Federal Register: July 12, 2007 (Volume 72, Number 133)

DOCID: fr12jy07-25 FR Doc 07-3274

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Veterans Affairs Department

CFR Citation: 42 CFR Parts 409, 410, 411, 413, 414, 415, 418, 423, 424, 482, 484,

NOTICE: Part II

DOCID: fr12jy07-25

DOCUMENT ACTION: Proposed rule.

SUBJECT CATEGORY:

485, and 491

DATES: To be assured consideration, except for comments on section II.M.10 of the preamble, comments must be received at one of the adresses provided below, no later than 5 p.m. on Friday, August 31, 2007.

Comments on section II.M.10 ``Alternative Criteria for Satisfying Certain Exceptions'', of the preamble must be received by no later than 5 p.m. on Friday, September 7, 2007.

DOCUMENT SUMMARY:

This proposed rule would address certain provisions of the Tax Relief and Health Care Act of 2006, as well as make other proposed changes to Medicare Part B payment policy.

We are proposing these changes to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. This proposed rule also discusses refinements to resourcebased practice expense (PE) relative value units (RVUs); geographic practice cost indices (GPCI) changes; malpractice RVUs; requests for additions to the list of telehealth services; several coding issues including additional codes from the 5Year Review; payment for covered outpatient drugs and biologicals; the competitive acquisition program (CAP); clinical lab fee schedule issues; payment for renal dialysis services; performance standards for independent diagnostic testing facilities; expiration of the physician scarcity area (PSA) bonus payment authorized by section 413 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA); conforming and clarifying changes for comprehensive outpatient rehabilitation facilities (CORFs); a process for updating the drug compendia at section 1861(t)(2)(B) of the Social Security Act (the Act); physician selfreferral issues; beneficiary signature for ambulance transport services; durable medical equipment (DME) update; the chiropractic services demonstration; a Medicare economic index (MEI) data change; technical corrections; issues related to therapy services; revisions to the ambulance fee schedule; the ambulance inflation factor for CY 2008; and the proposal to eliminate the exemption for computergenerated facsimile transmissions from the National Council for Prescription Drug Programs (NCPDP) SCRIPT standard for transmitting prescription and certain prescriptionrelated information for Part D eligible individuals.

SUMMARY:

Health and Human Services Department, Centers for Medicare & Medicaid Services,

DOCUMENT BODY 2:

[CMS1385P]
RIN 0938AO65

Medicare Program; Proposed Revisions to Payment Policies Under the Physician Fee Schedule, and Other Part B Payment Policies for CY 2008; Proposed Revisions to the Payment Policies of Ambulance Services Under the Ambulance Fee Schedule for CY 2008; and the Proposed Elimination of the EPrescribing Exemption for ComputerGenerated Facsimile Transmissions

SUPPLEMENTAL INFORMATION

Submitting Comments: We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code [CMS1385P] and the specific ``issue identifier'' that precedes the section on which you choose to comment.

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on
CMS Regulations'' on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 18007433951.

To assist readers in referencing sections contained in this preamble, we are providing the following table of contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations. Information on the regulation's impact appears throughout the preamble and is not exclusively in section VI.
Table of Contents
I. Background

A. Development of the Relative Value System

1. Work RVUs

2. Practice Expense Relative Value Units (PE RVUs)

3. ResourceBased Malpractice RVUs

4. Refinements to the RVUs

5. Adjustments to RVUs Are Budget Neutral

B. Components of the Fee Schedule Payment Amounts

C. Most Recent Changes to Fee Schedule
II. Provisions of the Proposed Regulation Related to the Physician Fee Schedule

A. ResourceBased Practice Expense (PE) Relative Value Units (RVUs)

1. Current Methodology

2. PE Proposals for CY 2008

B. Geographic Practice Cost Indices (GPCIs)

1. GPCI Update

2. Payment Localities

C. Malpractice (MP) RVUs (TC/PC Issue)

D. Medicare Telehealth Services

1. Requests for Adding Services to the List of Medicare Telehealth Services

2. Submitted Requests for Addition to the List of Telehealth Services

E. Specific Coding Issues Related to PFS

1. Reduction in the Technical Component (TC) for Imaging Services Under the PFS to the Outpatient Department (OPD) Payment Amount

2. Application of Multiple Procedure Reduction for Mohs Micrographic Surgery (CPT Codes 17311 Through 17315)

3. Payment for Intravenous Immune Globulin (IVIG) AddOn Code for PreadmissionRelated Services

4. Additional Codes From the 5Year Review of Work RVUs

5. Anesthesia Coding (Part of 5Year Review)

6. Reporting of Cardiac Rehabilitation Services

F. Part B Drug Payment

1. Average Sales Price (ASP) Issues

2. Competitive Acquisition Program (CAP) Issues

G. Issues Related to the Clinical Lab Fee Schedule

1. Date of Service for the TC of Physician Pathology Services (Sec. 414.510)

2. New Clinical Diagnostic Laboratory Test (Sec. 414.508)

H. Proposed Revisions Related to Payment for Renal Dialysis Services Furnished by EndStage Renal Disease (ESRD) Facilities

1. CY 2005 Revisions

2. CY 2006 Revisions

3. CY 2007 Updates

4. Provisions of This Proposed Rule

I. Independent Diagnostic Testing Facility (IDTF) Issues

1. Proposed Revisions of Existing IDTF Performance Standards

2. Proposed New IDTF Standards

J. Expiration of MMA Section 413 Provisions for Physician Scarcity Area (PSA)

K. Comprehensive Outpatient Rehabilitation Facility (CORF) Issues

1. Requirements for Coverage of CORF ServicesPlan of Treatment (Sec. 410.105(c))

2. Included Services (Sec. 410.100)

3. Physician Services (Sec. 410.100(a))

4. Clarifications of CORF Respiratory Therapy Services

5. Social and Psychological Services

6. Nursing Care Services

7. Drugs and Biologicals

8. Supplies and DME

9. Clarifications and Payment Updates for Other CORF Services

10. CostBased Payment (Sec. 413.1)

11. Payment for Comprehensive Outpatient Rehabilitation Facility (CORF) Services

12. Vaccines

L. Compendia for Determination of MedicallyAccepted Indications for OffLabel Uses of Drugs and Biologicals in an AntiCancer Chemotherapeutic Regimen (Sec. 414.930)

1. Background

2. Process for Determining Changes to the Compendia List

M. Physician SelfReferral Issues

1. Changes to Reassignment and Physician SelfReferral Rules Relating to Diagnostic Tests (AntiMarkup Provision)

2. Burden of Proof

3. InOffice Ancillary Services Exception

4. Obstetrical Malpractice Insurance Subsidies

5. UnitofService (per click) Payments in Space and Equipment Leases

6. Period of Disallowance for Noncompliant Financial Relationships

7. Ownership or Investment Interest in Retirement Plans

8. ``Set in Advance'' and PercentageBased Compensation Arrangements

9. Stand in the Shoes

10. Alternative Criteria for Satisfying Certain Exceptions

11. Services Furnished ``Under Arrangements''

N. Beneficiary Signature for Ambulance Transport Services

O. Update to Fee Schedules for Class III DME for CYs 2007 and 2008

1. Background

2. Proposed Update to Fee Schedule

P. Discussion of Chiropractic Services Demonstration

Q. Technical Corrections

1. Particular Services Excluded From Coverage (Sec. 411.15(a))

2. Medical Nutrition Therapy (Sec. 410.132(a))

3. Payment Exception: Pediatric Patient Mix (Sec. 413.84)

4. Diagnostic XRay Tests, Diagnostic Laboratory Tests, and Other Diagnostic Tests: Conditions (Sec. 410.32(a)(1))

R. Percentage Change in the Medicare Economic Index (MEI)

S. Other Issues
[[Page 38124]]

1. Recalls and Replacement Devices

2. Therapy Standards and Requirements

3. Proposed Elimination of the Exemption for ComputerGenerated Facsimile Transmission From the National Council for Prescription Drug Programs (NCPDP) SCRIPT Standard for Transmitting Prescription and Certain Prescription Related Information for Part D Eligible Individuals

T. Division B of the Tax Relief and Health Care Act of 2006 Medicare Improvements and Extension Act of 2006 (Pub. L. 109432) (MIEATRHCA)

1. Section 101(b)Physician Quality Reporting Initiative (PQRI)

2. Section 110Reporting of Anemia Quality Indicators (Sec. 414.707(b))

3. Section 104Extension of Treatment of Certain Physician Pathology Services Under Medicare

4. Section 201Extension of Therapy Cap Exception Process

5. Section 101(d)Physician Assistance and Quality Initiative (PAQI) Fund

6. Section 108Payment Process Under the Competitive Acquisition Program (CAP)
III. Fee Schedule for Payment of Ambulance Services Update for CY 2007; Ambulance Inflation Factor Update for CY 2008; and Proposed Revisions to the Publication of the Ambulance Fee Schedule (Sec. 414.620)

A. History of Medicare Ambulance Services

1. Statutory Coverage of Ambulance Services

2. Medicare Regulations for Ambulance Services

3. Transition to National Fee Schedule

B. Ambulance Inflation Factor (AIF) During the Transition Period

C. Ambulance Inflation Factor (AIF) for CY 2008

D. Proposed Revisions to the Publication of the Ambulance Fee Schedule (Sec. 414.620)
IV. Collection of Information Requirements
V. Response to Comments
VI. Regulatory Impact Analysis

Regulation Text

Addendum AExplanation and Use of Addendum B

Addendum B2008 Relative Value Units and Related Information Used in Determining Medicare Payments for 2008

Addendum CCodes for Which We Received PERC Recommendations on PE Direct Inputs

Addendum DProposed 2008 Geographic Adjustment Factors (GAFs)

Addendum EProposed 2008* Geographic Practice Cost Indices (GPCIs) by State and Medicare Locality

Addendum FCPT/HCPCS Imaging Codes Defined by Section 5102(b) of the DRA

Addendum GFY 2008 Wage Index for Urban Areas Based On CBSA Labor Market Areas

Addendum HFY 2008 Wage Index based on CBSA Labor Market Areas for Rural Areas

Acronyms

In addition, because of the many organizations and terms to which we refer by acronym in this final rule with comment period, we are listing these acronyms and their corresponding terms in alphabetical order below:
AAA Abdominal aortic aneurysm
AAP Average acquisition price ?>
ACOTE Accreditation Council for Occupational Therapy Education ACR American College of Radiology
AFROC Association of Freestanding Radiation Oncology Centers AHFSDI American Hospital Formulary ServiceDrug Information
AHRQ Agency for Healthcare Research and Quality (HHS)
AIF Ambulance inflation factor
AMA American Medical Association
AMADE American Medical Association Drug Evaluations
AMP Average manufacturer price
AOTA American Occupational Therapy Association
APC Ambulatory payment classification
APTA American Physical Therapy Association
ASA American Society of Anesthesiologists
ASC Ambulatory surgical center
ASP Average sales price
ASTRO American Society for Therapeutic Radiology and Oncology ATA American Telemedicine Association
AWP Average wholesale price
BBA Balanced Budget Act of 1997 (Pub. L. 10533)
BBRA [Medicare, Medicaid and State Child Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106113)
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection Act of 2000
BLS Bureau of Labor Statistics
BMD Bone mineral density
BMI Body mass index
BMM Bone mass measurement
BN Budget neutrality
BSA Body surface area
CAD Computeraided detection
CAH Critical access hospital
CAP Competitive acquisition program
CBSA CoreBased Statistical Area
CEM Cardiac event monitoring
CF Conversion factor
CFR Code of Federal Regulations
CMA California Medical Association
CMS Centers for Medicare & Medicaid Services
CNS Clinical nurse specialist
CORF Comprehensive Outpatient Rehabilitation Facility
COTA Certified Occupational Therapy Assistant
CPEP Clinical Practice Expert Panel
CPI Consumer Price Index
CPIU Consumer price index for urban customers
CPT (Physicians') Current Procedural Terminology (4th Edition, 2002, copyrighted by the American Medical Association)
CRTD Cardiac resynchronization therapy defibrillator
CT Computed tomography
CTA Computed tomographic angiography
CY Calendar year
DEXA Dual energy xray absorptiometry
DHS Designated health services
DME Durable medical equipment
DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies
DO Doctor of Osteopathy
DRA Deficit Reduction Act of 2005 (Pub. L. 109432)
E/M Evaluation and management
ECI Employment cost index
EHR Electronic health record
EPC [Duke] Evidencebased Practice Centers
EPO Erythopoeitin
ESRD End stage renal disease
F&C Facts and Comparisons
FAW Furnish as written
FAX Facsimile
FDA Food and Drug Administration (HHS)
FMR Fair market rents
FQHC Federally qualified health center
FR Federal Register
GAF Geographic adjustment factor
GAO General Accounting Office
GII Global Insight, Inc.
GPO Group purchasing organization
GPCI Geographic practice cost index
HCPAC Health Care Professional Advisory Committee
HCPCS Healthcare Common Procedure Coding System
HCRIS Healthcare Cost Report Information System
HIPAA Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104191)
HHA Home health agency
HHS [Department of] Health and Human Services
HIT Health information technology
HMO Health maintenance organization
HPSA Health Professional Shortage Area
HRSA Health Resources Services Administration (HHS)
HUD [Department of] Housing and Urban Development
ICD Implantable cardioverterdefibrillator
ICF Intermediate care facilities
IDTF Independent diagnostic testing facility
IFC Interim final rule with comment period
IOTED International Occupational Therapy Eligibility Determination IPPE Initial preventive physical examination
IPPS Inpatient prospective payment system
IV Intravenous
IVIG Intravenous immune globulin
IWPUT Intraservice work per unit of time
JCAAI Joint Council of Allergy, Asthma, and Immunology
LPN Licensed practical nurse
MA Medicare Advantage
MAPD Medicare AdvantagePrescription Drug Plans
MD Medical doctor
MedCAC Medicare Evidence Development and Coverage Advisory Committee (formerly the Medicare Coverage Advisory Committee (MCAC))
MedPAC Medicare Payment Advisory Commission
MEI Medicare Economic Index
MIEATRHCA Medicare Improvements and Extension Act of 2006 (That is, Division B of the Tax Relief and Health Care Act of 2006 (TRHCA)) [[Page 38125]]
MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108173)
MNT Medical nutrition therapy
MP Malpractice
MRA Magnetic resonance angiography
MRI Magnetic resonance imaging
MSA Metropolitan statistical area
MSP Medicare Secondary Payer
MSVP Multispecialty visit package
NBCOT National Board for Certification in Occupational Therapy, Inc. NCCN National Comprehensive Cancer Network
NCPDP National Council for Prescription Drug Programs
NCQDIS National Coalition of Quality Diagnostic Imaging Services NDC National drug code
NEMC New England Medical Center
NISTA National Institute of Standards and Technology Act
NLA National limitation amount
NP Nurse practitioner
NPP Nonphysician practitioners
NQF National Quality Forum
NTTAA National Technology Transfer and Advancement Act of 1995 (Pub. L. 104113)
OACT [CMS'] Office of the Actuary
OBRA Omnibus Budget Reconciliation Act
OIG Office of Inspector General
OMB Office of Management and Budget
OPD Outpatient Department
OPPS Outpatient prospective payment system
OPT Outpatient physical therapy
OSCAR Online Survey and Certification and Reporting
PA Physician assistant
PC Professional component
PCF Patient compensation fund
PDP Prescription Drug Plan
PE Practice Expense
PE/HR Practice expense per hour
PEAC Practice Expense Advisory Committee
PECOS Provider Enrollment, Chain, and Ownership System
PERC Practice Expense Review Committee
PET Positron emission tomography
PFS Physician Fee Schedule
PLI Professional liability insurance
PPI Producer price index
PPS Prospective payment system
PQRI Physician Quality Reporting Initiative
PRA Paperwork Reduction Act
PSA Physician scarcity areas
PT Physical therapy
PT/INR Prothrombin time, international normalized ratio
RFA Regulatory Flexibility Act
RHC Rural health clinic
RIA Regulatory impact analysis
RN Registered nurse
RT Respiratory therapist
RUC [AMA's Specialty Society] Relative (Value) Update Committee RVU Relative value unit
SBA Small Business Administration
SGR Sustainable growth rate
SLP Speechlanguage pathology
SMS [AMA's] Socioeconomic Monitoring System
SNF Skilled nursing facility
STS Society of Thoracic Surgeons
TA Technology Assessment
TC Technical Component
TENS Transcutaneous electric nerve stimulator
TRHCA Tax Relief and Health Care Act of 2006 (Pub. L. 109432) USPDI United States PharmacopoeiaDrug Information
WAC Wholesale acquisition cost
WAMP Widely available market price
Wet AMD Exudative agerelated macular degeneration
WFOT World Federation of Occupational Therapists
I. Background
[If you choose to comment on issues in this section, please include the caption ``BACKGROUND'' at the beginning of your comments.]

Since January 1, 1992, Medicare has paid for physicians' services under section 1848 of the Social Security Act (the Act), ``Payment for Physicians' Services.'' The Act requires that payments under the physician fee schedule (PFS) be based on national uniform relative value units (RVUs) based on the resources used in furnishing a service. Section 1848(c) of the Act requires that national RVUs be established for physician work, practice expense (PE), and malpractice expense. Before the establishment of the resourcebased relative value system, Medicare payment for physicians' services was based on reasonable charges.
A. Development of the Relative Value System

1. Work RVUs

The concepts and methodology underlying the PFS were enacted as part of the Omnibus Budget Reconciliation Act (OBRA) of 1989, Pub. L. 101239, and OBRA 1990, (Pub. L. 101508). The final rule, published November 25, 1991 (56 FR 59502), set forth the fee schedule for payment for physicians' services beginning January 1, 1992. Initially, only the physician work RVUs were resourcebased, and the PE and malpractice RVUs were based on average allowable charges.

The physician work RVUs established for the implementation of the fee schedule in January 1992 were developed with extensive input from the physician community. A research team at the Harvard School of Public Health developed the original physician work RVUs for most codes in a cooperative agreement with the Department of Health and Human Services (HHS). In constructing the codespecific vignettes for the original physician work RVUs, Harvard worked with panels of experts, both inside and outside the Federal government, and obtained input from numerous physician specialty groups.

Section 1848(b)(2)(B) of the Act specifies that the RVUs for anesthesia services are based on RVUs from a uniform relative value guide. We established a separate conversion factor (CF) for anesthesia services, and we continue to utilize time units as a factor in determining payment for these services. As a result, there is a separate payment methodology for anesthesia services.

We establish physician work RVUs for new and revised codes based on recommendations received from the American Medical Association's (AMA) Specialty Society Relative Value Update Committee (RUC).

2. Practice Expense Relative Value Units (PE RVUs)

Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 103432), enacted on October 31, 1994, amended section
1848(c)(2)(C)(ii) of the Act and required us to develop resourcebased PE RVUs for each physician's service beginning in 1998. We were to consider general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising PEs.

Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 10533), amended section 1848(c)(2)(C)(ii) of the Act to delay implementation of the resourcebased PE RVU system until January 1, 1999. In addition, section 4505(b) of the BBA provided for a 4year transition period from chargebased PE RVUs to resourcebased RVUs.

We established the resourcebased PE RVUs for each physician's service in a final rule, published November 2, 1998 (63 FR 58814), effective for services furnished in 1999. Based on the requirement to transition to a resourcebased system for PE over a 4year period, resourcebased PE RVUs did not become fully effective until 2002.

This resourcebased system was based on two significant sources of actual PE data: The Clinical Practice Expert Panel (CPEP) data and the AMA's Socioeconomic Monitoring System (SMS) data. The CPEP data were collected from panels of physicians, practice administrators, and nonphysicians (for example, registered nurses (RNs)) nominated by physician specialty societies and other groups. The CPEP panels identified the direct inputs required for each physician's service in both the office setting and outofoffice setting. We have since refined and revised these inputs based on recommendations from the RUC. The AMA's SMS data provided aggregate
[[Page 38126]]

specialtyspecific information on hours worked and PEs.

Separate PE RVUs are established for procedures that can be performed in both a nonfacility setting, such as a physician's office, and a facility setting, such as a hospital outpatient department. The difference between the facility and nonfacility RVUs reflects the fact that a facility typically receives separate payment from Medicare for its costs of providing the service, apart from payment under the PFS. The nonfacility RVUs reflect all of the direct and indirect PEs of providing a particular service.

Section 212 of the Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106113) directed the Secretary of Health and Human Services (the Secretary) to establish a process under which we accept and use, to the maximum extent practicable and consistent with sound data practices, data collected or developed by entities and organizations to supplement the data we normally collect in determining the PE component. On May 3, 2000, we published the interim final rule (65 FR 25664) that set forth the criteria for the submission of these supplemental PE survey data. The criteria were modified in response to comments received, and published in the Federal Register (65 FR 65376) as part of a November 1, 2000 final rule. The PFS final rules published in 2001 and 2003, respectively, (66 FR 55246 and 68 FR 63196) extended the period during which we would accept these supplemental data through March 1, 2005.

In CY 2007 PFS final rule with comment period (71 FR 69624), we revised the methodology for calculating PE RVUs beginning in CY 2007 and provided for a 4year transition for the new PE RVUs under this new methodology. We will continue to evaluate this policy and proposed necessary revisions through future rulemaking.

3. ResourceBased Malpractice (MP) RVUs

Section 4505(f) of the BBA amended section 1848(c) of the Act to require us to implement resourcebased malpractice (MP) RVUs for services furnished on or after 2000. The resourcebased MP RVUs were implemented in the PFS final rule published November 2, 1999 (64 FR 59380). The MP RVUs were based on malpractice insurance premium data collected from commercial and physicianowned insurers from all the States, the District of Columbia, and Puerto Rico.

4. Refinements to the RVUs

Section 1848(c)(2)(B)(i) of the Act requires that we review all RVUs no less often than every 5 years. The first 5Year Review of the physician work RVUs was effective in 1997, published on November 22, 1996 (61 FR 59489). The second 5Year Review went into effect in 2002, published in the CY 2002 PFS final rule (66 FR 55246). The third 5Year Review of physician work RVUs went into effect on January 1, 2007 and was published in the CY 2007 PFS final rule with comment period (71 FR 69624) (although we note that this proposed rule contains certain additional proposals relating to the third 5Year Review).

In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC) for the purpose of refining the direct PE inputs. Through March 2004, the PEAC provided recommendations to CMS for over 7,600 codes (all but a few hundred of the codes currently listed in the AMA's Current Procedural Terminology (CPT) codes). As part of the CY 2007 PFS final rule with comment period (71 FR 69624), we implemented a new methodology for determining resourcebased PE RVUs and are transitioning this over a 4year period.

In the CY 2005 PFS final rule with comment period (69 FR 66236), we implemented the first 5Year Review of the malpractice RVUs (69 FR 66263).

5. Adjustments to RVUs Are Budget Neutral

Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs for a year may not cause total PFS payments to differ by more than $20 million from what they would have been if the adjustments were not made. In accordance with section 1848(c)(2)(B)(ii)(II) of the Act, if adjustments to RVUs cause expenditures to change by more than $20 million, we make adjustments to ensure that expenditures do not increase or decrease by more than $20 million.

As explained in the CY 2007 PFS final rule with comment period (71 FR 69624), due to the increase in work RVUs resulting from the third 5 Year Review of physician work RVUs, we are applying a separate budget neutrality (BN) adjustor to the work RVUs for services furnished during 2007. This approach is consistent with the method we use to make BN adjustments to the PE RVUs to reflect the changes in these PE RVUs. B. Components of the Fee Schedule Payment Amounts

To calculate the payment for every physician service, the components of the fee schedule (physician work, PE, and MP RVUs) are adjusted by a geographic practice cost index (GPCI). The GPCIs reflect the relative costs of physician work, PE, and malpractice insurance in an area compared to the national average costs for each component.

Payments are converted to dollar amounts through the application of a CF, which is calculated by the Office of the Actuary (OACT) and is updated annually for inflation.

The formula for calculating the Medicare fee schedule amount for a given service and fee schedule area can be expressed as:

Payment = [(RVU work x budget neutrality adjuster x work GPCI) + (RVU PE x PE GPCI) + (MP RVU x MP GPCI)] x CF.

C. Most Recent Changes to the Fee Schedule

The CY 2007 PFS final rule with comment period (71 FR 69624) addressed certain provisions of the Deficit Reduction Act of 2005 (Pub. L. 109432) (DRA) and made other changes to Medicare Part B payment policy to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. This final rule with comment period also discussed GPCI changes; requests for additions to the list of telehealth services; payment for covered outpatient drugs and biologicals; payment for renal dialysis services; policies related to private contracts and optout; policies related to bone mass measurement (BMM) services, independent diagnostic testing facilities (IDTFs), the physician selfreferral prohibition; laboratory billing for the technical component (TC) of physician pathology services; the clinical laboratory fee schedule; certification of advanced practice nurses; health information technology, the health care information transparency initiative; updated the list of certain services subject to the physician selfreferral prohibitions, finalized ASP reporting requirements, and codified Medicare's longstanding policy that payment of bad debts associated with services paid under a fee schedule/chargebased system is not allowable.

We also finalized the CY 2006 interim RVUs and issued interim RVUs for new and revised procedure codes for CY 2007.

[[Page 38127]]

In addition, the CY 2007 PFS final rule with comment period included revisions to payment policies under the fee schedule for ambulance services and announced the ambulance inflation factor (AIF) update for CY 2007.

In accordance with section 1848(d)(1)(E)(i) of the Act, we also announced that the PFS update for CY 2007 is 5.0 percent, the initial estimate for the sustainable growth rate (SGR) for CY 2007 is 1.8 percent and the CF for CY 2007 is $35.9848. However, subsequent to publication of the CY 2007 PFS final rule with comment period, section 101(a) of Division B, Title I of the Tax Relief and Health Care Act of 2006 (Pub. L. 109432) (MIEATRHCA), which was enacted on December 22, 2006, amended section 1848(d) of the Act. [Division B of the Tax Relief and Health Care Act of 2006 is entitled Medicare and Other Health Provisions and its short title is the Medicare Improvements and Extension Act of 2006. Therefore, it is hereinafter referred to as ``MIEATRHCA''.] As a result of this statutory change the CF of $37.8975 was maintained for CY 2007.
II. Provisions of the Proposed Regulation Related to the Physician Fee Schedule
A. ResourceBased Practice Expense (PE) Relative Value Units (RVUs) [If you choose to comment on issues in this section, please include the caption ``RESOURCEBASED PE RVUs'' at the beginning of your comments.]

Practice expense (PE) is the portion of the resources used in furnishing the service that reflects the general categories of physician and practitioner expenses, such as office rent and personnel wages but excluding malpractice expenses, as specified in section 1848(c)(1)(B) of the Act.

Section 121 of the Social Security Amendments of 1994 (Pub. L. 103 432), enacted on October 31, 1994, required CMS to develop a methodology for a resourcebased system for determining PE RVUs for each physician's service. Until that time, PE RVUs were based on historical allowed charges. This legislation stated that the revised PE methodology must consider the staff, equipment, and supplies used in the provision of various medical and surgical services in various settings beginning in 1998. The Secretary has interpreted this to mean that Medicare payments for each service would be based on the relative PE resources typically involved with furnishing the service.

The initial implementation of resourcebased PE RVUs was delayed from January 1, 1998, until January 1, 1999, by section 4505(a) of the BBA. In addition, section 4505(b) of the BBA required that the new payment methodology be phased in over 4 years, effective for services furnished in CY 1999, and fully effective in CY 2002. The first step toward implementation of the statute was to adjust the PE values for certain services for CY 1998. Section 4505(d) of the BBA required that, in developing the resourcebased PE RVUs, the Secretary must:

  • Use, to the maximum extent possible, generallyaccepted cost accounting principles that recognize all staff, equipment, supplies, and expenses, not solely those that can be linked to specific procedures and actual data on equipment utilization.
  • Develop a refinement method to be used during the transition.
  • Consider, in the course of notice and comment rulemaking, impact projections that compare new proposed payment amounts to data on actual physician PE.

    In CY 1999, we began the 4year transition to resourcebased PE RVUs utilizing a ``topdown'' methodology whereby we allocated aggregate specialtyspecific practice costs to individual procedures. The specialtyspecific PEs were derived from the American Medical Association's (AMA's) Socioeconomic Monitoring Survey (SMS). In addition, under section 212 of the BBRA, we established a process extending through March 2005 to supplement the SMS data with data submitted by a specialty. The aggregate PEs for a given specialty were then allocated to the services furnished by that specialty on the basis of the direct input data (that is, the staff time, equipment, and supplies) and work RVUs assigned to each CPT code.

    For CY 2007, we implemented a new methodology for calculating PE RVUs. Under this new methodology, we use the same data sources for calculating PE, but instead of using the ``topdown'' approach to calculate the direct PE RVUs, under which the aggregate direct and indirect costs for each specialty are allocated to each individual service, we now utilize a ``bottomup'' approach to calculate the direct costs. Under the ``bottom up'' approach, we determine the direct PE by adding the costs of the resources (that is, the clinical staff, equipment, and supplies) typically required to provide each service. The costs of the resources are calculated using the refined direct PE inputs assigned to each CPT code in our PE database, which are based on our review of recommendations received from the AMA's Relative Value Update Committee (RUC). For a more detailed explanation of the PE methodology see the June 29, 2006 proposed notice (71 FR 37242) and the CY 2007 PFS final rule with comment period (71 FR 69629).
    1. Current Methodology

    a. Data Sources for Calculating Practice Expense

    The AMA's SMS survey data and supplemental survey data from the specialties of cardiothoracic surgery, vascular surgery, physical and occupational therapy, independent laboratories, allergy/immunology, cardiology, dermatology, gastroenterology, radiology, independent diagnostic testing facilities (IDTFs), radiation oncology, and urology are used to develop the PE per hour (PE/HR) for each specialty. For those specialties for which we do not have PE/HR, the appropriate PE/HR is obtained from a crosswalk to a similar specialty.

    The AMA developed the SMS survey in 1981 and discontinued it in 1999. Beginning in 2002, we incorporated the 1999 SMS survey data into our calculation of the PE RVUs, using a 5year average of SMS survey data. (See the November 1, 2002 Revisions to Payment Policies and Five Year Review of and Adjustments to the Relative Value Units Under the Physician Fee Schedule for CY 2002 final rule (66 FR 55246) (hereinafter referred to as CY 2002 PFS final rule).) The SMS PE survey data are adjusted to a common year, 2005. The SMS data provide the following six categories of PE costs:

  • Clinical payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician clinical personnel.
  • Administrative payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician personnel involved in administrative, secretarial or clerical activities.
  • Office expenses, which include expenses for rent, mortgage interest, depreciation on medical buildings, utilities and telephones.
  • Medical material and supply expenses, which include expenses for drugs, xray films, and disposable medical products.
  • Medical equipment expenses, which include expenses depreciation, leases, and rent of medical equipment used in the diagnosis or treatment of patients.
  • All other expenses, which include expenses for legal services, accounting, office management, professional association memberships, and any
    [[Page 38128]]
    professional expenses not previously mentioned in this section.

    In accordance with section 212 of the BBRA, we established a process to supplement the SMS data for a specialty with data collected by entities and organizations other than the AMA (that is, the specialty itself). (See the Criteria for Submitting Supplemental Practice Expense Survey Data interim final rule with comment period (65 FR 25664, May 3, 2000).) Originally, the deadline to submit supplementary survey data was through August 1, 2001. In the CY 2002 PFS final rule (66 FR 55246), the deadline was extended through August 1, 2003. To ensure maximum opportunity for specialties to submit supplementary survey data, we extended the deadline to submit surveys until March 1, 2005 in the Revisions to Payment Policies Under the Physician Fee Schedule for CY 2004 final rule (November 7, 2003; 68 FR 63196) (hereinafter referred to as CY 2004 PFS final rule).

    The direct cost data for individual services were originally developed by the Clinical Practice Expert Panels (CPEP). The CPEP data include the supplies, equipment, and staff times specific to each procedure. The CPEPs consisted of panels of physicians, practice administrators, and nonphysicians (for example, RNs) who were nominated by physician specialty societies and other groups. There were 15 CPEPs consisting of 180 members from more than 61 specialties and subspecialties. Approximately 50 percent of the panelists were physicians.

    The CPEPs identified specific inputs involved in each physician's service provided in an office or facility setting. The inputs identified were the quantity and type of nonphysician labor, medical supplies, and medical equipment.

    In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC). From 1999 to March 2004, the PEAC, a multispecialty committee, reviewed the original CPEP inputs and provided us with recommendations for refining these direct PE inputs for existing CPT codes. Through its last meeting in March 2004, the PEAC provided recommendations for over 7,600 codes which we have reviewed and accepted. As a result, the current PE inputs differ markedly from those originally recommended by the CPEPs. The PEAC has now been replaced by the Practice Expense Review Committee (PERC), which acts to assist the RUC in recommending PE inputs.

    b. Allocation of PE to Services

    The aggregate level specialtyspecific PEs are derived from the AMA's SMS survey and supplementary survey data. To establish PE RVUs for specific services, it is necessary to establish the direct and indirect PE associated with each service.
    (i) Direct costs. The direct costs are determined by adding the costs of the resources (that is, the clinical staff, equipment, and supplies) typically required to provide the service. The costs of these resources are calculated from the refined direct PE inputs in our PE database. These direct inputs are then scaled to the current aggregate pool of direct PE RVUs. The aggregate pool of direct PE RVUs can be derived using the following formula: (PE RVUs * physician CF) * (average direct percentage from SMS/(Supplemental PE/HR data)). (ii) Indirect costs. The SMS and supplementary survey data are the source for the specialtyspecific aggregate indirect costs used in our PE calculations. We then allocate the indirect costs to the code level on the basis of the direct costs specifically associated with a code and the maximum of either the clinical labor costs or the physician work RVUs. For calculation of the 2008 PE RVUs, we are proposing to use the 2006 procedurespecific utilization data crosswalked to 2007 services. To arrive at the indirect PE costs:

  • We apply a specialtyspecific indirect percentage factor to the direct expenses to recognize the varying proportion that indirect costs represent of total costs by specialty. For a given service, the specific indirect percentage factor to apply to the direct costs for the purpose of the indirect allocation is calculated as the weighted average of the ratio of the indirect to direct costs (based on the survey data) for the specialties that furnish the service. For example, if a service is furnished by a single specialty with indirect PEs that were 75 percent of total PEs, the indirect percentage factor to apply to the direct costs for the purposes of the indirect allocation would be (0.75/0.25) = 3.0. The indirect percentage factor is then applied to the service level adjusted indirect practice expense allocators.
  • We use the specialtyspecific PE/HR from the SMS survey data, as well as the supplemental surveys for cardiothoracic surgery, vascular surgery, physical and occupational therapy, independent laboratories, allergy/immunology, cardiology, dermatology, radiology, gastroenterology, IDTFs, radiation oncology and urology.

    Note: For radiation oncology, the data represent the combined survey data from the American Society for Therapeutic Radiology and Oncology (ASTRO) and the Association of Freestanding Radiation Oncology Centers (AFROC).) We incorporate this PE/HR into the calculation of indirect costs using an index which reflects the relationship between each specialty's indirect scaling factor and the overall indirect scaling factor for the entire PFS. For example, if a specialty had an indirect practice cost index of 2.00, this specialty would have an indirect scaling factor that was twice the overall average indirect scaling factor. If a specialty had an indirect practice cost index of 0.50, this specialty would have an indirect scaling factor that was half the overall average indirect scaling factor.

  • When the clinical labor portion of the direct PE RVU is greater than the physician work RVU for a particular service, the indirect costs are allocated based upon the direct costs and the clinical labor costs. For example, if a service has no physician work and 1.10 direct PE RVUs, and the clinical labor portion of the direct PE RVUs is 0.65 RVUs, we would use the 1.10 direct PE RVUs and the 0.65 clinical labor portions of the direct PE RVUs to allocate the indirect PE for that service.

    c. Facility/Nonfacility Costs

    Procedures that can be furnished in a physician's office, as well as in a hospital or facility setting, have two PE RVUs: Facility and nonfacility. The nonfacility setting includes physicians' offices, patients' homes, freestanding imaging centers, and independent pathology labs. Facility settings include hospitals, ambulatory surgical centers (ASCs), and skilled nursing facilities (SNFs). The methodology for calculating PE RVUs is the same for both, facility and nonfacility RVUs, but is applied independently to yield two separate PE RVUs. Because the PEs for services provided in a facility setting are generally included in the payment to the facility (rather than the payment to the physician under the PFS), the PE RVUs are generally lower for services provided in the facility setting.
    d. Services With Technical Components (TCs) and Professional Components (PCs)

    Diagnostic services are generally comprised of two components; a professional component (PC) and a technical component (TC), which may be performed independently or by different providers. When services have TC, PC, and global components that can be billed separately, the payment for the
    [[Page 38129]]
    global component equals the sum of the payment for the TC and PCs. This is a result of using a weighted average of the ratio of indirect to direct costs across all the specialties that furnish the global components, TCs, and PCs; that is, we apply the same weighted average indirect percentage factor to allocate indirect expenses to the global components, PC, and TCs for a service. (The direct PE RVUs for the TC and PCs sum to the global under the bottomup methodology.)

    e. Transition Period

    As discussed in the CY 2007 PFS final rule with comment period (71 FR 69674), we are implementing the change in the methodology for calculating PE RVUs over a 4year period. During this transition period, the PE RVUs will be calculated on the basis of a blend of RVUs calculated using our methodology described previously in this section (weighted by 25 percent during CY 2007, 50 percent during CY 2008, 75 percent during CY 2009, and 100 percent thereinafter), and the CY 2006 PE RVUs for each existing code. PE RVUs for codes that are new during this period will be calculated using only the current PE methodology, and will be paid at the fully transitioned rate.

    f. PE RVU Methodology

    The following is a description of the PE RVU methodology. (i) Setup File

    First, we create a setup file for the PE methodology. The setup file contains the direct cost inputs, the utilization for each procedure code at the specialty and facility/nonfacility place of service level, and the specialtyspecific survey PE per physician hour data.
    (ii) Calculate the Direct Cost PE RVUs

    Sum the costs of each direct input.

    Step 1: Sum the direct costs of the inputs for each service. The direct costs consist of the costs of the direct inputs for clinical labor, medical supplies, and medical equipment. The clinical labor cost is the sum of the cost of all the staff types associated with the service; it is the product of the time for each staff type and the wage rate for that staff type. The medical supplies cost is the sum of the supplies associated with the service; it is the product of the quantity of each supply and the cost of the supply. The medical equipment cost is the sum of the cost of the equipment associated with the service; it is the product of the number of minutes each piece of equipment is used in the service and the equipment cost per minute. The equipment cost per minute is calculated as described at the end of this section.

    Apply a BN adjustment to the direct inputs.

    Step 2: Calculate the current aggregate pool of direct PE costs. To do this, multiply the current aggregate pool of total direct and indirect PE costs (that is, the current aggregate PE RVUs multiplied by the CF) by the average direct PE percentage from the SMS and supplementary specialty survey data.

    Step 3: Calculate the aggregate pool of direct costs. To do this, for all PFS services, sum the product of the direct costs for each service from Step 1 and the utilization data for that service.

    Step 4: Using the results of Step 2 and Step 3 calculate a direct PE BN adjustment so that the proposed aggregate direct cost pool does not exceed the current aggregate direct cost pool and apply it to the direct costs from Step 1 for each service.

    Step 5: Convert the results of Step 4 to an RVU scale for each service. To do this, divide the results of Step 4 by the Medicare PFS CF.
    (iii) Create the Indirect PE RVUs

    Create indirect allocators.

    Step 6: Based on the SMS and supplementary specialty survey data, calculate direct and indirect PE percentages for each physician specialty.

    Step 7: Calculate direct and indirect PE percentages at the service level by taking a weighted average of the results of Step 6 for the specialties that furnish the service. Note that for services with a TC and PCs we are calculating the direct and indirect percentages across the global components, PCs and TCs. That is, the direct and indirect percentages for a given service (for example, echocardiogram) do not vary by the PC, TC and global component.

    Step 8: Calculate the service level allocators for the indirect PEs based on the percentages calculated in Step 7. The indirect PEs are allocated based on the three components: The direct PE RVU, the clinical PE RVU and the work RVU.

    For most services the indirect allocator is:

    indirect percentage * (direct PE RVU/direct percentage) + work RVU.

    There are two situations where this formula is modified:

  • If the service is a global service (that is, a service with global, professional and technical components), then the indirect allocator is: indirect percentage * (direct PERVU/direct percentage) + clinical PE RVU + work RVU.
  • If the clinical labor PE RVU exceeds the work RVU (and the service is not a global service), then the indirect allocator is: indirect percentage * (direct PERVU/direct percentage) + clinical PE RVU.
    (Note that for global services the indirect allocator is based on both the work RVU and the clinical labor PE RVU. We do this to recognize that, for the professional service, indirect PEs will be allocated using the work RVUs, and for the TC service, indirect PEs will be allocated using the direct PE RVU and the clinical labor PE RVU. This also allows the global component RVUs to equal the sum of the PC and TC RVUs.)

    For presentation purposes in the examples in the Table 1, the formulas were divided into two parts for each service. The first part does not vary by service and is the indirect percentage * (direct PE RVU/direct percentage). The second part is either the work RVU, clinical PE RVU, or both depending on whether the service is a global service and whether the clinical PE RVU exceeds the work RVU (as described earlier in this step.)

    Apply a BN adjustment to the indirect allocators.

    Step 9: Calculate the current aggregate pool of indirect PE RVUs by multiplying the current aggregate pool of PE RVUs by the average indirect PE percentage from the physician specialty survey data. This is similar to the Step 2 calculation for the direct PE RVUs.

    Step 10: Calculate an aggregate pool of proposed indirect PE RVUs for all PFS services by adding the product of the indirect PE allocators for a service from Step 8 and the utilization data for that service. This is similar to the Step 3 calculation for the direct PE RVUs.

    Step 11: Using the results of Step 9 and Step 10, calculate an indirect PE adjustment so that the aggregate indirect allocation does not exceed the available aggregate indirect PE RVUs and apply it to indirect allocators calculated in Step 8. This is similar to the Step 4 calculation for the direct PE RVUs.

    Calculate the Indirect Practice Cost Index.

    Step 12: Using the results of Step 11, calculate aggregate pools of specialtyspecific adjusted indirect PE allocators for all PFS services for a specialty by adding the product of the adjusted indirect PE allocator for each service and the utilization data for that service.

    Step 13: Using the specialtyspecific indirect PE/HR data, calculate specialtyspecific aggregate pools of indirect PE for all PFS services for that specialty by adding the product of the indirect PE/HR for the specialty, the physician time for the service, and the specialty's utilization for the service.

    [[Page 38130]]

    Step 14: Using the results of Step 12 and Step 13, calculate the specialtyspecific indirect PE scaling factors as under the current methodology.

    Step 15: Using the results of Step 14, calculate an indirect practice cost index at the specialty level by dividing each specialty specific indirect scaling factor by the average indirect scaling factor for the entire PFS.

    Step 16: Calculate the indirect practice cost index at the service level to ensure the capture of all indirect costs. Calculate a weighted average of the practice cost index values for the specialties that furnish the service.

    Note: For services with TC and PCs, we calculate the indirect practice cost index across the global components, PCs and TCs. Under this method, the indirect practice cost index for a given service (for example, echocardiogram) does not vary by the PC, TC and global components.

    Step 17: Apply the service level indirect practice cost index calculated in Step 16 to the service level adjusted indirect allocators calculated in Step 11 to get the indirect PE RVU.

    (iv) Calculate the Final PE RVUs

    Step 18: Add the direct PE RVUs from Step 6 to the indirect PE RVUs from Step 17.

    Step 19: Calculate and apply the final PE BN adjustment by comparing the results of Step 18 to the current pool of PE RVUs. This final BN adjustment is required primarily because certain specialties are excluded from the PE RVU calculation for ratesetting purposes, but all specialties are included for purposes of calculating the final BN adjustment. (See ``Specialties excluded from ratesetting calculation'' below in this section.)
    (v) Setup File Information

  • Specialties excluded from ratesetting calculation: For the purposes of calculating the PE RVUs, we exclude certain specialties such as midlevel practitioners paid at a percentage of the PFS, audiology, and low volume specialties from the calculation. These specialties are included for the purposes of calculating the BN adjustment.
  • Crosswalk certain low volume physician specialties: Crosswalk the utilization of certain specialties with relatively low PFS utilization to the associated specialties.
  • Physical therapy utilization: Crosswalk the utilization associated with all physical therapy services to the specialty of physical therapy.
  • Identify professional and technical services not identified under the usual TC and 26 modifier: Flag the services that are PC and TC services, but do not use TC and 26 modifiers (for example, electrocardiograms). This flag associates the PC and TC with the associated global code for use in creating the indirect PE RVU. For example, the professional service code 93010 is associated with the global code 93000.
  • Payment modifiers: Payment modifiers are accounted for in the creation of the file. For example, services billed with the assistant at surgery modifier are paid 16 percent of the PFS amount for that service; therefore, the utilization file is modified to only account for 16 percent of any service that contains the assistant at surgery modifier.
  • Work RVUs: The setup file contains the work RVUs from this proposed rule.
    (vi) Equipment Cost Per Minute =

    The equipment cost per minute is calculated as:
    (1/(minutes per year * usage)) * price * ((interest rate/(1(1/((1 + interest rate) * life of equipment)))) + maintenance)
    Where:
    minutes per year = maximum minutes per year if usage were continuous (that is, usage = 1); 150,000 minutes.
    usage = equipment utilization assumption; 0.5.
    price = price of the particular piece of equipment.
    interest rate = 0.11.
    life of equipment = useful life of the particular piece of equipment.
    maintenance = factor for maintenance; 0.05.
    [[Page 38131]]
    Table 1.Calculation of PE RVUs Under Proposed Methodology for Selected Codes 99213 33533 71020 71020TC 7102026 93000 93005 93010 CABG, Step Source Formula Office visit, arterial, Chest xray Chest xray Chest xray ECG, ECG, ECG, report est single complete tracing nonfacility facility nonfacility nonfacility nonfacility nonfacility nonfacility nonfacility (1) Labor cost (Lab).......... Step 1........... AMA............. ................ $ 13.44 $ 77.74 $ 5.74 $ 5.65 $ $ 6.12 $ 6.12 $ (2) Supply cost (Sup)......... Step 1........... AMA............. ................ $ 2.94 $ 7.60 $ 3.39 $ 3.34 $ $ 1.19 $ 1.19 $ (3) Equipment cost (Eqp)...... Step 1........... AMA............. ................ $ 0.19 $ 0.64 $ 8.18 $ 8.05 $ $ 0.12 $ 0.12 $ (4) Direct cost (Dir)......... Step 1........... ................ = (1) + (2) + $ 16.37 $ 85.34 $ 17.31 $ 17.54 $ $ 7.60 $ 7.60 $ (3). (5) Direct adjustment (Dir Steps 24........ See footnote*... ................ 0.584 0.584 0.584 0.584 0.584 0.584 0.584 0.584 Adj).
    (6) Adjusted labor............ Steps 24........ = Lab*Dir Adj... = (1) * (5)..... $ 7.85 $ 45.40 $ 3.35 $ 3.30 $ $ 3.57 $ 3.57 $ (7) Adjusted supplies......... Steps 24........ = Sup*Dir Adj... = (2) * (5)..... $ 1.72 $ 4.44 $ 1.98 $ 1.95 $ $ 0.70 $ 0.70 $ (8) Adjusted equipment........ Steps 24........ = Eqp*Dir Adj... = (3) * (5)..... $ 0.11 $ 0.37 $ 4.77 $ 4.70 $ $ 0.07 $ 0.07 $ (9) Adjusted direct........... Steps 24........ ................ = (6) + (7) + $9.56 $ 49.84 $ 10.11 $ 10.24 $ $ 4.44 $ 4.44 $ (8). (10) Conversion Factor (CF)... Step 5........... MFS............. ................ $34.1350 $34.1350 $34.1350 $34.1350 $34.1350 $34.1350 $34.1350 $34.1350 (11) Adj. labor cost converted Step 5........... = (Lab*Dir Adj)/ = (6)/(10)...... 0.23 1.33 0.10 0.10 ........... 0.10 0.10 ........... CF.
    (12) Adj. supply cost Step 5........... = (Sup*Dir Adj)/ = (7)/(10)...... 0.05 0.13 0.06 0.06 ........... 0.02 0.02 ........... converted. CF.
    (13) Adj. equip cost converted Step 5........... = (Eqp*Dir Adj)/ = (8)/(10)...... 0.00 0.01 0.14 0.14 ........... 0.00 0.00 ........... CF.
    (14) Adj. direct cost Step 5........... ................ = (11) + (12) + 0.28 1.46 0.30 0.30 ........... 0.13 0.13 ........... converted. (13). (15) Wrk RVU* Wrk Scaler...... Setup File....... MFS............. ................ 0.81 29.66 0.19 ........... 0.19 0.15 ........... 0.15 (16) Dirpct................. Steps 6, 7....... Surveys......... ................ 33.8% 32.6% 40.7% 40.7% 40.7% 37.7% 37.7% 37.7% (17) Indpct................. Steps 6, 7....... Surveys......... ................ 66.2% 67.4% 59.4% 59.4% 59.4% 62.3% 62.3% 62.3% (18) Ind. Alloc. formula (1st Step 8........... See Step 8...... ................ ((14)/(16)) * ((14)/(16)) ((14)/(16)) ((14)/(16)) ((14)/(16)) ((14)/(16)) ((14)/(16)) ((14)/(16)) part). (17) * (17) * (17) * (17) * (17) * (17) * (17) * (17) (19) Ind. Alloc. (1st part)... Step 8........... ................ See (18)........ 0.55 3.02 0.43 0.44 ........... 0.21 0.21 ........... (20) Ind. Alloc. formulas (2nd Step 8........... See Step 8...... ................ (15) (15) (15) + (11) (11) (15) (15) + (11) (11) (15) part).
    (21) Ind. Alloc. (2nd part)... Step 8........... ................ See (20)........ 0.81 29.66 0.29 0.10 0.19 0.25 0.10 0.15 (22) Indirect Allocator (1st + Step 8........... ................ = (19) + (21).. 1.36 32.68 0.72 0.53 0.19 0.47 0.32 0.15 2nd).
    (23) Indirect Adjustment (Ind Steps 911....... See footnote**.. ................ 0.362 0.362 0.362 0.362 0.362 0.362 0.362 0.362 Adj).
    (24) Adjusted Indirect Steps 911....... = Ind Alloc* Ind ................ 0.49 11.83 0.26 0.19 0.07 0.17 0.12 0.05 Allocator. Adj.
    (25) Ind. Practice Cost Index Steps 1216...... See Steps 1216. ................ 0.966 0.941 1.060 1.060 1.060 1.237 1.237 1.237 (PCI).
    (26) Adjusted Indirect........ Step 17.......... = Adj. Ind = (24) * (25)... 0.48 11.13 0.28 0.21 0.07 0.21 0.14 0.07 Alloc*PCI. (27) PE RVU................... Steps 1819...... = (Adj Dir + Adj = ((14) + (26)) 0.75 12.56 0.57 0.50 0.07 0.34 0.27 0.07 Ind) *budn. *budn. * The direct adj = [current pe rvus * CF * avg dir pct] / [sum direct inputs] = [Step 2] / [Step 3]. ** The indirect adj = [current pe rvus * avg ind pct] / [sum of ind allocators] = [Step 9] / [Step 10. [[Page 38132]]

    g. Discussion of Equipment Usage Percentage

    We continue to receive comments regarding our use of the equipment usage assumption of 50 percent. MedPAC continues to support an unspecified higher utilization rate. Several interested parties, including the AMA RUC, have requested that we refine this usage percentage to somewhere in the range of 70 to 80 percent. Other interested parties contend that the current utilization rate is too high at 50 percent and should be refined downward to a lower usage percentage. If the equipment usage percentage is set too high, the result would be insufficient allowance at the service level for the practice costs associated with equipment. If the equipment usage percentage is set too low, the result would be an excessive allowance for the PE costs of equipment at the service level. We do not want to create disincentives for the use of equipment by arbitrarily increasing the equipment usage percentage. Conversely, we do not want to create incentives for the acquisition and potential overutilization of equipment by arbitrarily decreasing the equipment usage percentage.

    Although we acknowledge the acrosstheboard 50 percent usage rate we currently apply for all equipment does not capture the actual usage rates for all equipment, we do not believe that we have sufficient empirical evidence to justify an alternative proposal on this issue. We are interested in receiving comments relating to alternative percentages and approaches that differentially classify equipment into mutually exclusive categories with categoryspecific usage rate assumptions. We are committed to continuing our work with the physician community to examine equipment usage rate assumptions that ensure appropriate payments and encourage appropriate utilization of equipment. Additionally, we would welcome any empirical data that would assist us in these efforts.

    h. Equipment Interest Rate (Discussion)

    As part of our calculation of the PE equipment costs, we take into consideration several factors, for example, the useful life of each piece of equipment and the typical interest that would be incurred in the purchase of the equipment. We updated the assigned useful life for all the equipment in our PE input database in the CY 2005 PFS final rule with comment period. However, we have used the same interest rate of 11 percent since the inception of the resourcebased PE methodology in 1999. There has been much discussion regarding whether this is still the appropriate interest rate to utilize in the calculation of the equipment costs. The majority of comments on the CY 2007 PFS final rule with comment period requested an interest rate of prime plus 2 percent while a small number of commenters requested an interest rate significantly lower than prime plus 2 percent.

    The current interest rate of 11 percent was assigned in 1997 based upon information provided by the Small Business Administration (SBA). This prevailing rate was based upon data regarding prevailing loan rates for small businesses from both national and regional lending associations. Although the SBA offered various interest rates, we believed that the 11 percent interest rate was most relevant for fee schedule services as this rate was based on equipment cost of over $25,000 with a useful life of over 7 years.

    We have analyzed 2007 SBA data on loans and applicable interest rates. According to the SBA, loans are based on the prime rate plus a fixed percentage based upon the amount of the loan and the usable life of the equipment purchased. The prime plus rates ranged from 9.4 percent to 13 percent. Using the same criteria as was used in 1997 (that is, equipment cost over $25,000 with a useful life of over 7 years), the interest rates ranged from 10.1 percent to 13 percent.

    Based upon our analysis of the revised SBA interest rate data, we believe 11 percent continues to be an appropriate assumption; therefore, we will retain the interest rate used in the calculation of equipment costs at 11 percent and no proposal is being made to adjust this rate.
    2. PE Proposals for CY 2008

    a. Radiology Practice Expense Per Hour

    The American College of Radiology (ACR) presented CMS with information regarding the PE/HR that was used in the PE methodology for radiology in the CY 2007 PFS final rule with comment period. ACR suggested that we change our methodology in a way that would weight the survey data to provide an alternative method of representing large and small practices. We agreed to take their approach to our contractor, the Lewin Group, for further analysis. (We note that the Lewin Group, in its initial analysis of the ACR survey data, had also raised concerns about the representation of small high cost entities in the ACR survey data.) The Lewin Group reviewed ACR's approach and concluded that weighting the ACR survey by practice size more appropriately accounts for the small high cost entities in the final PE/HR. After reviewing both the ACR inquiry and the Lewin response, we also agree that ACR's approach more appropriately identifies the PE/HR for radiology.

    For these reasons, we propose to revise the PE/HR associated with

    FOR FURTHER INFORMATION CONTACT

    Pam West (410) 786-2302 for issues related to practice expense and changes to the comprehensive outpatient rehabilitation facility.

    Rick Ensor (410) 7865617 for issues related to practice expense methodology.

    Stephanie Monroe (410) 7866864 for issues related to the geographic practice cost index and malpractice RVUs.

    Craig Dobyski (410) 7864584 for issues related to list of telehealth services.

    Ken Marsalek (410) 7864502 for issues related to the DRA imaging cap.

    Catherine Jansto (410) 7867762 for issues related to payment for covered outpatient drugs and biologicals.

    Edmund Kasaitis (410) 7860477 for issues related to the Competitive Acquisition Program (CAP) for part B drugs.

    Anita Greenberg (410) 7864601 for issues related to the clinical laboratory fee schedule.

    Henry Richter (410) 7864562 for issues related to payments for endstage renal disease facilities.

    August Nemec (410) 7860612 for issues related to independent diagnostic testing facilities.

    Karen Rinker (410) 7860189 for issues related to the drug compendia.

    David Walczak (410) 7864475 for issues related to reassignment and [[Page 38123]]
    physician selfreferral rules for diagnostic tests and beneficiary signature for ambulance transport.

    Lisa Ohrin (410) 7864565 for issues related to physician self referral rules.

    Bob Kuhl (410) 7864597 for issues related to the DME update.

    Rachel Nelson (410) 7861175 for issues related to the quality reporting system for physician payment for CY 2008.

    Mary Ciccanti (410) 7863107 for issues related to the reporting of anemia quality indicators.

    James Menas (410) 7864507 for issues related to payment for physician pathology services.

    Dorothy Shannon (410) 7863396 for issues related to the outpatient therapy cap.

    Drew Morgan (410) 7862543 for issues related to the EPrescribing Exemption for ComputerGenerated Facsimile Transmissions.

    Roechel Kujawa (410) 7869111 or Anne Tayloe (410) 7864546 for issues related to the ambulance fee schedule.

    Diane Milstead (410) 7863355 or Gaysha Brooks (410) 7869649 for all other issues.