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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare Medicaid Services

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

[CMS-1413-P]

RIN 0938-AP40

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

AGENCY: Centers for Medicare Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
SUMMARY: This proposed rule would address 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 discusses: Refinements to resource-based work, practice expense and malpractice relative value units (RVUs); geographic practice cost indices (GPCIs); telehealth services; several coding issues; physician fee schedule update for CY 2010; payment for covered part B outpatient drugs and biologicals; the competitive acquisition program (CAP); payment for renal dialysis services; the chiropractic services demonstration; comprehensive outpatient rehabilitation facilities; physician self-referral; the ambulance fee schedule; the clinical laboratory fee schedule; durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS); and certain provisions of the Medicare Improvements for Patients and Providers Act of 2008. (Seethe Table of contents for a listing of the specific issues.)
DATES: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on Monday, August 31, 2009.
ADDRESSES: You may submit comments in one of four ways (please choose only one of the ways listed):

1.Electronically. You may submit electronic comments on this regulation tohttp://www.regulations.gov. Follow the instructions under the "More Search Options" tab.

2.By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare Medicaid Services, Department of Health and Human Services, Attention: CMS-1413-P, P.O. Box 8013, Baltimore, MD 21244-8013.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.By express or overnight mail. You may send written comments to the following address only: Centers for Medicare Medicaid Services, Department of Health and Human Services, Attention: CMS-1413-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 telephone number (410) 786-9994 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

FOR FURTHER INFORMATION CONTACT:

Rick Ensor, (410) 786-5617, for issues related to practice expense methodology. Craig Dobyski, (410) 786-4584, for issues related to geographic practice cost indices. Esther Markowitz, (410) 786-4595, for issues related to telehealth services. Ken Marsalek, (410) 786-4502, for issues related to the physician practice information survey and the multiple procedure payment reduction. Cathleen Scally, (410) 786-5714, for issues related to the initial preventive physical examination or consultation services. Regina Walker-Wren, (410) 786-9160, for issues related to the phasing out of the outpatient mental health treatment limitation. Diane Stern, (410) 786-1133, for issues related to the physician quality reporting initiative and incentives for e-prescribing. Lisa Grabert, (410) 786-6827, for issues related to the Physician Resource Use Feedback Program. Colleen Bruce, (410) 786-5529, for issues related to value-based purchasing. Sandra Bastinelli, (410) 786-3630, for issues related to the implementation of accreditation standards. Jim Menas, (410) 786-4507, for issues related to teaching anesthesia services. Sarah McClain, (410) 786-2994, for issues related to the coverage of cardiac rehabilitation services. Dorothy Shannon, (410) 786-3396, for issues related to payment for cardiac rehabilitation services. Roya Lofti, (410) 786-4072, for issues related to the coverage of pulmonary rehabilitation. Jamie Hermansen, (410) 786-2064, for issues related to kidney disease patient education programs. Terri Harris, (410) 786-6830 for issues related to payment for kidney disease patient education. Henry Richter, (410) 786-4562, or Lisa Hubbard, (410) 786-5472, for issues related to renal dialysis provisions and payments for end-stage renal disease facilities. Cheryl Gilbreath, (410) 786-5919, for issues related to payment for covered outpatient drugs and biologicals. Edmund Kasaitis, (410) 786-0477, or Bonny Dahm, (410) 786-4006, for issues related to the Competitive Acquisition Program (CAP) for Part B drugs. Pauline Lapin, (410) 786-6883, for issues related to the chiropractic services demonstration budget neutrality issue. Monique Howard, (410) 786-3869, for issues related to CORF conditions of coverage. Roechel Kujawa, (410) 786-9111, for issues related to ambulance services. Anne Tayloe Hauswald, (410) 786-4546, for clinical laboratory issues. Troy Barsky, (410) 786-8873, or Roy Albert, (410) 786-1872, for issues related to physician self-referral. Michelle Peterman, (410) 786-2591, or Iffat Fatima, (410) 786-6709 for issues related to the grandfatheringprovisions of the durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) Competitive Acquisition Program. Ralph Goldberg, (410) 786-4870, or Heidi Edmunds, (410) 786-1781, for issues related to the damages process caused by the termination of contracts awarded in 2008 under the DMEPOS Competitive Bidding program. Diane Milstead, (410) 786-3355, or Gaysha Brooks, (410) 786-9649, for all other issues.

SUPPLEMENTARY INFORMATION:

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, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Table of Contents

To assist readers in referencing sections contained in this preamble, we are providing a table of contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in theCode of Federal Regulations(CFR). Information on the regulation's impact appears throughout the preamble, and therefore, is not exclusively in section V. of this proposed rule.

I. Background A. Development of the Relative Value System 1. Work RVUs 2. Practice Expense Relative Value Units (PE RVUs) 3. Resource-Based 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 A. Resource-Based Practice Expense (PE) Relative Value Units (RVUs) 1. Current Methodology a. Data Sources for Calculating Practice Expense b. Allocation of PE to Services c. Facility and Nonfacility Costs d. Services With Technical Components (TCs) and Professional Components (PCs) e. Transition Period f. PE RVU Methodology 2. PE Proposals for CY 2010 a. SMS and Supplemental Survey Background b. Physician Practice Information Survey (PPIS) c. Equipment Utilization Rate d. Miscellaneous PE Issues e. AMA RUC PE Recommendations for Direct PE Inputs B. Geographic Practice Cost Indices (GPCIs): Locality Discussion 1. Update—Expiration of 1.0 Work GPCI Floor 2. Payment Localities C. Malpractice RVUs 1. Background 2. Proposed Methodology for the Revision of Resource-Based Malpractice RVUs D. Medicare Telehealth Services 1. Requests for Adding Services to the List of Medicare Telehealth Services 2. Submitted Requests for Addition to the List of Telehealth Services E. Specific Coding Issues Related to Physician Fee Schedule 1. Canalith Repositioning 2. Payment for an Initial Preventive Physical Examination (IPPE) 3. Audiology Codes: Policy Clarification of Existing CPT Codes 4. Consultation Services F. Potentially Misvalued Codes Under the Physician Fee Schedule 1. Valuing Services Under the Physician Fee Schedule 2. High Cost Supplies 3. Review of Services Often Billed Together and the Possibility of Expanding the Multiple Procedure Payment Reduction (MPPR) to Additional Nonsurgical Services 4. AMA RUC Review of Potentially Misvalued Services a. Site of Service Anomalies b. “23-Hour” Stay 5. Establishing Appropriate Relative Values for Physician Fee Schedule Services G. Issues Related to the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) 1. Section 102: Elimination of Discriminatory Copayment Rates for Medicare Outpatient Psychiatric Services 2. Section 131(b): Physician Payment, Efficiency, and Quality Improvements—Physician Quality Reporting Initiative (PQRI) 3. Section 131(c): Physician Resource Use Measurement and Reporting Program 4. Section 131(d): Plan for Transition to Value-Based Purchasing Program for Physicians and Other Practitioners 5. Section 132: Incentives for Electronic Prescribing (E-Prescribing)—The E-Prescibing Incentive Program 6. Section 135: Implementation of Accreditation Standards for Suppliers Furnishing the Technical Component (TC) of Advanced Diagnostic Imaging Services 7. Section 139: Improvements for Medicare Anesthesia Teaching Programs 8. Section 144(a): Payment and Coverage Improvements for Patients With Chronic Obstructive Pulmonary Disease and Other Conditions—Cardiac Rehabilitation Services 9. Section 144(a): Payment and Coverage Improvements for Patients With Chronic Obstructive Pulmonary Disease and Other Conditions—Pulmonary Rehabitation Services 10. Section 152(b): Coverage of Kidney Disease Patient Education Services 11. Section 153: Renal Dialysis Provisions 12. Section 182(b): Revision of Definition of Medically-Accepted Indication for Drugs; Compendia for Determination of Medically-Accepted Indications for Off-Label Uses of Drugs and Biologicals in an Anti-Cancer Chemotherapeutic Regimen H. Part B Drug Payment 1. Average Sales Price (ASP) Issues 2. Competitive Acquisition Program (CAP) Issues I. Provisions Related to Payment for Renal Dialysis Services Furnished by End-Stage Renal Disease (ESRD) Facilities J. Discussion of Chiropractic Services Demonstration 1. Background 2. Analysis of Demonstration 3. Payment Adjustment K. Comprehensive Outpatient Rehabilitation Facilities (CORF) and Rehabilitation Agency Issues L. Ambulance Fee Schedule: Technical Correction to the Rural Adjustment Factor Regulations (414.610) M. Clinical Laboratory Fee Schedule: Signature on Requisition N. Physician Self-Referral 1. General Background 2. Physician Stand in the Shoes O. Durable Medical Equipment-Related Issues 1. Damages to Suppliers Awarded a Contract Under the Acquisition of Certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (Medicare DMEPOS Competitive Bidding Program) Caused by the Delay of the Program 2. Notification to Beneficiaries for Suppliers Regarding Grandfathering P. Physician Fee Schedule Update for CY 2010 III. Collection of Information Requirements IV. Response to Comments V. Regulatory Impact Analysis Regulation Text Addendum A—Explanation and Use of Addendum B Addendum B—Proposed Relative Value Units and Related Information Used in Determining Medicare Payments for CY 2010 Addendum C—[Reserved] Addendum D—Proposed 2010 Geographic Adjustment Factors (GAFs) Addendum E—Proposed 2010 Geographic Practice Cost Indices (GPCIs) by State and Medicare Locality Addendum F—Proposed CY 2010 ESRD Wage Index for Urban Areas Based on CBSA Labor Market Areas Addendum G—Propsoed CY 2010 ESRD 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:

AACVPRAmerican Association of Cardiovascular and Pulmonary Rehabilitation ACCAmerican College of Cardiology ACGMEAccreditation Council on Graduate Medical Education ACRAmerican College of Radiology AFROCAssociation of Freestanding Radiation Oncology Centers AHAAmerican Heart Association AHRQ[HHS'] Agency for Healthcare Research and Quality AIDSAcquired immune deficiency syndrome AMAAmerican Medical Association AMPAverage manufacturer price AOAAmerican Osteopathic Association APAAmerican Psychological Association APTAAmerican Physical Therapy Association ASCAmbulatory surgical center ASPAverage sales price ASRTAmerican Society of Radiologic Technologists ASTROAmerican Society for Therapeutic Radiology and Oncology ATAAmerican Telemedicine Association AWPAverage wholesale price BBABalanced Budget Act of 1997 (Pub. L. 105-33) BBRA[Medicare, Medicaid and State Child Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113) BIPAMedicare, Medicaid, and SCHIP Benefits Improvement Protection Act of 2000 (Pub. L. 106-554) BLSBureau of Labor Statistics BNBudget neutrality CABGCoronary artery bypass graft CADCoronary artery disease CAHCritical access hospital CAHEACommittee on Allied Health Education and Accreditation CAPCompetitive acquisition program CBSACore-Based Statistical Area CCHITCertification Commission for Healthcare Information Technology CEAMACouncil on Education of the American Medical Association CFConversion factor CfCConditions for Coverage CFRCode of Federal Regulations CKDChronic kidney disease CLFSClinical laboratory fee schedule CMACalifornia Medical Association CMHCCommunity mental health center CMPCivil money penalty CMSCenters for Medicare Medicaid Services CNSClinical nurse specialist CoPCondition of participation COPDChronic obstructive pulmonary disease CORFComprehensive Outpatient Rehabilitation Facility COSCost of service CPEPClinical Practice Expert Panel CPIConsumer Price Index CPI-UConsumer price index for urban customers CPT[Physicians'] Current Procedural Terminology (4th Edition, 2002, copyrighted by the American Medical Association) CRCardiac rehabilitation CRNACertified registered nurse anesthetist CRPCanalith repositioning CRTCertified respiratory therapist CSWClinical social worker CYCalendar year DHSDesignated health services DMEDurable medical equipment DMEPOSDurable medical equipment, prosthetics, orthotics, and supplies DOQDoctor's Office Quality DRADeficit Reduction Act of 2005 (Pub. L. 109-171) DSMTDiabetes self-management training E/MEvaluation and management EDIElectronic data interchange EEGElectroencephalogram EHRElectronic health record EKGElectrocardiogram EMGElectromyogram EMTALAEmergency Medical Treatment and Active Labor Act EOGElectro-oculogram EPOErythropoietin ESRDEnd-stage renal disease FAXFacsimile FDAFood and Drug Administration (HHS) FEVForced expiratory volume FFSFee-for-service FRFederal Register FVCForced expiratory vital capacity (liters) GAFGeographic adjustment factor GAOGeneral Accountability Office GEMGenerating Medicare [Physician Quality Performance Measurement Results] GFRGlomerular filtration rate GPOGroup purchasing organization GPCIGeographic practice cost index HACHospital-acquired conditions HBAIHealth and behavior assessment and intervention HCPACHealth Care Professional Advisory Committee HCPCSHealthcare Common Procedure Coding System HCRISHealthcare Cost Report Information System HDRTHigh dose radiation therapy HHPPS Home Health Prospective Payment System HHAHome health agency HHRGHome health resource group HHS[Department of] Health and Human Services HIPAAHealth Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191) HITHealth information technology HITECHHealth Information Technology for Economic and Clinical Health Act (Title IV of Division B of the Recovery Act, together with Title XIII of Division A of the Recovery Act) HITSPHealthcare Information Technology Standards Panel HIVHuman immunodeficiency virus HOPDHospital outpatient department HPSAHealth Professional Shortage Area HRSAHealth Resources Services Administration (HHS) ICDInternational Classification of Diseases IACSIndividuals Access to CMS Systems ICFIntermediate care facilities ICRIntensive cardiac rehabilitation ICRInformation collection requirement IDTFIndependent diagnostic testing facility IFCInterim final rule with comment period IMRTIntensity-Modulated Radiation Therapy IPPEInitial preventive physical examination IPPSInpatient prospective payment system IRSInternal Revenue Service ISOInsurance services office IVDIschemic Vascular Disease IVIGIntravenous immune globulin IWPUTIntra-service work per unit of time JRCERTJoint Review Committee on Education in Radiologic Technology JUAJoint underwriting association KDEKidney disease education MAMedicare Advantage MA-PDMedicare Advantage-Prescription Drug Plans MCMPMedicare Care Management Performance MedCACMedicare Evidence Development and Coverage Advisory Committee (formerly the Medicare Coverage Advisory Committee (MCAC)) MedPACMedicare Payment Advisory Commission MEIMedicare Economic Index MIEA-TRHCAMedicare Improvements and Extension Act of 2006 (that is, Division B of the Tax Relief and Health Care Act of 2006 (TRHCA) (Pub. L. 109-432) MIPPAMedicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275) MMAMedicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) MMSEAMedicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110-173) MNTMedical nutrition therapy MPMalpractice MPPRMultiple procedure payment reduction MQSAMammography Quality Standards Act of 1992 (Pub. L. 102-539) MRAMagnetic resonance angiography MRIMagnetic resonance imaging MS-DRGMedicare Severity-Diagnosis related group MSAMetropolitan statistical area NCDNational Coverage Determination NCHNational Claims History NCPDPNational Council for Prescription Drug Programs NCQDISNational Coalition of Quality Diagnostic Imaging Services NDCNational drug code NFNursing facility NISTANational Institute of Standards and Technology Act NPNurse practitioner NPDBNational Practitioner Data Bank NPINational Provider Identifier NPPNonphysician practitioner NPPESNational Plan and Provider Enumeration System NQFNational Quality Forum NRCNuclear Regulatory Commission NTTAANational Technology Transfer and Advancement Act of 1995 (Pub. L. 104-113) NUBCNational Uniform Billing Committee OACT[CMS'] Office of the Actuary OBRAOmnibus Budget Reconciliation Act ODFOpen door forum OIGOffice of Inspector General OMBOffice of Management and Budget ONC[HHS'] Office of the National Coordinator OPPSOutpatient prospective payment system OSAObstructive Sleep Apnea OSCAROnline Survey and Certification and Reporting P4PPay for performance PAPhysician assistant PBMPharmacy benefit manager PCProfessional component PCFPatient compensation fund PCIPercutaneous coronary intervention PDEPrescription drug event PDPPrescription drug plan PEPractice expense PE/HRPractice expense per hour PEACPractice Expense Advisory Committee PECOSProvider Enrollment, Chain, and Ownership System PERCPractice Expense Review Committee PFSPhysician Fee Schedule PGP[Medicare] Physician Group Practice PHPPartial hospitalization program PIM[Medicare] Program Integrity Manual PLIProfessional liability insurance POAPresent on admission POCPlan of care PPIProducer price index PPISPhysician Practice Information Survey PPSProspective payment system PPTAPlasma Protein Therapeutics Association PQRIPhysician Quality Reporting Initiative PRAPaperwork Reduction Act PSAPhysician scarcity areas PSGPolysomnography PTPhysical therapy PTCAPercutaneous transluminal coronary angioplasty RARadiology assistant Recovery ActAmerican Recovery and Reinvestment Act (Pub. L. 111-5) ResDACResearch Data Assistance Center RFARegulatory Flexibility Act RIARegulatory impact analysis RNRegistered nurse RNACReasonable net acquisition cost RPARadiology practitioner assistant RRTRegistered respiratory therapist RUC[AMA's Specialty Society] Relative (Value) Update Committee RVURelative value unit SBASmall Business Administration SGRSustainable growth rate SLPSpeech-language pathology SMS[AMA's] Socioeconomic Monitoring System SNFSkilled nursing facility SORSystem of record SRSStereotactic radiosurgery TCTechnical Component TINTax identification number TRHCATax Relief and Health Care Act of 2006 (Pub. L. 109-432) TTOTranstracheal oxygen UPMCUniversity of Pittsburgh Medical Center USDEUnited States Department of Education VBPValue-based purchasing WAMPWidely available market price I. Background

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

A. Development of the Relative Value System 1. Work RVUs

The concepts and methodology underlying the PFS were enacted as part of the Omnibus Budget Reconciliation Act (OBRA) of 1989 (Pub. L. 101-239), and OBRA 1990, (Pub. L. 101-508). The final rule, published on November 25, 1991 (56 FR 59502), set forth the fee schedule for payment for physicians' services beginning January 1, 1992. Initially, only the physician work RVUs were resource-based, and the PE and malpractice RVUs were based on average allowable charges.

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

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

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

2. Practice Expense Relative Value Units (PE RVUs)

Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 103-432), enacted on October 31, 1994, amended section 1848(c)(2)(C)(ii) of the Act and required us to develop resource-based PE RVUs for each physician's service beginning in 1998. We were to consider general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising PEs.

Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), amended section 1848(c)(2)(C)(ii) of the Act to delay implementation of the resource-based PE RVU system until January 1, 1999. In addition, section 4505(b) of the BBA provided for a 4-year transition period from charge-based PE RVUs to resource-based RVUs.

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

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

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

Section 212 of the Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) directed the Secretary of Health and Human Services (the Secretary) to establish a process under which we accept and use, to the maximum extent practicable and consistent with sound data practices, data collected or developed by entities and organizations to supplement the data we normally collect in determining the PE component. On May 3, 2000, we published the interim final rule (65 FR 25664) that set forth the criteria for the submission of these supplemental PE survey data. The criteria were modified in response to comments received, and published in theFederal Register(65 FR 65376) as part of a November 1, 2000 final rule. The PFS final rules published in 2001 and 2003, respectively, (66 FR 55246 and 68 FR 63196) extended the period during which we would accept these supplemental data through March 1, 2005.

In the Calendar Year (CY) 2007 PFS final rule with comment period (71 FR 69624), we revised the methodology for calculating PE RVUs beginning in CY 2007 and provided for a 4-year transition for the new PE RVUs under this new methodology.

3. Resource-Based Malpractice (MP) RVUs

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

4. Refinements to the RVUs

Section 1848(c)(2)(B)(i) of the Act requires that we review all RVUs no less often than every 5 years. The first 5-Year Review of the physician work RVUs was published on November 22, 1996 (61 FR 59489) and was effective in 1997. The second 5-Year Review was published in the CY 2002 PFS final rule with comment period (66 FR 55246) and was effective in 2002. The third 5-Year Review of physician work RVUs was published in the CY 2007 PFS final rule with comment period (71 FR 69624) and was effective on January 1, 2007. (Note:Additional codes relating to the third 5-Year Review of physician work RVUs were addressed in the CY 2008 PFS final rule with comment period (72 FR 66360).)

In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC) for the purpose of refining the direct PE inputs. Through March 2004, the PEAC provided recommendations to CMS for over 7,600 codes (all but a few hundred of the codes currently listed in the AMA's Current Procedural Terminology (CPT) codes). As part of the CY 2007 PFS final rule with comment period (71 FR 69624), we implemented a new methodology for determining resource-based PE RVUs and are transitioning this over a 4-year period. (Note:In section II.A.2. of this proposed rule, we are proposing to use new survey data under the PE methodology.)

In the CY 2005 PFS final rule with comment period (69 FR 66236), we implemented the first 5-Year Review of the MP RVUs (69 FR 66263). (Note: In section II.C. of this proposed rule, we are proposing to update the malpractice RVUs with the use of new data.)

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 2009 PFS final rule with comment period (73 FR 69730), as required by section 133(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275), the separate budget neutrality (BN) adjustor resulting from the third 5-Year Review of physician work RVUs is being applied to the CF beginning with CY 2009 rather than the work RVUs.

B. Components of the Fee Schedule Payment Amounts

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

RVUs are converted to dollar amounts through the application of a CF, which is calculated by CMS' Office of the Actuary (OACT).

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

Payment = [(RVU work × GPCI work) + (RVU PE × GPCI PE) + (RVU malpractice × GPCI malpractice)] × CF C. Most Recent Changes to the Fee Schedule

The CY 2009 PFS final rule with comment period (73 FR 69726) implemented changes to the PFS and other Medicare Part B payment policies finalized the CY 2008 interim RVUs and implemented interim RVUs for new and revised codes for CY 2009 to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services.

The CY 2009 PFS final rule with comment period also addressed other policies, as well as certain provisions of the MIPPA.

As required by the statute, and based on section 131 of the MIPPA, the CY 2009 PFS final rule with comment period also announced that the PFS update is 1.1 percent for CY 2009, the initial estimate for the sustainable growth rate for CY 2009 is 7.4 percent, and the conversion factor (CF) for CY 2009 is $36.0666.

II. Provisions of the Proposed Regulation A. Resource-Based Practice Expense (PE) Relative Value Units (RVUs)

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

Section 121 of the Social Security Amendments of 1994 (Pub. L. 103-432), enacted on October 31, 1994, required CMS to develop a methodology for a resource-based system for determiningPE 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 resource-based PE RVUs was delayed from January 1, 1998, until January 1, 1999, by section 4505(a) of the BBA. In addition, section 4505(b) of the BBA required that the new payment methodology be phased in over 4 years, effective for services furnished in CY 1999, and fully effective in CY 2002. The first step toward implementation of the statute was to adjust the PE values for certain services for CY 1998. Section 4505(d) of the BBA required that, in developing the resource-based PE RVUs, the Secretary must—

• Use, to the maximum extent possible, generally-accepted cost accounting principles that recognize all staff, equipment, supplies, and expenses, not solely those that can be linked to specific procedures and actual data on equipment utilization.

• Develop a refinement method to be used during the transition.

• Consider, in the course of notice and comment rulemaking, impact projections that compare new proposed payment amounts to data on actual physician PE.

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

For CY 2007, we implemented a new methodology for calculating PE RVUs. Under this new methodology, we use the same data sources for calculating PE, but instead of using the “top-down” approach to calculate the direct PE RVUs, under which the aggregate direct and indirect costs for each specialty are allocated to each individual service, we now utilize a “bottom-up” approach to 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,seethe Five-Year Review of Work Relative Value Units Under the PFS and Proposed Changes to the Practice Expense Methodology proposed notice (71 FR 37242) and the CY 2007 PFS final rule with comment period (71 FR 69629).

Note:

In section II.A.1 of this proposed rule, we discuss the current methodology used for calculating PE. In section II.A.2. of this proposed rule, which contains PE proposals for CY 2010, we are proposing to use data from the AMA Physician Practice Information Survey (PPIS) in place of the AMA's SMS survey data and supplemental survey data that is currently used in the PE methodology.

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 5-year average of SMS survey data. (Seethe CY 2002 PFS final rule with comment period (66 FR 55246).) The SMS PE survey data are adjusted to a common year, 2005. The SMS data provide the following six categories of PE costs:

• Clinical payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician clinical personnel.

• Administrative payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician personnel involved in administrative, secretarial, or clerical activities.

• Office expenses, which include expenses for rent, mortgage interest, depreciation on medical buildings, utilities, and telephones.

• Medical material and supply expenses, which include expenses for drugs, x-ray films, and disposable medical products.

• Medical equipment expenses, which include depreciation, leases, and rent of medical equipment used in the diagnosis or treatment of patients.

• All other expenses, which include expenses for legal services, accounting, office management, professional association memberships, and any professional expenses not previously mentioned in this section.

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

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

The CPEPs identified specific inputs involved in each physician's service provided in an office or facility setting.The inputs identified were the quantity and type of nonphysician labor, medical supplies, and medical equipment. The CPEP data has been regularly updated by various RUC committees on PE.

b. Allocation of PE to Services

The aggregate level specialty-specific PEs are derived from the AMA's SMS survey and supplementary survey data. To establish PE RVUs for specific services, it is necessary to establish the direct and indirect PE associated with each service.

(i)Direct costs.The direct costs are determined by adding the costs of the resources (that is, the clinical staff, equipment, and supplies) typically required to provide the service. The costs of these resources are calculated from the refined direct PE inputs in our PE database. These direct inputs are then scaled to the current aggregate pool of direct PE RVUs. The aggregate pool of direct PE RVUs can be derived using the following formula: (PE RVUs × physician CF) × (average direct percentage from SMS /(Supplemental PE/HR data)).

(ii)Indirect costs.The SMS and supplementary survey data are the source for the specialty-specific aggregate indirect costs used in our PE calculations. We then allocate the indirect costs to the code level on the basis of the direct costs specifically associated with a code and the greater of either the clinical labor costs or the physician work RVUs. For calculation of the 2010 PE RVUs, we use the 2008 procedure-specific utilization data crosswalked to 2010 services. To arrive at the indirect PE costs—

• We apply a specialty-specific indirect percentage factor to the direct expenses to recognize the varying proportion that indirect costs represent of total costs by specialty. For a given service, the specific indirect percentage factor to apply to the direct costs for the purpose of the indirect allocation is calculated as the weighted average of the ratio of the indirect to direct costs (based on the survey data) for the specialties that furnish the service. For example, if a service is furnished by a single specialty with indirect PEs that were 75 percent of total PEs, the indirect percentage factor to apply to the direct costs for the purposes of the indirect allocation would be (0.75/0.25) = 3.0. The indirect percentage factor is then applied to the service level adjusted indirect PE allocators.

• We use the specialty-specific PE/HR from the SMS survey data, as well as the supplemental surveys for cardiothoracic surgery, vascular surgery, physical and occupational therapy, independent laboratories, allergy/immunology, cardiology, dermatology, radiology, gastroenterology, IDTFs, radiation oncology, and urology. (Note:For radiation oncology, the data represent the combined survey data from the American Society for Therapeutic Radiology and Oncology (ASTRO) and the Association of Freestanding Radiation Oncology Centers (AFROC)). As discussed in the CY 2008 PFS final rule with comment period (72 FR 66233), the PE/HR survey data for radiology is weighted by practice size. We incorporate this PE/HR into the calculation of indirect costs using an index which reflects the relationship between each specialty's indirect scaling factor and the overall indirect scaling factor for the entire PFS. For example, if a specialty had an indirect practice cost index of 2.00, this specialty would have an indirect scaling factor that was twice the overall average indirect scaling factor. If a specialty had an indirect practice cost index of 0.50, this specialty would have an indirect scaling factor that was half the overall average indirect scaling factor.

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

c. Facility and 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), both of which may be performed independently or by different providers. When services have TCs, PCs, and global components that can be billed separately, the payment for the global component equals the sum of the payment for the TC and PC. This is a result of using a weighted average of the ratio of indirect to direct costs across all the specialties that furnish the global components, TCs, and PCs; that is, we apply the same weighted average indirect percentage factor to allocate indirect expenses to the global components, PCs, and TCs for a service. (The direct PE RVUs for the TC and PC sum to the global under the bottom-up methodology.)

e. Transition Period

As discussed in the CY 2007 PFS final rule with comment period (71 FR 69674), the change to the PE methodology was implemented over a 4-year period. In CY 2010, the transition period is concluded and PE RVUs will be calculated based entirely on the current methodology.

f. PE RVU Methodology

The following is a description of the PE RVU methodology.

(i) Setup File

First, we create a setup file for the PE methodology. The setup file contains the direct cost inputs, the utilization for each procedure code at the specialty and facility/nonfacility place of service level, and the specialty-specific survey PE per physician hour data.

(ii) Calculate the Direct Cost PE RVUs Sum the Costs of Each Direct Input

Step 1:Sum the direct costs of the inputs for each service. The direct costs consist of the costs of the direct inputs for clinical labor, medical supplies, and medical equipment. The clinical labor cost is the sum of the cost of all the staff types associated with the service; it is the product of the time for each staff type and the wage rate for that staff type. The medical supplies cost is the sum of the supplies associated with the service; it is the product of the quantity of each supply and the cost of the supply. The medical equipment cost is the sum of the cost of the equipment associated with the service; it is the product of the number of minutes each piece of equipment is used in theservice 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 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 TCs and PCs, we are calculating the direct and indirect percentages across the global components, PCs, and TCs. That is, the direct and indirect percentages for a given service (for example, echocardiogram) do not vary by the PC, TC and global component.

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

For most services the indirect allocator is:indirect percentage * (direct PE RVU/direct percentage) + work RVU.

There are two situations where this formula is modified:

• If the service is a global service (that is, a service with global, professional, and technical components), then the indirect allocator is:Indirect percentage * (direct PE RVU/direct percentage) + clinical PE RVU + work RVU.

• If the clinical labor PE RVU exceeds the work RVU (and the service is not a global service), then the indirect allocator is:Indirect percentage * (direct PE RVU/direct percentage) + clinical PE RVU.

Note:

For global services, the indirect allocator is based on both the work RVU and the clinical labor PE RVU. We do this to recognize that, for the professional service, indirect PEs will be allocated using the work RVUs, and for the TC service, indirect PEs will be allocated using the direct PE RVU and the clinical labor PE RVU. This also allows the global component RVUs to equal the sum of the PC and TC RVUs.

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

Apply a BN Adjustment to the Indirect Allocators

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

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

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

Calculate the Indirect Practice Cost Index

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

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

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

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

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

Note:

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

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

(iv) Calculate the Final PE RVUs

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

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

(v) Setup File Information

Specialties excluded from ratesetting calculation:For the purposes of calculating the PE RVUs, we exclude certain specialties such as midlevel practitioners paid at a percentage of the PFS, audiology, and low volume specialties from the calculation. These specialtiesareincluded 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 usualTC and 26 modifiers:Flag the services that are PC and TC services, but do not use TC and 26 modifiers (for example, electrocardiograms). This flag associates the PC and TC with the associated global code for use in creating the indirect PE RVU. For example, the professional service code 93010 is associated with the global code 93000.

Payment modifiers:Payment modifiers are accounted for in the creation of the file. For example, services billed with the assistant at surgery modifier are paid 16 percent of the PFS amount for that service; therefore, the utilization file is modified to only account for 16 percent of any service that contains the assistant at surgery modifier.

Work RVUs:The setup file contains the work RVUs from this proposed rule.

(vi) Equipment cost per minute

The equipment cost per minute is calculated as:

(1/(minutes per year * usage)) * price * ((interest rate/(1−(1/((1 + interest rate) ** life of equipment)))) + maintenance) Where: minutes per year= maximum minutes per year if usage were continuous (that is, usage = 1); 150,000 minutes. usage= equipment utilization assumption; 0.9 for certain equipment (seesection II.A.2. of this proposed rule) and 0.5. for others. price= price of the particular piece of equipment. interest rate= 0.11. life of equipment= useful life of the particular piece of equipment. maintenance= factor for maintenance; 0.05. Note:

To illustrate the PE calculation, in Table 1 we have used the conversion factor (CF) of $36.0666 which is the CF effective January 1, 2009 as published in CY 2009 PFS final rule with comment period.

BILLING CODE 4120-01-P

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