Medicare Program; Revisions to Payment Policies and Adjustments to the Relative Value Units Under the Physician Fee Schedule for Calendar Year 1999

Summary

This final rule makes several policy changes affecting Medicare Part B payment. The changes that relate to physicians' services include: resource-based practice expense relative value units (RVUs), medical direction rules for anesthesia services, and payment for abnormal Pap smears. Also, we are rebasing the Medicare Economic Index from a 1989 base year to a 1996 base year. Under the law, we are required to develop a resource-based system for determining practice expense RVUs. The Balanced Budget Act of 1997 (BBA) delayed, for 1 year, implementation of the resource-based practice expense RVUs until January 1, 1999. Also, BBA revised our payment policy for nonphysician practitioners, for outpatient rehabilitation services, and for drugs and biologicals not paid on a cost or prospective payment basis. In addition, BBA permits certain physicians and practitioners to opt out of Medicare and furnish covered services to Medicare beneficiaries through private contracts and permits payment for professional consultations via interactive telecommunication systems. Furthermore, we are finalizing the 1998 interim RVUs and are issuing interim RVUs for new and revised codes for 1999. This final rule also announces the calendar year 1999 Medicare physician fee schedule conversion factor under the Medicare Supplementary Medical Insurance (Part B) program as required by section 1848(d) of the Social Security Act. The 1999 Medicare physician fee schedule conversion factor is $34.7315.

Full text

SUMMARY: This final rule makes several policy changes affecting 
Medicare Part B payment. The changes that relate to physicians' 
services include: resource-based practice expense relative value units 
(RVUs), medical direction rules for anesthesia services, and payment 
for abnormal Pap smears. Also, we are rebasing the Medicare Economic 
Index from a 1989 base year to a 1996 base year. Under the law, we are 
required to develop a resource-based system for determining practice 
expense RVUs. The Balanced Budget Act of 1997 (BBA) delayed, for 1 
year, implementation of the resource-based practice expense RVUs until 
January 1, 1999. Also, BBA revised our payment policy for nonphysician 
practitioners, for outpatient rehabilitation services, and for drugs 
and biologicals not paid on a cost or prospective payment basis. In 
addition, BBA permits certain physicians and practitioners to opt out 
of Medicare and furnish covered services to Medicare beneficiaries 
through private contracts and permits payment for professional 
consultations via interactive telecommunication systems. Furthermore, 
we are finalizing the 1998 interim RVUs and are issuing interim RVUs 
for new and revised codes for 1999. This final rule also announces the 
calendar year 1999 Medicare physician fee schedule conversion factor 
under the Medicare Supplementary Medical Insurance (Part B) program as 
required by section 1848(d) of the Social Security Act. The 1999 
Medicare physician fee schedule conversion factor is $34.7315.

DATES: Effective date: This rule this rule is effective January 1, 
1999.
    Applicability date: Part 405 subpart D is applicable for private 
contract affidavits signed and private contracts entered into on or 
after January 1, 1999.
    This rule is a major rule as defined in Title 5, United States 
Code, section 804(2). Pursuant to 5 U.S.C. section 801(a)(1)(A), we are 
submitting a report to the Congress on this rule on October 30, 1998.
    Comment date: We will accept comments on interim RVUs for selected 
procedure codes identified in Addendum C and on interim practice 
expense RVUs for all codes as shown in Addendum B. Comments will be 
considered if we receive them at the appropriate address, as provided 
below, no later than 5 p.m. on January 4, 1999.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: HCFA-1006-FC, P.O. Box 26688, 
Baltimore, MD 21207-0488.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code HCFA-1006-FC. Comments received timely will be available 
for public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 443-G of 
the Department's offices at 200 Independence Avenue, SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: (202) 690-7890).

FOR FURTHER INFORMATION CONTACT:

Roberta Epps, (410) 786-4503 (for issues related to outpatient 
rehabilitation services).
Stephen Heffler, (410) 786-1211 (for issues related to the Medicare 
Economic Index).
Anita Heygster, (410) 786-4486 (for issues related to private 
contracts).
Jim Menas, (410) 786-4507 (for issues related to Pap smears and medical 
direction for anesthesia services).
Robert Niemann, (410) 786-4569 (for issues related to the drugs and 
biologicals policy).
Regina Walker-Wren, (410) 786-9160 (for issues related to physician 
assistants, nurse practitioners, clinical nurse specialists, and 
certified nurse-midwives).
Craig Dobyski, (410) 786-4584 (for issues related to 
teleconsultations).
Stanley Weintraub, (410) 786-4498 (for issues related to practice 
expense relative value units and all other issues).

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guest (no password required).
    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 not exclusively in part IX.

Table of Contents

I. Background
    A. Legislative History
    B. Published Changes to the Fee Schedule
II. Specific Proposals for Calendar Year 1998; Response to Comments
    A. Resource-Based Practice Expense Relative Value Units
    1. Resource-Based Practice Expense Legislation
    2. Proposed Methodology for Computing Practice Expense Relative 
Value Units
    3. Other Practice Expense Policies 4. Refinement of Practice Expense Relative Value Units
    5. Reductions in Practice Expense Relative Value Units for 
Multiple Procedures
    6. Transition
    B. Medical Direction for Anesthesia Services
    C. Separate Payment for a Physician's Interpretation of an 
Abnormal Papanicolaou Smear
    D. Rebasing and Revising the Medicare Economic Index
III. Implementation of the Balanced Budget Act
    A. Payment for Drugs and Biologicals
    B. Private Contracting with Medicare Beneficiaries
    C. Payment for Outpatient Rehabilitation Services
    1. BBA 1997 Provisions Affecting Payment for Outpatient 
Rehabilitation Services
    a. Reasonable Cost-Based Payments
    b. Prospective Payment System for Outpatient Rehabilitation 
Services
    (1) Overview
    (2) Services Furnished by Skilled Nursing Facilities
    (3) Services Furnished by Home Health Agencies
    (4) Services Furnished by Comprehensive Outpatient 
Rehabilitation Facilities
    (5) Site-of-Service Differential
    (6) Mandatory Assignment
    2. Uniform Procedure Codes for Outpatient Rehabilitation 
Services
    3. Financial Limitation
    a. Overview
    b. Use of Modifiers to Track the Financial Limitation
    c. Treatment of Services Exceeding the Financial Limitation
    4. Qualified Therapists
    5. Plan of Treatment
    D. Payment for Services of Certain Nonphysician Practitioners 
and Services Furnished Incident to their Professional Services
    E. Payment for Teleconsultations in Rural Health Professional 
Shortage Areas
IV. Refinement of Relative Value Units for Calendar Year 1999 and 
Responses to Public Comments on Interim Relative Value Units for 
1998
    A. Summary of Issues Discussed Related to the Adjustment of 
Relative Value Units
    B. Process for Establishing Work Relative Value Units for the 
1999 Fee Schedule
V. Physician Fee Schedule Update and Conversion Factor for Calendar 
Year 1999
VI. Provisions of the Final Rule
VII. Collection of Information Requirements
VIII. Regulatory Impact Analysis
    A. Regulatory Flexibility Act
    B. Resource-Based Practice Expense Relative Value Units
    C. Medical Direction for Anesthesia Services
    D. Separate Payment for a Physician's Interpretation of an 
Abnormal Papanicolaou Smear
    E. Rebasing and Revising the Medicare Economic Index
    F. Payment for Nurse Midwives' Services
    G. BBA Provisions Included in This Proposed Rule
    H. Impact on Beneficiaries
Addendum A--Explanation and Use of Addenda B and C
Addendum B--Relative Value Units (RVUs) and Related Information
Addendum C--Codes with Interim RVUs

    In addition, because of the many organizations and terms to which 
we refer by acronym in this final rule, we are listing these acronyms 
and their corresponding terms in alphabetical order below:

AANA: American Association of Nurse Anesthetists
ABC: Activity based costing
ABN: Advance Beneficiary Notice
AHE: Average hourly earnings
AMA: American Medical Association
ANCC: American Nurses Credentialing Center
ASA: American Society of Anesthesiologists
ASOPA: American Society of Orthopedic Physician Assistants
AWP: Average wholesale price
BBA: Balanced Budget Act of 1997
BLS: Bureau of Labor Statistics
CAAHEP: Commission on Accreditation of Allied Health Education 
Programs
CF: Conversion factor
CFR: Code of Federal Regulations
CMSAs: Consolidated Metropolitan Statistical Areas
CORF: Comprehensive outpatient rehabilitation facility
CPEPs: Clinical Practice Expert Panels
CPI: Consumer Price Index
CPI-U: Consumer Price Index for All Urban Consumers
CPS: Current Population Survey
CPT: [Physicians'] Current Procedural Terminology
CRNA: Certified Registered Nurse Anesthetist
DME: Durable medical equipment
DMEPOS: Durable medical equipment, prosthetics, orthotics, and 
supplies
DRG: Diagnosis-related group
EAC: Estimated acquisition cost
ECI: Employment Cost Index
ES-202 Data: Bureau of Labor Statistics from State unemployment 
insurance agencies
ESRD: End-stage renal disease
FDA: Food and Drug Administration
FMR: Fair market rental
FQHC: Federally qualified health center
GAAP: Generally accepted accounting principles
GAF: Geographic adjustment factor
GPCI: Geographic practice cost index
HCFA: Health Care Financing Administration
HCPAC: Health Care Professionals Advisory Committee
HCPCS: HCFA Common Procedure Coding System
HHA: Home health agency
HHS: [Department of] Health and Human Services
HMO: Health maintenance organization
HPSA: Health professional shortage area
HRSA: Health Resources and Services Administration
HUD: [Department of] Housing and Urban Development
IPLs: Independent Physiologic Laboratories
MedPAC: Medicare Payment Advisory Commission
MEI: Medicare Economic Index
MGMA: Medical Group Management Association
MSA: Metropolitan Statistical Area
MSA: Medicare Supplemental Insurance
MVPS: Medicare volume performance standard
NAIC: National Association of Insurance Commissioners
NBCOPA: National Board on Certification for Orthopedic Physician 
Assistants
NCCPA: National Council on Certification of Physician Assistants
NPI: National provider identifier
OBRA: Omnibus Budget Reconciliation Act
OTIP: Occupational therapist in independent practice
PC: Professional component
PHS: Public Health Service
PMSA: Primary Metropolitan Statistical Area
PPI: Producer price index
PPS: Prospective payment system
PTIP: Physical therapist in independent practice
RBRVS: Resource Based Relative Value Scale
RHC: Rural health clinic
RUC: [AMA's Specialty Society] Relative [Value] Update Committee
RN: Registered nurse
RVU: Relative value unit
SMS: Socioeconomic Monitoring System
SNF: Skilled nursing facility
TC: Technical component
TEFRA: Tax Equity and Fiscal Responsibility Act
UPIN: Uniform provider identifier number

I. Background

A. Legislative History

    Since January 1, 1992, Medicare has paid for physicians' services 
under section 1848 of the Social Security Act (the Act), ``Payment for 
Physicians' Services.'' This section contains three major elements: (1) 
A fee schedule for the payment of physicians' services; (2) a 
sustainable growth rate for the rates of increase in Medicare 
expenditures for physicians' services; and (3) limits on the amounts 
that nonparticipating physicians can charge beneficiaries. The Act 
requires that payments under the fee schedule 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, and 
malpractice expense.
    Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments 
in RVUs because of changes resulting from a review of those RVUs may 
not cause total physician fee schedule payments to differ by more than 
$20 million from what they would have been had the adjustments not been 
made. If this tolerance is exceeded, we must make adjustments to the 
conversion factors (CFs) to preserve budget neutrality. B. Published Changes to the Fee Schedule

    In the June 5, 1998, proposed rule (63 FR 30820), we listed all of 
the final rules published through October 31, 1997 relating to the 
updates to the RVUs and revisions to payment policies under the 
physician fee schedule. In the June 5, 1998 proposed rule (63 FR 
30818), we discussed several policy options affecting Medicare payment 
for physicians' services including resource-based practice expense 
RVUs, medical direction rules for anesthesia services, and payment for 
abnormal Pap smears. Also, we discussed the rebasing of the Medicare 
Economic Index from a 1989 base year to a 1996 base year. Further, 
based on BBA, we proposed revising our payment policy for nonphysician 
practitioners, for outpatient rehabilitation services, and for drugs 
and biologicals not paid on a cost or prospective payment basis. In 
addition, based on BBA, we discussed implementing new payment policies 
for certain physicians and practitioners who opt out of Medicare and 
furnish covered services to Medicare beneficiaries through private 
contracts. And finally, based on BBA, we discussed teleconsultation 
services.
    This final rule affects the regulations set forth at 42 CFR part 
405, which consists of regulations on Federal health insurance for the 
aged and disabled; part 410, which consists of regulations on 
supplementary medical insurance benefits; part 414, which consists of 
regulations on the payment for Part B medical and other health 
services; part 415, which pertains to services furnished by physicians 
in providers, supervising physicians in teaching settings, and 
residents in certain settings; part 424, which pertains to the 
conditions for Medicare payment; and part 485, which pertains to 
conditions of participation: specialized providers.

II. Specific Proposals for Calendar Year 1998; Response to Comments

    In response to the publication of the June 5, 1998 proposed rule, 
we received approximately 14,000 comments. We received comments from 
individual physicians, health care workers, and professional 
associations and societies. The majority of the comments addressed the 
proposal related to the resource-based practice expense policy.
    The proposed rule discussed policies that affect the number of RVUs 
on which payment for certain services would be based. Certain changes 
implemented through this final rule are subject to the $20 million 
limitation on annual adjustments contained in section 
1848(c)(2)(B)(ii)(II) of the Act.
    After reviewing the comments and determining the policies we will 
implement, we have estimated the costs and savings of these policies 
and added those costs and savings to the estimated costs associated 
with any other changes in RVUs for 1999. We discuss in detail the 
effects of these changes in the Regulatory Impact Analysis (section 
IX).
    For the convenience of the reader, the headings for the policy 
issues in this section correspond to the headings used in the June 5, 
1998 proposed rule. More detailed background information for each issue 
can be found in the June 5, 1998 proposed rule.

A. Resource-Based Practice Expense Relative Value Units

1. Resource-Based Practice Expense Legislation
    Section 121 of the Social Security Act Amendments of 1994 (Public 
Law 103-432), enacted on October 31, 1994, required us to develop a 
methodology for determining resource-based practice expense RVUs for 
each physician's service that would be effective for services furnished 
in 1998. In developing the methodology, we were required to consider 
the staff, equipment, and supplies used in providing medical and 
surgical services in various settings.
    The legislation specifically required that, in implementing the new 
system of practice expense RVUs, we apply the same budget-neutrality 
provisions that we apply to other adjustments under the physician fee 
schedule.
    On August 5, 1997, the President signed the BBA into law. Section 
4505(a) of BBA delayed the effective date of the resource-based 
practice expense RVU system until January 1, 1999. In addition, BBA 
provided for the following revisions in the requirements to change from 
a charge-based practice expense RVU system to a resource-based method.
    Instead of paying for all services entirely under a resource-based 
system in 1999, section 4505(b) of BBA provided for a 4-year transition 
period. The practice expense RVUs for the year 1999 will be the product 
of 75 percent of charge-based RVUs (1998) and 25 percent of the 
resource-based RVUs. For the year 2000, the percentages will be 50 
percent charge-based and 50 percent resource-based. For the year 2001, 
the percentages will be 25 percent charge-based and 75 percent 
resource-based. For subsequent years, the RVUs will be totally 
resource-based.
    Section 4505(e) of BBA provided that, for 1998, the practice 
expense RVUs be adjusted for certain services in anticipation of the 
implementation of resource-based practice expenses beginning in 1999. 
Practice expense RVUs for office visits were increased.
    For other services whose practice expense RVUs (determined for 
1998) exceeded 110 percent of the work RVUs and were provided less than 
75 percent of the time in an office setting, the 1998 practice expense 
RVUs were reduced to a number equal to 110 percent of the work RVUs. 
This limitation did not apply to services that had a proposed resource-
based practice expense RVU in the June 5, 1998 proposed rule that was 
an increase from its 1997 practice expense RVU.
    The total of the reductions under this provision was less than the 
statutory maximum of $390 million. The procedure codes affected and the 
final RVUs for 1998 were published in the October 31, 1997 final rule 
(62 FR 59103).
    Section 4505(d)(2) of BBA required that the Secretary transmit a 
report to the Congress by March 1, 1998, including a presentation of 
data to be used in developing the practice expense RVUs and an 
explanation of the methodology. A report was submitted to the Congress 
in early March 1998. Section 4505(d)(3) required that a proposed rule 
be published by May 1, 1998, with a 90-day comment period. For the 
transition to begin on January 1, 1999, a final rule must be published 
by October 30, 1998.
    BBA also required that we develop new resource-based practice 
expense RVUs. In developing these new practice expense RVUs, section 
4505(d)(1) required us to--
     Utilize, to the maximum extent practicable, generally 
accepted accounting principles that recognize all staff, equipment, 
supplies, and expenses, not just those that can be tied to specific 
procedures, and use actual data on equipment utilization and other key 
assumptions;
     Consult with organizations representing physicians 
regarding the methodology and data to be used; and
     Develop a refinement process to be used during each of the 
four years of the transition period.
2. Proposed Methodology for Computing Practice Expense Relative Value 
Units
(See Addendum B in the June 5, 1998 proposed rule (63 FR 30888) for a 
detailed technical description of the proposed methodology.)
    In the June 5, 1998 proposed rule (63 FR 30827), we proposed a 
methodology for computing resource-based practice expense RVUs that uses the two 
significant sources of actual practice expense data we have available: 
the Clinical Practice Expert Panel (CPEP) data and the American Medical 
Association's (AMA's) Socioeconomic Monitoring System (SMS) data. This 
methodology is based on an assumption that current aggregate specialty 
practice costs are a reasonable way to establish initial estimates of 
relative resource costs of physicians' services across specialties. It 
then allocates these aggregate specialty practice costs to specific 
procedures and, thus, can be seen as a ``top-down'' approach.

Practice Expense Cost Pools

    We used actual practice expense data by specialty, derived from the 
1995 through 1997 SMS survey data, to create six cost pools: 
administrative labor, clinical labor, medical supplies, medical 
equipment, office supplies, and all other expenses. There were three 
steps in the creation of the cost pools.
    Step 1: We used the AMA's SMS survey of actual cost data to 
determine practice expenses per hour by cost category. The practice 
expenses per hour for each physician respondent's practice was 
calculated as the practice expenses for the practice divided by the 
total number of hours spent in patient care activities by the 
physicians in the practice. The practice expenses per hour for the 
specialty are an average of the practice expenses per hour for the 
respondent physicians in that specialty.
    Step 2: We determined the total number of physician hours, by 
specialty, spent treating Medicare patients. This was calculated from 
physician time data for each procedure code and the Medicare claims 
data. The primary sources for the physician time data were surveys 
submitted to the AMA's Specialty Society Relative Value Update 
Committee (RUC) and surveys done by Harvard for the initial 
establishment of the work RVUs.
    Step 3: We then calculated the practice expense pools by specialty 
and by cost category by multiplying the practice expenses per hour for 
each category by the total physician hours.

Cost Allocation Methodology

    For each specialty, we separated the six practice expense pools 
into two groups and used a different allocation basis for each group.
     For group one, which includes clinical labor, medical 
supplies, and medical equipment, we used the CPEP data as the 
allocation basis. The CPEP data for clinical labor, medical supplies, 
and medical equipment were used to allocate the clinical labor, medical 
supplies, and medical equipment cost pools, respectively.
     For group two, which includes administrative labor, office 
expenses, and all other expenses, a combination of the group one cost 
allocations and the physician fee schedule work RVUs were used to 
allocate the cost pools.
     For procedures performed by more than one specialty, the 
final procedure code allocation was a weighted average of allocations 
for the specialties that perform the procedure, with the weights being 
the frequency with which each specialty performs the procedure on 
Medicare patients.

Other Methodological Issues

Professional and Technical Component Services
    Using the methodology described above, the professional and 
technical components of the resource-based practice expense RVUs do not 
necessarily sum to the global resource-based practice expense RVUs 
since specialties with different practice expenses per hour provide the 
components of these services in different proportions. We made two 
adjustments to the methodology, depending on the specific HCFA Common 
Procedure Coding System (HCPCS) code, so that the professional and 
technical component practice expense RVUs for a service sum to the 
global practice expense RVUs.
Practice Expenses per Hour Adjustments and Specialty Crosswalks
    Since many specialties identified in our claims data did not 
correspond exactly to the specialties included in the practice expenses 
tables from the SMS survey data, it was necessary to crosswalk these 
specialties to the most appropriate SMS specialty category. (See Table 
3 in the June 5, 1998 proposed rule (63 FR 30833) for a listing of all 
proposed crosswalks.)
    We also made the following adjustments to the practice expense per 
hour data:
     We set the medical materials and supplies practice 
expenses per hour for the specialties of ``Oncology'' and ``Allergy and 
Immunology'' equal to the medical materials and supplies practice 
expenses per hour for ``All Physicians,'' stating that we make separate 
payment for the drugs furnished by these specialties.
     We based the administrative payroll, office, and other 
practice expenses per hour for the specialties of ``Physical Therapy'' 
and ``Occupational Therapy'' on data used to develop the salary 
equivalency guidelines for these specialties. We set the remaining 
practice expense per hour categories equal to the ``All Physicians'' 
practice expenses per hour from the SMS survey data.
     Due to uncertainty concerning the appropriate crosswalk 
and time data for the nonphysician specialty ``Audiologist,'' we 
derived the resource-based practice expense RVUs for codes performed by 
audiologists from the practice expenses per hour of the other 
specialties that perform these codes.
     Because we believed that the use of the average practice 
expenses per hour should create the appropriate practice expense pool 
for radiology, we did not attempt to differentiate the practice 
expenses per hour for radiologists according to who owned the 
equipment.
Time Associated With the Work Relative Value Units
    The time data resulting from the refinement of the work RVUs have 
been, on the average, 25 percent greater than the time data obtained by 
the Harvard study for the same services. We increased the Harvard time 
data in order to ensure consistency between these data sources.
    For services such as radiology, dialysis, and physical therapy, and 
for many procedures performed by independent physiological laboratories 
and the nonphysician specialties of clinical psychologist and 
psychologist (independent billing), we calculated estimated total 
physician times for these services based on work RVUs, maximum clinical 
staff time for each service as shown in the CPEP data, or the judgment 
of our clinical staff.
    We calculated the time for Current Procedural Terminology (CPT) 
codes 00100 through 01996 using the base and time units from the 
anesthesia fee schedule and the Medicare allowed claims data.
    We received the following comments on our proposed methodology to 
calculate resource-based practice expense RVUs:
Top-Down Methodology
    Comment: Most of the physician specialty societies commenting on 
our proposed general methodology supported the use of the top-down 
approach as the most reasonable methodology for developing resource-
based practice expense RVUs, and the most responsive approach to the 
requirements of BBA. This was echoed by comments from several 
nonphysician organizations, the Association of American Medical 
Colleges, and the Medical Group Management Association, as well as several hundred individual commenters.
    These commenters supported the top-down method for a variety of 
reasons:
     It reflects the relative values of physicians' actual 
practice expenses.
     It uses the best available sources of aggregate practice 
expense data.
     It recognizes specialty-specific indirect costs.
     It does not rely upon arbitrary, distorting data 
adjustments such as ``linking'' and ``scaling.''
     It is conducive to refinement.
    MedPAC also agreed that this approach is necessary, because of 
limitations in the CPEP process and because the top-down approach 
assures that all practice costs are reflected in the RVUs.
    However, several organizations, mainly representing primary care 
physicians and supported by comments from individual physicians, 
opposed the use of a top-down methodology to develop practice expense 
RVUs. They argued that the top-down approach is not resource-based but, 
rather, rewards higher paid physicians who have spent more in the past, 
regardless of the extent to which these expenditures contributed to 
patient care. Thus, the commenters claimed that the top-down approach 
perpetuates the inequities in the current charge-based practice expense 
RVUs that the implementation of a resource-based practice expense 
system was supposed to correct.
    One commenter also claimed that the top-down approach is not 
responsive to the requirements of BBA, as the methodology is not based 
on generally accepted accounting principles. Further, the commenter 
argued that this new proposal is not more responsive to the concerns of 
the medical community in general but, rather, only benefits those 
specialties whose income was projected to decline under the bottom-up 
approach.
    A specialty society representing clinical oncology opposed the top-
down methodology because--
     It does not actually measure appropriate input resource 
costs and thus pays for inefficiencies;
     It overpays hospital-based and underpays office-based 
services; and
     The RVUs for individual codes cannot be refined because of 
the use of macro-specialty per hour costs.
    There were several comments that expressed concern about the more 
specific impacts of the methodology. A major primary care organization 
pointed out that, under the 1997 proposed rule, an internist would have 
had to provide only 15 midlevel established patient office visits to 
obtain the practice expense reimbursement of a single coronary triple-
bypass graft, compared to 40 visits under our current proposal. One 
organization opposed the use of the top-down approach because of the 
estimated reduction in payments to radiology and radiation oncology. 
Another commenter, representing pathologists, expressed concern that 
because pathology received small gains under the bottom-up method, but 
a 10 percent reduction under the top-down, there are possible flaws in 
the top-down methodology.
    A few of the above comments specifically recommended that we adopt 
a new bottom-up approach that is responsive to the BBA, the General 
Accounting Office (GAO), and the concerns of the medical community. 
Another organization commented that both top-down and bottom-up 
methodologies are inherently flawed, and that we should consider an 
entirely new payment algorithm using type of practice. One of the major 
primary care organizations concluded that the top-down methodology is 
only a reasonable starting point that will need to be improved during 
refinement in order to meet the original intent of improving practice-
expense payments for undervalued primary care and other office-based 
services.
    Response: As we stated in our proposed rule, BBA requires us to 
``utilize, to the maximum extent practicable, generally accepted cost 
accounting principles which recognize all staff, equipment, supplies, 
and expenses, not just those which can be tied to specific 
procedures****'' We still believe that the top-down methodology is more 
responsive to this BBA requirement. By using aggregate specialty 
practice costs as the basis for establishing the practice expense 
pools, the top-down method recognizes all of a specialty's costs, not 
just those linked to specific procedures.
    We also believe that the other reasons outlined in the proposed 
rule for preferring the top-down method are still valid. It answers 
many of the criticisms and questions from the medical community and the 
GAO regarding the bottom-up method's indirect practice expense 
allocation method, treatment of administrative costs, and use of caps 
and linking.
    However, we agree that a possible weakness of the top-down approach 
is that it may perpetuate historical inequities in the current charge-
based practice expense RVUs. More highly paid physicians would 
presumably have more revenues that could subsequently be spent on their 
practices. We believe this issue should be discussed during the 
refinement process.
    Comment: One major organization commented that we will need to 
develop an alternative method for new and revised codes that are not 
included in the SMS data because having multiple methods would lead to 
questionable validity.
    Response: It will not be necessary to develop an alternate 
methodology for refinement of new and revised codes. Once direct inputs 
are assigned to the new and revised codes, allocation to these codes 
will follow the same methodology used for all other services. (See 
Section II.A.4, Refinement of Practice Expense RVUs.)
    Comment: Two major primary care organizations expressed concern 
that we did not consult with the physician community about our 
intention to abandon, rather than refine, our originally proposed 
bottom-up approach, since they had assumed we would only be modifying 
our original methodology. They commented that this is of greater 
concern in light of BBA's requirement that we consult with physicians 
regarding our methodology and of GAO's recommendation that we refine, 
with no mention of replacing, the bottom-up method. One of the comments 
stated, that as the GAO found the bottom-up method acceptable, their 
society would like the GAO's assurance that the new method is sound.
    Response: We believe we carried out the BBA requirement to consult 
with physician organizations. There were extensive consultations with 
physicians, including the validation panels, the cross specialty panel, 
and the indirect cost symposium. During the course of each of these 
meetings, physicians and others pointed out serious problems with the 
bottom-up methodology. We have had two multispecialty meetings this 
year to explain our proposed methodology and have also had numerous 
meetings and discussions with many specialty societies. During all 
these meetings we carefully listened to all points of view and to 
suggestions for developing the new proposal. Following this lengthy 
consultation process, we published our new proposal with a 90-day 
comment period. This provided further opportunities for all interested 
groups to review and comment on this proposal.
    It is true that the GAO did not recommend that we totally replace 
our bottom-up approach. It is our understanding that the GAO was not 
asked to review alternative methods. In any case, their report did not 
recommend against adopting a new methodology. Their report did point 
out several significant weaknesses in our original approach that we 
believed were better responded to by adopting a top-down methodology.
    Comment: One organization urged that we publish the practice-
expense RVUs three ways, using a top-down, a bottom-up, and a hybrid 
approach that uses SMS data for indirect costs and CPEP data for direct 
costs. The bottom-up and hybrid approaches should reflect the 
recommendations previously received relating to scaling, linking, and 
the treatment of administrative costs. This could provide a basis for 
developing comments that compare the interim practice expense RVUs with 
those derived from a modified bottom-up approach. The commenter stated 
that we should be open to considering arguments for a change in the 
interim practice expense RVUs based on a group's determination that the 
values under the bottom-up approach were more accurate.
    Response: We believe that we proposed the methodology for 
developing resource-based practice expense RVUs that best responds to 
the requirements of the Social Security Act Amendments of 1994 and BBA. 
From a practical standpoint, it would be very difficult to deal with 
the inconsistencies between RVUs for various services that have been 
derived from totally different methodologies.

SMS Data

    Comment: Almost all specialty society commenters, and many 
individual commenters, raised questions concerning shortcomings in the 
SMS data, though several commented that SMS is the most appropriate 
data source to use in developing specialty-specific practice expense 
RVUs. As we noted in the proposed rule, the AMA itself pointed out that 
the survey had not been designed to support the development of practice 
expense RVUs. The AMA also stated that the sample size, the response 
rate, and the fact that data was collected on the physician level, 
rather than the practice level, raised methodological issues. Many 
commenters echoed these concerns, and many raised what they saw as 
further general methodological problems:
     MedPAC expressed concern about three types of potential 
errors in the SMS data: the sampling error and nonresponse error 
originally identified in our proposed rule and measurement error. Some 
of this measurement error could occur because the survey measures 
physician-level rather than practice-level costs, as noted above. In 
addition, there could be measurement error by using a self-reported 
survey if no mechanism exists to verify the information provided.
    MedPAC suggested that we could reduce these errors through 
additional data collection, perhaps implementing a subsample of SMS 
survey participants, through an analysis of nonresponse error that 
compares respondents with nonrespondents, through AMA's plans to do a 
practice-level survey every other year, and through considering 
methods, other than actual audits, to verify survey responses.
     Several of the smaller specialties, such as maxillofacial, 
pediatric, vascular and thoracic surgeons, cardiology and gynecology 
subspecialties, geriatricians, and pulmonologists expressed concern 
with the validity and reliability of SMS data for those specialty and 
subspecialty groups not adequately represented in the SMS survey. A 
commenter also stated that academic and hospital-based specialties, 
such as critical care and neonatology, were not appropriately 
represented. Many specialty societies requested that we consider 
practice expense data obtained by under-represented specialty and 
subspecialty groups.
     Several nonphysician specialties, though supporting the 
use of SMS data, raised the need to modify the survey to include 
nonphysicians in the future. A commenter stated that, because 
nonphysicians were not represented in the SMS survey, we have been 
forced to make an educated guess about which specialties they most 
resemble. Another commenter pointed out that the SMS data contains no 
information about osteopathic physicians.
     Several specialties, regardless of their overall sample 
size, expressed concerns about the combining together of subspecialties 
with differing practice costs. For example, organizations representing 
cardiologists commented that it is not known how many in their sample 
were providing evaluation and management services, as opposed to 
performing equipment intensive procedures that have much higher costs. 
Two specialty societies representing nuclear physicians, along with 
several hundred individual commenters, objected to the small sample of 
this subspecialty, with its high costs related to the use of 
radiopharmaceuticals, being combined with radiologists into a single 
practice expense pool. The comments recommended that we increase 
nuclear medicine's practice expense RVUs by 20 percent.
    Similarly, a vascular surgery organization objected to being 
combined with cardiothoracic surgeons, who made up 75 percent of the 
sample and whose practice style differs substantially from vascular 
surgeons. An organization representing pediatrics expressed concern 
that pediatric subspecialties were grouped together with their adult 
counterparts, such as gastroenterology. The AMA commented on this point 
that it plans refinements for future surveys to enhance the utility of 
the data.
     Several commenters noted that the survey consisted of 
physician-owned practices, despite the trend toward more physicians 
working as employees, resulting in a possible bias toward solo or small 
group practices. For example, one commenter stated that the majority of 
emergency room physicians now work as employees or under contract. 
Another commenter asserted that the majority of pediatricians list 
their status as ``employed.'' The AMA commented, in this regard, that a 
key refinement to the SMS survey will be the development of a practice-
level survey to complement the current process.
     One commenter questioned our assumption that physician 
respondents to SMS share practice expenses equally with all other 
physician owners in the practice, since there is no data to show that 
this is the prevalent method.
     An organization representing nurses commented that issues 
related to changes in acuity and case mix in ambulatory care are not 
being addressed, particularly as they pertain to the increased 
professionalization of clinical staff types. The organization argued 
that there is a need to incorporate into the survey process a clearer 
distinction between the types of clinical staff that are employed based 
on specialty practice.
     Concerns were raised by some commenters that the SMS data 
did not always include the actual costs of a given specialty. Several 
organizations representing radiologists, radiation oncologists, and 
cardiologists commented that the methodology employed by the SMS survey 
consistently underestimated the actual costs of equipment. 
Organizations representing emergency room physicians, supported by the 
comment from the AMA, argued that the significant costs of both stand-
by time and uncompensated care are not reflected in the SMS data and 
that these costs need to be recognized.
    A gastroenterology specialty society asserted that the SMS data 
grossly understated actual expenses when compared to its own study. Two 
commenters stated that costs for home visits, such as travel expenses 
and insurance, are not adequately represented in the data. One 
organization commented that the SMS data fails to adequately incorporate resources, including billing, 
nursing time, and transportation costs for audiologists utilized in 
settings such as skilled nursing facilities.
    One commenter stated that the added costs for compliance with 
federal initiatives, such as anti-fraud and abuse efforts and the new 
evaluation and management documentation guidelines, are not yet 
reflected in the SMS data. These costs should be recognized during the 
refinement process and included in future surveys.
     On the other hand, several commenters argued that costs 
were included in the SMS data that should be excluded because they are 
paid for separately from the physician fee schedule. One commenter 
pointed to separately reimbursable supplies and drugs, and another to 
the costs of taking physician staff into the hospital, as examples of 
costs included in SMS that could lead to a double payment by Medicare. 
A society representing vascular surgeons commented that the technical 
component of noninvasive vascular laboratory testing falls into this 
``gray zone.''
     A national specialty society commented that the AMA 
analysis of the ``zero'' responses by specialty by cost categories 
(that is, those cost categories where respondents indicated there were 
no costs) shows that a significant percentage of pathologists' 
responses for direct cost categories are zero as compared to the 
``zero'' response rates for all physicians. The comment requested that 
the SMS pathology data be cleared of all ``zero'' responses for all 
cost categories, not just for the total cost category, prior to the 
calculation of mean costs. For the purpose of calculating practice 
expense per hour for pathology, the society said, we should only use 
data from pathologists who incur a particular cost.
     There were a number of comments concerning the SMS data on 
the specialty-specific physician patient care hours, which is one of 
the variables used to compute the practice expense per hour for each 
specialty:
     Many specialty societies stated their concern that in the 
calculation of the specialty-specific practice expense per hour, 
specialties working the longest hours are disadvantaged. One commenter 
pointed out that practice expense is not uniformly distributed over the 
course of a given day; there are less costs when patient care takes 
place after, rather than during, office hours.
    Another commenter argued that our approach assumes that all of the 
patient care hours in the SMS survey are reflected in our claims data. 
However, the commenter stated, much time spent in patient care 
activities is not billable, such as the involvement of transplant 
surgeons in patient care after the initial assessments but prior to the 
actual transplants.
    One specialty society stated that hospital-based physicians' hours 
of work are probably overstated, as they will include total time spent 
in the facility and not just hours of providing patient services. One 
commenter questioned both the accuracy of the SMS data on hours worked 
per week, as well as our assumption that the level of practice expense 
incurred increases proportionally with the hours spent in patient care. 
An organization stated that physician reports of number of hours are 
less reliable than the reports of costs and are prone to overstatement. 
For these reasons, five specialty societies recommended using a 
standardized work week, usually a 40-hour week, for all specialties.
     Many other specialty groups argued equally vehemently 
against any standardization of the patient care hours. One group 
commented that subjective adjustments to the SMS data, especially those 
which reallocate practice expenses among specialties, should be 
avoided. The comment added that suggestions that a standardized 40-hour 
work week be imposed on the data should be rejected because the 
proposal is driven by an arbitrary, subjective presumption that cross-
specialty practice expense variations are ``too large.''
    Another group argued that, as many physicians work more than a 40-
hour week, such an adjustment would introduce additional error into the 
data and distort the relationship between different specialties' 
practice expenses per hour.
     Three organizations were concerned about the advantage 
given to specialties that use nonphysician practitioners who are not 
reimbursable. In such cases, the physician would incur practice expense 
costs, but the time of practitioners would not be included in the 
physician patient care hours in the denominator of the practice expense 
per hour calculation.
    On the other hand, another commenter stated that we should not 
adjust the SMS data for midlevel practitioners, such as optometrists or 
audiologists, as physician practices employing midlevel practitioners 
are likely to be more complex than a physician-only operation.
     One specialty society commented that the demographics of 
the SMS survey are not clear, as there are no assurances that the 
sample is not biased towards one particular area of the country and 
does not exclude some areas.
    Response: We believe that most of the above comments identified 
important areas for needed future improvement in our data collection 
efforts on aggregate specialty-specific practice expense. However, 
although the SMS survey was not initially intended to be used to 
develop practice expense RVUs, we believe it is the best available 
source of data on actual multispecialty practice costs that allows us 
to recognize all staff, equipment, supplies, and expenses, not just 
those that can be tied to specific procedures. Many specialties 
supported this.
    For example, a specialty society commented, ``As with any complex 
database, the AMA SMS database is not perfect. It is, however, the best 
available source of data for aggregate practice expenses.'' The Medical 
Group Management Association (MGMA) stated in its comment that, ``The 
SMS survey data is the most appropriate and only primary data set in 
existence to determine specialty specific costs pools.''
    We also need to point out that many of the weaknesses in the SMS 
data could well be found in any other survey, whether undertaken by us, 
some other national group, or a medical specialty society. Problems 
with sample size and response rate have plagued other previous attempts 
to gather reliable data on practice expenses. Problems with measurement 
error may be a serious impediment for survey data that is collected 
with the purpose of influencing the level of a given specialty's 
practice expense pool. In fact, we believe one advantage of the current 
SMS data is that they were collected before the 1997 and 1998 proposed 
rules were published.
    We recognize that some specialties are under-represented or not 
appropriately represented in the SMS data and some are not included at 
all. We also acknowledge that additional data may need to be obtained 
and some adjustments made. One of our most important tasks during the 
immediate refinement period will be to work with the AMA and the 
medical community to consider possible ways to improve the 
representativeness of the aggregate specialty-specific data so that 
sampling error is decreased. As part of the refinement, we will also 
need to develop strategies to eliminate as many sources of nonresponse 
and measurement error as possible. (For further information on our 
refinement efforts to improve the accuracy of our data, see Section II.A.4, Refinement of Practice Expense RVUs.)
    As indicated earlier, we believe an advantage of the SMS data we 
used is that it was collected prior to the proposed rule. In fact, it 
was collected prior to the original proposal in 1997 that was delayed 
by BBA and that would have resulted in large redistributions among 
specialties.
    We are very concerned, though, about the potential biases that may 
exist in any subsequent survey data collected by the SMS process or 
other surveys. We especially believe there is a problem in using data 
collected and submitted to us by individual specialties. We believe it 
is more appropriate to use data collected at the same time by an 
independent surveyor for a wide variety of specialties that both gain 
and lose under the proposal.
    Further, now that it is widely known how these survey data are 
being used, every specialty has an incentive to ensure that their data 
are as high as possible in future surveys. We agree with MedPAC that it 
may not be possible for Medicare to audit these data and that it is 
essential that alternatives be established by SMS and others. Perhaps 
specialty data that significantly changes in a future survey should be 
selectively audited by SMS through an independent auditor or other 
appropriate entity before being considered for use by us. We will 
consult with physician groups and others about this during the 
refinement process.
    Comment: One national organization suggested the use of MGMA survey 
data either as a supplement or alternative to SMS in the future.
    Response: We do not believe that the MGMA survey could currently be 
used as an alternative to SMS. As we noted in our proposed rule, due to 
selective sampling and low response rate, this survey is not 
representative of the population of physicians and cannot be used to 
derive code-specific RVUs. This view is based on consultations with 
MGMA representatives. However, we do believe that this survey data can 
be used as one way to validate the general accuracy of the SMS data. We 
have analyzed the MGMA data and have concluded that, in general, it 
supports the relative specialty-specific ranking of the practice 
expense per hour data derived from the SMS survey.
    Comment: One specialty society recommended using median, instead of 
mean, values to calculate each specialty's practice expense per hour. 
This comment argued that the use of medians would eliminate outliers 
and is statistically more appropriate.
    However, three other organizations specifically commented 
supporting our decision to use mean SMS data rather than median data. 
These comments asserted that, particularly with a small sample, use of 
the median would obscure any major differences in practice costs within 
a specialty.
    Response: We will continue to calculate the practice expenses per 
hour by using the mean values for each specialty, at least for the 
purposes of this final rule. This is another issue that can be 
revisited during the refinement period.
    Comment: Organizations representing emergency room physicians, as 
well as several hundred individual commenters, claimed that the SMS 
data seriously under-represented the true practice costs of emergency 
care. The commenters stated that the SMS data, as noted above, did not 
include costs of uncompensated care, much of it mandated under the 
Federal Emergency Medical Treatment and Active Labor Act (Public Law 
99-272), nor stand-by expenses.
    In addition, the comments argued, the SMS data failed to capture a 
representative cross-section of their types of practice arrangements; 
the SMS survey focused on physician owners, but the majority of 
emergency room physicians work as employees or under contract. 
Therefore, one commenter asserted, SMS did not include the largest 
single expense for most emergency physicians: the costs associated with 
employment by practice management firms, which can total between 30-40 
percent of the physician's fee.
    One of the specialty societies included with its comments the 
results of a study it commissioned, which showed that the mean practice 
expense per hour for emergency physicians was $27.33, more than double 
the $13 per hour based on SMS, even without including uncompensated 
care. If we are not willing at this time to substitute this survey data 
for that from the SMS, the organization recommended, with support from 
a comment from the AMA, that we crosswalk emergency medicine to the 
practice expense per hour for ``All Physicians,'' which is $67.50.
    Response: Though many specialties must deal with the issue of 
uncompensated care, we do agree that it may pose a particular problem 
for emergency physicians, who are obligated under law to treat any 
patient regardless of the patient's ability or willingness to pay for 
treatment. Therefore, the amount of patient care hours spent on 
uncompensated care could be significantly higher for emergency medicine 
than for any other specialty. These issues require further examination. 
In the meantime, we will make an adjustment in our calculation of the 
practice expense per hour for emergency medicine by using the ``All 
Physicians'' practice expense per hour to calculate the administrative 
labor and other expenses cost pool. We will continue to calculate the 
clinical labor, supply, equipment, and office cost pools using the SMS-
derived data, as it seems unlikely that, as a hospital-based specialty, 
emergency medicine's costs for these categories would approximate those 
of the average physician.
    Comment: Many commenters argued that the reductions published in 
the June 5, 1998, NPRM for services without work RVUs were 
inappropriate. The commenters represented a wide spectrum of 
specialties including radiology, radiation oncology, cardiology, 
independent physiological and other laboratories, psychology, 
audiology, dermatology, and others. These comments focused on the fact 
that AMA does not survey some of the entities that provide these 
services. They argued that the CPEP data are flawed and the indirect 
allocation methodology is biased.
    Response: Although it is true that the AMA does not survey the 
entities that provide some of these services, this does not necessarily 
mean that these services are inadequately represented in the SMS data. 
If these services (or in the case of technical component services, the 
associated global services) are provided in the practices of physician 
owners surveyed by the SMS in the same proportion as they are reflected 
in our claims data, the practice expense per hour calculations and the 
practice expense pools are reasonable.
    If the CPEP data accurately contain the direct cost inputs for 
these services, then the direct practice expense pool is being 
allocated appropriately. With regard to the indirect allocation 
methodology, we are modifying it to increase the weight of the direct 
costs in the allocation, as discussed elsewhere.
    However, the possibility exists that inaccuracies in the CPEP data 
for these services are causing the substantial reductions seen in the 
NPRM. Therefore, because we are not altering the CPEP at this time, as 
an interim solution until the CPEP data for these services have been 
validated, we have created a practice expense pool for all services 
without work RVUs regardless of the specialty that provides them. We 
allocated this practice expense pool to procedure codes using the 
current practice expense relative value units. While we are not convinced by the comments that were received to 
date regarding a bias in the SMS survey data against these services, we 
acknowledge those concerns and will examine this issue during the 
refinement process.
    Comment: The College of American Pathologists (CAP) requested that 
patient care time included in the SMS data that is spent in autopsies 
and supervision of technicians and paraprofessionals be excluded from 
the patient care hours used to calculate the practice expense per hour 
for pathology services. The commenter stated that these are Part A 
services for which pathologists rarely incur any direct costs. The AMA 
supported these adjustments and estimated the percentage of total 
pathology patient care hours attributable to autopsy and supervision 
services at 6 and 15 percent, respectively.
    CAP also asked that some portion of the patient care hours category 
of ``personally performing nonsurgical laboratory procedures including 
reports'' be eliminated for 1999 when determining pathologists' total 
patient care hours, as the SMS data includes both Part A and Part B 
services. CAP stated that we should work with the CAP and the AMA to 
determine the appropriate adjustment.
    Response: Since pathologists have more Part A reimbursement than 
any other specialty, we will decrease the number of patient care hours 
by 6 percent for autopsies and 15 percent for supervision services. 
However, until we have more information about the appropriate 
adjustment for ``personally performing non-surgical laboratory 
procedures including reports,'' the hours for those services cannot be 
eliminated from our calculations. This point, as well as the general 
issue of nonbillable hours, should be revisited during refinement.
    Comment: Many specialty societies have commented on specific 
problems with the SMS data that affect their own specialty and have 
requested that we supplement or replace the SMS data with data provided 
with their comments.
    Response: There is not sufficient time before publication of the 
final rule to begin to validate either the methodology or findings of 
the submitted data. Since changes in any specialty's practice expense 
per hour would have an impact on other specialties, we do not believe 
it would be equitable to make any sweeping changes without the adequate 
review that the refinement process can achieve. In addition, we stated 
in our proposed rule that, for those larger specialties included in the 
SMS survey, ``we are unlikely to make any changes in the final 
rule****'' Therefore, we will continue to use the SMS-derived practice 
expense per hour for these specialties, but will ensure that all of the 
submitted data will be considered during the refinement process.

CPEP Data

    Comment: Though one major specialty society commented that the CPEP 
data, in general, is relatively sound, many comments pointed out 
problems with the CPEP process and with the data derived from that 
process:
     One group commented that the CPEPs did not have adequate 
representation from practice managers; that there was no uniform policy 
dealing with issues such as duplication of time or efficiencies that 
might result from performing more than one task at a time; and that 
there was inadequate time allotted for CPEPs to meet.
     Several subspecialties pointed out that they were not 
included in the CPEP process and that this could have led to the 
undervaluing of their services.
     Several commenters recommended that we use the CPEP data 
as validated and refined by the validation panels.
     One organization commented that the CPEP data are flawed 
since only 200 codes were reviewed by validation panels.
     One primary care group argued that we should not abandon 
edits and modifications to raw CPEP data, as many codes are performed 
by more than one specialty, and inaccuracies in the CPEP data can 
affect several specialties.
     Two organizations commented that the CPEPs used what is 
now obsolete salary and benefits data, at least for sonographers and 
vascular technologists. One of these comments pointed out that for some 
codes, a different cost was computed for the same equipment. Another 
specialty society recommended that a review of prices and quantities 
for supplies and equipment be included as part of the refinement 
process.
     Two commenters were concerned that the CPEP data include 
expenses that can be billed separately. A primary care specialty 
society argued that we should edit out all direct inputs for services 
to hospital patients. The comment mentioned that since these services 
are paid for outside of the practice expense RVUs, failure to exclude 
these inputs can distort relativity across categories of services such 
as surgical services and office visits.
     One commenter clarified that the costs of therapy aides 
are a part of practice expense and should be reflected in the CPEP 
data, while the services of therapy assistants are included in the work 
RVUs.
    Response: We are aware that the raw CPEP data we have used in our 
proposed methodology need further review. We also share many of the 
concerns raised by those commenting on the issue. However, we believe 
that the CPEP resource estimates, which were developed by practitioners 
representing all the major specialties, are the best procedure level 
data available at this time.
    Under our top-down methodology, the CPEP inputs are used solely to 
allocate each specialty's practice expense pool to the procedures 
performed by that specialty. We have always believed that the relative 
input estimates wit  

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