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). SUPPLEMENTARY INFORMATION: Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Please specify the date of the issue requested, and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa, Discover, or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 (or toll free at 1-888-293-6498) or by faxing to (202) 512-2250. The cost for each copy is $8. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register. This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents home page address is http://www.access.gpo.gov/nara/index.html, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call 202-512-1661; type swais, then login as guest (no password required). 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
Medicare Program; Revisions to Payment Policies and Adjustments to the Relative Value Units Under the Physician Fee Schedule for Calendar Year 1999
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.