries. In addition, registries often 
capture outcome information and provide ongoing quality improvement 
feedback to registry participants. Instead of requiring hospitals to 
submit the same data to CMS that they are already submitting to 
registries, we could collect the data directly from the registries with 
the permission of the hospital, thereby enabling us to expand the HOP 
QDRP measure set without increasing the burden of data collection for 
those

[[Page 46363]]

hospitals participating in the registries. The data that we would 
receive from registries would be used to calculate quality measures 
required under the HOP QDRP, and would be publicly reported like other 
HOP QDRP quality measures, encouraging improvements in the quality of 
care. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60633), we responded to public comments on such an approach.
---------------------------------------------------------------------------

    \1\ A registry is a collection of clinical data for purposes of 
assessing clinical performance, quality of care, and opportunities 
for quality improvement.
---------------------------------------------------------------------------

    In the CY 2009 OPPS/ASC final rule with comment period, we also 
stated our intention to explore mechanisms for data submission using 
EHRs (73 FR 68769). CMS has adopted the definition of Qualified EHR set 
forth by the Office of the National Coordinator for Health Information 
Technology (ONC) which has adopted the statutory definition of 
Qualified EHR as follows: Section 3000(13) of the PHSA defines 
Qualified EHR as an electronic record of health-related information on 
an individual that: (A) Includes patient demographic and clinical 
health information, such as medical history and problem lists; and (B) 
has the capacity: (i) To provide clinical decision support; (ii) to 
support physician order entry; (iii) to capture and query information 
relevant to health care quality; and (iv) to exchange electronic health 
information with, and integrate such information from other sources.'' 
CMS has also adopted the definition of Certified EHR by ONC as follows: 
Certified EHR technology means a complete EHR or a combination of EHR 
Modules, each of which: (1) Meets the requirements included in the 
definition of a Qualified EHR; and (2) has been tested and certified in 
accordance with the certification program established by the ONC as 
having met all applicable certification criteria adopted by the 
Secretary. Establishing a data submission mechanism using EHRs system 
will require interoperability between EHRs and CMS data collection 
systems, additional infrastructure development on the part of hospitals 
and CMS, and the adoption of standards for the capturing, formatting, 
and transmission of data elements that make up the measures. However, 
once these activities are accomplished, the adoption of measures that 
rely on data obtained directly from EHRs would enable us to expand the 
HOP QDRP measure set with less cost and burden to hospitals. In the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60633 through 
60634), we responded to public comments on such an approach.
    In prior years, we have proposed measures for one payment 
determination in a given rulemaking cycle. In prior rules, we have 
identified measures for future consideration, but have not proposed or 
finalized measures beyond those to be collected and used for the next 
sequential payment determination. In this CY 2011 rulemaking cycle, we 
are proposing the addition of new measures over a three year period of 
time for CY 2012, CY 2013, and CY 2014 payment determinations. We 
believe this proposed process would assist hospitals in planning, 
meeting future reporting requirements, and implementing quality 
improvement efforts. We also would have more time to develop, align, 
and implement the infrastructure necessary to collect data on the 
measures and make payment determinations. To the extent that we choose 
to finalize some or all of these measures for the CY 2012, CY 2013 and 
CY 2014 payment determinations, this would not preclude us from 
proposing additional measures or changing the list of measures for 
future payment determinations through subsequent rulemaking cycles that 
affect these future payment determinations. We invite comments on our 
intention to propose measures for more than one payment determination 
in a single rulemaking cycle.
2. Retirement of HOP QDRP Quality Measures
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we finalized a 
process for immediate retirement of RHQDAPU program measures based on 
evidence that the continued use of the measure as specified raises 
patient safety concerns (74 FR 43864 through 43865). In circumstances 
such as those prompting immediate retirement of the AMI-6 measure from 
the RHQDAPU program in December 2008 as discussed in the FY 2010 IPPS/
LTCH final rule (74 FR 43864 through 43865) we do not believe that it 
would be appropriate to wait for the annual rulemaking cycle to retire 
a measure. We adopted this same immediate retirement policy for the HOP 
QDRP in the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60635).
    Specifically, we stated that if we receive evidence that continued 
collection of a measure that has been adopted for the HOP QDRP raises 
patient safety concerns, we would promptly retire the measure and 
notify hospitals and the public of the retirement of the measure and 
the reasons for its retirement through the usual means by which we 
communicate with hospitals, including but not limited to hospital e-
mail blasts and the QualityNet Web site. We also stated that we would 
confirm the retirement of a measure retired in this manner in the next 
OPPS rulemaking cycle. However, for other circumstances in which we do 
not believe that continued use of a measure raises specific patient 
safety concerns, we stated that we intend to use the regular rulemaking 
process to retire a measure.
3. Proposed HOP QDRP Quality Measures for the CY 2012 Payment 
Determination
a. Proposed Retention of Existing HOP QDRP Measures for the CY 2012 
Payment Determination
    For the CY 2012 payment determination, we are proposing to retain 
the existing 11 HOP QDRP measures. These measures continue to address 
areas of topical importance regarding the quality of care provided in 
HOPDs, and reflect consensus among affected parties. Seven of these 11 
measures are chart-abstracted measures in two areas of importance that 
are also measured for the inpatient setting: AMI cardiac care and 
surgical care. The remaining four measures are claims-based measures 
that address imaging efficiency in HOPDs.
    We invite public comment on our proposal to retain the existing 11 
HOP QDRP measures for the CY 2012 payment determination.
b. Proposed New Structural Measure for CY 2012 Payment Determination
    For the CY 2012 payment determination, we are proposing to add one 
structural measure: ``Ability for Providers with HIT to Receive 
Laboratory Data Electronically Directly into their Qualified/Certified 
EHR System as Discrete Searchable Data'' (NQF  0489). 
Structural measures allow the assessment of the conduciveness of the 
provider environment to processes and technologies that enable delivery 
of high quality care. This particular structural measure assesses the 
extent to which a provider uses a certified/qualified EHR system that 
incorporates an electronic data interchange with one or more 
laboratories allowing for direct electronic transmission of laboratory 
data into the EHR as discrete searchable data elements. We believe that 
electronic transmission of laboratory data into EHRs would enable 
greater timeliness of results reporting, because the results of the 
reports would be transmitted to the HOPD as soon as the laboratory data 
are available and be merged with clinical information for more timely 
clinical assessments, and laboratory value alerts. Electronic 
transmission of laboratory data would also lead to cost efficiency, 
expedite the

[[Page 46364]]

clinical decision process, and reduce redundancy of laboratory orders, 
and reduce human errors. Section 1833(t)(17)(C)(i) of the Act requires 
the Secretary to develop measures appropriate for the measurement of 
the quality of care furnished by hospitals in outpatient settings, that 
these measures reflect consensus among affected parties and, to the 
extent feasible and practicable, that these measures include measures 
set forth by one or more national consensus building entities. As 
discussed above, this structural measure is appropriate for measuring 
quality of care in the hospital outpatient department setting. This 
measure also meets the consensus requirement because it was endorsed in 
2008 as part of an NQF project entitled ``National Voluntary Consensus 
Standards for Health Information Technology: Structural Measures.'' 
Additionally, this measure was conditionally adopted by the Hospital 
Quality Alliance (HQA) in 2010. (The HQA is a public-private 
collaboration to improve the quality of care provided by the nation's 
hospitals by measuring and publicly reporting on that care.)
    We are proposing that this structural measure would be submitted by 
HOPDs beginning with January 1, 2011 discharges via a Web-based tool 
available on the QualityNet Web site that is currently employed for the 
collection of structural measures for the RHQDAPU program. For this 
structural measure, HOPDs would submit the number of encounters out of 
all encounters for which laboratory results were documented in the EHR. 
We invite comments on our proposal to add this new structural measure 
to the HOP QDRP measurement set and the submission process for the CY 
2012 payment determination.
c. Proposed New Claim-Based Measures for CY 2012 Payment Determination
    For the CY 2012 payment determination, we are proposing to add four 
new claims-based imaging efficiency measures to the HOP QDRP 
measurement set, all of which were listed as under consideration for CY 
2012 and subsequent years in the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60637 through 60641). Imaging efficiency is a new 
area of measurement that we first implemented in the HOP QDRP for the 
CY 2010 payment determination and subsequently retained for the CY 2011 
payment determination. There are currently four existing claims-based 
imaging efficiency measures in the HOP QDRP measurement set (OP-8 
through OP-11). The four new proposed imaging efficiency measures for 
the CY 2012 payment determination are: (1) Pre-operative Evaluation for 
Low-Risk Non-Cardiac Surgery Risk Assessment, (2) Use of Stress 
Echocardiography, SPECT MPI, and Cardiac Stress MRI post CABG, (3) 
Simultaneous Use of Brain Computed Tomography (CT) and Sinus Computed 
Tomography (CT), and (4) Use of Brain Computed Tomography (CT) in the 
Emergency Department for Atraumatic Headache.
    Like the current imaging efficiency measures in the HOP QDRP 
measurement set, these four measures are based on Medicare claims and 
will not require additional data submission on the part of hospitals. 
All four of these proposed measures are currently undergoing NQF 
review, and specifications for these measures are available at 
www.imagingmeasures.com.
    The first new proposed imaging efficiency measure for the CY 2012 
payment determination seeks to calculate relative use of stress 
echocardiography, stress MRI, and SPECT MPI prior to low-risk non-
cardiac surgical procedures in the 30 days preceding the surgery. The 
second new proposed claims-based imaging efficiency measure for the CY 
2012 payment determination seeks to estimate relative use of stress 
echocardiography and SPECT MPI in asymptomatic patients less than five 
years after a coronary artery bypass graft (CABG) procedure.
    Cardiac imaging is a gap area that was not addressed in CMS' first 
set of Outpatient Imaging Efficiency measures. It is among the most 
common imaging services in the Medicare population. In the hospital 
outpatient setting, 762,419 SPECT MPI, Stress MRI and Stress 
Echocardiography procedures were performed in 2008 alone.\2\ Further, 
between 1998 and 2006, the rate of myocardial perfusion imaging (MPI) 
use in Medicare beneficiaries increased 51 percent among cardiologists 
in the hospital setting, and by 215 percent in private offices. During 
the same time period, total Medicare Part B payments for MPI across all 
settings of care increased by 227 percent.\3\
---------------------------------------------------------------------------

    \2\ The Lewin Group analysis of Medicare Calendar Year 2007 
claims data prepared for the Centers for Medicare & Medicaid 
Services, HHS Contract No: HHSM-500-2005-0024I, Order No. 0002.
    \3\ Levin DC, Rao VM, Parker L, et al. Recent payment and 
utilization trends in radionuclide myocardial perfusion imaging: 
Comparison between self-referral and referral to radiologists. J Am 
Coll Radiol 2009;6:437-441.
---------------------------------------------------------------------------

    SPECT MPI, Stress MRI, and Stress Echocardiography are specific 
procedures that must be ordered by a physician to be performed. 
Therefore, there is a distinct opportunity for the physician to order 
this procedure prudently based on best practices. While SPECT MPI, 
Stress MRI, and Stress Echocardiography enhance the quality of care 
when used appropriately, inappropriate usage of imaging would cause 
unnecessary waste of services, contribute no benefit to the quality of 
care, and could increase the patient's risk of cancer. An analysis by 
Gibbons et al.\4\ found that, of all SPECT MPI procedures performed at 
the Mayo Clinic Rochester in May 2005, 14 percent were considered 
inappropriate using criteria published by the American College of 
Cardiology Foundation and the American Society of Nuclear Cardiology, 
and an additional 11 percent were of indeterminate appropriateness.\4\ 
This study also found that during the same time period, 18 percent of 
all stress echocardiograms performed were inappropriate, and an 
additional 9 percent were indeterminate.
---------------------------------------------------------------------------

    \4\ Gibbons RJ, Miller TD, Hodge D, et al. Application of 
appropriateness criteria to stress single-photon emission computed 
tomography sestamibi studies and stress echocardiograms in an 
academic medical center. J Am Coll Cardiology 2008;51:1283-9.
---------------------------------------------------------------------------

    The third and fourth new proposed imaging efficiency measures for 
the CY 2012 payment determination pertain to appropriate use of Brain 
CT imaging in HOPDs. These are ``Simultaneous Use of Brain Computed 
Tomography (CT) and Sinus Computed Tomography (CT),'' and ``Use of 
Brain Computed Tomography (CT) in the Emergency Department for 
Atraumatic Headache.''
    A recent report in the New England Journal of Medicine \5\ raised 
serious concerns about the use and overuse of CT scanning, stating that 
for an estimated 62 million CT scans being performed per year, a third 
are unnecessary, resulting in patient safety issues including 
unnecessary radiation and contrast material exposure, and the danger 
associated with ``false positive'' findings. A CT scan exposes the 
patient to higher doses of radiation than a conventional x-ray and 
increases the patient's risk of cancer.
---------------------------------------------------------------------------

    \5\ Brenner DJ, Hall EJ. November 29, 2007. Computer 
Tomography--An Increasing Source of Radiation Exposure. New England 
J of Medicine 2007:357(22): 2277-84.
---------------------------------------------------------------------------

    Brain CTs are often ordered in addition to a sinus CT for patients 
with sinusitis because headache is a common symptom related to 
sinusitis. However, simultaneous CT sinus and brain imaging for 
headache without suspected complications is generally considered 
inappropriate, as the standard anatomic coverage of a CT of the head 
includes

[[Page 46365]]

large portions of the paranasal sinuses; thus, ordering both procedures 
is duplicative and inefficient.5, 6 The third new proposed 
imaging efficiency measure for the CY 2012 payment determination 
``Simultaneous Use of Brain CT and Sinus CT'' assesses the extent to 
which patients with a headache who have a brain CT also have a sinus CT 
performed on the same date at the same facility. The measure excludes 
patients with trauma diagnoses, tumors or orbital cellulitis.
---------------------------------------------------------------------------

    \5\ Brenner DJ, Hall EJ. November 29, 2007. Computer 
Tomography--An Increasing Source of Radiation Exposure. New England 
J of Medicine: 357(22): 2277-84.
    \6\ Appropriateness Criteria--Headache. Reston, VA: American 
College of Radiology, 2009. Accessed November 25, 2009 at http://www.acr.org/SecondaryMainMenuCategories/quality_safety/app_criteria.aspx.
---------------------------------------------------------------------------

    The fourth new proposed imaging efficiency measure for the CY 2012 
payment determination, ``Use of Brain Computed Tomography (CT) in the 
Emergency Department for Atraumatic Headache,'' assesses the extent to 
which patients presenting with a headache receive brain CT studies. The 
measure excludes patients admitted or transferred to an acute care 
hospital, patients with lumbar punctures, dizziness, paresthesia, lack 
of coordination, subarachnoid hemorrhage or thunderclap headaches. The 
lifetime prevalence of headache is over 90 percent for men and women 
and according to some studies, headache accounts for 16 million 
physician visits in the U.S. annually.\7\ According to a study 
conducted by Goldstein et al. (2006) on U.S. emergency departments 
(EDs) from 1992 to 2001, headaches represent approximately 2 percent of 
U.S. ED visits.\8\ An analysis of 2007 Medicare claims data found that 
approximately 200,000 Medicare beneficiaries had a visit to an ED with 
a primary diagnosis of headache with about half of these patients (not 
taking into account the previously mentioned exclusion of lumbar 
punctures, dizziness, paresthesia, lack of coordination, subarachnoid 
hemorrhage or thunderclap headaches) receiving a Brain CT coincident 
with the ED visit.\9\ Unnecessary or duplicative studies are 
inefficient and detrimental to the patient because CT exposes the 
patient to higher doses of radiation than conventional x-ray and 
increases the patient's risk for cancer.\10\
---------------------------------------------------------------------------

    \7\ Mellion ML, Jayaraman MV. August 2007. Use of neuroimaging 
in the workup of headache. Med Health R I.; 90(8):249-50.
    \8\ Goldstein JN, CA Camargo, AJ Pelletier, JA Edlow. 2006. 
Headache in the United States Emergency Departments: demographics, 
work-up and frequency of pathological diagnoses. Cephalalgia; 26(6) 
684.
    \9\ The Lewin Group analysis of Medicare Calendar Year 2007 
claims data prepared for the Centers for Medicare & Medicaid 
Services, HHS Contract No: HHSM-500-2005-0024I, Order No. 0002.
    \10\ Brenner DJ and Hall EJ. November 29, 2007. Computed 
Tomography--An Increasing Source of Radiation Exposure. N Engl J 
Med;357(22):2277-84.
---------------------------------------------------------------------------

    Concern over the inappropriate use of CT Imaging in the ED setting 
has been driven by three primary factors: False positive 
interpretations, radiation exposure, and cost. There is generally a 
lower threshold for ordering neuro-imaging for headache in the ED 
because of physician time constraints and lack of ED physician 
familiarity with headache presentation.\11\ Because of this lower 
threshold, the measurement of the use of CT Brain in the ED for 
patients with a diagnosis of atraumatic headache can help to raise the 
awareness of the need for quality improvement on the appropriate use of 
CT brain imaging in the ED and, as a result improve patient safety 
through reduction in unnecessary radiation exposure.
---------------------------------------------------------------------------

    \11\ Ward TN, Leven M, Phillips JM. Evaluation and management of 
headache in the emergency department. Med Clin N Am 2001; 85(4) 971-
85.
---------------------------------------------------------------------------

    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, these 
measures are appropriate for measuring quality of care in the hospital 
outpatient department setting. These measures also meet the consensus 
requirement because these measures underwent development through a 
consensus-based measure development process involving stakeholder 
input. We anticipate that they will be endorsed by the NQF.
    For the CY 2012 payment determination, we are proposing to 
calculate these four measures using Medicare claims from CY 2010. We 
invite comments on our proposal to add these four new imaging 
efficiency measures to the HOP QDRP measurement set based on Medicare 
claims from CY 2010 for the CY 2012 payment determination.
d. Proposed New Chart-Abstracted Measures for CY 2012 Payment 
Determination
    We are proposing to add one new chart-abstracted measure to the HOP 
QDRP measurement set for the CY 2012 payment determination: ``Troponin 
Results for Emergency Department acute myocardial infarction (AMI) 
patients or chest pain patients (with Probable Cardiac Chest Pain) 
Received within 60 minutes of arrival.'' Troponin is used to help 
diagnose a heart attack, to detect and evaluate mild to severe heart 
injury, and to distinguish chest pain that may be due to other causes.
    This measure is based upon the existing ED-AMI/Chest Pain 
populations for which we have adopted five measures in the current HOP 
QDRP measurement set. This measure is currently undergoing NQF review.
    Both patients and clinicians are impacted by the timeliness of 
laboratory reporting.\12\ Decreasing laboratory turnaround times 
increases ED efficiency, specifically by decreasing diversion time from 
treatment of patients and decreasing length of stay.\13\ Decreasing the 
numbers of hours a day on diversion as well as decreasing patients' 
lengths of stay in EDs allows for the treatment of a greater number of 
patients. Studies have found correlations between the length of stay 
and mean turnaround times.\14\ Efficiencies in throughput with tasks 
can lead to less diversion, less overcrowding, less elopements and less 
financial loss.\15\ Section 1833(t)(17)(C)(i) of the Act requires the 
Secretary to develop measures appropriate for the measurement of the 
quality of care furnished by hospitals in outpatient settings, that 
these measures reflect consensus among affected parties and, to the 
extent feasible and practicable, that these measures include measures 
set forth by one or more national consensus building entities. As 
discussed above, this measure is appropriate for measuring quality of 
care in the hospital outpatient department setting. This measure also 
meets the consensus requirement because this measure underwent 
development through a consensus-based measure development process 
involving stakeholder input. We anticipate that

[[Page 46366]]

this measure will be endorsed by the NQF.
---------------------------------------------------------------------------

    \12\ Howanitz JH, and Howanitz PJ. Laboratory results: 
Timeliness as a quality attribute and strategy. Am J Clin Pathol. 
2002 Sep; 116 (3):311-5.
    \13\ Storrow AB, Zhou C, Gaddis G, Han JH, Miller K, Klubert D, 
Laidig A, and Aronsky D. Decreasing lab turnaround time improves 
emergency department throughput and decreases emergency medical 
services diversion: A simulation model. Acad Emerg Med. 2008 Nov; 15 
(11):1130-5.
    \14\ Holland LL, Smith LL, and Blick KE. Reducing laboratory 
turnaround time outliers can reduce emergency department length of 
stay: An 11-hospital study. Am J Clin Pathol. 2005 Nov; 124 (5):672-
4.
    \15\ Falvo T, Grove L, Stachura R, and Zirkin W. The financial 
impact of ambulance diversions and patient elopements. Acad Emerg 
Med. 2007 Jan; 14 (1):58-62.
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    If adopted, data collection for this measure would begin with 
January 1, 2011 discharges, and data would be submitted quarterly 
beginning with the first quarter of 2011, as with all other chart-
abstracted measures.
    We invite public comment on our proposal to add this new chart-
abstracted measure to the HOP QDRP measurement set and the submission 
process for the CY 2012 payment determination.
    In summary, for the CY 2012 payment determination, we are proposing 
to retain the 11 existing HOP QDRP measures for the CY 2011 payment 
determination, to add one new structural measure, four new claims-based 
imaging efficiency measures, and one new chart-abstracted measure for 
the ED AMI population. Submission of data regarding the new structural 
measure would begin with January 1, 2011 discharges using a Web-based 
collection tool available on the QualityNet Web site. We are proposing 
to calculate the four imaging measures using Medicare claims from 
calendar year 2010. Data collection for the chart-abstracted measure 
would begin with January 1, 2011 discharges, and data would be 
submitted quaterly beginning with the first quarter of 2011, as with 
all other chart-abstracted measures. We invite public comment on this 
proposal for the CY 2012 payment determination.
    The complete list of 17 proposed measures for the CY 2012 payment 
determination is shown below.
[GRAPHIC] [TIFF OMITTED] TP03AU10.555

4. Proposed HOP QDRP Quality Measures for the CY 2013 Payment 
Determination
a. Proposed Retention of CY 2012 HOP QDRP Measures for the CY 2013 
Payment Determination
    In general, unless otherwise specified in the retirement section of 
a rule, we retain measures from one payment determination to another. 
For the CY 2013 payment determination, we are proposing to retain all 
of the measures adopted for the CY 2012 payment determination. We 
invite public comment on this proposal for the CY 2013 payment 
determination.
b. Proposed New Structural Measure for the CY 2013 Payment 
Determination
    We are proposing to add one structural measure to the HOP QDRP 
measurement set for the CY 2013 payment determination: Tracking 
Clinical Results between Visits. EHRs enable providers to issue 
reminders when clinical results are not received within a predefined 
timeframe. This measure assesses the extent to which a provider uses a 
certified/qualified EHR system to track pending laboratory tests, 
diagnostic studies (including common preventive screenings) or patient 
referrals. Section 1833(t)(17)(C)(i) of the Act requires the Secretary 
to develop measures appropriate for the measurement of the quality of 
care furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures

[[Page 46367]]

set forth by one or more national consensus building entities. As 
discussed above, this structural measure is appropriate for measuring 
quality of care in the hospital outpatient department setting. This 
measure also meets the consensus requirement because it was endorsed as 
part of an NQF Project entitled ``National Voluntary Consensus 
Standards for Health IT'' (NQF 0491). Additionally, this 
measure was conditionally approved by the HQA in March of 2010.
    Submission of this measure would begin with first quarter CY 2012 
discharges to be submitted via the Web-based tool used to collect other 
structural measures, such as the registry participation structural 
measures for the RHQDAPU program. We invite comments on this proposal 
to add this new structural measure to the HOP QDRP measurement set and 
the submission process for the CY 2013 payment determination.
c. Proposed New Chart-Abstracted Measures for the CY 2013 Payment 
Determination
    We are proposing to add six new chart-abstracted measures to the 
HOP QDRP measurement set for the CY 2013 payment determination.
    The six new chart-abstracted measures we are proposing for the CY 
2013 payment determination are: (1) Median Time from ED Arrival to ED 
Departure for Discharged ED Patients; (2) Transition Record with 
Specified Elements Received by Discharged Patients; (3) Door to 
Diagnostic Evaluation by a Qualified Medical Professional; (4) ED-
Median Time to Pain Management for Long Bone Fracture; (5) ED-Patient 
Left Before Being Seen; and (6) ED-Head CT Scan Results for Acute 
Ischemic Stroke or Hemorrhagic Stroke Who Received Head CT Scan 
Interpretation Within 45 minutes of Arrival. The topics addressed by 
these measures include ED efficiency, Imaging Efficiency, and care 
coordination/transition for hospital outpatient departments. Many of 
these measures would expand the chart-abstraction population for the 
HOP QDRP measurement set beyond the current ED-AMI/Chest Pain, and 
Surgical Care patients for which we have currently adopted seven 
measures in the HOP QDRP measurement set. However, this population 
expansion would be occurring at a time when subsection (d) hospitals 
would begin collection of more global ED population measures for the 
RHQDAPU program. Thus, we have timed the expansion of the chart-
abstracted measures for HOP QDRP to coincide with expansions that will 
be occurring for the RHQDAPU program in order to reduce the burden 
associated with expansion. We also anticipate that, in the future, 
these measures could be captured and submitted via EHRs, eliminating 
the chart abstraction burden associated with these measures. These 
measures are discussed below:
(1) Median Time From ED Arrival to ED Departure for Discharged ED 
Patients
    This measure, which was listed as under consideration for CY 2012 
and subsequent years in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60637 through 60641), addresses ED efficiency in the form 
of the median time from emergency department arrival to time of 
departure from the emergency room for patients discharged from the 
emergency department. Reducing the time patients spend in the ED can 
improve quality of care. Reducing this time potentially improves access 
for more patients needing emergency care and increases hospitals' 
capability to provide additional treatment as necessary. Overcrowding 
and heavy emergency resource demand have led to a number of problems, 
including ambulance refusals, prolonged patient waiting times, 
increased suffering for those who wait, rushed and unpleasant treatment 
environments, and potentially poor patient outcomes. ED crowding may 
result in delays in the administration of medication such as 
antibiotics for pneumonia and has been associated with perceptions of 
delayed emergency care. When EDs are overwhelmed, their ability to 
respond to community emergencies and disasters may be compromised. 
Section 1833(t)(17)(C)(i) of the Act requires the Secretary to develop 
measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
chart-abstracted measure is appropriate for measuring quality of care 
in the hospital outpatient department setting. This measure also meets 
the consensus requirement because it was endorsed in 2009 (NQF 
0496) as part of an NQF project entitled ``National Voluntary 
Consensus Standards for Emergency Care.'' Additionally, this measure 
was conditionally approved by the HQA in March of 2010.
(2) Transition Record With Specified Elements Received by Discharged 
Patients
    This chart-abstracted measure assesses the percentage of patients, 
regardless of age, discharged from an ED to ambulatory care or home 
healthcare, or their caregiver(s), who received a transition record at 
the time of ED discharge including at a minimum, the following 
elements: major procedures and tests performed during the ED visit; 
principal diagnosis at discharge or chief complaint; patient 
instructions; plan for follow-up care (or statement that none is 
required)--including primary physician, other health care professional, 
or site designated for follow-up care; and list of new medications and 
changes to continued medications that patient should take after ED 
discharge, with the quantity prescribed and/or dispensed (or intended 
duration) and instructions for each. Transitions of care are a weakness 
in maintaining continuity of care and proper adherence/compliance with 
follow up instructions. Hand-offs between settings should be 
accompanied by clear instructions for medications and follow-up care. 
Information should be provided about the care delivered while in each 
setting, and for what reasons, not only for the benefit of the patient 
and their caregivers, but for practitioners that will be following up 
with the patient after they leave an acute care setting.
    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because it was endorsed by the NQF as part of a Project 
entitled ``Endorsing Preferred Practices and Performance Measures for 
Measuring and Reporting Care Coordination'' (NQF 0649). This 
measure was conditionally approved by the HQA in March of 2010.
(3) Door to Diagnostic Evaluation by a Qualified Medical Professional 
(Door to Provider)
    This measure assesses mean time between patient presentation to the 
ED and the first moment the patient is seen by a person who can 
initiate a

[[Page 46368]]

diagnostic evaluation or therapeutic plan (for example, medical 
student, resident, nurse practitioner; excludes triage personnel). Long 
wait times in the ED before diagnosis increases the likelihood that 
someone will leave the ED without treatment for a serious condition, 
and can worsen the severity of the condition with which they presented. 
Section 1833(t)(17)(C)(i) of the Act requires the Secretary to develop 
measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because it gained NQF endorsement as part of the project 
entitled ``National Voluntary Consensus Standards for Emergency Care'' 
(NQF 0498). This measure was conditionally approved by the HQA 
in March of 2010.
(4) ED-Median Time to Pain Management for Long Bone Fracture
    This chart-abstracted measure addresses the topic of efficient pain 
management in the ED, and is currently being reviewed by NQF. Pain 
management in patients with long bone fractures is currently 
undertreated in emergency departments.\16\ Patients with bone fractures 
continue to lack administration of pain medication as part of treatment 
regimens.\17\ When standards are implemented for pain management of 
these patients, treatment for pain improve.\18\ Section 
1833(t)(17)(C)(i) of the Act requires the Secretary to develop measures 
appropriate for the measurement of the quality of care furnished by 
hospitals in outpatient settings, that these measures reflect consensus 
among affected parties and, to the extent feasible and practicable, 
that these measures include measures set forth by one or more national 
consensus building entities. As discussed above, this measure is 
appropriate for measuring quality of care in the hospital outpatient 
department setting. This measure also meets the consensus requirement 
because it underwent development through a consensus-based measure 
development process involving stakeholder input. We anticipate that 
this measure will be endorsed by the NQF.
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    \16\ Ritsema, T.S., Kelen, G.D., Pronovost, R.J., and Pham, 
J.C.: The national trend in quality of emergency department pain 
management of long bone fractures. Acad Emerg Med. 2007 Feb 14; 
14(2):163-9.
    \17\ Brown, J.C., Klein, E.J., Lewis, C.W., Johnston, B.D., and 
Cummings, P.: Emergency department analgesia for fracture pain. Ann 
Emerg Med. 2003 Aug; 42(2):197-205.
    \18\ Titler, M.G., Herr, K., Brooks, J.M., Xie, X.J., Ardery, 
G., Schilling, M.L., Marsh, J.L., Everett, L.Q., Clark, W.R.: 
Translating research into practice intervention improves management 
of acute pain in older hip fracture patients. Health Serv Res. 2009; 
44(1), 264-87.
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(5) ED-Patient Left Without Being Seen
    This measure is the sum of all patients leaving an ED who were not 
seen by a provider (for example, medical student, resident, nurse 
practitioner). A patient leaving before being seen is an indicator of 
emergency department overcrowding.\19\ Patients who leave before being 
seen may not receive appropriate medical care and this lack of care may 
result in adverse outcomes.\20\ National estimates for patients who 
leave before being seen by a provider average 1.9 percent.\21\ Section 
1833(t)(17)(C)(i) of the Act requires the Secretary to develop measures 
appropriate for the measurement of the quality of care furnished by 
hospitals in outpatient settings, that these measures reflect consensus 
among affected parties and, to the extent feasible and practicable, 
that these measures include measures set forth by one or more national 
consensus building entities. As discussed above, this measure is 
appropriate for measuring quality of care in the hospital outpatient 
department setting. This measure also meets the consensus requirement 
because it was endorsed by the NQF (NQF 0499) as part of the 
National Voluntary Consensus Standards for Emergency Care.
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    \19\ United States General Accounting Office. Hospital emergency 
departments: Crowded conditions vary among hospitals and 
communities. Publication GAO-03-460, 2003.
    \20\ Rowe, B.H., Channan, P., Bullard, M., Blitz, S., Saunders, 
L.D., Rosychuk, R.J., Lari, H., Craig, W.R., Holroyd, B.R.: 
Characteristics of patients who leave emergency departments without 
being seen. Acad Emerg Med. 2006 Aug; 13(8):848-52.
    \21\ McCaig, L.F., Nawar, E.W.: National hospital ambulatory 
medical care survey: 2004 Emergency department summary. Adv Data. 
2006 Jun 23; (372):1-29.
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(6) ED-Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic 
Stroke Who Received Head CT Scan Interpretation Within 45 Minutes of 
Arrival
    This measure assesses whether head CT scan results for acute 
ischemic stroke or hemorrhagic stroke patients who received head CT 
scans in the ED were interpreted within 45 minutes of arrival. This 
chart-abstracted measure is currently under NQF review. Improved access 
to diagnostics assists clinicians in decisionmaking. Delayed diagnostic 
imaging and laboratory reports are expected to slow down clinical 
decision making process and subsequently increase length of stay in the 
ED. Similarly, decreasing radiology report turnaround times can have 
impacts across the facility and can assist in reducing the length of 
stay in the ED. It also can enhance decisionmaking capabilities for 
patient treatment plans because timely diagnostic imaging is 
available.\22\ The Food and Drug Administration (FDA) approved the use 
of tissue plasminogen activator (t-PA) for treatment of acute ischemic 
stroke, which comprise 87 percent of stokes, when given within three 
hours of stroke symptom onset.23 24 Because of the 
therapeutic time window for treatment possibilities, timely completion 
and results of the CT scan are imperative for timely clinical 
decisionmaking and favorable outcomes. Section 1833(t)(17)(C)(i) of the 
Act requires the Secretary to develop measures appropriate for the 
measurement of the quality of care furnished by hospitals in outpatient 
settings, that these measures reflect consensus among affected parties 
and, to the extent feasible and practicable, that these measures 
include measures set forth by one or more national consensus building 
entities. As discussed above, this measure is appropriate for measuring 
quality of care in the hospital outpatient department setting. This 
measure also meets the consensus requirement because this measure 
underwent development through a consensus-based measure development 
process involving stakeholder input. We anticipate that this measure 
will be endorsed by the NQF.
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    \22\ Marquez L.O. Improving medical imaging report turnaround 
times. Radiol Mange. 2005 Jan-Feb; 27(1):34-7.
    \23\ National Stroke Association. STROKE the First Hours 
Guidelines for Acute Treatment, 2000.
    \24\ The ATLANTIS, ECASS, and NINDS rt-PA Study Group 
Investigators. Association of Outcome with early stroke treatment: 
pooled analysis of ATLANTIS, ECASS, and NINDS rt-PA stroke Trials. 
Lancet 2004; 363:768-774.
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    The submission of the new chart-abstracted measures for the CY 2013 
payment determination will begin with first quarter 2012 discharges, 
and data would be submitted quarterly, as with all other chart-
abstracted measures. We invite comments on this proposal to add these 
new measures to the HOP QDRP measurement set and on the submission

[[Page 46369]]

process for the CY 2013 payment determination.
    In summary, for the CY 2013 payment determination, we are proposing 
to retain all of the measures adopted for the CY 2012 payment 
determination, and to adopt one new structural measure, and six new 
chart-abstracted measures for the CY 2013 payment determination on the 
topics of HOPD care transitions and ED efficiency. Submission of the 
new structural measure would begin with first quarter CY 2012 
discharges to be submitted via a Web-based tool on the QualityNet Web 
site in 2012. The submission of the new chart-abstracted measures for 
the CY 2013 payment determination would begin with first quarter CY 
2012 discharges, to be submitted in 2012. We invite comments on this 
proposal for the CY 2013 payment determination.
    The complete list of 24 proposed measures for the CY 2013 payment 
determination is shown below.
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[[Page 46370]]

5. Proposed HOP QDRP Quality Measures for the CY 2014 Payment 
Determination
a. Proposed Retention of CY 2013 HOP QDRP Measures for the CY 2014 
Payment Determination
    In general, unless otherwise specified in the retirement section of 
a rule, we retain measures from one payment determination to another. 
For the CY 2014 payment determination, we are proposing to retain all 
of the measures adopted for the CY 2013 payment determination. We 
invite comment on this proposal.
b. Proposed New Chart-Abstracted Measures for the CY 2014 Payment 
Determination
    We are proposing to adopt six new chart-abstracted measures for the 
CY 2014 payment determination. Five of the six measures are Diabetes 
Care measures for HOPDs, and one measure is an additional imaging 
efficiency measure. The six measures we are proposing for the CY 2014 
payment determination are: (1) Hemoglobin A1c Poor Control in Diabetic 
Patients; (2) Low Density Lipoprotein (LDL-C) Control in Diabetic 
Patients; (3) High Blood Pressure Control in Diabetic Patients; (4) 
Dilated Eye Exam in Diabetic Patients; (5) Urine Screening for 
Microalbumin or Medical Attention for Nephropathy in Diabetic Patients; 
and (6) Exposure Time Reported for Procedures Using Fluoroscopy. We are 
proposing that submission of these measures for the CY 2014 payment 
determination begin with the first quarter CY 2013 discharges to be 
submitted in 2013. These measures are discussed below.
(1) Diabetes Mellitus: Hemoglobin A1c Poor Control in Diabetic Patients
    This NQF-endorsed measure (NQF 0059) measures the 
percentage of adult patients with diabetes aged 18-75 years with most 
recent HgA1c level greater than 9 percent (poor control). Glycosylated 
hemoglobin (HgA1c) assay measures average blood glucose over the 
preceding two to three months, rather than just one point in time. 
HgA1c values vary less than fasting glucose values and give clinicians 
a better integrated view of the patient's average blood sugar over 
time. High HgA1c is a more reliable indicator of chronic high blood 
sugar. Lowered HgA1c levels are associated with reduced microvascular 
and neuropathic complications of diabetes.
    In general, diabetes mellitus is a chronic disease that impacts the 
lives of a large portion of the population and consumes a significant 
amount of U.S. healthcare dollars. With the prevalence of diabetes in 
the Medicare-eligible population expected to double, costs are expected 
to increase almost fourfold to $171 million.\25\ Uncontrolled diabetes 
often leads to biochemical imbalances that can lead to acute life-
threatening events, such as diabetic ketoacidosis and hyperosmolar, or 
nonketotic coma. In patients with insulin-dependent diabetes, the risk 
of development or progression of retinopathy, nephropathy, and 
neuropathy can be reduced by 50 to 75 percent by intensive outpatient 
treatment of hyperglycemia compared to conventional treatment. Early 
treatment may help slow or halt the progression of diabetic 
complications, and following the guidelines for screening may assist 
those patients with no outward sign of diabetic complications to be 
identified earlier through regular screening tests. HgA1c should be 
performed during an initial assessment and during follow-up 
assessments, which should occur at no longer than three-month 
intervals.\26\ Section 1833(t)(17)(C)(i) of the Act requires the 
Secretary to develop measures appropriate for the measurement of the 
quality of care furnished by hospitals in outpatient settings, that 
these measures reflect consensus among affected parties and, to the 
extent feasible and practicable, that these measures include measures 
set forth by one or more national consensus building entities. As 
discussed above, this measure is appropriate for measuring quality of 
care in the hospital outpatient department setting. This measure also 
meets the consensus requirement because, as noted above, it has been 
endorsed by the NQF.
---------------------------------------------------------------------------

    \25\ Huang, E.S., Basu, A., O'Grady, M., Capretta, J.C.: 
Projecting the future diabetes population size and related costs for 
the U.S. Diabetes Care. 2009;32(12):2225-29.
    \26\ The American Association of Clinical Endocrinologists 
Medical Guidelines for the Management of Diabetes Mellitus: The AACE 
System of Intensive Diabetes Self-Management--2002 Update.
---------------------------------------------------------------------------

(2) Diabetes Mellitus: Low Density Lipoprotein (LDL-C) Control in 
Diabetic Patients
    This NQF-endorsed measure (NQF 0064) measures the 
percentage of adult patients with diabetes aged 18-75 years whose most 
recent LDL-C test result during the measurement year was <100 mg/dl. 
LDL-C measures the development of atherosclerotic plague which 
increases cardiac events risks for diabetic patients whose heart 
disease death rates are about two to four times higher than non-
diabetics.\27\ Improved dyslipidemia management helps to mitigate the 
risk for cardiovascular disease. Lipid-lowering therapy for diabetics 
has been a consistent recommendation in several guidelines, prompted by 
randomized trials supporting statin therapy to lower the risk of 
cardiovascular involvement for this population. Despite the evidence 
basis and guideline support, only a minority of patients with diabetes 
are prescribed statin treatment or achieve target LDL-C goals.\28\ 
Early treatment may help slow or halt the progression of cardiovascular 
disease and impact the quality of the life of the diabetic patient, 
affecting the patient's life expectancy and decreasing costs involved 
in treating diabetic complications. Section 1833(t)(17)(C)(i) of the 
Act requires the Secretary to develop measures appropriate for the 
measurement of the quality of care furnished by hospitals in outpatient 
settings, that these measures reflect consensus among affected parties 
and, to the extent feasible and practicable, that these measures 
include measures set forth by one or more national consensus building 
entities. As discussed above, this measure is appropriate for measuring 
quality of care in the hospital outpatient department setting. This 
measure also meets the consensus requirement because, as noted above, 
it has been endorsed by the NQF. We also note that this measure was 
listed as under consideration for CY 2012 and subsequent years in the 
CY 2010 OPPS/ASC final rule with comment period (74 FR 60637 through 
60641).
---------------------------------------------------------------------------

    \27\ American Diabetes Association. Standards of medical care in 
diabetes. Diabetes Care. 2007 Jan;30 (Suppl 1):S8-15.
    \28\ Das, S.R., Vaeth, P.A., Stanek, H.G., de Lemos, J.A., 
Dobbins, R.L., McGuire, D.K.: Increased cardiovascular risk 
associated with diabetes in Dallas County. Am Heart J 2006;151:1087-
93.
---------------------------------------------------------------------------

(3) Diabetes Mellitus: High Blood Pressure Control in Diabetic Patients
    This NQF-endorsed measure (NQF 0061) measures the 
percentage of patients visits with blood pressure measurement recorded 
among all patients visits aged >18 years with diagnosed hypertension. 
Blood pressure control reduces the risk of cardiovascular disease and 
microvascular complications in patients with diabetes. Most 
importantly, early treatment of high blood pressure may help slow or 
halt the progression of kidney involvement and damage.\29\

[[Page 46371]]

Blood pressure is a factor that can be controlled Well-controlled blood 
pressure impacts the quality of the life of the diabetic patient, 
affects the patient's life expectancy, and decreases the costs involved 
in treating diabetic complications. Section 1833(t)(17)(C)(i) of the 
Act requires the Secretary to develop measures appropriate for the 
measurement of the quality of care furnished by hospitals in outpatient 
settings, that these measures reflect consensus among affected parties 
and, to the extent feasible and practicable, that these measures 
include measures set forth by one or more national consensus building 
entities. As discussed above, this measure is appropriate for measuring 
quality of care in the hospital outpatient department setting. This 
measure also meets the consensus requirement because, as noted above, 
it has been endorsed by the NQF.
---------------------------------------------------------------------------

    \29\ Centers for Disease Control and Prevention. National 
diabetes fact sheet: general information and national estimates on 
diabetes in the United States, 2007. Atlanta, GA: U.S. Department of 
Health and Human Services, Centers for Disease Control and 
Prevention, 2008.
---------------------------------------------------------------------------

(4) Diabetes Mellitus: Dilated Eye Exam in Diabetic Patients
    This NQF-endorsed measure (NQF 0055) measures the 
percentage of adult patients with diabetes age 18 to 75 years who 
received a dilated eye exam or seven standard field stereoscopic photos 
with interpretation by an ophthalmologist or optometrist, or imaging to 
verify diagnosis from stereoscopic photos during the reporting year, or 
during the prior year, if patient is at low risk for retinopathy. A 
patient is considered low risk if the patient has no evidence of 
retinopathy in the prior year. A dilated eye exam helps to detect the 
risk for vision-threatening diabetic retinopathy which is prevalent 
among people with diabetes. Data from the 2007 National Diabetes Fact 
Sheet (using the most recent year of available data) shows that 
diabetic retinopathy causes up to 24,000 new cases of blindness each 
year.\30\ However, dilated eye exams for diabetic patients can prevent 
retinopathy through early detection.\31\
---------------------------------------------------------------------------

    \30\ Centers for Disease Control and Prevention. National 
diabetes fact sheet: General information and national estimates on 
diabetes in the United States, 2007. Atlanta, GA: U.S. Department of 
Health and Human Services, Centers for Disease Control and 
Prevention, 2008.
    \31\ American Diabetes Association. Standards of medical care in 
diabetes. Diabetes Care. 2007 Jan;30 (Suppl 1):S8-15.
---------------------------------------------------------------------------

    Section 1833(t)(17)(C)(i) of the Act requires the Secretary to 
develop measures appropriate for the measurement of the quality of care 
furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because, as noted above, this measure has been endorsed by 
the NQF. We note that this measure was listed as under consideration 
for CY 2012 and subsequent years in the CY 2010 OPPS/ASC final rule 
with comment period (74 FR 60637 through 60641).
(5) Diabetes Mellitus: Urine Screening for Microalbumin or Medical 
Attention for Nephropathy in Diabetic Patients
    This NQF-endorsed measure (NQF 0062) measures the 
percentage of adult diabetic patients aged 18-75 years with at least 
one test for microalbumin during the measurement year or who had 
evidence of medical attention for existing nephropathy (diagnosis of 
nephropathy or documentation of microalbuminuria or albuminuria). Urine 
screening for microalbumin detects abnormal amount of protein albumin 
leaks in the urine by the capillaries of the kidney. High levels of 
blood sugar in uncontrolled diabetes can cause damage to the 
capillaries in the kidneys. Early urine screenings for microalbumin may 
prevent kidney disease from worsening to end-stage renal disease 
(ESRD). Diabetics accounted for 44 percent of new cases of kidney 
disease. In 2005, a total of 178,689 diabetics with ESRD were on 
dialysis or received a kidney transplant in the United States and 
Puerto Rico.\32\ In 2009, MedPAC reported costs for the 330,000 
Medicare recipients receiving dialysis treatment for ESRD at over 8 
billion dollars.\32\ Section 1833(t)(17)(C)(i) of the Act requires the 
Secretary to develop measures appropriate for the measurement of the 
quality of care furnished by hospitals in outpatient settings, that 
these measures reflect consensus among affected parties and, to the 
extent feasible and practicable, that these measures include measures 
set forth by one or more national consensus building entities. As 
discussed above, this measure is appropriate for measuring quality of 
care in the hospital outpatient department setting. This measure also 
meets the consensus requirement because, as noted above, it has been 
endorsed by the NQF. We also note that this measure was listed as under 
consideration for CY 2012 and subsequent years in the CY 2010 OPPS/ASC 
final rule with comment period (74 FR 60637 through 60641).
---------------------------------------------------------------------------

    \32\ Centers for Disease Control and Prevention. National 
diabetes fact sheet: general information and national estimates on 
diabetes in the United States, 2007. Atlanta, GA: U.S. Department of 
Health and Human Services, Centers for Disease Control and 
Prevention, 2008.
    \32\ MedPAC. Outpatient dialysis service: Assessing payment 
adequacy and updating payments. Report to the Congress; Medicare 
payment policy. 2009 Mar; 131-56.
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(6) Exposure Time Reported for Procedures Using Fluoroscopy
    This measure documents the percentage of final reports for 
procedures using fluoroscopy that include documentation of radiation 
exposure or exposure time, an important measure for the HOPD setting. 
This measure is currently specified for physician level data collection 
through the PQRI program (74 FR 61825), and can be used for the 
hospital outpatient facility level. This measure evaluates the 
documentation of radiation exposure or radiation time during 
fluoroscopy. Data suggests that the lifetime risk for cancer can be 
increased, albeit by a small amount, with frequent or repeated exposure 
to ionizing radiation, including procedures using fluoroscopy.\33\ To 
monitor these long term effects, the exposure time or radiation dose 
that a patient receives as a result of the procedure should be measured 
and recorded in the patient's record. The American College of Radiology 
(ACR) encourages practices to record actual fluoroscopy time for all 
fluoroscopic procedures. The fluoroscopy time for various procedures 
(for example, upper gastrointestinal, pediatric voiding 
cystourethrography) should then be compared with benchmark 
figures.34 35 The National Cancer Institute also recommends 
measuring and recording patient radiation dose, fluoroscopy time and 
additional available measures: Dose area product, cumulative dose, and 
skin dose. Section 1833(t)(17)(C)(i) of the Act requires the Secretary 
to develop measures appropriate for the measurement of the quality of 
care

[[Page 46372]]

furnished by hospitals in outpatient settings, that these measures 
reflect consensus among affected parties and, to the extent feasible 
and practicable, that these measures include measures set forth by one 
or more national consensus building entities. As discussed above, this 
measure is appropriate for measuring quality of care in the hospital 
outpatient department setting. This measure also meets the consensus 
requirement because it is NQF-endorsed (NQF  0510). 
Additionally, this measure was conditionally approved by the HQA for 
the hospital outpatient setting in March of 2010.
---------------------------------------------------------------------------

    \33\ National Cancer Institute (NCI), The Society for Pediatric 
Radiology (SPR). Brochure: Radiation & pediatric computed 
tomography. A guide for health care providers. 2002. Available at; 
http://www/cancer.gov/cancertopics/cause/radiation-risks-pediatric-CT.pdf
    \34\ Amis E Jr, Butler P, Applegate K, Birnbaum S, Brateman L, 
Hevezi J, Mettler F, Morin R, Pentecost M, Smith G. American College 
of radiology white paper on radiation dose in medicine. Journal of 
American College of Radiology, 2007:4:272-284
    \35\ National Cancer Institute. Interventional fluoroscopy: 
Reducing radiation risks for patients and staff. 2005. Available at: 
 http://www.cancer.gov/cancertopics/interventionalfluoroscopy.
---------------------------------------------------------------------------

    In summary, for the CY 2014 payment determination, we are proposing 
to retain all of the measures adopted for the CY 2013 payment 
determination, and to adopt six new chart-abstracted measures for the 
CY 2014 payment determination on the topics of diabetes care and 
exposure time for procedures using fluoroscopy. We are proposing that 
submission of the new chart-abstracted measures for the CY 2014 payment 
determination begin with first quarter CY 2013 discharges to be 
submitted in 2013. We invite public comment on this proposal for the CY 
2014 payment determination.
    The complete list of 30 proposed measures for the CY 2014 payment 
determination is shown below.
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[[Page 46373]]


6. Possible Quality Measures Under Consideration for Future Inclusion 
in HOP QDRP
    In previous years' rulemakings, we have provided lists of quality 
measures that are under consideration for future adoption into the HOP 
QRDP measurement set. Below is a list of measures under consideration 
for future rulemaking cycles.

[[Page 46374]]

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[[Page 46375]]


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    We invite public comment on these quality measures and topics so 
that we may consider proposing to adopt them beginning with the CY 2013 
payment determination. We also are seeking suggestions and rationales 
to support the adoption of measures and topics for the HOP QDRP which 
do not appear in the table above.
    In addition, we are concerned about the lack of progress in 
reducing the rates of healthcare associated infections that was 
recently reported in the 2009 National Healthcare Quality Report 
(http://www.ahrq.gov/qual/nhqr09/nhqr09.pdf). For example, the report 
found that rates of postoperative sepsis increased by 8 percent. We 
view healthcare associated infections as a significant priority for 
quality measurement in order to ensure that health care does not result 
in avoidable harm and to inform the public about hospitals' performance 
with respect to these infections. We are inviting public comment on the 
option to include among our prioritization criteria quality measures 
that assess performance on healthcare associated infections. Also, 
while some HOP QDRP measures cover aspects of healthcare associated 
infections, we are inviting suggestions on additional measures that 
could be added to those that hospitals would report and that we would 
make available to the public in order promote improvement in healthcare 
associated infection rates.

C. Proposed Payment Reduction for Hospitals That Fail To Meet the HOP 
QDRP Requirements for the CY 2011 Payment Update

1. Background
    Section 1833(t)(17)(A) of the Act, which applies to subsection (d) 
hospitals (as defined under section 1886(d)(1)(B) of the Act), requires 
that hospitals that fail to report data required for the quality 
measures selected by the Secretary, in the form and manner required by 
the Secretary under section 1833(t)(17)(B) of the Act, incur a 2.0 
percentage point reduction to their OPD fee schedule increase factor, 
that is, the annual payment update factor. Section 1833(t)(17)(A)(ii) 
of the Act specifies that any reduction would apply only to the payment 
year involved and would not be taken into account in computing the 
applicable OPD fee schedule increase factor for a subsequent payment 
year.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68769 
through 68772), we discussed how the payment reduction for failure to 
meet the administrative, data collection, and data submission 
requirements of the HOP QDRP affected the CY 2009 payment update 
applicable to OPPS payments for HOPD services furnished by the 
hospitals defined under section 1886(d)(1)(B) of the Act to which the 
program applies. The application of a reduced OPD fee schedule increase 
factor results in reduced national unadjusted payment rates that apply 
to certain outpatient items and services provided by hospitals that are 
required to report outpatient quality data and that fail to meet the 
HOP QDRP requirements. All other hospitals paid under the OPPS receive 
the full OPPS payment update without the reduction.
    The national unadjusted payment rates for many services paid under 
the OPPS equal the product of the OPPS conversion factor and the scaled 
relative weight for the APC to which the service is assigned. The OPPS 
conversion factor, which is updated annually by the OPD fee schedule 
increase factor, is used to calculate the OPPS payment rate for 
services with the following status indicators (listed in Addendum B to 
this proposed rule with comment period): ``P,'' ``Q1,'' ``Q2,'' ``Q3,'' 
``R,'' ``S,'' ``T,'' ``V,'' ``U,'' or ``X.'' In the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68770), we adopted a policy that 
payment for all services assigned these status indicators would be 
subject to the reduction of the national unadjusted payment rates for 
applicable hospitals, with the exception of services assigned to New 
Technology APCs with assigned status indicator ``S'' or ``T,'' and 
brachytherapy sources with assigned status indicator ``U,'' which were 
paid at charges adjusted to cost in CY 2009. We excluded services 
assigned to New Technology APCs from the list of services subject to 
the reduced national unadjusted payment rates because the OPD fee 
schedule increase factor is not used to update the payment rates for 
these APCs.
    In addition, section 1833(t)(16)(C) of the Act, as amended by 
section 142 of the Medicare Improvements for Patients and Providers Act 
of 2008 (MIPPA) (Pub. L. 110-275), specifically required that 
brachytherapy sources be paid during CY 2009 on the basis of charges 
adjusted to cost, rather than under the standard OPPS methodology. 
Therefore, the reduced conversion factor also was not applicable to CY 
2009 payment for brachytherapy sources because payment would not be 
based on the OPPS conversion factor and, consequently, the payment 
rates for these services were not updated by the OPD fee schedule 
increase factor. However, in accordance with section 1833(t)(16)(C) of 
the Act, as amended by section 142 of the MIPPA, payment for 
brachytherapy sources at charges adjusted to cost expired on January 1, 
2010. Therefore, in the CY 2010 OPPS/ASC final rule with comment period 
(74 FR 60641), we finalized our CY 2010 proposal, without

[[Page 46376]]

modification, to apply the reduction to payment for brachytherapy 
sources to hospitals that fail to meet the quality data reporting 
requirements of the HOP QDRP for the CY 2010 OPD fee schedule increase 
factor.
    The OPD fee schedule increase factor, or market basket update, is 
an input into the OPPS conversion factor, which is used to calculate 
OPPS payment rates. To implement the requirement to reduce the market 
basket update for hospitals that fail to meet reporting requirements, 
we calculate two conversion factors: a full market basket conversion 
factor (that is, the full conversion factor), and a reduced market 
basket conversion factor (that is, the reduced conversion factor). We 
then calculate a reduction ratio by dividing the reduced conversion 
factor by the full conversion factor. We refer to this reduction ratio 
as the ``reporting ratio'' to indicate that it applies to payment for 
hospitals that fail to meet their reporting requirements. Applying this 
reporting ratio to the OPPS payment amounts results in reduced national 
unadjusted payment rates that are mathematically equivalent to the 
reduced national unadjusted payment rates that would result if we 
multiplied the scaled OPPS relative weights by the reduced conversion 
factor. To determine the reduced national unadjusted payment rates that 
applied to hospitals that failed to meet their quality reporting 
requirements for the CY 2010 OPPS, we multiply the final full national 
unadjusted payment rate in Addendum B to the CY 2010 OPPS/ASC final 
rule with comment period by the CY 2010 OPPS final reporting ratio of 
0.980 (74 FR 60642).
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68771 
through 68772), we established a policy that the Medicare beneficiary's 
minimum unadjusted copayment and national unadjusted copayment for a 
service to which a reduced national unadjusted payment rate applies 
would each equal the product of the reporting ratio and the national 
unadjusted copayment or the minimum unadjusted copayment, as 
applicable, for the service. Under this policy, we apply the reporting 
ratio to both the minimum unadjusted copayment and national unadjusted 
copayment for those hospitals that receive the payment reduction for 
failure to meet the HOP QDRP reporting requirements. This application 
of the reporting ratio to the national unadjusted and minimum 
unadjusted copayments is calculated according to Sec.  419.41 of our 
regulations, prior to any adjustment for hospitals' failure to meet the 
quality reporting standards according to Sec.  419.43(h). Beneficiaries 
and secondary payers thereby share in the reduction of payments to 
these hospitals.
    In the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68772), we established the policy that all other applicable adjustments 
to the OPPS national unadjusted payment rates apply in those cases when 
the OPD fee schedule increase factor is reduced for hospitals that fail 
to meet the requirements of the HOP QDRP. For example, the following 
standard adjustments apply to the reduced national unadjusted payment 
rates: the wage index adjustment; the multiple procedure adjustment; 
the interrupted procedure adjustment; the rural sole community hospital 
adjustment; and the adjustment for devices furnished with full or 
partial credit or without cost. We believe that these adjustments 
continue to be equally applicable to payments for hospitals that do not 
meet the HOP QDRP requirements. Similarly, outlier payments will 
continue to be made when the criteria are met. For hospitals that fail 
to meet the quality data reporting requirements, the hospitals' costs 
are compared to the reduced payments for purposes of outlier 
eligibility and payment calculation. This policy conforms to current 
practice under the IPPS. In the CY 2010 OPPS/ASC final rule with 
comment period (74 FR 60642), we continued this policy. For a complete 
discussion of the OPPS outlier calculation and eligibility criteria, we 
refer readers to section II.G. of this CY 2011 OPPS/ASC proposed rule.
2. Proposed Reporting Ratio Application and Associated Adjustment 
Policy for CY 2011
    We are proposing to continue our established policy of applying the 
reduction of the OPD fee schedule increase factor through the use of a 
reporting ratio for those hospitals that fail to meet the HOP QDRP 
requirements for the full CY 2011 annual payment update factor. For the 
CY 2011 OPPS, the proposed reporting ratio is 0.980, calculated by 
dividing the reduced conversion factor of $66.930 by the full 
conversion factor of $68.267. We are proposing to continue to apply the 
reporting ratio to all services calculated using the OPPS conversion 
factor. For the CY 2011 OPPS, we are proposing to apply the reporting 
ratio, when applicable, to all HCPCS codes to which we have assigned 
status indicators ``P,'' ``Q1,'' ``Q2,'' ``Q3,'' ``R,'' ``S,'' ``T,'' 
``V,'' ``U,'' and ``X.'' We are proposing to continue to exclude 
services paid under New Technology APCs. We are proposing to continue 
to apply the reporting ratio to the national unadjusted payment rates 
and the minimum unadjusted and national unadjusted copayment rates of 
all applicable services for those hospitals that fail to meet the HOP 
QDRP reporting requirements. We also are proposing to continue to apply 
all other applicable standard adjustments to the OPPS national 
unadjusted payment rates for hospitals that fail to meet the 
requirements of the HOP QDRP. Similarly, we are proposing to continue 
to calculate OPPS outlier eligibility and outlier payment based on the 
reduced payment rates for those hospitals that fail to meet the 
reporting requirements.

D. Proposed Requirements for HOPD Quality Data Reporting for CY 2012 
and Subsequent Years

    In order to participate in the HOP QDRP, hospitals must meet 
administrative, data collection and submission, and data validation 
requirements (if applicable). Hospitals that do not meet the 
requirements of the HOP QDRP, as well as hospitals not participating in 
the program and hospitals that withdraw from the program, will not 
receive the full OPPS payment rate update. Instead, in accordance with 
section 1833(t)(17)(A) of the Act, those hospitals will receive a 
reduction of 2.0 percentage points in their annual payment update 
factor for the applicable payment year. We established the payment 
determination requirements for the CY 2011 payment update in the CY 
2010 OPPS/ASC final rule with comment period (74 FR 60642 through 
60652).
    For payment determinations affecting the CY 2012 payment update, we 
are proposing to implement the requirements listed below. Most of these 
requirements are the same as the requirements we implemented for the CY 
2011 payment determination, with some proposed modifications.
1. Administrative Requirements
    To participate in the HOP QDRP, we are proposing that several 
administrative steps be completed. These steps would require the 
hospital to:
     Identify a QualityNet security administrator who follows 
the registration process located on the QualityNet Web site (http://www.QualityNet.org) and submits the information to the appropriate CMS-
designated contractor. All CMS-designated contractors would be 
identified on the QualityNet Web site. The same person may be the 
QualityNet security administrator for both the RHQDAPU program and the 
HOP

[[Page 46377]]

QDRP. From our experience, we believe that the QualityNet security 
administrator typically fulfills a variety of tasks related to the 
hospital's ability to participate in the HOP QDRP, such as: creating, 
approving, editing and/or terminating QualityNet user accounts within 
the organization; monitoring QualityNet usage to maintain proper 
security and confidentiality measures; and serving as a point of 
contact for information regarding QualityNet and the HOP QDRP. The 
hospital would be required to maintain a current QualityNet security 
administrator for as long as the hospital participates in the program 
due to CMS information systems security requirements. While only a 
single QualityNet security administrator would be required for program 
purposes, we suggest to hospitals that it may be beneficial to have 
more than one QualityNet security administrator for back-up purposes.
     Register with QualityNet, regardless of the method used 
for data submission.
     Complete and submit an online participation form if this 
form (or a paper Notice of Participation form) has not been previously 
completed, if a hospital has previously withdrawn, or if the hospital 
acquires a new CCN. For HOP QDRP decisions affecting the CY 2012 
payment determination, hospitals that share the same CCN would be 
required to complete a single online participation form. In the CY 2009 
OPPS/ASC final rule with comment period (73 FR 68772), we implemented 
an online registration form and eliminated the paper form. At this 
time, the participation form for the HOP QDRP is separate from the 
RHQDAPU program and completing a form for each program is required. 
Agreeing to participate includes acknowledging that the data submitted 
to the CMS-designated contractor would be submitted to CMS and also may 
be shared with one or more other CMS contractors that support the 
implementation of the HOP QDRP and be publicly reported.
    We are proposing to update and retain the following deadlines, 
which we established in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60643), for submitting the participation form:
    Hospitals with Medicare acceptance dates on or after January 1, 
2011: For the CY 2012 payment update, we are proposing that any 
hospital that has a Medicare acceptance date on or after January 1, 
2011 (including a new hospital and hospitals that have merged) must 
submit a completed participation form no later than 180 days from the 
date identified as its Medicare acceptance date on the CMS Online 
System Certification and Reporting (OSCAR) system. Hospitals typically 
receive a package notifying them of their new CCN after they receive 
their Medicare acceptance date. The Medicare acceptance date is the 
earliest date that a hospital can receive Medicare payment for the 
services that it furnishes. Completing the participation form would 
include supplying the name and address of each hospital campus that 
shares the same CCN.
    The use of the Medicare acceptance date as beginning the timeline 
for HOP QDRP participation allows CMS to monitor more effectively 
hospital compliance with the requirement to complete a participation 
form because a hospital's Medicare acceptance date is readily available 
to CMS through its data systems. In addition, providing an extended 
time period to register for the program would allow newly functioning 
hospitals sufficient time to get their operations fully functional 
before having to collect and submit quality data. We invite public 
comment on this proposed policy.
    Hospitals with Medicare acceptance dates before January 1, 2011: 
For the CY 2012 payment update, we are proposing that any hospital that 
has a Medicare acceptance date on or before December 31, 2010 that is 
not currently participating in the HOP QDRP and wishes to participate 
in the CY 2012 HOP QDRP must submit a participation form by March 31, 
2011. We are proposing a deadline of March 31, 2011, because we believe 
it would give hospitals sufficient time to decide whether they wish to 
participate in the HOP QDRP, as well as put into place the necessary 
staff and resources to timely report data for first quarter CY 2011 
services. This requirement would apply to all hospitals whether or not 
the hospital billed for payment under the OPPS. We invite public 
comment on this proposed policy.
    Under our current requirements, hospitals that want to withdraw 
from participation must follow the same deadlines as hospitals that 
want to participate. We are proposing to change this requirement. We 
are proposing to lengthen the time during which hospitals may withdraw 
from participation because we believe that hospitals should be allowed 
more time to consider this decision. In addition, this increased time 
to withdraw is comparable programmatically to our proposal under the 
RHQDAPU program (75 FR 23996). Specifically, for the CY 2012 payment 
update, we are proposing that any HOP QDRP participating hospital that 
wants to withdraw may do so at any time from January 1, 2011 to 
November 1, 2011. Hospitals that withdraw during this time period for 
the CY 2012 payment update would not be able to sign up to participate 
for the CY 2012 payment update, would have a 2.0 percentage point 
reduction in their CY 2012 payment update, and would be required to 
resubmit a participation form in order to participate for purposes of 
any future payment updates. We note that once a hospital has submitted 
a participation form, it is considered to be an active HOP QDRP 
participant until such time as the hospital submits a withdrawal form 
to CMS or the facility is designated as closed in the CMS OSCAR system. 
We invite public comment on this proposed policy.
2. Data Collection and Submission Requirements
a. General Data Collection and Submission Requirements
    We are proposing that, to be eligible for the full CY 2012 OPPS 
payment update, hospitals would be required to:
     Submit data: Hospitals that would be participating in the 
HOP QDRP would be required to submit data for each applicable quarter 
by the deadline posted on the QualityNet Web site; there must be no 
lapse in data submission. For the CY 2012 annual payment update, the 
applicable quarters would be as follows: 3rd quarter CY 2010, 4th 
quarter CY 2010, 1st quarter CY 2011, and 2nd quarter CY 2011. 
Hospitals that did not participate in the CY 2011 HOP QDRP, but would 
like to participate in the CY 2012 HOP QDRP, and that have a Medicare 
acceptance date on the OSCAR system before January 1, 2011, would begin 
data submission for 1st quarter CY 2011 services using the CY 2012 
measure set that would be finalized in the CY 2011 OPPS/ASC final rule 
with comment period. For those hospitals with Medicare acceptance dates 
on or after January 1, 2011, data submission must begin with the first 
full quarter following the submission of a completed online 
participation form. For the claims-based measures, we would calculate 
the measures using the hospital's Medicare claims data. For the CY 2012 
payment update, we would utilize paid Medicare fee-for-service (FFS) 
claims submitted prior to January 1, 2011, to calculate these measures. 
For the structural measure to be used for the CY 2012 payment 
determination, hospitals would be required to submit data beginning 
with January 1, 2011 discharges using a Web-based tool

[[Page 46378]]

available on QualityNet beginning in 2011.
    Sampling and Case Thresholds: It would not be necessary for a 
hospital to submit data for all eligible cases for some measures if 
sufficient eligible case thresholds are met. Instead, for those 
measures where a hospital has a sufficiently large number of cases, it 
would sample cases and submit data for these sampled cases rather than 
submitting data from all eligible cases. This sampling scheme, which 
includes the minimum number of cases based upon case volume, would be 
set out in the HOPD Specifications Manual at least three months in 
advance of the required data collection. We have proposed to change 
this notification timeframe for this sampling scheme to at least 3 
months from at least 4 months to be consistent with the HOPD 
Specifications Manual release schedule. Hospitals would be required to 
meet the sampling requirements for required quality measures each 
reporting quarter.
    In addition, in order to reduce the burden on hospitals that treat 
a low number of patients but otherwise meet the submission requirements 
for a particular quality measure, hospitals that have five or fewer 
claims (both Medicare and non-Medicare) for any measure included in a 
measure topic in a quarter would not be required to submit patient 
level data for the entire measure topic for that quarter. Even if 
hospitals would not be required to submit patient level data because 
they have five or fewer claims (both Medicare and non-Medicare) for any 
measure included in a measure topic in a quarter, we are proposing that 
they may voluntarily do so.
    Hospitals would be required submit all required data according to 
the data submission schedule that will be available on the QualityNet 
Web site (https://www.QualityNet.org). This Web site meets or exceeds 
all current HIPAA requirements. Submission deadlines would, in general, 
be four months after the last day of each calendar quarter. Thus, for 
example, the submission deadline for data for services furnished during 
the first quarter of CY 2011 (January-March 2011) would be on or around 
August 1, 2011. The actual submission deadlines would be posted on the 
http://www.QualityNet.org Web site.
    Hospitals would be required to submit data to the OPPS Clinical 
Warehouse using either the CMS Abstraction and Reporting Tool for 
Outpatient Department (CART-OPD) measures or the tool of a third-party 
vendor that meets the measure specification requirements for data 
transmission to QualityNet.
    Hospitals would be required to submit quality data through My 
QualityNet, the secure portion of the QualityNet Web site, to the OPPS 
Clinical Warehouse. The OPPS Clinical Warehouse, which is maintained by 
a CMS-designated contractor, would submit the OPPS Clinical Warehouse 
data to CMS. OPPS Clinical Warehouse data are not currently considered 
to be Quality Improvement Organization (QIO) data; rather, we consider 
such data to be CMS data. However, it is possible that the information 
in the OPPS Clinical Warehouse may at some point become QIO 
information. If this occurs, these data would also become protected 
under the stringent QIO confidentiality regulations in 42 CFR Part 480.
    Hospitals would be required to collect HOP QDRP data from 
outpatient episodes of care to which the required measures apply. For 
the purposes of the HOP QDRP, an outpatient ``episode of care'' is 
defined as care provided to a patient who has not been admitted as an 
inpatient, but who is registered on the hospital's medical records as 
an outpatient and receives services (rather than supplies alone) 
directly from the hospital. Every effort would be made to ensure that 
data elements common to both inpatient and outpatient settings are 
defined consistently for purposes of quality reporting (such as ``time 
of arrival'').
    Hospitals would be required to submit quality data using the CCN 
under which the care was furnished.
    To be accepted into the OPPS Clinical Warehouse, data submissions, 
at a minimum, would be required to be timely, complete, and accurate. 
Data submissions are considered to be ``timely'' when data are 
successfully accepted into the OPPS Clinical Warehouse on or before the 
reporting deadline. A ``complete'' submission would be determined based 
on whether the data satisfy the sampling criteria that are published 
and maintained in the HOPD Specifications Manual, and must correspond 
to both the aggregate number of cases submitted by a hospital and the 
number of Medicare claims the hospital submits for payment. We are 
aware of ``data lags'' that occur when hospitals submit claims, then 
cancel and correct those claims; efforts would be made to take such 
events into account that can change the aggregate Medicare case counts. 
To be considered ``accurate,'' submissions would be required to pass 
validation, if applicable.
    We strongly recommend that hospitals review OPPS Clinical Warehouse 
feedback reports and the HOP QDRP Provider Participation Reports that 
are accessible through their QualityNet accounts. These reports enable 
hospitals to verify whether the data they or their vendors submitted 
were accepted into the OPPS Clinical Warehouse and the date/time that 
such acceptance occurred. We also note that irrespective of whether a 
hospital submits data to the OPPS Clinical Warehouse itself or uses a 
vendor to complete the submissions, the hospital would be responsible 
for ensuring that HOP QDRP requirements are met.
    Finally, during the past two years of the HOP QDRP, the submission 
of population and sampling data was not required, though, hospitals 
could submit, on a voluntary basis, the aggregate numbers of outpatient 
episodes of care which are eligible for submission under the HOP QDRP 
and sample size counts. These aggregated numbers of outpatient episodes 
represent the number of outpatient episodes of care in the universe of 
all possible cases eligible for data reporting under the HOP QDRP. For 
the CY 2012 payment update, we are proposing to require submission of 
this population and sample size data. Specifically, we are proposing 
that hospitals must submit on a quarterly basis, aggregate population 
and sample size counts for Medicare and non-Medicare encounters for the 
measure populations for which chart-abstracted data must be submitted. 
Under this proposal, hospitals would submit aggregate population and 
sample size counts for measure populations even if the hospital had not 
treated patients in a specific measure population; that is, if a 
hospital has not treated any patients in a specific HOP QDRP measure 
population, the hospital would still be required to submit a zero for 
its quarterly aggregate population and sample counts to meet the 
requirement.
    We believe that hospitals have had sufficient time to become 
familiar with HOP QDRP data and to develop data systems necessary to 
support this requirement. We view it as vital for quality data 
reporting for hospitals to be able to determine accurately their 
aggregate population and appropriate sampling size data to assess their 
completeness of data reporting. We rely on hospitals to properly sample 
cases where sampling occurs so that representative data are submitted; 
for hospitals to correctly sample, it is necessary for them to be able 
to determine their aggregate population sizes. In addition, we believe 
it is highly beneficial for hospitals to develop systems that can 
determine whether or

[[Page 46379]]

not they have furnished services or billed for five or fewer cases for 
a particular measure topic on a quarterly basis.
    We are proposing that the deadlines for the reporting of aggregate 
numbers of outpatient episodes of care and sample size counts would be 
the same as those for the reporting of data for the measures requiring 
chart abstraction, and these deadlines would be posted on the data 
submission schedule that would be available on the QualityNet Web site. 
Hospitals would be permitted to submit this information prior to the 
deadline; this would allow CMS to advise hospitals regarding their 
incomplete submission status as appropriate and give hospitals 
sufficient time to make appropriate revisions before the data 
submission deadline.
    We plan to use the aggregate population and sample size data to 
assess data submission completeness and adherence to sampling 
requirements for Medicare and non-Medicare patients.
    We invite public comment on these proposed requirements.
b. Extraordinary Circumstance Extension or Waiver for Reporting Quality 
Data
    In our experience, there have been times when hospitals have been 
unable to submit required quality data due to extraordinary 
circumstances that are not within their control. It is our goal to not 
penalize hospitals for such circumstances and we do not want to unduly 
increase their burden during these times. Therefore, in the CY 2010 
OPPS/ASC final rule with comment period (74 FR 60046 through 600647), 
we adopted a process for hospitals to request and for CMS to grant 
extensions or waivers with respect to the reporting of required quality 
data when there are extraordinary circumstances beyond the control of 
the hospital. We are proposing to retain these procedures with some 
proposed modifications.
    Under the process, in the event of extraordinary circumstances, 
such as natural disaster, not within the control of the hospital, for 
the hospital to receive consideration for an extension or waiver of the 
requirement to submit quality data for one or more quarters, a hospital 
would submit to CMS a request form that would be made available on the 
QualityNet Web site. The following information should be noted on the 
form:
     Hospital CCN;
     Hospital Name;
     CEO and any other designated personnel contact 
information, including name, e-mail address, telephone number, and 
mailing address (must include a physical address, a post office box 
address is not acceptable);
     Hospital's reason for requesting an extension or waiver;
     Evidence of the impact of the extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
     A date when the hospital would again be able to submit HOP 
QDRP data, and a justification for the proposed date.
    The request form would be signed by the hospital's CEO. A request 
form would be required to be submitted within 45 days of the date that 
the extraordinary circumstance occurred. We are proposing to remove the 
requirement found in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60646) that the hospital to include an identified reason 
for requesting an extension or waiver in addition to the hospital's 
reason for requesting an extension or waiver as a requirement. We 
believe that this requirement is redundant and removing it will reduce 
unnecessary hospital burden.
    Following receipt of such a request, CMS would--
    (1) Provide a written acknowledgement using the contact information 
provided in the request, to the CEO and any additional designated 
hospital personnel, notifying them that the hospital's request has been 
received;
    (2) Provide a formal response to the CEO and any additional 
designated hospital personnel using the contact information provided in 
the request notifying them of our decision; and
    (3) Complete any CY 2011 request for Extraordinary Circumstance 
Extension or Waiver for Reporting Quality Data requests reviews and 
communicate the results of these determinations within 90 days 
following our receipt of such a request. We are proposing to add a 
deadline for CMS response so that hospitals can have a designated 
timeline for when they should receive such a response.
    This proposal would not preclude us from granting waivers or 
extensions to hospitals that have not requested them when we determine 
that an extraordinary circumstance, such as an act of nature (for 
example, hurricane) affects an entire region or locale. If we make the 
determination to grant a waiver or extension to hospitals in a region 
or locale, we would communicate this decision to hospitals and vendors 
through routine communication channels, including but not limited to e-
mails and notices on the QualityNet Web site. We invite public comment 
on these proposals.
3. HOP QDRP Validation Requirements for Chart-Abstracted Data: Data 
Validation Approach for CY 2012 and Subsequent Years
a. Background
    In the CY 2010 OPPS/ASC proposed rule, we solicited public comments 
on our proposed validation methodology (74 FR 35403 through 35404). We 
stated that we are considering building upon what we proposed as a 
validation approach for CY 2012 and subsequent years by, in addition to 
selecting a random sample of hospitals for validation purposes, 
selecting targeted hospitals based on criteria designed to measure 
whether the data they have reported raises a concern regarding data 
accuracy. These possible targeting criteria included identified 
abnormal data patterns, whether a hospital had previously failed 
validation, whether a hospital had not been previously selected for 
validation for 2 or more consecutive years, and some combination of 
some or all of the criteria.
    We solicited public comments on whether such criteria, or another 
approach, should be applied in future years. We especially solicited 
suggestions for additional criteria that could be used to target 
hospitals for validation. We greatly appreciate all the public comments 
we received regarding the validation process proposed for CY 2012 and 
subsequent years. We responded to public comments on our proposed 
methodology for CY 2012 and subsequent years but did not finalize a 
validation process in the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60650 through 60652). We noted that we would take all of 
the comments we received into account when we develop our validation 
proposals for CY 2012.
b. Proposed Data Validation Requirements for CY 2012
    Similar to our proposal for the FY 2012 RHQDAPU program (75 FR 
23991 through 23993), we are proposing to validate data from 800 
randomly selected hospitals (approximately 20 percent of all 
participating HOP QDRP hospitals) each year, beginning with CY 2012 
payment determination. We are proposing to sample 800 hospitals because 
we believe, based upon sampling simulation studies using HOP QDRP data, 
that sampling this number would provide a sufficient number for a 
representative sample of hospitals on various strata (for example, 
urban, rural, bed-size) while significantly reducing overall hospital 
burden. For CY 2012 payment determinations, we would

[[Page 46380]]

select only from hospitals participating for the CY 2012 payment 
update, so if a hospital submitted data for the CY 2011, but withdrew, 
this hospital would not be deemed as eligible for selection. We note 
that because 800 hospitals would be selected randomly, every HOP QDRP-
participating hospital would be eligible each year for validation 
selection.
    For each selected hospital, we are proposing to randomly select up 
to a total of 48 self-reported cases from the total number of cases (12 
per quarter) that the hospital successfully submitted to the OPPS 
Clinical Warehouse. However, if a selected hospital has submitted less 
than 12 cases in any quarter, only those cases available would be 
validated. We believe that validating a larger number of cases per 
hospital, but only for 800 randomly selected hospitals, and validating 
these cases at the measure level (rather than the data element level) 
has several benefits. We are proposing up to a total of 48 cases per 
hospital because a sample size of about 50 is considered sufficient for 
detecting relationships and correlations, so a larger sample size is 
not deemed necessary (for reference, see Van Voohis, Wilson, Morgan, 
Carmen R. and Betsey L., (2007), Understanding Power and Rules of Thumb 
for Determining Sample Sizes, Tutorials in Quantitative Methods for 
Psychology, Volume 3(2), Pages 43-50). We believe that this approach is 
suitable for HOP QDRP data because it will: produce a more reliable 
estimate of whether a hospital's submitted data have been abstracted 
accurately; provide more statistically reliable estimates of the 
quality of care delivered in each selected hospital as well as at a 
national level; and reduce overall hospital burden because most 
hospitals will not be selected to undergo validation each year.
    We would not be selecting cases stratified by measure or topic; our 
interest is whether the data submitted by hospitals accurately reflect 
the care delivered and documented in the medical record, not what the 
accuracy is by measure or whether there are differences by topic. 
Additionally, we note that, due to the distribution of HOP QDRP data 
submitted to date by hospital size, the data do not lend themselves to 
sampling by topic area. Specifically, small hospitals tend to have more 
AMI Cardiac Care cases and fewer Surgical Care cases, whereas, larger 
hospitals tend to have few if any AMI Cardiac Care cases and more 
Surgical Care cases.
    Analysis of submitted HOP QDRP data indicate that this sampling 
design would provide sufficient case number of denominator cases per 
measure for determination of national and individual hospital measure 
estimates with acceptable levels of statistical certainty.
    We are proposing to sample data for April 1, 2010 to March 31, 2011 
services because this would provide a full year of the most recent data 
possible to use for the purpose of completing the validation in 
sufficient time for us to make the CY 2012 payment determinations.
    A designated CMS contractor would, each quarter that applies to the 
validation, ask each of the 800 selected hospitals to submit medical 
documentation for up to 12 randomly selected cases submitted to and 
accepted by the HOP QDRP Clinical Warehouse. The CMS contractor would 
request paper copies of medical documentation corresponding to selected 
cases from each hospital via certified mail or other trackable method 
that requires a hospital representative to sign for the request letter; 
a trackable method would be utilized so that CMS would be assured that 
the hospital received the request. The hospital would have 45 calendar 
days from the date of the request as documented in the request letter 
to submit the requested documentation and have the documentation 
received by the CMS contractor. If the hospital does not comply within 
30 calendar days of receipt of the initial medical documentation 
request, the CMS contractor would send a second letter by certified 
mail or other trackable method to the hospital, reminding the hospital 
that paper copies of the requested documentation must be submitted and 
received within 45 calendar days following the date of the initial CMS 
contractor request. If the hospital does not submit the requested 
documentation and the documentation is not received by the CMS 
contractor within the 45 calendar days, then the CMS contractor would 
assign a ``zero'' score to each data element for each selected case and 
the case would fail for all measures in the same topic (for example, 
OP-6 and OP-7 measures for a Surgical Care case).
    We are proposing that the letter from the designated CMS contractor 
would be addressed to the hospital's medical record staff identified by 
the hospital for the submission of records under the RHQDAPU program 
(that is, the hospital's medical records staff identified by the 
hospital to their State QIO). If CMS has evidence that the hospital 
received both letters requesting medical records, the hospital would be 
deemed responsible for not returning the requested medical record 
documentation and the hospital would not be allowed to submit such 
medical documentation as part of its reconsideration request so that 
information not utilized in making a payment determination is not 
included in any reconsideration request.
    Once the CMS contractor receives the requested medical 
documentation, the contractor would independently reabstract the same 
quality measure data elements that the hospital previously abstracted 
and submitted, and the contractor would then compare the two sets of 
data to determine whether the two sets of data match. Specifically, the 
contractor would conduct a measures level validation by calculating 
each measure within a submitted case using the independently 
reabstracted data and then comparing this to the measure reported by 
the hospital; a percent agreement would then be calculated. 
Specifically, the validation score for a hospital would equal the total 
number of measure matches divided by the total number of measures 
multiplied by 100 percent.
    This method is the same as recommended in the CMS Hospital Value-
Based Purchasing Report to Congress and is illustrated more fully on 
pages 83-84 of this report which can be found on our Web site at: 
http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf. We believe that this approach 
is appropriate and it was supported by many commenters when we 
requested comment on HOP QDRP validation requirements outlined in the 
CY 2010 OPPS/ASC proposed rule (74 FR 35402 through 35403; 74 FR 60647 
through 60652).
    To receive the full OPPS payment update, we are proposing that 
hospitals must attain at least a 75 percent validation score, based 
upon our validation process, for the designated time period. We have 
selected 75 percent as the threshold for the validation score because 
we believe this level is reasonable for hospitals to achieve while 
still ensuring accuracy of the data. Additionally, this level is 
consistent with what we proposed for the RHQDAPU program (75 FR 23993). 
Since we are not validating all hospital measures submitted, it is 
necessary to calculate a confidence interval that incorporates sampling 
error. We would use the upper bound of a one-tailed 95 percent 
confidence interval to estimate the validation score. We are proposing 
to use a one-tail confidence interval to calculate the validation score 
because it appropriately reflects our concern of whether the confidence 
interval for the calculated validation score includes or

[[Page 46381]]

is above the 75 percent validation threshold for a hospital to be 
considered as submitting accurate data. If the calculated upper limit 
is above the required 75 percent validation score threshold, we would 
consider a hospital's data to be ``validated'' for payment purposes. 
The use of a one-tailed confidence interval and the 75 percent and 
threshold level are the same as proposed for the RHQDAPU program for FY 
2012 payment determinations (75 FR 23991 through 23993).
    For derivation of the upper bound of a one-tailed 95 percent 
confidence interval we are proposing to use a binomial distribution 
approach as we are looking at the percentage of measures submitted by a 
hospital matching what is calculated from the reabstracted data. Since 
the measure match rate for each hospital is a proportion, a binomial 
approach is appropriate, see Pagano, Robert R., (1990), Understanding 
Statistics in the Behavioral Sciences, 3rd Edition, Pages 175-188.
    Thus, we are proposing the following formula which includes a 
finite population correction factor and a continuity correction factor 
for calculating the upper bound of the one-tailed 95 percent confidence 
interval:
[GRAPHIC] [TIFF OMITTED] TP03AU10.560

    In this formula, N represents the population for the reporting 
year, n represents the sample size for the reporting year, p 
(calculated as a percentage) represents the validation score for the 
reporting year (that is, the percentage of measures matching), and 1-p 
represents the percentage of measures not matching. It should be noted 
that a confidence interval would not need to be calculated for 
hospitals that did not have enough cases to sample as the confidence 
interval is equal to zero (when the value of N is equal to n, N minus n 
equals zero and the upper confidence limit is equal to the validation 
score in the above formula). In addition, a confidence interval would 
not need to be calculated for those hospitals that have a validation 
score, p, that is greater than or equal to 75 percent because the 
hospital has attained the minimum threshold; the upper bound of any 
calculated confidence interval would be 75 percent or greater.
    For further information on the proposed methodology for calculation 
of a 95 percent confidence interval for a binomial distribution 
utilizing a finite population correction, see http://itl.nist.gov/div898/handbook/prc/section2/prc24.htm and http://courses.wcupa.edu/rbove/Berenson/10th%20ed%20CD-ROM%20topics/section7_3.pdf.
    We solicit public comments on this proposed validation methodology.
c. Additional Data Validation Conditions Under Consideration for CY 
2013 and Subsequent Years
    We are considering building upon what we are proposing as a 
validation approach for CY 2013 and subsequent years. We are 
considering, in addition to selecting a random sample of hospitals for 
validation purposes, selecting targeted hospitals based on criteria 
designed to measure whether the data they have reported raises a 
concern regarding data accuracy. Because hospitals have gained little 
experience with validation under the HOP QDRP, we are considering this 
approach for possible use beginning with the CY 2013 payment 
determination. Examples of targeting criteria could include:
     Abnormal data patterns identified such as consistently 
high HOP QDRP measure denominator exclusion rates resulting in 
unexpectedly low denominator counts;
     Whether a hospital had previously failed validation;
     Whether a hospital had not been previously selected for 
validation for 2 or more consecutive years;
     Whether a hospital had low submitted case numbers relative 
to population sizes; and/or
     Whether a hospital had any extreme outlier values for 
submitted data elements.
    We invite comment on whether, in addition to random sampling for 
validation, we should use targeted validation and, if so, what criteria 
for targeting we should adopt.
E. Proposed HOP QDRP Reconsideration and Appeals Procedures
    When the RHQDAPU program was initially implemented, it did not 
include a reconsideration process for hospitals. Subsequently, we 
received many requests for reconsideration of those payment decisions 
and, as a result, established a process by which participating 
hospitals would submit requests for reconsideration. We anticipated 
similar concerns with the HOP QDRP and, therefore, in the CY 2008 OPPS/
ASC final rule with comment period (72 FR 66875), we stated our intent 
to implement for the HOP QDRP a reconsideration process modeled after 
the reconsideration process we implemented for the RHQDAPU program. In 
the CY 2009 OPPS/ASC final rule with comment period (73 FR 68779), we 
adopted a mandatory reconsideration process that will apply to the CY 
2010 payment decisions. In the CY 2010 OPPS/ASC final rule with comment 
period (74 FR 60654 through 60655), we continued this process for the 
CY 2011 payment update. We are proposing to continue this process for 
the CY 2012 payment update with some modification. Under this proposed 
process, the hospitals must--
     Submit to CMS, via QualityNet, a Reconsideration Request 
form that would be made available on the QualityNet Web site; this form 
would be submitted by February 3, 2012, and would contain the following 
information:
    [cir][cir] Hospital CCN.
    [cir][cir] Hospital Name.
    [cir][cir] CMS-identified reason for failure (as provided in any 
CMS notification of failure to the hospital).
    [cir][cir] Hospital basis for requesting reconsideration. This 
would identify the hospital's specific reason(s) for believing it met 
the HOP QDRP requirements and should receive a full annual payment 
update.
    [cir][cir] CEO and any additional designated hospital personnel 
contact information, including name, e-mail address, telephone number, 
and mailing address (must include physical address, not just a post 
office box).
    [cir][cir] A copy of all materials that the hospital submitted in 
order to receive the full payment update for CY 2012. Such material 
would include, but may not be limited to, the applicable Notice of 
Participation form or completed online registration form, and quality 
measure data that the hospital submitted via QualityNet.
     Submit paper copies of all the medical record 
documentation that it submitted for the initial validation. Hospitals 
would submit this

[[Page 46382]]

documentation to a designated CMS contractor which would have authority 
to review patient level information. We would post the address where 
hospitals are to ship this documentation on the QualityNet Web site. 
Final review of all mismatched data under a reconsideration request 
would be done by CMS.
     Provide a written justification for each appealed data 
element classified during the validation process as a mismatch. Only 
data elements that affect a hospital's validation score would be 
subject to reconsideration. We would review the data elements that were 
labeled as mismatched as well as the written justifications provided by 
the hospitals, and make a decision on the reconsideration request.
    For CY 2011 reconsiderations, we required that a reconsideration 
request must be signed by the hospital CEO (74 FR 60654). However, we 
have found that this requirement increases the burden for hospitals as 
it hampers the electronic submission of the HOP QDRP reconsideration 
request form. Thus, we are proposing not to include this requirement; 
for CY 2012 reconsiderations, reconsideration request forms would not 
need to be signed by the hospital's CEO.
    We invite public comment on these proposed requirements.
    Following receipt of a request for reconsideration, CMS would--
     Provide an e-mail acknowledgement, using the contact 
information provided in the reconsideration request, to the CEO and any 
additional designated hospital personnel notifying them that the 
hospital's request has been received.
     Provide a formal response to the hospital CEO and any 
additional designated hospital personnel, using the contact information 
provided in the reconsideration request, notifying the hospital of the 
outcome of the reconsideration process.
    We intend to complete any CY 2012 reconsideration reviews and 
communicate the results of these determinations within 90 days 
following the deadline for submitting requests for reconsideration. In 
the CY 2010 OPPS/ASC final rule with comment period 74 FR 60654 through 
60655), in response to a comment, we indicated that we would ``complete 
any reconsideration reviews and communicate the results of these 
determinations within 60 to 90 days following the date we receive the 
request for reconsideration.'' We are proposing to refine how we 
describe the time frame for CY 2011 from ``60 to 90 days'' to within 
``90 days'' because designating a range of dates is unnecessary for 
this provision.
    If a hospital is dissatisfied with the result of a HOP QDRP 
reconsideration decision, we are proposing that the hospital may file 
an appeal under 42 CFR Part 405, Subpart R (PRRB appeal).
    Similar to our proposal for the RHQDAPU program (75 FR 23995 
through 23996), the scope of our review when a hospital requests 
reconsideration because it failed our validation requirement would be 
as follows:
     Hospital requests reconsideration for CMS contractor-
abstracted data elements classified as mismatches affecting validation 
scores. Hospitals would be required to have timely submitted requested 
medical record documentation to the CMS contractor during the quarterly 
validation process for the requested case to be eligible to be 
reconsidered on the basis of mismatched data elements.
     Hospital requests reconsideration for medical records 
submitted during the quarterly validation process and classified as 
invalid record selection. Invalid record selections would be defined as 
medical records submitted by hospitals during the quarterly validation 
process that do not match the patient's episode of care information as 
determined by the designated re-abstracting CMS contractor. In other 
words, the contractor determines that the hospital returned medical 
documentation that is different from that which was requested. If this 
designated contractor determines that the hospital submitted invalid or 
incorrect medical documentation, it would award a zero validation score 
for the case. During the reconsideration process, our review of invalid 
record selection would initially be limited to determining whether the 
medical documentation submitted initially to the designated CMS 
contractor was for the designated episode of care. If we determine 
during reconsideration that the hospital did submit medical 
documentation corresponding to the designated episode of care, then we 
would abstract data elements from the medical record documentation 
submitted by the hospital; otherwise, the case would not be abstracted.
     Hospital requests reconsideration for medical records not 
submitted to the CMS contractor within the 45 calendar day deadline. 
Our review would initially be limited to determining whether the CMS 
contractor received the requested medical record documentation within 
45 calendar days, and whether the hospital received the initial medical 
record request and reminder notice. If we determine during 
reconsideration that the CMS contractor did receive the paper copy of 
the requested, supporting medical record documentation within 45 
calendar days, then we would abstract data elements from the medical 
record documentation submitted by the hospital. If we determine that 
the hospital received two letters requesting medical documentation and 
still did not submit the requested documentation within the 45 calendar 
day period, CMS would not accept this documentation as part of the 
reconsideration and CMS would not abstract data from this 
documentation.
    In sum, we are initially limiting the scope of our reconsideration 
reviews involving validation to information already submitted by the 
hospital during the quarterly validation process, and we would not 
abstract submitted medical record documentation that was not submitted 
to the CMS contractor during the quarterly validation process. We would 
expand the scope of our reconsideration reviews involving validation 
only if we find during the initial review that the hospital correctly 
and timely submitted the requested medical record documentation; only 
then would we abstract data elements from the medical record 
documentation submitted by the hospital as part of our reconsideration 
review.
    If a hospital is dissatisfied with the result of a HOP QDRP 
reconsideration decision, the hospital would be able to file an appeal 
under 42 CFR part 405, Subpart R (PRRB appeal).
    We invite public comment on these proposals.

F. Reporting of ASC Quality Data

    As discussed above, section 109(b) of the MIEA-TRHCA amended 
section 1833(i) of the Act by redesignating clause (iv) as clause (v) 
and adding new clause (iv) to paragraph (2)(D) and by adding new 
paragraph (7). These amendments authorize the Secretary to require ASCs 
to submit data on quality measures and to reduce the annual payment 
update in a year by 2.0 percentage points for ASCs that fail to do so. 
However, these provisions permit, but do not require, the Secretary to 
take such action.
    In the CY 2008 OPPS/ASC final rule with comment period (72 FR 
66875), the CY 2009 OPPS/ASC final rule with comment period (73 FR 
68780), and the CY 2010 OPPS/ASC final rule with comment period (74 FR 
60656), we indicated that we intend to implement the provisions of 
section 109(b) of the MIEA-TRHCA in a future rulemaking. While 
promoting high quality care in the ASC setting through quality

[[Page 46383]]

reporting is highly desirable and fully in line with our efforts under 
other payment systems, the transition to the revised payment system in 
CY 2008 posed significant challenges to ASCs, and we determined that it 
would be most appropriate to allow time for ASCs to gain some 
experience with the revised payment system before introducing other new 
requirements. Further, by implementing quality reporting under the OPPS 
prior to establishing quality reporting for ASCs, CMS would gain 
experience with quality measurement in the ambulatory setting in order 
to identify the most appropriate measures for quality reporting in ASCs 
prior to the introduction of the requirement for ASCs. Finally, we are 
sensitive to the potential burden on ASCs associated with chart 
abstraction and believe that adopting such measures at this time is in 
contrast with our desire to minimize collection burden, particularly 
when measures may be reported via EHRs in the future.
    We continue to believe that promoting high quality care in the ASC 
setting through quality reporting is highly desirable and fully in line 
with our efforts under other payment systems. However, we continue to 
have the concerns outlined above for CY 2011. We intend to implement 
the provisions of section 109(b) of the MIEA-TRHCA in a future 
rulemaking. We invite public comment on: (1) The deferral of quality 
data reporting for ASCs; (2) suggestions for quality measures geared 
toward the services provided by ASCs; and (3) potential reporting 
mechanisms for ASC quality data, including electronic submission of 
these data. In addition, we invite public comment on the following 
measures under future consideration for ASC quality data reporting:
     Patient Fall in the ASC;
     Patient Burn;
     Hospital Transfer/Admission;
     Wrong Site, Side, Patient, Procedure, Implant;
     Prophylactic IV Antibiotic Timing;
     Appropriate Surgical Site Hair Removal;
     Surgical site infection (SSI);
     Medication administration variance (MAV);
     Medication reconciliation; and
     VTE measures: outcome/assessment/prophylaxis.
    We note that section 3006(f) of the Affordable Care Act, as added 
by section 10301(a) of the Affordable Care Act requires CMS to develop 
a plan to implement a value-based purchasing program for ASCs; this 
plan is due to Congress by January 1, 2011. We intend to align 
implementation of ASC quality reporting to be consistent with the 
value-based purchasing plan that will be developed. We intend to 
propose implementing the provisions of section 109(b) of the MIEA-TRHCA 
in CY 2012 rulemaking. We invite public comment on: (1) The timing of 
implementing quality data reporting for ASCs; (2) suggestions for 
quality measures for services provided by ASCs; and (3) potential 
reporting mechanisms for ASC quality data, including electronic 
submission of these data.

G. Electronic Health Records

    As we stated in the CY 2010 OPPS/ASC final rule (74 FR 60656), we 
are actively seeking alternatives to manual chart abstraction for the 
collection of quality measures for its quality data reporting programs. 
Among these alternatives are claims-based measure calculations, 
collection of data from systematic registries widely used by hospitals, 
and electronic submission of quality measures using EHRs. In the CY 
2009, we received suggestions during the public comment period that we 
adopt measures that can be collected via EHRs (73 FR 68769). We agree 
with the commenters about the importance of actively working to move to 
a system of data collection based on submission from EHRs. In section 
XVI.B.5.b. of this proposed rule, for the CY 2014 payment 
determination, we are proposing to adopt several chart-abstracted 
quality measures for diabetes mellitus, some of which have already been 
specified for EHR-based capture and submission, and others that are 
planned for EHR-based submission in the future. We have been engaged 
with health IT standard-setting organizations to promote the adoption 
of the necessary standards regarding data capture to facilitate data 
collection via EHRs, and have been collaborating with such 
organizations on standards for a number of quality measures. We 
encourage hospitals to take steps toward the adoption of EHRs that will 
allow for reporting of clinical quality data from the EHR directly to a 
CMS data repository. We also encourage hospitals that are implementing, 
upgrading, or developing EHR systems to ensure that such systems 
conform to standards adopted by HHS. We invite public comment on the 
future direction of EHR-based quality measurement submission.

XVII. Proposed Changes Relating to Payments to Hospitals for Direct 
Graduate Medical Education (GME) and Indirect Medical Education (IME) 
Costs

A. Background

    Section 1886(h) of the Act, as added by section 9202 of the 
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 
99-272) and implemented in regulations at 42 CFR 413.75 through 413.83, 
establishes a methodology for determining payments to hospitals for the 
direct costs of approved graduate medical education (GME) programs. 
Section 1886(h)(2) of the Act sets forth a methodology for the 
determination of a hospital-specific, base-period per resident amount 
(PRA) that is calculated by dividing a hospital's allowable direct 
costs of GME for a base period by its number of residents in the base 
period. The base period is, for most hospitals, the hospital's cost 
reporting period beginning in FY 1984 (that is, the period of October 
1, 1983, through September 30, 1984). The base year PRA is updated 
annually for inflation. In general, Medicare direct GME payments are 
calculated by multiplying the applicable PRA by the weighted number of 
full-time equivalent (FTE) residents working in all areas of the 
hospital complex (and nonhospital sites, when applicable), and the 
hospital's Medicare share of total inpatient days.
    Section 1886(d)(5)(B) of the Act provides for an additional payment 
amount under the IPPS for hospitals that have residents in an approved 
GME program in order to reflect the higher indirect patient care costs 
of teaching hospitals relative to nonteaching hospitals. The 
regulations regarding the calculation of this additional payment, known 
as the indirect medical education (IME) adjustment, are located at 42 
CFR 412.105.
    The Balanced Budget Act of 1997 (Pub. L. 105-33) established a 
limit on the number of allopathic and osteopathic residents that a 
hospital may include in its FTE resident count for direct GME and IME 
payment purposes. Under section 1886(h)(4)(F) of the Act, for cost 
reporting periods beginning on or after October 1, 1997, a hospital's 
unweighted FTE count of residents for purposes of direct GME may not 
exceed the hospital's unweighted FTE count for its most recent cost 
reporting period ending during the 1996 calendar year. Under section 
1886(d)(5)(B)(v) of the Act, a similar limit on the FTE resident count 
for IME purposes is effective for

[[Page 46384]]

discharges occurring on or after October 1, 1997.
    The recently enacted Patient Protection and Affordable Care Act 
(Pub. L. 111-148), as amended by the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152) made a number of statutory 
changes relating to the determination of a hospital's FTE resident 
count for direct GME and IME payment purposes and the manner in which 
FTE resident limits are calculated and applied to hospitals under 
certain circumstances. (These two pieces of legislation are 
collectively referred to in this document as the ``Affordable Care 
Act.'') Below we set forth our proposals to implement the provisions of 
the Affordable Care Act relating to Medicare direct GME and IME 
payments.

B. Counting Resident Time in Nonprovider Settings (Section 5504 of the 
Affordable Care Act)

1. Background and Changes Made by the Affordable Care Act
    Effective July 1, 1987, the Social Security Act was amended to 
allow hospitals to count the time residents spend training in sites 
that are not part of the hospital (referred to as ``nonprovider'' or 
``nonhospital sites'') for purposes of direct GME payments under 
certain conditions. Specifically, section 1886(h)(4)(E) of the Act 
requires that the Secretary's rules concerning the computation of FTE 
residents for purposes of direct GME payments ``provide that only time 
spent in activities relating to patient care shall be counted and that 
all the time so spent by a resident under an approved medical residency 
training program shall be counted towards the determination of full-
time equivalency, without regard to the setting in which the activities 
are performed, if the hospital incurs all, or substantially all, of the 
costs for the training program in that setting.'' (Section 
1886(h)(4)(E) of the Act, as added by section 9314 of the Omnibus 
Budget Reconciliation Act of 1986 (Pub. L. 99-509) (OBRA 86).) 
Regulations implementing this provision were published in the September 
29, 1989 final rule (54 FR 40292) at 42 CFR 413.86(f)(3) (now Sec.  
413.78(c)), which stated that a hospital may count the time residents 
spend in nonprovider settings for purposes of direct GME payment if: 
(1) The residents spend their time in patient care activities; and (2) 
there is a written agreement between the hospital and the nonprovider 
entity stating that the hospital will incur all or substantially all of 
the costs of the program. The regulations at that time defined ``all or 
substantially all'' of the costs to include the residents' compensation 
for the time spent at the nonprovider setting. We also interpreted 
section 1886(h)(4)(E) of the Act to mean that only one single hospital 
was permitted to incur the costs of a particular training program and 
count the time residents spend training in a particular nonhospital 
setting.
    Prior to October 1, 1997, for purposes of the IME payment 
adjustment, hospitals were not permitted to count the time residents 
spent training in nonhospital settings. However, section 4621(b)(2) of 
the Balanced Budget Act of 1997 revised section 1886(d)(5)(B) of the 
Act to allow providers to count time residents spend training in 
nonprovider sites for IME purposes, effective for discharges occurring 
on or after October 1, 1997. Specifically, section 1886(d)(5)(B)(iv) of 
the Act was amended to provide that ``all the time spent by an intern 
or resident in patient care activities under an approved medical 
residency program at an entity in a nonhospital setting shall be 
counted towards the determination of full-time equivalency if the 
hospital incurs all, or substantially all, of the costs for the 
training program in that setting.'' In the July 31, 1998 final rule (63 
FR 41005), at Sec.  412.105(f)(1)(ii)(C) and Sec.  413.86(f)(4), we 
specified the requirements that a hospital must meet in order to 
include the time spent by residents training in a nonhospital site in 
its FTE count for purposes of both direct GME and IME payments (we note 
that Sec.  413.86(f)(4) is now redesignated as Sec.  413.78(d)). In 
that final rule, we also redefined ``all or substantially all of the 
costs for the training program in the nonhospital setting'' as the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable), and the portion of the cost of teaching physicians' 
salaries and fringe benefits attributable to direct GME.
    In order to implement section 1886(h)(4)(E) (and later, section 
1886(d)(5)(B)(iv)) of the Act, and to assist contractors in determining 
whether a hospital incurred ``all or substantially all'' of the costs 
of the program in the nonhospital setting, we required in Sec.  
413.86(f)(3) and (4) that there must be a written agreement between the 
hospital and the nonhospital site stating that the hospital will incur 
``all or substantially all'' of the costs of training in the 
nonhospital setting (we note that Sec.  413.86(f)(3) and (4) is now 
redesignated as Sec.  413.78(c) and (d)). We later specified at Sec.  
413.78(d)(2) that the written agreement must indicate the amount of 
compensation provided by the hospital to the nonhospital site for 
supervisory teaching activities.
    Section 713 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) imposed a 1-year moratorium relating to 
certain nonhospital site teaching physician costs for the period from 
January 1, 2004, through December 31, 2004. During this 1-year period, 
we were required to allow hospitals to count FTE allopathic or 
osteopathic family practice residents training in nonhospital settings 
for IME and direct GME payment purposes without regard to the financial 
arrangement between the hospital and the teaching physician practicing 
in the nonhospital setting to which the resident was assigned. We 
instructed our contractors (then referred to as only ``fiscal 
intermediaries'' or ``FIs'') regarding the effect of section 713 of the 
MMA in the One-Time Notification (OTN), ``Changes to the FY 2004 
Graduate Medical Education (GME) Payments as Required by the Medicare 
Modernization Act of 2003 (MMA)'' (Change Request 3071, Transmittal 61, 
issued on March 12, 2004). Generally, we stated in the OTN that, when 
settling prior year cost reports during this 1-year period, or for 
family practice residents actually training in nonhospital settings 
during this 1-year period, contractors should allow hospitals to count 
allopathic and osteopathic family practice residents training in a 
nonhospital setting for direct GME and IME payment purposes without 
regard to the financial arrangement between the hospital and the 
nonhospital site pertaining to the teaching physicians' costs 
associated with the residency program. For further information on this 
provision and for a summary of comments and responses related to this 
provision, we refer readers to the FY 2005 IPPS final rule (69 FR 
49176).
    In an effort to respond to concerns expressed by hospitals about 
the administrative burden associated with meeting the written agreement 
requirements, in the FY 2005 IPPS final rule (69 FR 49179), at Sec.  
413.78(e), we revised our regulations to allow hospitals to choose to 
either enter into a written agreement with the nonhospital site before 
the hospital may begin to count residents training at the nonhospital 
site, or to pay concurrently for the cost of training at the 
nonhospital setting. That is, in the absence of a written agreement, 
hospitals are required to pay ``all or substantially all'' of the costs 
of the training program in the nonhospital setting by the end of the 
third month

[[Page 46385]]

following the month in which the training occurs.
    On May 11, 2007, we published a final rule (72 FR 26949) that once 
again modified the definition of ``all or substantially all of the 
costs for the training program in the nonhospital setting.'' That final 
rule further defined ``all or substantially all'' under Sec.  413.75(b) 
to mean at least 90 percent of the total costs of the residents' 
salaries and fringe benefits (including travel and lodging where 
applicable) and the portion of the cost of the teaching physician's 
salaries attributable to direct GME. Although several public commenters 
had objected to our proposed redefinition of the ``all or substantially 
all,'' we adopted the 90 percent rule because we believed it would 
substantially address concerns that had been voiced previously by the 
industry. With this modification, hospitals were no longer required to 
pay 100 percent of the residents' salaries and fringe benefits 
(including travel and lodging where applicable) and the portion of the 
teaching physicians' costs attributable to direct GME at the 
nonhospital site. This change in policy also allowed providers to use 
an alternative, less burdensome method to calculate the GME teaching 
physician costs attributable to direct GME at nonhospital sites. In 
addition to the redefinition of ``all or substantially all of the 
costs,'' the May 11, 2007 final rule also modified the regulation text 
at Sec.  413.78(f)(3)(ii) to clarify that the required written 
agreement between a hospital and a nonhospital site must be in place 
before residents begin training at the nonhospital site. That final 
rule also specified the information that must be included in the 
written agreement, and stated that the amounts specified in the written 
agreement may be modified by June 30 of the applicable academic year.
    Section 5504(a) of the Affordable Care Act made changes to section 
1886(h)(4)(E) of the Act to significantly reduce the costs that 
hospitals must incur for residents training in nonhospital sites in 
order to count the FTE residents for purposes of Medicare direct GME 
payments. Specifically, section 5504(a) amended the statute to allow a 
hospital to count all the time that a resident trains in a nonhospital 
site so long as the hospital incurs the costs of the residents' 
salaries and fringe benefits for the time that the resident spends 
training in the nonhospital site. Section 5504(b) of the Affordable 
Care Act made similar changes to section 1886(d)(5)(iv) of the Act for 
IME payment purposes. For direct GME payments, the provision is 
effective for cost reporting periods beginning on or after July 1, 
2010; for IME payments, the provision is effective for discharges 
occurring on or after July 1, 2010. The changes made by section 5504(a) 
and (b) also specify that if more than one hospital incurs the 
residency training costs in a nonhospital setting, those hospitals are 
to count a proportional share of the training time as determined by 
written agreement between the hospitals. In addition, section 5504(a) 
amended section 1886(h)(4)(E) of the Act to require hospitals to 
maintain documents indicating the amount of time their residents spend 
training in nonhospital sites relative to a base year, and to make 
those documents available to the Secretary.
    Section 5504(c) of the Affordable Care Act specifies that the 
amendments made by the provisions of sections 5504(a) and (b) shall not 
be applied in a manner that would require the reopening of settled cost 
reports except where the provider has a jurisdictionally proper appeal 
pending on the issue of direct GME or IME payments as of March 23, 2010 
(the date of the enactment of Pub. L. 111-148). We are proposing to 
interpret ``pending, jurisdictionally proper appeal on direct GME or 
IME payments'' to mean that in order for a hospital to request a change 
to its FTE count, direct GME or IME respectively, the ``pending, 
jurisdictionally proper appeal'' must be specific to direct GME or IME 
respectively. For example, in order for a hospital to increase its FTE 
count with regard to an ACA provision that is unique to IME (such as 
inclusion in the IME count of didactic time occurring in the hospital 
as specified by new section 1886(d)(5)(B)(x)(II)), the hospital's 
``pending, jurisdictionally proper appeal'' must be on an IME issue; 
IME FTEs or the available bed count. However, if the hospital's 
``pending, jurisdictionally proper appeal'' is on an issue that only 
affects direct GME payments, such as the initial residency period or 
the Medicare patient load, that appeal would not be sufficient in order 
for the hospital to increase its FTE count with regard to an ACA 
provision that is unique to IME, such as didactic time in the hospital 
setting.
2. Elimination of the ``All or Substantially All of the Costs for the 
Training Program in the Nonhospital Setting'' Requirement and New Cost 
Requirements for Hospitals
    As stated earlier, in the May 11, 2007 final rule (72 FR 26949), we 
redefined the phrase ``all or substantially all of the costs for the 
training program in the nonhospital setting'' under Sec.  413.75(b) of 
the regulations to mean at least 90 percent of the total costs of the 
residents' salaries and fringe benefits (including travel and lodging 
where applicable) and the portion of the cost of the teaching 
physicians' salaries attributable to nonpatient care direct GME. 
However, section 5504 of the Affordable Care Act revised the Act, 
effective on July 1, 2010, and eliminated the requirement that a 
hospital incur ``all or substantially all of the costs for the training 
program in the nonhospital setting.'' Under the changes made by section 
5504, hospitals are only required to incur the costs of the resident's 
salaries and fringe benefits during the time the resident spends in the 
nonhospital setting, and they no longer have to incur other training 
costs in the nonhospital site in order to count such time for direct 
GME and IME purposes.
    We are proposing to revise our regulation at Sec.  413.75(b) 
accordingly to conform to these new statutory requirements. 
Specifically, we are proposing to revise the existing definition of 
``all or substantially all of the costs for the training program in the 
nonhospital setting'' to be effective for cost reporting periods 
beginning on or after July 1, 2007, and before July 1, 2010. We also 
are proposing to add a new Sec.  413.78(g) that details how hospitals 
should count residents that train in nonhospital sites for cost 
reporting periods beginning on or after July 1, 2010. Specifically, we 
are proposing to require under Sec.  413.78(g)(2) that a hospital or 
hospitals must incur the costs of the salaries and fringe benefits of 
the resident during the time the resident spends in the nonprovider 
setting in order to count the time spent by those residents for direct 
GME payment purposes. Sec.  412.105(f) has also been revised to reflect 
these changes for the purposes of IME payments.
3. Proposed Revision to Regulations To Allow More Than One Hospital To 
Incur the Costs of Training Programs at Nonhospital Settings, Either 
Directly or Through a Third Party
    As indicated above, prior to the enactment of the Affordable Care 
Act, we had interpreted both section 1886(h)(4)(E) of the Act 
(regarding direct GME) and section 1886(d)(5)(B)(iv) of the Act 
(regarding IME) as allowing a hospital to count the time spent by 
residents training in a nonhospital site only when one single hospital 
incurred the costs of a particular training program in a particular 
nonhospital setting. We noted that both sections of the statute 
specified that a hospital could count the time spent by residents 
training in a nonhospital site ``if the

[[Page 46386]]

hospital incurs all or substantially all of the costs for the training 
program in that setting'' (emphasis added). While we understand that, 
in some cases, hospitals share the costs of training their respective 
residents in the same programs at the same nonhospital site, we have 
historically only allowed a hospital to count time spent by those 
residents if one single hospital met the requirement to incur ``all or 
substantially all'' of the training program costs at a nonhospital 
site. Accordingly, two or more hospitals could not count the time spent 
by their residents training in a nonhospital site if they shared the 
training costs at the site or if a third party incurred the costs of 
training at a nonhospital site on behalf of several hospitals. Examples 
of third parties that might incur nonhospital site training program 
costs are a medical or dental school, or a GME administrative entity 
that is established to operate the GME program.
    Sections 5504(a) and (b) of the Affordable Care Act specifically 
address the situation in which more than one hospital incurs the costs 
of training programs at nonhospital settings, either directly or 
through a third party. Sections 5504(a) and (b) amend sections 
1886(h)(4)(E) and 1886(d)(5)(B)(iv) of the Act, respectively, to 
provide that when more than one hospital incurs these costs, either 
directly or through a third party, those hospitals ``shall count a 
proportional share of the time, as determined by written agreement 
between the hospitals, that a resident spends training in that 
setting.'' Therefore, these statutory changes now allow hospitals to 
share the costs of resident training at nonhospital sites, so long as 
those hospitals divide the resident time proportionally pursuant to a 
written agreement, for the purposes of determining their respective 
direct GME and IME FTE resident counts at the nonhospital site. These 
provisions of the statute are effective for cost reporting periods 
beginning on or after July 1, 2010 for direct GME, and for discharges 
occurring on or after July 1, 2010 for IME. Accordingly, although 
hospitals that shared training costs at nonhospital sites could not 
count any of resident time spent training at those nonhospital sites 
prior to July 1, 2010, hospitals can count all of that training time 
beginning on or after July 1, 2010, as long as they divide the resident 
training time proportionally.
    We are proposing to revise our regulations to reflect the statutory 
provision that allows hospitals to proportionally share the costs of 
resident training at nonhospital sites under a new paragraph (g)(2) of 
Sec.  413.78 and to make a conforming cross-reference change under 
Sec.  412.105(f)(1)(ii) of the IME regulations. While the statute 
allows hospitals to determine by an agreement the proportional share of 
time that residents spend training in the nonhospital site, we are 
proposing that hospitals must use some reasonable basis for 
establishing that proportion (proposed Sec.  413.78(g)(2)(ii)). One 
such reasonable basis could be that each hospital counts the number of 
FTEs for which it incurs the salaries and fringe benefits. For example, 
if there are 10 FTEs training in a nonhospital setting in a particular 
program, and there are two hospitals that each incur the costs of the 
salaries and fringe benefits of 5 of those FTEs, each hospital could 
agree to count 50 percent of the FTEs (even if each hospital is not 
necessarily paying 50 percent of the cost, due to differences in 
resident salary amounts, this arrangement is acceptable, so long as 100 
percent of the required cost is paid).
    In addition to having a reasonable basis for establishing the 
proportion, hospitals also must be able to document the amount that 
they are paying collectively, and this amount must equate to at least 
the sum of all the salaries and fringe benefits of the residents for 
the amount of time that the residents are training in that site. The 
salaries and fringe benefits of the residents will vary depending upon 
the program year of the residents, and the specialty in which they are 
training. As we indicated in the May 11, 2007 final rule (72 FR 26961), 
hospitals must ``take into account the actual salary and fringe 
benefits for each FTE resident that trains in the nonhospital site, 
which may vary by resident.'' Therefore, as also indicated in the May 
11, 2007 final rule (72 FR 26970), global agreements that cover a 
variety of issues (GME and non-GME) between the hospital(s) and 
nonhospital site, and that only specify a lump sum payment amount with 
no break out of the residents' salaries and fringe benefits, do not 
provide sufficient information for the Medicare contractor to determine 
that ``all or substantially all'' of the costs (or, effective July 1, 
2010, that all of the residents' salaries and fringe benefits) have 
been paid. Accordingly, we would expect that, regardless of whether 
there is one hospital paying the cost, or if more than one hospital is 
sharing the costs, hospitals would need to determine prior to the start 
of nonhospital rotations (with allowance for modification by June 30 of 
that academic year) the total cost of the salaries and fringe benefits 
of the residents that are training for the proportion of the year spent 
in each nonhospital site. Of course, in the instance where the 
residents remain on the payroll of one or more hospitals for the entire 
year, it would be easier to document that the hospital(s) continues to 
pay the residents' salaries and fringe benefits when the residents 
rotate to nonhospital sites. Similarly, where the residents are on the 
payroll of the medical or dental school, or of a third party GME 
administrative entity, and the hospitals reimburse the school or the 
third party for the entire salary and fringe benefit costs of the 
residents for both hospital and nonhospital training, the hospitals 
could easily document that they have incurred the requisite costs of 
training in nonhospital sites. In some circumstances, it may be more 
labor-intensive for a hospital or hospitals to document that they have 
incurred costs of training in the nonhospital site that equate to at 
least the sum of the salaries and fringe benefits of the FTE residents 
for the proportion of time spent in the nonhospital site. This is 
especially true in situations where funds are being transferred between 
one or more hospitals and a third party administrative entity not 
simply for Medicare GME purposes, but as part of global agreements that 
also address a variety of Medicare and non-Medicare issues. However, 
once the total costs for the residents' salaries and fringe benefits 
for time spent in the nonhospital site are determined and covered by 
the hospitals, the hospitals may decide among themselves the proportion 
of those costs each will incur, and may use a reasonable basis to 
allocate among themselves the proportion of FTE residents that each one 
will count, as discussed above.
    As specified in section 5504, we are proposing further that the 
hospitals must record the proportion of the FTE resident time spent 
training in the nonhospital site that will be counted by each hospital 
for purposes of direct and indirect GME payment, as well as the 
reasonable basis for the proportion, in a written agreement between the 
hospitals. We are proposing to add this requirement in regulations at 
Sec.  413.78(g)(2)(i). If hospitals have in place written agreements 
with the nonhospital site in accordance with our existing regulations 
at Sec.  413.78(f)(3)(ii), we are proposing that the proportion of the 
FTE resident training time to be counted for IME and direct GME 
purposes by each hospital, and the basis for the proportion, may be 
recorded in that agreement (proposed Sec.  413.78(g)(2)(iii)). We are 
proposing that if the hospitals choose to pay the

[[Page 46387]]

training program costs concurrently as described in Sec.  
413.78(g)(3)(i), that is, without a written agreement, the hospitals 
must still agree in writing to the proportion of costs and training 
time they plan to incur and count (proposed Sec.  413.78(g)(2)(iv)) in 
addition to the basis for that proportion, as specified by the statute. 
That written agreement between the hospitals must be available for CMS 
review and for auditing purposes. In addition, we would expect that the 
hospitals' records of resident training time and training costs at 
nonhospital sites, as required by the Affordable Care Act and as 
discussed below, reflect the proportions of training time and costs as 
agreed upon and documented in whichever type of written agreement the 
hospitals used to record the proportional shares of resident training 
time that each will count for purposes of direct GME and IME payment.
4. Proposed Changes to Regulations Regarding Recordkeeping and 
Comparison to a Base Year
    As stated above, section 5504(a) of the Affordable Care Act 
requires hospitals to maintain records of the amount of time that their 
residents spend in nonprovider settings, and to compare that time to 
the time spent by their residents in nonprovider sites in a base year 
as the Secretary may specify. This requirement is effective for cost 
reporting periods beginning on or after July 1, 2010. We are proposing 
to incorporate this statutory requirement for maintaining records under 
a new paragraph (g)(5) of Sec.  413.78 of the regulations, and we 
anticipate amending the cost report for hospitals to include lines 
where hospitals can submit the required data, which is described below. 
These data will help CMS identify whether barriers to resident training 
in nonhospital sites exist. The original allowance of IME payments for 
training in nonhospital sights, as instituted by the BBA, was intended 
to act as an incentive to hospitals to increase such training. However, 
we have not seen a marked increase in the amount of training that 
occurs in nonhospital settings in the years since the implementation of 
the BBA. Advocates of expanding training in nonhospital sites have 
alleged that CMS' rules for counting residents in nonhospital sites 
regarding teaching physician salary costs were an obstacle to the 
expansion of training in nonhospital settings. The recordkeeping and 
reporting requirement added by section 5504(a) of the Affordable Care 
Act will provide the Secretary information to assess whether 
nonhospital site resident training increases as a result of the 
statutory revision of rules that were viewed as burdensome.
    We understand that rotation schedules are a primary source of 
information that hospitals supply to Medicare contractors for 
determining where and for how much time each resident spends training 
in each hospital or nonhospital site. Therefore, we are proposing that 
rotation schedules be the source for establishing the amount of time 
that residents spend training in nonhospital sites, both in the base 
year and in subsequent years. The amendment to section 1886(h)(4)(E) of 
the Act by section 5504(a) of the Affordable Care Act states that the 
Secretary shall specify the aforementioned base year for the level of 
training at nonhospital sites. We are proposing that cost reporting 
periods beginning on or after July 1, 2009 and before June 30, 2010 be 
the base year against which we will compare subsequent years' data to 
determine if the amount of nonhospital training that occurs in 
subsequent years increases relative to that base year (proposed new 
Sec.  413.78(g)(5)). We also are proposing that, to meet this 
documentation requirement, hospitals only need to maintain records of 
the total unweighted direct GME FTE count (before application of the 
direct GME FTE resident cap) of resident training time in nonhospital 
settings.
    Section 5504(a) of the Affordable Care Act also made changes to 
require that these records be made available to the Secretary. In order 
for CMS to evaluate whether nonhospital site training has increased as 
a result of the changes made by section 5504 of the Affordable Care 
Act, we are proposing to include several additional cost report lines 
for hospitals to submit data for each of their primary care programs on 
a program-specific basis. With respect to hospitals' nonprimary care 
programs, hospitals would only need to supply that data on an overall 
hospital basis, and we are proposing to add one line on the cost report 
for hospitals to submit that data. We are only requiring program-
specific data with respect to resident training time in nonhospital 
sites for primary care specialties because we believe that that is 
sufficient for the intent of this provision. The intent of this 
recordkeeping requirement is to see whether, as a result of the policy 
changes required under section 5504(a), there is an increase in the 
volume of residency training that takes place in nonhospital settings. 
Since residents at nonhospital sites typically train in primary care 
specialties, and in order to minimize the documentation burden on 
hospitals, we do not believe it is necessary to require program-
specific data for other specialties that would provide only marginally 
useful information. For the purposes of this provision, we propose to 
use the definition of primary care resident in Sec.  413.75(b) to 
identify those programs for which we are proposing to require program-
specific data.
    Once this information is made available to CMS, the data would be 
compared to the analogous data from the base year of cost reporting 
periods beginning on or after July 1, 2009 and before June 30, 2010, in 
order for CMS to determine whether the volume of nonhospital site 
training has increased. Specifically, we are proposing to use the total 
direct GME count of FTE training time in a primary care specialty in 
nonhospital sites (prior to application of direct GME FTE resident 
limits) as the gauge to determine if residency training time in 
nonhospital settings in that specialty has increased in an academic 
year relative to the base year. For example, if, in the base year, we 
find that 10.5 direct GME FTEs out of a total of 15 FTE family practice 
residents from a family practice residency program in a teaching 
hospital trained in nonhospital settings (that is, 70 percent of the 
FTE time of the residents in the family practice residency program was 
spent training in nonhospital sites), we would note the subsequent 
years' amount of direct GME FTE training time in nonhospital sites in 
that particular teaching program to see if that FTE proportion 
increased from 70 percent. This would help determine if more training 
time is spent by primary care residents in nonhospital sites. Or, for 
all of the nonprimary care teaching programs in a hospital, if 100 
direct GME FTE residents out of 400 FTE residents spent time training 
in nonhospital settings (that is, 25 percent of the time spent by 
residents in the program is spent training in nonhospital sites), we 
would look to see if in subsequent years, more than 25 percent of the 
time spent by nonprimary care direct GME FTEs from that hospital is 
spent training in nonhospital sites.

C. Counting Resident Time for Didactic and Scholarly Activities and 
Other Activities (Section 5505 of the Affordable Care Act)

1. Background and Changes Made by the Affordable Care Act
    Prior to the enactment of the Affordable Care Act, the time that 
residents spend training at a nonhospital setting in nonpatient care 
activities, as part of an approved

[[Page 46388]]

program, could not be included in a hospital's direct GME or IME FTE 
resident count. There were also differences in the rules for counting 
FTE resident time during the time that residents spend training in the 
hospital for direct GME and IME payments. For direct GME payment 
purposes, under 42 CFR 413.78(a), ``residents in an approved program 
working in all areas of the hospital complex may be counted.'' As 
explained in the September 29, 1989 Federal Register (54 FR 40286), the 
hospital complex consists of the hospital and the hospital-based 
providers and subproviders. Therefore, the distinction between patient 
care activities and nonpatient care activities is not relevant to 
direct GME FTE count determinations when the residents are training in 
the hospital complex. However, for IME payment purposes, consistent 
with the regulations at 42 CFR 413.9 and 412.105(f)(1)(iii)(C), only 
time spent in patient care activities in the hospital is counted. It 
has been our longstanding policy that, regardless of the site of 
training, ``we do not include residents in the IME count to the extent 
that the residents are not involved in furnishing patient care'' (66 FR 
39897, August 1, 2001).
    Section 5505(a) of the Affordable Care Act added new subparagraph 
(J) to section 1886(h)(4) (as amended by section 5504) of the Act to 
allow hospitals to count certain nonpatient care activities that occur 
in certain nonprovider settings, including didactic conferences and 
seminars, in the hospital's direct GME FTE resident counts. The 
provision added by section 5505(a) allows a hospital to count the time 
that residents spend training in an approved program in a ``nonprovider 
setting that is primarily engaged in furnishing patient care'' for 
direct GME purposes, even if those residents are engaged in nonpatient 
care activities, such as didactic conferences and seminars (but not 
including research not associated with the treatment or diagnosis of a 
particular patient), during that training time at the nonhospital site. 
This statutory change is effective for cost reporting periods beginning 
on or after July 1, 2009. We are proposing to revise our regulations at 
Sec.  413.78(f)(1) and (g)(1) to reflect the statutory provision.
    Section 5505(b) of the Affordable Care Act addressed IME and added 
a new clause (x) to section 1886(d)(5)(B) of the Act which allows 
certain nonpatient care activities, including didactic conferences and 
seminars (but not including research not associated with the treatment 
or diagnosis of a particular patient), to be counted for IME purposes 
as well. However, for IME purposes, this change only applies to such 
activities during training that occurs in subsection (d) hospitals 
(which are IPPS hospitals), subsection (d) Puerto Rico hospitals (IPPS 
hospitals in Puerto Rico), hospitals that are reimbursed under a 
reimbursement system authorized under section 1814(b)(3) of the Act, or 
provider-based hospital outpatient departments. The IME provision is 
applicable to cost reporting periods beginning on or after January 1, 
1983. We are proposing to revise our regulations at Sec.  
412.105(f)(1)(ii)(A) through (f)(1)(ii)(D) and (f)(1)(iii)(B) to 
reflect these statutory provisions.
    As specified in section 1886(d)(5)(B)(x)(III) of the Act, as added 
by section 5505(b) of the Affordable Care Act, research activities that 
are not associated with the treatment or diagnosis of a particular 
patient are excluded from the allowable IME count of FTE residents, and 
this specific change applies to cost reporting periods beginning on or 
after October 1, 2001. We discuss this provision and our proposed 
implementation under section XVII.C.3. of this proposed rule.
    Section 10501(j) of Public Law 111-152 amended section 5505 of 
Public Law 111-148 to clarify the application of the provisions of 
section 5505. The amendment prohibits the provisions of section 5505 
from being applied in a manner that would require the reopening of 
settled cost reports except where the provider has a jurisdictionally 
proper appeal pending on the issue of direct GME or IME payments as of 
March 23, 2010 (the date of the enactment of Pub. L. 111-148). We are 
proposing to reflect this provision in the proposed revisions to our 
regulations under Sec.  412.105(f)(1)(ii), Sec.  412.105(f)(1)(iii)(C) 
and Sec.  413.78(h). We are also proposing, as mentioned above with 
respect to Section 5504, to interpret ``pending, jurisdictionally 
proper appeal on direct GME or IME payments'' for this section to mean 
that in order for a hospital to request a change to its FTE count, 
direct GME or IME respectively, the ``pending, jurisdictionally proper 
appeal'' must be specific to direct GME or IME respectively. For 
example, in order for a hospital to increase its FTE count with regard 
to an ACA provision that is unique to IME (such as inclusion in the IME 
count of didactic time occurring in the hospital as specified by new 
section 1886(d)(5)(B)(x)(II)), the hospital's ``pending, 
jurisdictionally proper appeal'' must be on an IME issue; IME FTEs or 
the available bed count. However, if the hospital's ``pending, 
jurisdictionally proper appeal'' is on an issue that only affects 
direct GME payments, such as the initial residency period or the 
Medicare patient load, that appeal would not be sufficient in order for 
the hospital to increase its FTE count with regard to an Affordable 
Care Act provision that is unique to IME, such as didactic time in the 
hospital setting.
2. Definition of ``Nonprovider Setting That Is Primarily Engaged in 
Furnishing Patient Care''
    As stated above, section 5505(a) of the Affordable Care Act amended 
section 1886(h)(4) of the Act to allow hospitals to count the time that 
residents spend in certain nonpatient care activities in nonhospital 
sites towards the hospitals' direct GME resident count for cost 
reporting periods beginning on or after July 1, 2009. The amendments 
made by section 5505(a) to section 1886(h)(5) of the Act include a 
definition of the term ``nonprovider setting that is primarily engaged 
in furnishing patient care'' to mean ``a nonprovider setting in which 
the primary activity is the care and treatment of patients, as defined 
by the Secretary.'' In past discussions regarding our policy to 
disallow time spent by residents in didactic nonpatient care 
activities, we have given extensive explanations of what we mean by the 
term ``patient care activities.'' When section 1886(h)(4)(E) of the Act 
was first implemented, we specifically stated that ``only time spent in 
activities relating to patient care may be counted [in nonhospital 
sites]'' (54 FR 40292, September 29, 1989). In 1998, when we 
implemented the statute allowing FTE residents to be counted in 
nonhospital sites for IME, we reiterated that a hospital may only count 
resident training time ``in nonhospital sites for indirect and direct 
GME, respectively, if the resident is involved in patient care'' (63 FR 
40986, July 31, 1998). In addition, we note that the scope of the term 
``patient care'' had been well-established in the Medicare program even 
prior to issuance of the first rules on counting FTE residents for 
purposes of direct GME and IME payments. For example, prior to the 
IPPS, acute care hospitals were paid by Medicare for inpatient services 
based on their reasonable operating costs, or costs relating to the 
provision of reasonable and necessary ``patient care.'' The 
longstanding regulation at 42 CFR 413.9 (Costs related to patient care) 
specifies that Medicare payment is limited to those services relating 
to ``patient care,'' or to those relating to covered services for the 
care of beneficiaries. In the August 18, 2006 Federal Register, we 
defined the term ``patient care activities''

[[Page 46389]]

at 42 CFR 413.75 in a way that was consistent with these previous, 
plain-language applications of the term (71 FR 48142). Therefore, we 
currently define ``patient care'' at Sec.  413.75(b) as ``the care and 
treatment of particular patients, including services for which a 
physician or other practitioner may bill, and orientation activities as 
defined in this section.''
    Section 5505(a) of the Affordable Care Act added a new subparagraph 
(K) to section 1886(h)(5) which defines the term ``nonprovider setting 
that is primarily engaged in furnishing patient care'' to mean ``a 
nonprovider setting in which the primary activity is the care and 
treatment of particular patients, as defined by the Secretary.'' This 
definition uses the term ``patient care'' which we have defined 
previously, as discussed above. We are proposing to continue our 
current construction of the term ``patient care'' as described above 
and in current regulations and other guidance. Examples of nonprovider 
settings that would be ``primarily engaged in furnishing patient care'' 
are those settings in which the main mission is to provide patient 
care, such as doctors' offices and community health clinics. 
Nonprovider settings that would not meet these criteria include those 
with a main mission other than patient care. Examples of such settings 
are medical schools and dental schools, even if those schools are part 
of a larger system that includes institutions that are primarily 
engaged in patient care. Despite any affiliations with patient care 
settings, medical and dental schools are institutions that are 
primarily engaged in educational activities as opposed to patient care. 
Medical and dental schools retain their principal mission of education 
regardless of their participation in various systems and affiliations, 
parts of which may involve settings that are primarily engaged in 
furnishing patient care. Another example of a nonprovider setting that 
does not meet the ``primarily engaged in furnishing patient care'' 
criterion set forth in this section would be a hotel or convention 
center. While residents may attend didactic conferences and seminars in 
a hotel or convention center, that didactic time cannot be counted 
toward a hospital's direct GME FTE count because the main mission of a 
hotel or convention center is the provision of hospitality and meeting 
services. Thus, any such time spent in a hotel or convention center 
would not occur in a setting that is primarily engaged in furnishing 
patient care.
    The exclusion of medical and dental schools from the definition of 
``nonprovider setting that is primarily engaged in furnishing patient 
care'' is consistent with longstanding CMS policy, and we have 
addressed this policy several times in the past. We explained in 
response to comments in the aforementioned August 18, 2006 Federal 
Register that, ``[lsqb]W[rsqb]e understand that it is quite common for 
hospitals, especially large academic medical centers, to be located on 
the same campus as a medical school, where the buildings are very 
closely situated or even connected, and the facilities are often 
shared. However * * * hospitals, nonhospital sites, and medical schools 
are structured separately for legal and financial purposes, and are 
recognized independently for state licensing and Medicare cost 
reporting purposes. As we stated in 2006, ``to put it simply, a 
hospital is not a medical school, and a medical school is not a 
hospital'' (71 FR 48093). In the August 22, 2007 Federal Register, we 
clarified that, ``[lsqb]T[rsqb]he commenter is also correct that 
orientation activities in a related medical school cannot be counted * 
* * the nonhospital settings we were referring to in which orientation 
may be counted are those nonprovider settings such as physicians' 
offices or clinics, where patient care is routinely provided and a 
hospital is permitted to count the time spent by residents in 
accordance with our regulations at Sec. Sec.  412.105(f)(1)(ii)(C) and 
413.78(f), not other nonhospital settings where time spent by residents 
is not permitted to be counted for purposes of direct GME and IME'' (72 
FR 47382). Thus, while time spent by residents in certain nonpatient 
care activities may be counted for direct GME payment purposes in a 
nonhospital site primarily engaged in furnishing patient care, time 
spent by residents in nonpatient care activities at nonhospital sites 
that are not primarily engaged in patient care activities is not 
allowable for direct GME and IME payment purposes.
    We are proposing to add, under Sec.  413.75, the statutory 
definition of ``nonprovider setting that is primarily engaged in 
furnishing patient care'' to the definition of general terms used 
throughout the GME regulations.
3. Distinguishing Between Allowed ``Nonpatient Care Activities'' and 
Nonallowable Research Time
    As discussed above, research time that is not associated with the 
treatment or diagnosis of a particular patient is specifically excluded 
from the ``nonpatient care activities, such as didactic conferences and 
seminars'' that are otherwise allowable under section 5505 of the 
Affordable Care Act for the purposes of direct GME in nonhospital sites 
for cost reporting periods beginning on or after July 1, 2009, and for 
purposes of IME in certain hospital settings for cost reporting periods 
beginning on or after January 1, 1983. There are several unique 
features of ``research not associated with the treatment or diagnosis 
of a particular patient'' that distinguish it from ``nonpatient care 
activities, such as didactic conferences and seminars.'' ``Research not 
associated with the treatment or diagnosis of a particular patient'' 
usually comprises activities that are focused on developing new medical 
treatments, evaluating medical treatments for efficacy or safety, or 
elaborating upon knowledge that will contribute to the development and 
evaluation of new medical treatments in the future, rather than on 
establishing a diagnosis or furnishing therapeutic services for a 
particular patient.
    Section 5505 further distinguishes ``research not associated with 
the treatment or diagnosis of a particular patient'' from ``nonpatient 
care activities, such as didactic conferences and seminars,'' by 
specifying that nonpatient care activities include ``didactic 
conferences and seminars.'' Conferences or seminars could include an 
administrative rotation, which would include resident training in the 
administrative aspects of medical care such as practice management.
4. Approved Leaves of Absence
    In the FY 2008 IPPS proposed rule (72 FR 24814), we proposed to 
remove vacation, sick leave and other types of leave from the FTE 
calculation for IME and for direct GME purposes. We proposed this 
policy based on our belief that such leave time involved neither 
patient care nor nonpatient care activities. However, we did not 
finalize this proposed policy after many public commenters explained 
that the implementation of the policy would involve significant 
administrative burdens (FY 2008 IPPS final rule, 72 FR 47374). Thus, we 
did not revise our previously existing policy which allowed vacation 
and sick leave generally to be counted for direct GME and IME purposes. 
In the FY 2008 IPPS proposed rule, we also proposed to continue to 
count the time spent by residents in orientation activities in both the 
hospital and nonhospital settings. We proposed this policy because we 
recognized the distinct character of orientation activities as 
essential to the provision of patient care by residents. We did 
finalize our policy on orientation time, and in doing so, we specified 
that patient care activities means the care and treatment of

[[Page 46390]]

particular patients, including services for which a physician or other 
practitioner may bill, and orientation activities (Sec.  413.75(b)), 
effective for cost reporting periods beginning on or after October 1 
2007.
    Section 5505(a) of the Affordable Care Act added new subparagraph 
(K) to section 1886(h)(4) to clarify that hospitals may count 
residents' vacation, sick leave, and other approved leave time toward 
the hospitals' direct GME FTE resident count, so long as the leave does 
not prolong the total time the resident participates in his or her 
approved program. This direct GME provision regarding leave time is 
effective for cost reporting periods beginning on or after January 1, 
1983. In addition, section 5505(b) of the Affordable Care Act allows 
hospitals to count residents' vacation, sick leave, and other approved 
leave time toward the hospitals' IME FTE resident count, as long as the 
leave does not prolong the total time the resident participates in his 
or her approved program. This IME provision regarding leave time is 
effective for cost reporting periods beginning on or after January 1, 
1983.
    We are proposing to revise our regulations to reflect these 
statutory changes regarding counting residents' vacation, sick leave, 
and other approved leave time toward the hospitals' direct FTE resident 
count under new Sec.  413.78(h) for GME and under Sec.  
412.105(f)(1)(iii)(D) for IME. Please note that each hospital is to 
count the proportion of the leave of absence time as specified in 72 FR 
47382. There, we explained that regardless of which hospital is paying 
the resident's salaries and fringe benefits, the hospital to which the 
resident is assigned during the time the vacation is taken is the 
hospital that counts that FTE time for direct GME and IME. If the 
rotation schedule does not clearly indicate where the resident is 
assigned during the time the vacation is taken, the hospitals to which 
the resident rotates over the course of the academic year would divide 
and count the resident's vacation time proportionately based on the 
amount of time spent in actual training at the respective hospitals. We 
are also proposing to specify that ``other approved leave'' includes 
those types of generally accepted leave of short duration (those that 
do not prolong the total time that the resident is participating in the 
approved training program) that have not been included in our resident 
leave time policies in the past. Examples of such ``other approved 
leave'' could include jury duty, other court leave, or voting leave.

D. Reductions and Increases to Hospitals' FTE Resident Caps for GME 
Payment Purposes (Sec. Sec.  412.105(f)(1)(iv) and 413.79(m) and (o))

1. General Background on Methodology for Determining the FTE Resident 
Count
    As we discuss in section XVII.A. of this proposed rule, Medicare 
makes both direct and indirect GME payments to hospitals that train 
residents in approved medical residency training programs. Direct GME 
payments are made in accordance with section 1886(h) of the Act, based 
generally on hospital-specific PRAs, the number of FTE residents, and 
the hospital's Medicare patient share. IME payments are made in 
accordance with section 1886(d)(5)(B) of the Act, based generally on 
the ratio of the hospital's FTE residents to the number of hospital 
beds. Accordingly, the calculation of both direct GME and IME payments 
is affected by the number of FTE residents that a hospital is allowed 
to count; generally, the greater the number of FTE residents a hospital 
counts, the greater the amount of Medicare direct GME and IME payments 
the hospital will receive. In an attempt to end the implicit incentive 
for hospitals to increase the number of FTE residents, Congress 
instituted a cap on the number of allopathic and osteopathic residents 
a hospital is allowed to count for direct GME and IME purposes under 
the provisions of section 1886(h)(4)(F) of the Act for direct GME and 
section 1886(d)(5)(B)(v) of the Act for IME. Dental and podiatric 
residents are not included in this statutorily mandated cap.
2. Reduction of Hospitals' FTE Resident Caps Under the Provisions of 
Section 5503 of the Affordable Care Act
    Medicare makes direct GME and IME payments based on the number of 
FTE residents the hospital is permitted to count, as limited by the 
hospital's FTE resident caps. Some hospitals have trained a number of 
allopathic and osteopathic residents in excess of their FTE resident 
caps. Other hospitals have reduced their FTE resident counts to some 
level below their FTE resident caps. Section 5503 of the Affordable 
Care Act added a new section 1886(h)(8) to the Act to provide for 
reductions in the statutory FTE resident caps for direct GME under 
Medicare for certain hospitals, and authorizes a ``redistribution'' to 
other hospitals of the estimated number of FTE resident slots resulting 
from the reductions. Section 5503 also amended section 1886(d)(5)(B)(v) 
to require application of the provisions of 1886(h)(8) ``in the same 
manner'' to the FTE resident caps for IME. A previous redistribution of 
``unused'' FTE resident slots was performed under section 422 of Public 
Law 108-173 (the Medicare Modernization Act of 2003). Section 422 
provided for the redistribution of unused residency positions effective 
for portions of cost reporting periods beginning on or after July 1, 
2005. While section 5503 of the Affordable Care Act is similar to 
section 422 of Public Law 108-173, there are substantive differences 
between the two provisions.
    The new section 1886(h)(8)(A) of the Act provides that, effective 
July 1, 2011, a hospital's FTE resident cap will be reduced if its 
``reference resident level,'' is less than its ``otherwise applicable 
resident limit,'' as these terms are described below. Rural hospitals 
with fewer than 250 acute care inpatient beds as well as those 
hospitals described in section XVII.D.5. of this proposed rule are 
exempt from a reduction. For other hospitals, any such reduction will 
be equal to 65 percent of the difference between the hospital's 
``otherwise applicable resident limit'' and its ``reference resident 
level.''
    Under the new section 1886(h)(8)(B) of the Act, the Secretary is 
authorized to increase the FTE resident caps for certain categories of 
hospitals for portions of cost reporting periods occurring on or after 
July 1, 2011, by an aggregate number that does not exceed the estimated 
overall reduction in FTE resident caps for all hospitals under section 
1886(h)(8)(A) of the Act. A single hospital may receive an increase in 
its FTE resident cap of no more than 75 additional FTEs. That is, a 
hospital would be allowed to receive up to 75 additional slots for 
direct GME and up to 75 additional slots for IME. In determining which 
hospitals would receive an increase in their FTE resident caps, section 
1886(h)(8)(B) of the Act directs us to--
     Take into account the demonstrated likelihood of the 
hospital filling the additional positions within the first three cost 
reporting periods beginning on or after July 1, 2011.
     Take into account whether the hospital has an accredited 
rural training track program.
     Distribute 70 percent of the resident slots to hospitals 
located in States with resident-to-population ratios in the lowest 
quartile.
     Distribute 30 percent of the resident slots to hospitals 
located in a State, a territory of the United States, or the District 
of Columbia that are among the top 10 States, territories, or Districts 
in terms of the ratio of the total population living in an area 
designated as a health

[[Page 46391]]

professional shortage area (HSPA), as of March 23, 2010, to the total 
population, and to hospitals located in rural areas.
    In summary, section 5503 of the Affordable Care Act added a new 
section 1886(h)(8) of the Act that prescribes a methodology for 
determining reductions to certain hospitals' FTE resident caps based on 
unused FTE resident slots, provides for certain exceptions to the FTE 
resident cap reductions, and includes general criteria that CMS must 
consider in making a ``redistribution'' to other hospitals of the 
estimated number of FTE resident slots resulting from the reductions in 
the FTE resident caps. In this proposed rule, we are proposing 
procedures for determining whether, and by what amount, a hospital's 
FTE resident cap is subject to a reduction under section 1886(h)(8)(A) 
of the Act. We also are specifying an application process for hospitals 
that seek to receive increases in their FTE resident caps and the 
specific criteria that we will use to determine which hospitals will 
receive increases in their FTE resident caps under section 
1886(h)(8)(B) of the Act.
3. Hospitals Subject to the FTE Resident Cap Reduction
    As indicated earlier, section 1886(h)(8)(A) of the Act, as added by 
section 5503 of the Affordable Care Act, provides that if a hospital's 
``reference resident level'' is less than its ``otherwise applicable 
resident limit,'' its FTE resident cap(s) will be reduced by 65 percent 
of the difference between its ``otherwise applicable resident limit'' 
and its ``reference resident level.'' Under section 1886(h)(8)(H)(i) 
(as added by section 5503 of the Affordable Care Act), the ``reference 
resident level'' refers to the number of unweighted allopathic and 
osteopathic FTE residents who are training at a hospital in a given 
cost reporting period. That is, the ``reference resident level'' refers 
to a hospital's allopathic and osteopathic FTE resident count for a 
specific period. Under section 1886(h)(8)(H)(ii) the ``otherwise 
applicable resident limit'' refers to a hospital's FTE resident cap 
established under sections 1886(h)(4)(F)(i) and (h)(4)(H) of the Act 
for direct GME payment purposes and a hospital's resident cap 
established under section 1886(d)(5)(B)(v) for IME payment purposes. 
For most hospitals, the permanent FTE cap under section 
1886(h)(4)(F)(i) of the Act is based on: (1) For an urban hospital, the 
number of unweighted allopathic and osteopathic FTE residents in the 
hospital's most recent cost reporting period ending on or before 
December 31, 1996 (the ``1996 cap''); (2) for a rural hospital, 130 
percent of the 1996 cap, adjusted as specified under existing Sec.  
413.79(c)(2); and (3) any adjustments to the hospital's cap under 
paragraph (7), which specifies the previous ``redistribution'' of 
resident positions required by section 422 of Public Law 108-173. 
Section 1886(h)(4)(H) of the Act specifies that a hospital's FTE 
resident cap under subparagraph (F) may be adjusted for a new medical 
residency training program established on or after January 1, 1995, 
participation in a Medicare GME affiliated group, and establishment by 
an urban hospital of a separately accredited rural training track 
program. We are proposing that, in defining a hospital's ``otherwise 
applicable resident limit'' for purposes of section 1886(h)(8)(A) of 
the Act, we will look at the hospital's 1996 cap during its reference 
year, as adjusted for the following criteria: new programs as defined 
at Sec.  413.79(e); participation in a Medicare GME affiliation 
agreement as defined at Sec. Sec.  413.75(b) and 413.79(f); 
participation in an Emergency Medicare GME affiliation agreement as 
defined at Sec.  413.79(f); participation in a hospital merger; and 
whether an urban hospital has a separately accredited rural training 
track program as defined at Sec.  413.79(k). We discuss the 
applicability of Medicare GME affiliation agreements under section 
1886(h)(8)(A) of the Act in more detail under section XVII.D.8.c. of 
this proposed rule and the treatment of hospital mergers under section 
XVII.D.8.d. of this proposed rule. Furthermore, section 
1886(h)(8)(H)(iii) of the Act requires that, in determining a 
hospital's ``otherwise applicable resident limit,'' section 
1886(h)(7)(A) of the Act shall be taken into account. Section 
1886(h)(7)(A) of the Act refers to the reduction to a hospital's cap(s) 
under section 422 of Public Law 108-173. The application of section 422 
of Public Law 108-173 to the implementation of section 5503 of the 
Affordable Care Act is further discussed under section XVII.D.10. of 
this proposed rule.
    In our discussion of the provisions of section 5503 of the 
Affordable Care Act under this section of this proposed rule, we 
generally refer to a hospital's number of unweighted allopathic and 
osteopathic FTE residents in a particular period as a hospital's 
``resident level.'' We also refer to a hospital's resident level in the 
applicable ``reference period,'' as explained further below, as the 
hospital's ``reference resident level.'' In addition, we refer to the 
``otherwise applicable resident limit'' as the hospital's FTE resident 
cap that is applicable during the relevant cost reporting period. Thus, 
we are proposing, effective for portions of cost reporting periods 
beginning on or after July 1, 2011, we will permanently reduce the 
hospital's FTE resident cap by 65 percent of the difference between the 
reference resident level and the hospital's otherwise applicable 
resident limit for IME and direct GME respectively. For example, if a 
hospital's otherwise applicable resident limit for the reference period 
is 100, and its reference resident level is 80 FTEs, we will reduce the 
hospital's FTE resident cap by 13 FTEs [0.65 (100 - 80)] = 13. We are 
proposing to add new regulations at Sec.  412.105(f)(1)(iv)(B)(2) for 
IME and at Sec.  413.79(m) for direct GME to reflect our proposals 
regarding reductions to hospitals' FTE resident caps under section 
5503.
4. Exemption From FTE Resident Cap Reduction for Certain Rural 
Hospitals
    Section 1886(h)(8)(A)(ii)(I) of the Act, as added by section 5503 
of the Affordable Care Act, specifically exempts rural hospitals (as 
defined in section 1886(d)(2)(D)(ii) of the Act) with fewer than 250 
acute care inpatient beds from reductions to their FTE resident caps 
under section 1886(h)(8)(A). Section 1886(d)(2)(D)(ii) of the Act 
defines a rural area as any area outside a Metropolitan Statistical 
Area (MSA). Under the existing regulations at Sec.  412.62(f)(ii), an 
``urban area'' means: (1) An MSA or New England County Metropolitan 
Area (NECMA), as defined by the Executive Office of Management and 
Budget; or (2) the following New England counties: Litchfield County, 
Connecticut; York County, Maine; Sagadahoc County, Maine; Merrimack 
County, New Hampshire; and Newport County, Rhode Island. Under existing 
Sec.  412.62(f)(iii), a ``rural area'' means any area outside an urban 
area. We note that we no longer use the term MSA, and instead use the 
term Core-Based Statistical Area (CBSA) for locality and wage index 
purposes. A hospital's bed size is based on its number of available 
beds, as determined for IME payment purposes under Sec.  412.105(b) of 
the regulations. For purposes of determining whether a rural hospital 
has fewer than 250 beds, we are proposing to use data from the rural 
hospital's most recent cost reporting period ending on or before March 
23, 2010. (This information may be found on Worksheet S-3, Part I of 
the Medicare cost report, CMS-2552-96, the sum of lines 1 and 6 through 
10 in column 2, minus line 26 in column 6, divided by the number of 
days in the cost reporting period.) We are proposing that if a rural 
hospital has fewer than

[[Page 46392]]

250 beds in its most recent cost reporting period ending on or before 
March 23, 2010, the hospital would not be subject to a possible 
reduction to its FTE resident cap(s) under section 1886(h)(8)(A) of the 
Act. However, if a rural hospital has at least 250 beds in its most 
recent cost reporting period ending on or before March 23, 2010, we are 
proposing that the rural hospital would be subject to a reduction to 
its FTE resident cap(s).
5. Application of Section 5503 to Hospitals That Participate in 
Demonstration Projects or Voluntary Residency Reduction Programs and 
Certain Other Hospitals
    In addition to certain rural hospitals as noted above, section 
1886(h)(8)(A)(ii) of the Act also exempts certain other hospitals from 
a cap reduction.
    Section 1886(h)(8)(A)(ii)(II) of the Act, as amended by section 
5503 of the Affordable Care Act, specifically exempts ``a hospital that 
was part of a qualifying entity which had a voluntary residency 
reduction plan approved under paragraph (6)(B) or under the authority 
of section 402 of Public Law 90-248, if the hospital demonstrates to 
the Secretary that it has a specific plan in place for filling the 
unused positions by not later than 2 years after the date of enactment 
of this paragraph.'' This language is referring to the National 
Voluntary Residency Reduction Plan (VRRP), the New York Medicare GME 
Demonstration (New York Demonstration), and the Utah Medicare GME 
Demonstration (Utah Demonstration).
    In July 1997, 42 New York teaching hospitals participated in the 
New York Demonstration. An additional seven hospitals joined the New 
York Demonstration in July 1998. The purpose of the New York 
Demonstration was to test reimbursement changes associated with 
residency training to determine whether hospitals could use time-
limited transition funding to replace and reengineer the services 
provided by a portion of their residency trainees. In exchange for 
reducing its count of residents by 20 to 25 percent over a 5-year 
period, while maintaining or increasing its primary care-to-specialty 
ratio of residents, a participating hospital (or consortium of 
hospitals) participating in the New York Demonstration would receive 
``hold harmless payments'' for 6 years.
    Since 2003, nine Utah teaching hospitals have participated in the 
Utah Demonstration to allocate Medicare GME funding to Utah hospitals 
based on health professions workforce planning. Under the Utah 
Demonstration, Medicare contractors redirect Medicare direct GME funds 
from each of the teaching hospitals in Utah and pay those amounts to 
the Utah Medical Education Council, an agency of the State government.
    Under the VRRP approved under section 1886(h)(6)(B) of the Act, 
hospitals could use time-limited transition funding to replace the 
services provided by a portion of their residents. In exchange for 
reducing its count of residents by 20 to 25 percent over a 5-year 
period, while maintaining or increasing its primary care-to-specialty 
ratio of residents, a VRRP participating hospital would receive ``hold 
harmless payments'' for 5 years.
    Based on the language of section 1886(h)(8)(A)(ii)(II) of the Act, 
we are proposing that hospitals that participated in the New York 
Demonstration, the Utah Demonstration, or a VRRP could be exempt from a 
cap reduction under section 1886(h)(8)(A) of the Act. We are proposing 
to not differentiate between those hospitals that withdrew from either 
demonstration prior to its completion and those hospitals that 
completed either demonstration. That is, we are proposing that any 
hospital that, at some point, participated in the New York 
Demonstration, the Utah Demonstration, or the VRRP could be exempt from 
a cap reduction. Specifically, consistent with the statutory language 
at section 1886(h)(8) of the Act, even though only seven hospitals 
actually completed the New York Demonstration, any hospital that 
participated in the New York Demonstration could be exempt from a cap 
reduction. As required under section 1886(h)(8)(A)(ii)(II) of the Act, 
to be exempt from the cap reduction, hospitals that had a VRRP approved 
under section 1886(h)(6)(B) of the Act or hospitals that participated 
in a demonstration project approved under section 402 of Pub. L. 90-248 
must demonstrate to the Secretary that they have a plan in place for 
filling their unused slots within 2 years after the date of enactment 
of Pub. L. 111-148 (that is, by March 23, 2012). We are proposing that 
these hospitals must submit their plans specifying how they would fill 
their unused slots to CMS by December 1, 2010, in order to be exempt 
from a cap reduction.
    In addition to the hospitals described under 1886(h)(8)(A)(ii)(II) 
of the Act, section 1886(h)(8)(A)(ii)(III) of the Act exempts a 
hospital described under section 1886(h)(4)(H)(v) of the Act from a cap 
reduction. Therefore, we are proposing that such hospital described 
under section 1886(h)(4)(H)(v) of the Act be exempt from a cap 
reduction.
    Finally, section 1886(h)(8)(H)(i) of the Act provides that the 
hospital's reference resident level is the resident level for the one 
cost reporting period out of the three most recent cost reporting 
periods ending before March 23, 2010, with the highest resident level. 
Under section 1886(h)(8)(A)(i), that reference resident level is used 
to make the determination of whether a hospital's FTE resident cap(s) 
should be reduced. Therefore, we are proposing that if a hospital 
trains at or above its otherwise applicable resident level in all of 
its three most recent cost reporting periods ending before March 23, 
2010, the hospital would be exempt from a cap reduction. A separate 
determination would be made regarding any reduction to the hospital's 
direct GME cap and its IME cap.
6. Determining the Estimated Number of FTE Resident Slots Available for 
Redistribution
    In accordance with section 1886(h)(8)(A) of the Act, as added by 
section 5503 of the Affordable Care Act, we will determine the number 
of resident positions available for redistribution by estimating the 
expected reductions to hospitals' FTE resident caps. We believe that 
section 1886(h)(8)(A) of the Act allows us to distinguish between the 
FTE counts that are used to determine the number of FTE resident slots 
that are available for redistribution (that is, the ``redistribution 
pool'') and the actual number of FTE residents by which hospitals' FTE 
resident caps are ultimately reduced. We are proposing to estimate the 
reduction to a hospital's FTE cap under section 1886(h)(8)(A) of the 
Act for purposes of determining the number of FTEs that a hospital 
might contribute to the redistribution pool. We are proposing to 
estimate the redistribution pool for redistribution in accordance with 
section 1886(h)(8)(B)(i) of the Act, as added by section 5503(a)(4), 
which states: ``The aggregate number of increases in the otherwise 
applicable resident limit under this subparagraph shall be equal to the 
aggregate reduction in such limits attributable to subparagraph (A) (as 
estimated by the Secretary)'' (emphasis added). Therefore, we are 
proposing to estimate and redistribute the number of resident slots in 
the redistribution pool, and to ensure that the aggregate number of FTE 
residents by which we increase the FTE resident caps of qualifying 
hospitals under section 1886(h)(8)(B) of the Act is not more than CMS' 
estimate of the redistribution pool. We note if we

[[Page 46393]]

were subsequently to perform an audit, as described further in section 
XVII.D.7. of this proposed rule, in order to make a final determination 
regarding any reductions to a hospital's FTE resident cap, and find 
that the aggregate number of FTE resident reductions differed from the 
number CMS had initially estimated for the redistribution pool, the 
number of slots that can be redistributed from the redistribution pool 
to qualifying hospitals would not be affected.
    To ensure that we will begin making payments for most hospitals 
based on the revised FTE resident caps by July 1, 2011, we are 
proposing to set a date by which we will have determined a hospital's 
reference resident level and compared it to the hospital's otherwise 
applicable FTE resident cap(s) to estimate whether, and by how much, 
the hospital's FTE cap(s) would be reduced. We are proposing that this 
date be May 1, 2011, and that date would apply for all hospitals for 
purposes of determining an estimate of whether and by how much their 
FTE resident caps should be reduced. In the event that the Medicare 
contractors have not completed an audit (explained further under 
section XVII.D.7. of this proposed rule) by May 1, 2011, we are 
proposing to estimate by May 1, 2011, the number of FTE residents by 
which a hospital's FTE resident cap is expected to be reduced. For 
example, a Medicare contractor may estimate by May 1, 2011, that 
Hospital A's FTE resident cap should be reduced by 10 FTEs. Thus, we 
would place 10 FTEs into the redistribution pool. It is possible that 
even after May 1, 2011, the contractor may continue to audit Hospital 
A's relevant cost reports to determine if, in fact, 10 FTEs is the 
appropriate number by which to reduce Hospital A's FTE resident cap, 
and could ultimately conclude that Hospital A's FTE resident cap should 
only be reduced by 8 FTEs. If the Medicare contractor does not make 
this revised determination based on the audit by May 1, 2011, we would 
reduce Hospital A's FTE resident cap by 8 FTEs effective July 1, 2011, 
but the number of FTE residents in the redistribution pool attributable 
to Hospital A would remain at 10 FTEs (the estimated number as of May 
1, 2011). Similarly, if the Medicare contractor ultimately concluded 
that Hospital A's FTE resident cap should be reduced by 12 FTEs, but 
this final determination is not made by May 1, 2011, Hospital A's FTE 
resident cap would be reduced by 12 FTEs effective July 1, 2011, but 
the number of FTE residents in the redistribution pool attributable to 
Hospital A would remain at 10 FTEs. Therefore, because we believe that 
section 1886(h)(8)(B)(i) of the Act allows us to distinguish between 
the FTE counts that are used to determine the size of the 
redistribution pool, and the actual aggregate number of FTE residents 
by which hospitals' FTE resident caps are ultimately reduced, we are 
proposing to use estimated information to determine possible reductions 
to hospitals' FTE resident caps to estimate the number of FTE resident 
slots to be distributed under section 1886(h)(8)(B). In addition, we 
note that, as was done when we implemented section 422 of Pub. L. 108-
173, Medicare contractors will provide hospitals with a time-limited 
opportunity to review cap reduction determinations for possible 
technical errors before they are finalized.
7. Reference Cost Reports That Are Under Appeal
    We understand that there may be instances where a hospital's 
otherwise applicable resident limit or a hospital's FTE resident count 
for a reference cost reporting period might be under appeal. When 
implementing section 422 of Public Law 108-173, we stated in the August 
11, 2004 Federal Register (69 FR 49118) that we believe that it is in 
the best interest of the Medicare program, CMS, the contractors, and 
the hospitals to adopt an approach that allows for finality as early as 
possible during the process of implementing this provision. We stated 
that we believed Congress gave some consideration to the challenges we 
would encounter in implementing a provision as complex as section 422 
in such a short timeframe by providing the Secretary with the 
discretion to distinguish between the FTE counts that are used to 
estimate the number of FTE resident slots that are available for 
redistribution (that is, the ``redistribution pool''), and the actual 
number of FTE residents by which hospitals' FTE resident caps are 
ultimately reduced.
    Furthermore, as we stated in the August 11, 2004 Federal Register 
(69 FR 49118), the fact that the Congress took the unusual step of 
including the language at section 1886(h)(7)(D) of the Act which 
provides that, ``There shall be no administrative or judicial review . 
. . with respect to determinations made under this paragraph,'' 
supports the position advocating for finality. If we had delayed 
determinations concerning hospital-specific FTE cap determinations 
until all affected cost reports are settled, audited, and appealed 
through the various channels normally available to providers, the 
language, and in particular the specified timeframe, under section 
1886(h)(7)(D) of the Act would have been rendered meaningless. 
Therefore, despite the complexity of section 422 and the potential for 
profound and long-term GME payment ramifications, we believed that the 
Congress did not expect the implementation of section 422 provision to 
linger indefinitely. Rather, by limiting appeal rights and requiring an 
effective date of July 1, 2005, for reductions in FTE resident caps 
(which required implementation in a relatively short timeframe), the 
Congress expected section 1886(h)(7) of the Act, as added by section 
422 of Public Law 108-173, to be implemented with expediency and 
finality.
    Similarly, in implementing section 5503 of the Affordable Care Act, 
we note that determinations under section 1886(h)(8)(A)(i) of the Act 
are required to be made effective July 1, 2011, and, for the same 
reasons cited when we implemented section 422, we believe these 
determinations should be final on, or as quickly as possible after, 
that date. We note that section 5503(a)(3) of the Affordable Care Act 
modified section 1886(h)(7)(E) of the Act by inserting ``or paragraph 
(8)'' to specify that there shall be no administrative or judicial 
review with respect to determinations made under section 5503 as well. 
Therefore, as was our final policy when implementing section 422, we 
are proposing to not wait for appeals of reference period cost reports 
to be resolved before making a final determination as to whether and by 
how much a hospital's FTE resident cap will be reduced. However, we do 
perceive the need in certain instances to continue audit work for a 
limited time period past July 1, 2011, to promote the accuracy of FTE 
resident cap determinations. As under section 422, we are proposing to 
adopt a policy that would require the Medicare contractors to use the 
latest available cost report or audit data at the time they make their 
determinations. If, as of the time the Medicare contractor makes the 
determination as to whether and by how much a hospital's FTE resident 
cap should be reduced, there is a pending appeal of the hospital's 
otherwise applicable resident limit for the reference cost reporting 
period (that is, a final decision has not been rendered), the Medicare 
contractor would not wait until a decision is rendered, but would use 
the FTE resident cap from the initially settled (as indicated in the 
Notice of Program Reimbursement (NPR)) reference period cost report. 
Alternatively, if the appeal regarding the otherwise applicable 
resident limit has

[[Page 46394]]

been resolved as of the time that the Medicare contractor makes the 
determination as to whether and by how much a hospital's FTE resident 
cap should be reduced, the Medicare contractor would use the FTE 
resident level that will be used in issuing the subsequent NPR, as 
established through the appeal. If a reference period cost report has 
been submitted but not settled at the time the Medicare contractor is 
making the determination as to whether and by how much a hospital's FTE 
resident cap should be reduced, the reference resident level is subject 
to audit by the Medicare contractor, and the final determination 
regarding any possible reduction to the hospital's FTE resident cap is 
not subject to appeal. Although we would make every effort to provide 
contractors with the resources they need to complete as many audits as 
possible in time to notify each hospital by July 1, 2011, of their FTE 
cap determinations under section 1886(h)(8)(A) of the Act, there may be 
instances where the audits of the reference resident levels may not be 
completed by July 1, 2011. We anticipate that within the scope of their 
normal audit work, the Medicare contractors will complete as many of 
these audits as possible, and some of the audits may not be completed 
until December 31, 2011. We are proposing that, in accordance with 
section 1886(h)(8)(A) all cap determinations made after July 1, 2011 
and through December 2011 will be effective retroactively to July 1, 
2011.
8. Determining the Possible Reduction to a Hospital's FTE Resident Cap
a. Reference Resident Level--General
    In order to determine if a hospital's reference resident level is 
less than the hospital's otherwise applicable FTE resident cap, section 
1886(h)(8)(H) of the Act, as added by section 5503 of the Affordable 
Care Act, directs the Secretary to use one of three reference cost 
reporting periods. Section 1886(h)(8)(H) of the Act directs the 
Secretary to use a hospital's most recent cost reporting period ending 
before the date of enactment, which is March 23, 2010, with the highest 
resident level ``for which a cost report has been settled (or, if not, 
submitted (subject to audit)), as determined by the Secretary,'' as the 
reference period. Generally, if the hospital's resident level for 
either direct GME or IME is less than the hospital's otherwise 
applicable resident limit for direct GME or IME, respectively, in the 
reference period, the hospital's FTE resident cap for direct GME and/or 
IME will be reduced by 65 percent of the difference between the 
resident level and the otherwise applicable resident limit. We note 
that, for purposes of determining a reduction to a hospital's direct 
GME cap, the unweighted direct GME cap will be compared to the direct 
GME FTE resident count. The following explanation is an example of how 
a hospital's cap(s) would be reduced under section 1886(h)(8)(A) of the 
Act. For purposes of this example, Hospital A's three most recent cost 
reporting periods ending before March 23, 2010, which have been 
submitted to the Medicare contractor are as follows: July 1, 2006-June 
30, 2007; July 1, 2007-June 30, 2008; and July 1, 2008-June 30, 2009. 
Hospital A's FTE resident count and FTE resident caps (as adjusted for 
those items discussed in section XVII.D.3. of this proposed rule) are 
as noted in the table.
[GRAPHIC] [TIFF OMITTED] TP03AU10.561

    As noted earlier in this preamble, a separate determination 
regarding whether and by how much to reduce a hospital's cap will be 
made for its direct GME cap and for its IME cap. In order to determine 
whether Hospital A would be subject to a cap reduction, we must first 
determine whether Hospital A was training at or above its cap in all 
three most recent (settled or submitted) cost reporting periods ending 
before March 23, 2010. For purposes of a reduction to Hospital A's IME 
cap, we note from the chart above that in all three cost reporting 
periods, Hospital A is training below its otherwise applicable resident 
limit for IME. Therefore, we know that Hospital A would be subject to 
an IME cap reduction. In order to determine which cost reporting period 
should be used as the reference period to determine the FTE cap 
reduction, we would use the cost reporting period with the highest FTE 
resident count for IME, which would be July 1, 2006-June 30, 2007. 
Therefore, we calculate the difference between the otherwise applicable 
resident limit for IME for the reference period (July 1, 2006-June 30, 
2007) and the reference resident level for IME, and determine the IME 
cap reduction based on 65 percent of the difference. For purposes of 
Hospital A's IME cap reduction, we would determine the difference 
between 18 (the otherwise applicable resident limit) and 17 (the 
reference resident level) and multiply that difference by 65 percent 
[(18 - 17) x .65] = 0.65. Therefore, the IME FTE cap for Hospital A 
would be reduced by 0.65 of an FTE. For purposes of a reduction to 
Hospital A's direct GME cap, we note from the chart above that Hospital 
A was training at or above its otherwise applicable resident limits for 
direct GME in all three cost reporting periods. Because a hospital that 
is training at or above its cap in all three cost reporting periods is 
exempt from a cap reduction, we would conclude that Hospital A's direct 
GME cap would not be reduced for direct GME payment purposes. We note 
that, in general, if a hospital was not participating in a Medicare GME 
affiliated group during any of its three most recent cost reporting 
periods ending before March 23, 2010, its reference cost reporting 
period will be the cost reporting period with the least amount of 
difference between the reference resident level and the otherwise 
applicable resident limit. In addition, we are proposing, that if a 
hospital has the same resident level for two or more cost reporting 
periods and that resident level is the ``highest'' resident level, we 
will use the cost reporting period of those ``highest'' cost reporting 
periods in which there is the least amount of difference between the 
resident level and the otherwise applicable resident limit to determine 
a cap reduction.
b. Audits of the Reference Cost Reporting Periods
    As mentioned under XVII.D.8.a. of this proposed rule, to determine 
a possible reduction to a hospital's FTE resident cap, section 
1886(h)(8)(H)(i) of the Act, as added by section 5503(a) of

[[Page 46395]]

Affordable Care Act, directs the Secretary to use, as the reference 
cost report, the one cost report out of the hospital's three most 
recent cost reporting periods ending before March 23, 2010, with the 
highest resident count ``for which a cost report has been settled (or, 
if not, submitted (subject to audit), as determined by the Secretary'' 
(emphasis added). We are proposing that if a hospital's cost report for 
the reference cost reporting period has been settled, the hospital's 
settled cost report, without further audit, would be used to determine 
possible reductions to the FTE resident caps. We note that the 
``settled'' cost report does not necessarily mean the initial cost 
report settlement. The Medicare contractor may have previously settled 
the cost report, reopened it to audit it, and then settled the cost 
report again, issuing a revised NPR. Thus, we would refer to the more 
recently issued NPR for that cost reporting period. For those cost 
reporting periods that would be used as the reference cost reporting 
period, which have been submitted to the Medicare contractor but not 
settled, Medicare contractors may perform desk or onsite audits related 
to section 5503. In addition, if the reference period cost report is 
for a period other than 12 months, we are proposing that for direct 
GME, the Medicare contractor would prorate the FTE resident caps and 
unweighted FTE resident count to equal 12-month counts.
c. Medicare GME Affiliation Agreements
    As described above, some hospitals that have resident levels below 
their FTE resident caps may have entered into Medicare GME affiliation 
agreements (as permitted under Sec.  413.79(f) of our regulations) with 
other hospitals that would otherwise exceed their FTE resident caps. 
Thus, while some hospitals in the Medicare GME affiliated group were 
training a number of residents below their FTE resident caps prior to 
entering into a Medicare GME affiliation agreement, upon affiliating, 
their FTE resident caps were temporarily reduced because some or all of 
their excess FTE slots were temporarily added to the FTE resident caps 
of other hospitals as part of the affiliation agreement. Under section 
422 of Pub. L. 108-173, the statute directed us to apply the provisions 
to hospitals that were members of the same affiliated group as of July 
1, 2003. In implementing section 422, we based the FTE resident cap 
reductions for hospitals that were participating in a Medicare GME 
affiliated group on the aggregate cap and count data from all hospitals 
participating in the same Medicare GME affiliated group(s). If a 
hospital was training a number of residents below its FTE resident cap 
for the reference cost reporting period but the hospital was part of a 
Medicare GME affiliated group for some or all of that reference cost 
reporting period, the Medicare contractor determined if the aggregate 
affiliated count for all hospitals in the affiliated group was greater 
than the aggregate affiliated cap. If the aggregate affiliated count 
was greater than the aggregate cap, then there was no reduction made to 
the FTE caps of any hospital in the affiliated group (even for a 
hospital that was part of the affiliated group, but was training below 
its cap). However, we note that, in contrast to section 422 of Pub. L. 
108-173, section 5503 of the Affordable Care Act does not include 
language specific to affiliated groups. Rather, section 1886(h)(8)(H) 
of the Act, as added by section 5503 of the Affordable Care Act, 
defines the reference resident level and the otherwise applicable 
resident limit with respect to ``a hospital.'' Similarly, section 
1886(h)(8)(A) refers only to ``a hospital's'' reference resident level. 
Thus in contrast to section 422 of Public Law 108-173, section 5503 is 
not amenable to determinations based on the aggregate experience of a 
Medicare GME affiliated group. Therefore, we are proposing that 
Medicare contractors would make determinations regarding FTE cap 
reductions under section 1886(h)(8)(A)(i) by considering the 
relationship of the individual hospital's otherwise applicable resident 
limit for the reference period (which is the FTE resident cap for a 
period as adjusted by any affiliation agreement(s)) to the individual 
hospital's reference resident level. That is, we are proposing that in 
a hospital's reference year, if that hospital is participating in a 
Medicare GME affiliated group and is training a number of residents 
below its FTE caps as adjusted pursuant to any affiliation agreements 
which can be found on Worksheet E, Part A, line 3.06 for IME, and 
Worksheet E-3 Part IV, line 3.03 for direct GME, the hospital's FTE 
resident caps would be subject to a reduction under section 
1886(h)(8)(A)(i) even if the Medicare GME affiliated group as a whole 
may be training a number of residents above the group's aggregate FTE 
resident cap.
d. Treatment of Hospitals That Have Merged
    We note that there may be instances where two hospitals merge on or 
after March 23, 2010, but were not merged in any or all of their three 
most recent cost reporting periods ending before March 23, 2010. For 
these hospitals, we are proposing that the Medicare contractors 
identify the hospitals' three most recent cost reporting periods ending 
before March 23, 2010, and treat the hospitals for purposes of section 
1886(h)(8)(A)(i) as if they were merged during those periods in 
determining whether there should be a reduction to the merged 
facility's FTE resident cap(s). That is, we are proposing that for each 
of the 3 years, we would combine the FTE resident counts and caps of 
the formerly separate facilities in order to identify the reference 
period, and to calculate the reference resident level and the otherwise 
applicable resident limit for the merged facility (for IME and direct 
GME respectively), even if the two facilities have different fiscal 
year ends. In addition, if any of the cost reporting periods are less 
than 12 months or greater than 13 months, the Medicare contractor would 
prorate the FTE resident counts and FTE caps for direct GME to equal a 
12-month cost reporting period.
9. Application of Section 5503 to Hospitals That File Low Utilization 
Medicare Cost Reports
    In general, section 5503 of the Affordable Care Act applies to 
Medicare-participating hospitals that train residents in approved 
residency training programs. However, some Medicare-participating 
hospitals may choose to submit low utilization cost reports. These low 
utilization cost reports may not contain the cost report worksheet that 
is used to calculate payments for direct GME, Worksheet E-3 Part IV. 
That is, these cost reports may not contain FTE resident count and cap 
information. For example, because Medicare-participating children's 
hospitals primarily serve a non-Medicare population and, therefore, 
receive minimal Medicare payments, some teaching children's hospitals 
submit low utilization cost reports. If a children's hospital files a 
low utilization cost report in a given cost reporting period, and does 
not file the Worksheet E-3 Part IV, that hospital is not considered by 
Medicare to be a teaching hospital for that cost reporting period. In 
addition, although children's hospitals may have an FTE resident 
``cap'' that is applicable for purposes of the Children's Hospital 
Graduate Medical Education (CHGME) Payment Program, administered by 
HRSA, this cap is not necessarily used for Medicare payment purposes. 
Therefore, we are proposing that if a low utilization hospital does not 
have a cap for Medicare payment purposes, it would not be subject to a 
negative cap

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reduction under section 5503. In addition, we are proposing that if a 
low utilization hospital does have a cap for Medicare payment purposes 
(for example, it had filed a regular cost report in 1996) but did not 
file Worksheet E-3 Part IV as part of its cost report in all three most 
recent cost reporting periods ending before March 23, 2010, it will be 
exempt from cap reduction. In addition, we are proposing that if a low 
utilization hospital has a cap for Medicare payment purposes and filed 
Worksheet E-3 Part IV in at least one of its three most recent cost 
reports ending before March 23, 2010, the Medicare contractor would 
determine, based on the data of the available cost reports with 
Worksheet E-3 Part IV, whether a cap reduction is necessary under 
section 1886(h)(8)(A)(i).
    For those low utilization hospitals that have an FTE cap for 
Medicare payment purposes and have filed Worksheet E-3 Part IV in any 
of the three most recent cost reporting periods ending before March 23, 
2010, we are proposing that determinations as to whether, and by how 
much, that low utilization hospital's cap may be reduced using the same 
methodology that we are proposing to use for other Medicare-
participating teaching hospitals. In addition, for purposes of section 
1886(h)(8)(B) of the Act, we are proposing that, a low utilization 
hospital would be eligible to apply for an increase in its FTE resident 
cap under section 1886(h)(8)(B) of the Act, subject to the same 
demonstrated likelihood and evaluation criteria proposed in this 
proposed rule for all other hospitals. However, as explained further 
below in this preamble, section 1886(h)(8)(B)(ii) of the Act, as added 
by section 5503(a)(4) of the Affordable Care Act, specifies certain 
requirements and thresholds that a hospital that receives additional 
slots must meet in order to retain those slots. One requirement is that 
the hospital must ensure for a 5-year period that its number of FTE 
primary care residents is not less than the average number of FTE 
primary care residents during the 3 most recent cost reporting periods 
ending prior to March 23, 2010. Accordingly, we are proposing that an 
applying children's hospital must meet the same documentation 
requirements to establish this primary care average as other applying 
hospitals, w