[Federal Register Volume 66, Number 213 (Friday, November 2, 2001)]
[Rules and Regulations]
[Pages 55850-55857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27658]
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Part V
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Part 419
Medicare Program--Prospective Payment System for Hospital Outpatient
Services; Final Rules
Federal Register / Vol. 66, No. 213 / Friday, November 2, 2001 /
Rules and Regulations
[[Page 55850]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 419
[CMS-1179-IFC]
RIN 0938-AK59
Medicare Program--Prospective Payment System for Hospital
Outpatient Services: Criteria for Establishing Additional Pass-Through
Categories for Medical Devices
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Interim final rule with comment period.
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SUMMARY: This interim final rule with comment period sets forth the
criteria the Secretary will use to establish new categories of medical
devices eligible for transitional pass-through payments under
Medicare's hospital outpatient prospective payment system.
DATES: Effective date: These regulations are effective December 3,
2001.
Comment date: Comments will be considered if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on January
2, 2002.
ADDRESSES: Mail an original and 3 copies of written comments to the
following address only:
Centers for Medicare & Medicaid Services Department of Health and Human
Services, Attention: CMS-1179-IFC, P.O. Box 8018, Baltimore, MD 21244-
8018
Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, D.C. 20201, or
Room C5-16-03, 7500 Security Boulevard, Baltimore, Maryland 21244-1850.
To ensure that mailed comments are received in time for us to
consider them, please allow for possible delays in delivering them.
Comments mailed to the above addresses may be delayed and received
too late for us to consider them.
Because of staff and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code CMS-1179-IFC.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
For information on ordering copies of the Federal Register
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the SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: Nancy Edwards, (410) 786-0378 or Barry
Levi, (410) 786-4529.
SUPPLEMENTARY INFORMATION
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I. Background
Section 1833(t) of the Social Security Act (the Act), as added by
section 4523 of the Balanced Budget Act of 1997 (BBA), Pub. L. 105-133,
provided for implementation of a prospective payment system (PPS) for
hospital outpatient services furnished to Medicare beneficiaries. The
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999
(BBRA), Pub. L. 106-113, amended section 1833(t) of the Act to make
major changes that affected the new PPS for hospital outpatient
services. On April 7, 2000, we published in the Federal Register (65 FR
18434), a final rule with comment period to implement the new PPS for
hospital outpatient services. The new system establishes payment rates
for each service paid under this system using ambulatory payment
classification (APC) groups. On June 30, 2000, we published a notice in
the Federal Register (65 FR 40535) announcing a delay in the effective
date of the hospital outpatient PPS (OPPS) from July 1, 2000 (as set
forth in the April 7, 2000 final rule) until August 1, 2000. Therefore,
OPPS became effective on August 1, 2000. The regulations implementing
the payment system appear at 42 CFR part 419.
Among the provisions of the April 7, 2000 final rule with comment
period are those implementing section 1833(t)(6) of the Act, which was
added by section 201(b) of the BBRA. This section provided for
temporary additional payments, referred to as ``transitional pass-
through payments,'' for certain drugs, biologicals, and devices. The
provision required the Secretary to make additional payments to
hospitals for at least 2, but no more than 3, years for specific items.
The items designated by the BBRA are as follows:
Current orphan drugs, as designated under section 526 of
the Federal Food, Drug, and Cosmetic Act.
Current drugs, biologicals, and brachytherapy devices used
for the treatment of cancer.
Current radiopharmaceutical drugs and biologicals.
New medical devices, drugs, and biologicals in instances
in which the item was not being paid as a hospital outpatient service
as of December 31, 1996, and when the cost of the item is ``not
insignificant'' in relation to the OPPS payment amount. For those
drugs, biologicals, and devices referred to as ``current,'' the
transitional payment begins on the first date the hospital OPPS is
implemented, as required by section 1833(t)(6)(B)(i) of the Act (before
enactment of the Medicare, Medicaid, and SCHIP Program Benefits
Improvement and Protection Act (BIPA), Pub. L. 106-554, enacted
December 21, 2000).
Section 1833(t)(6)(B) of the Act requires payment to be made on a
``pass-through'' basis for the designated items. Specifically, for
devices, the payment is determined by taking the hospital's charge for
the device on the individual claim submitted to Medicare, multiplying
by the hospital's cost-to-charge ratio, and subtracting an amount
identified by the Secretary as already included in the associated APC
to reflect payment for similar devices.
In the April 7, 2000 final rule with comment period, we discussed
the
[[Page 55851]]
criteria that we will use to determine which medical devices are
eligible for transitional pass-through payments. These criteria were
further discussed and several modifications were made in an interim
final rule with comment period published in the Federal Register on
August 3, 2000 (65 FR 47670). The modifications included changes in the
test used to determine when the cost of the item is ``not
insignificant.'' Effective August 1, 2000, we used these criteria in
determining which devices were eligible for transitional pass-through
payments.
From the initial implementation of the new system on August 1, 2000
through March 31, 2001, we determined eligibility for all medical
devices (as well as drugs and biologicals) for transitional pass-
through payment on an item-specific basis, that is, distinguishing by
individual trade names (and, in some instances, model numbers) of the
eligible devices. Devices that we determined eligible were listed in
one of a number of Program Memoranda we published on this subject.
These lists were also posted on our Web site, www.hcfa.gov. Other
devices, even if similar to those on the published lists, were not
eligible in the absence of a specific eligibility decision published in
a Program Memorandum. We established a quarterly process by which
interested parties could submit applications to us for eligibility
determinations for particular devices. Using this process, we
determined that over 1,000 devices were eligible for transitional pass-
through payments.
The most significant reason for adopting an item-specific approach
rather than a category approach, which was also considered, was the
requirement in section 1833(t)(6)(A)(iv)(I) of the Act that, for a
device to be eligible for a transitional pass-through payment,
``payment for the device * * * as an outpatient hospital service under
this part was not being made as of December 31, 1996.'' We adopted an
item-specific approach in order to distinguish which devices met this
criterion. If we had adopted a categorical approach, any category that
contained any device that Medicare had paid for before 1997 would not
be eligible for transitional pass-through payments. No device included
in that category, regardless of when Medicare started to pay for it,
would be eligible. This approach would have severely limited the
eligibility of devices for transitional pass-through payments, a result
that we believed was contrary to the intent of the statute. Our reasons
for adopting an item-specific approach to determining eligibility of
transitional pass-through payments are further discussed in the
November 13, 2000 interim final rule with comment period (65 FR 67806).
Section 402 of BIPA, which amends section 1833(t)(6) of the Act,
requires us to use categories in determining the eligibility of devices
for transitional pass-through payments effective April 1, 2001. Section
1833(t)(6)(B)(ii)(IV) of the Act, as added by section 402(a) of BIPA,
requires us to establish a new category for a medical device when--
The cost of the device is not insignificant in relation to
the OPD fee schedule amount;
No existing device category is appropriate for the device;
and
Payment was not being made for the device as an outpatient
hospital service as of December 31, 1996. However, section
1833(t)(6)(B)(iv) of the Act, also added by section 402(a) of BIPA,
provides that a medical device may be treated as meeting these
requirements if either--
The device is described by one of the initial categories
established; or
The device is described by one of the additional
categories established under this rule, and--
An application under section 515 of the Federal Food,
Drug, and Cosmetic Act has been approved; or
The device has been cleared for market under section
510(k) of the Federal Food, Drug, and Cosmetic Act; or
The device is exempt from the requirements of section
510(k) of the Federal Food, Drug, and Cosmetic Act under section 510(l)
or section 510(m) of that Act.
Thus, otherwise covered devices that are described by a category
may be eligible for transitional pass-through payments even if they
were paid as part of an outpatient service as of December 31, 1996. At
the same time, no categories will be created on the basis of devices
that were paid on or before December 31, 1996. Under section
1833(t)(6)(B)(iv) of the Act, no further application or approval is
required for a covered device that is described by a category to
qualify for a transitional pass-through payment.
Section 1833(t)(6)(B)(i)(I) of the Act, as amended by BIPA,
required us to establish, by April 1, 2001, an initial set of
categories based on device by type in such a way that devices eligible
for transitional pass-through payments under sections 1833(t)(A)(ii)
and (iv) as of January 1, 2001 would be included in a category. We
developed this initial set of categories in consultation with groups
representing hospitals, manufacturers of medical devices, and other
affected parties, as required by section 1833(t)(6)(B)(i)(II) of the
Act, as amended by BIPA. We issued the list of initial categories on
March 22, 2001, in Program Memorandum (PM) No. A-01-41, which is
available on our Web site, www.hcfa.gov.
As required by section 1833(t)(6)(B)(iii) of the Act, the period
during which a category of devices is eligible for transitional pass-
through payments is at least 2, but not more than 3, years. This period
begins with the first date on which a transitional pass-through payment
is made for any medical device that is described by the category.
Section 1833(t)(6)(B)(ii)(III) of the Act, as amended by BIPA,
requires us to establish criteria by July 1, 2001 that will be used to
create additional categories. This provision requires that no medical
device be described by more than one category. In addition, the
criteria must include a test of whether the average cost of devices
that would be included in a category is ``not insignificant'' in
relation to the APC payment amount for the associated service.
A conforming amendment made by section 402(b)(3) of BIPA revises
section 1833(t)(12)(E) of the Act concerning the limitation on
administrative or judicial review of the OPPS. As amended, that section
now prohibits administrative or judicial review of the determination
and deletion of initial and new categories. In addition to the
requirement to use device categories for purposes of the transitional
pass-through payments, BIPA made other changes to those payments.
Section 406 of BIPA amends section 1833(t)(6)(A)(ii) of the Act to
extend transitional pass-through payments to devices used for
temperature monitored cryoablation, effective for devices furnished on
or after April 1, 2001.
Section 430 of BIPA amends section 1861(t)(1) of the Act to expand
the definition of ``drugs'' to include contrast agents effective for
items and services furnished on or after July 1, 2001. We implemented
this provision by program memorandum (Transmittal A-01-73, June 1,
2001). Thus, contrast agents have been eligible for transitional pass-
through payments since that date. The amount of the pass-through
payment will be determined, as for other drugs, on the basis of 95
percent of the average wholesale price less the amount determined to be
already included in the payment for the associated APC.
[[Page 55852]]
II. Provisions of This Interim Final Rule with Comment Period
This interim final rule sets forth the criteria for establishing
new categories of medical devices eligible for transitional pass-
through payments under the hospital outpatient PPS as required by
section 1833(t)(6)(B)(ii) of the Act, as amended by BIPA. The
provisions relating to transitional pass-through payments for eligible
drugs and biologicals remain unchanged and are not addressed in this
rule (except for the change relating to contrast agents as provided in
section 430 of BIPA). Similarly, the provisions relating to new
technology ambulatory payment classification (APC) groups remain the
same, as set forth in our April 7, 2000 final rule (66 FR 18476). We
note, however, that in the proposed rule to update the hospital OPPS
for CY 2002, published on the August 24, 2001 (66 FR 44702), we
proposed certain changes to the criteria for eligibility for payment in
a new technology APC.
A. Changes to the Criteria for Eligibility for Pass-Through Payment of
a Medical Device
As noted above, in our April 7, 2000 final rule with comment period
(65 FR 18480), we defined new or innovative devices using eight
criteria, three of which were revised in our August 3, 2000 interim
final rule with comment period (65 FR 47673-74). These criteria were
set forth in regulations at Sec. 419.43(e)(4). For the most part, these
criteria will remain applicable when defining a new category for
devices. That is, devices to be included in a category must meet all
previously established applicable criteria for a device eligible for
transitional pass-through payments. The definition of an eligible
device, however, must change to conform to the requirements of the
amended section 1833(t)(6)(B)(ii) of the Act.
In addition, we are clarifying our criterion that states that a
device must be approved or cleared by the FDA. The approval or
clearance criterion applies only if FDA approval or clearance is
required for the device as specified at new Sec. 419.66(b)(1). For
example, a device that has received an FDA investigational device
exemption (IDE) and has been classified as a Category B device by the
FDA in accordance with Sec. 405.203 through Sec. 405.207 and
Secs. 405.211 through 405.215 is exempt from this requirement. A device
that has received an FDA IDE and is classified by the FDA as a Category
B device is eligible for a transitional pass-through payment if all
other requirements are met.
B. Criteria for Establishing Device Categories
As described above in section I of this preamble, in determining
the criteria for establishing additional categories, section
1833(t)(6)(B)(ii) of the Act mandates that new categories must be
established for devices that were not being paid for as an outpatient
hospital service as of December 31, 1996, in such a way that no device
is described by more than one category and the average cost of devices
to be included in a category is not insignificant in relation to the
APC payment amount for the associated service. Based on these
requirements, we will use the following criteria to establish a
category of devices:
Substantial clinical improvement. The category describes
devices that demonstrate a substantial improvement in medical benefits
for Medicare beneficiaries compared to the benefits obtained by devices
in previously established categories or other available treatments, as
described in regulations at new Sec. 419.66(c)(1).
This criterion ensures that no existing or previously existing
category contains devices that are substantially similar to the devices
to be included in the new category. This is consistent with the
statutory mandate that no device is described by more than one
category.
In addition, this criterion limits the number of new categories,
and consequently transitional pass-through payments, to those
categories containing devices that offer the prospect of substantial
clinical improvement in the care of Medicare beneficiaries. Section
1833(t)(6)(E)(iii) of the Act, as redesignated by BIPA, requires that,
if the Secretary estimates before the beginning of the year that the
total amount of pass-through payments would exceed a specified
percentage of total program payments (2.5 percent before 2004 and no
more than 2 percent thereafter), we must uniformly reduce
(prospectively) each pass-through payment in that year by an amount
adequate to ensure that the limit is not exceeded.
We believe it is important for hospitals to receive pass-through
payments for devices that offer substantial clinical improvement in the
treatment of Medicare beneficiaries to facilitate access by
beneficiaries to the advantages of the new technology. Conversely, the
need for additional payments for devices that offer little or no
clinical improvement over a previously existing device is less
apparent. These devices can still be used by hospitals, and hospitals
will be paid for them through the appropriate APC payment. To the
extent these devices are used, the hospitals' charges for the
associated procedures will reflect their use. We will use data on
hospital charges to update the APC payment rates as part of the annual
update cycle. Thus, the payment process will provide an avenue to
reflect appropriate payments for devices that are not substantial
improvements.
We will be evaluating a request for a new category of devices
against the following criteria in order to determine if it meets the
substantial clinical improvement requirement:
The device offers a treatment option for a patient
population unresponsive to, or ineligible for, currently available
treatments.
The device offers the ability to diagnose a medical
condition in a patient population where that medical condition is
currently undetectable or offers the ability to diagnose a medical
condition earlier in a patient population than allowed by currently
available methods. There must also be evidence that use of the device
to make a diagnosis affects the management of the patient.
Use of the device significantly improves clinical outcomes
for a patient population as compared to currently available treatments.
Some examples of outcomes that are frequently evaluated in studies of
medical devices are the following:
Reduced mortality rate with use of the device.
Reduced rate of device-related complications.
Decreased rate of subsequent diagnostic or therapeutic
interventions (for example, due to reduced rate of recurrence of the
disease process).
Decreased number of future hospitalizations or physician
visits.
More rapid beneficial resolution of the disease process
treated because of the use of the device.
Decreased pain, bleeding, or other quantifiable symptom.
Reduced recovery time.
As part of the application process (described below in section
II.C.), we will require the requester to submit evidence that the
category of devices meets one or more of these criteria. We note that
the requirements set forth above will be used only for determining
whether a device is eligible for a new category under section
1833(t)(6)(B) of the Act, which authorizes transitional pass through
payments for categories of devices. These criteria are not intended for
use in making coverage decisions
[[Page 55853]]
under section 1862(a)(1)(A) of the Act. We note that adoption of these
criteria is consistent with the recommendation of the Medicare Payment
Advisory Commission, in its March 2001 Report to Congress, that pass-
through payments for specific technologies be made only when a
technology is new or substantially improved.
We expect to determine which devices represent a substantial
clinical improvement over existing devices by using a panel of Federal
clinical and other experts, supplemented if appropriate by individual
consultation with outside experts. These decisions will, in general, be
based on information submitted by the requester about the clinical
benefit of the devices as described in the above criteria, including,
where available, evidence from clinical trials or other clinical
investigations.
We believe that almost all substantial clinical improvements in
technology that are appropriately paid for under the transitional pass-
through provisions result in measurable improvements in care from the
perspective of the beneficiary. Nevertheless, there may be some
improvements in the medical technology itself that are so significant
that we may wish to recognize them for separate payment even though
they do not directly result in substantial clinical improvements. For
example, improvements in such factors as the strength of materials,
increased battery life, miniaturization, might so improve convenience,
durability, ease of operation, etc., that such an improvement in
medical technology might be considered as a separate factor from
``substantial clinical improvement'' in beneficiary care. We invite
public comment on this issue and are particularly interested in
learning of examples of medical technologies for which pass through
payments might be appropriate even though they would not also pass a
test based on substantial improvement in beneficiary outcomes.
We note that we welcome comments on all aspects of these criteria
for substantial clinical improvement, and we will consider timely
comments in developing a final rule. (Comments on all parts of this
interim final rule with comment will be considered if they are received
within 30 days after the publication of this rule.) We will continue to
evaluate these criteria as we gain experience in applying them, and we
will consider revisions and refinements to them over time as
appropriate.
Cost. We determine that the estimated cost to hospitals of
the devices in a new category (including any candidate devices and the
other devices that we believe will be included in the category) is
``not insignificant'' relative to the payment rate for the applicable
procedures. The estimated cost of devices in a category will be
considered ``not insignificant'' if they meet the following criteria
found in regulations at new Sec. 419.66(d):
The estimated average reasonable cost of devices in the
category exceeds 25 percent of the applicable APC payment amount for
the service associated with the category of devices.
The estimated average reasonable cost of devices in the
category exceeds the cost of the device-related portion of the APC
payment amount for the service associated with the category of devices
by at least 25 percent.
The difference between the estimated average reasonable
cost of the devices in the category and the portion of the APC payment
amount determined to be associated with the device in the associated
APC exceeds 10 percent of the total APC payment.
Of these three cost criteria, the latter two are unchanged from our
current thresholds for individual devices (however, as discussed below,
their effective date is revised). The first criterion, however,
represents a change from the current threshold.
In the April 7, 2000 final rule, we provided that a device's
expected reasonable cost must exceed 25 percent of the applicable APC
payment for the associated service as the criterion for determining
when the cost of a specific device is ``not insignificant'' in relation
to the APC payment (65 FR 18480). In the August 3, 2000 interim final
rule, we lowered the threshold to 10 percent because we believed the 25
percent limit was too restrictive based on the brand specific approach
at the time (65 FR 47673; Sec. 419.43(e)(1)(iv)(C)). However, given our
payment experience over the past year using the 10 percent threshold,
including our current information on the likely amount of pass-through
payments in CY 2002, we believe a higher threshold is warranted. We
believe that setting a higher cost threshold will ensure that new
categories are created only in those instances where they are most
valuable to beneficiaries and hospitals, given the overall limits on
pass-through payments. That is, pass-through payments will be targeted
only to those devices where cost considerations might be most likely to
interfere with patient access.
We found that once we lowered the threshold to 10 percent, a very
small minority (less than 10 percent) of devices that met all other
criteria for the pass-through payment were rejected on the basis of
this criterion. Partly as a result, the list of devices qualified for
pass-through payments increased to well over 1000 devices by the end of
2000. Although the extensive number of qualified devices allowed
hospitals to receive additional payment for many devices, we have
estimated that the overall pass-through payment amount for calendar
year 2002 exceeds the 2.5 percent cap. Therefore, for that year, a
substantial reduction in the amount of each pass-through payment as
required by section 1833(t)(6)(E)(iii) of the Act, will be necessary.
Thus, allowing a large number of marginally costly devices to qualify
for the pass-through payment would reduce the amount of additional
payment a hospital would receive for any one device. We believe raising
the threshold for this criterion will benefit hospitals by focusing the
pass-through payments on those devices that represent a substantial
loss to the hospital. We believe this change will also preserve
beneficiary access to especially expensive devices.
In addition, once a category is established, devices included in
the category will be eligible for pass-through payments regardless of
the cost of the device. Therefore, we believe that it is reasonable to
set a higher threshold than 10 percent to establish the category. While
the cost of most devices described by a category may equal or exceed
the threshold we use in establishing a category, the cost of individual
devices could easily fall below the threshold. Therefore, we believe
that it is reasonable to use a higher threshold in establishing a
category than in qualifying individual devices.
The latter two criteria for determining that the estimated cost of
a category of devices is not insignificant are unchanged from those
currently included in Sec. 419.66 (as related to individual devices).
As we provided in the August 3, 2000 interim final rule, we intended to
apply these criteria to devices for which a pass-through payment is
first made on or after January 1, 2003 (65 FR 47673). We stated that
the delay would allow us sufficient time to gather and analyze data
needed to determine the current portion of the APC payment associated
with the devices.
Based on the outpatient claims data we are currently using for
analysis, we believe that we are able, in many cases, to begin using
these criteria at this time. Although the 1996 data did not provide a
level of information that allowed us to determine the portion of the
APC payment that was related to the device
[[Page 55854]]
(except in a very few cases such as pacemakers), the newer data often
does provide this level of detail. Therefore we will begin using the
second and third criteria for the purpose of creating categories, as
described in regulations at Secs. 419.66(d)(2) and 419.66(d)(3), as
soon after the implementation of this final rule as we have data to do
so rather than on January 1, 2003. Although in some instances the lack
of specific data will prevent the application of these criteria, we do
not believe that should delay our use of these criteria in those
situations in which the data are available.
C. Application Process for Creation of a New Device Category
Device manufacturers, hospitals, or other interested parties may
apply for a new device category for transitional pass-through payments.
The application process is very similar to the process that was
previously used for item-specific review of devices and that is
currently used for drugs and biologicals. Details regarding deadlines
and other aspects of the application process will be available on our
web site, www.hcfa.gov.
We will accept applications at any time. However, we will establish
new categories only at the beginning of a calendar quarter, in
deference to our computer systems needs and those of our contractors
and hospitals. We must receive applications in sufficient time before
the beginning of the calendar quarter in which a category would be
established to allow for decision-making and programming. For now, we
will require that applications be received at least 4 months before the
beginning of the quarter.
We may change the details of this application process in the future
to reflect experience and programmatic needs. If we revise these
instructions in any way, we will submit the revisions to the Office of
Management and Budget pursuant to the Paperwork Reduction Act. We will
also post the revisions on our web site.
D. Announcing a New Device Category
If we determine a new category is warranted, we will issue a
Program Memorandum specifying a new Healthcare Common Procedure Coding
System (HCPCS, formerly known as HCFA Common Procedure Coding System)
code and short and long descriptors for the category. We may also
include additional clarifying or definitional information to help
distinguish the new category from other existing or previously existing
categories. It may be necessary to redefine, or make other changes to,
existing categories to accommodate a new category and ensure that no
medical device is described by more than one category, though we will
attempt to keep these changes to a minimum. We will post these Program
Memoranda on our web site.
We may find it necessary occasionally to correct or amend the list
of (and clarifying information associated with) new categories or
initial categories. We do not expect this step will be needed often,
but if it is necessary, we will issue any changes in a Program
Memorandum.
E. Temperature-Monitored Cryoablation Devices
Section 406 of BIPA amends section 1833(t)(6)(A)(ii) of the Act to
extend transitional pass-through payments to a device of temperature-
monitored cryoablation. We have implemented this provision through PM
No. A-01-40, which included categories for these devices. In our
regulations at new Sec. 419.66(e)(2), we have extended the transitional
pass-through payments to a device of temperature-monitored cryoablation
and specify that this medical device is not subject to the cost
criteria described in Sec. 419.66(d).
F. Contrast Agents as a Drug
Section 430 of BIPA revises the definition of drugs at section
1861(t)(1) of the Act to include contrast agents, therefore making them
eligible for a transitional pass-through payment. We have implemented
this provision effective July 1, 2001, through PM No. A-01-73, issued
on June 1, 2001. This provision does not require any changes in our
regulations as we are simply including contrast agents within the
definition of drugs that were not paid as hospital outpatient services
before 1997.
G. Redesignations
We are redesignating and revising our regulations at Sec. 419.43(e)
relating to transitional pass-through payments for drugs, biologicals,
and devices to incorporate the changes in our policy that result from
this interim final rule. Paragraph (e) has been removed and
redesignated as a new subpart G. (Current subpart G is redesignated as
subpart H.) The new subpart G consists of the following sections:
Sec. 419.62 Transitional pass-through payments: General rules.
Sec. 419.64 Transitional pass-through payments: Drugs and biologicals.
Sec. 419.66 Transitional pass-through payments: Medical devices.
We are redesignating Sec. 419.43(f), Budget neutrality, as
Sec. 419.43(e) and revising that paragraph to limit its application
only to outlier adjustments. The budget neutrality provision relating
to pass-through payments is now found at Sec. 419.62(b). We are also
revising Sec. 419.60(e), Limitations on administrative or judicial
review, to conform to the changes made to section 1833(t)(12)(E) of the
Act by section 402(b)(3) of BIPA.
In recodifying paragraph (e), we have made additional editorial
changes to existing regulations text.
III. Response to Comments
Because of the large number of items of correspondence we normally
receive on Federal Register documents published for comment, we are not
able to acknowledge or respond to them individually. We will consider
all comments we receive by the date and time specified in the ``DATES''
section of this preamble, and, when we proceed with a subsequent
Federal Register document, we will respond to the comments in the
preamble to that document.
IV. Waiver of Proposed Rulemaking
We ordinarily publish a proposed rule in the Federal Register and
invite public comment on the proposed rule. The proposed rule includes
a reference to the legal authority under which the rule is proposed,
and the terms and substances of the proposed rule or a description of
the subjects and issues involved. This procedure can be waived,
however, if an agency finds good cause that a notice-and-comment
procedure is impracticable, unnecessary, or contrary to the public
interest and incorporates a statement of the finding and its reasons in
the rule issued. We believe that, in this case, prior notice and
comment procedures would be impracticable because the statute requires
we issue the criteria by July 1, only slightly more than 6 months after
passage of the underlying statute. This deadline does not permit
completion of the full cycle of notice and comment rulemaking before
the criteria are published. Furthermore, section 1833(t)(6)(B)(ii)(I)
of the Act, as amended by section 402(a) of BIPA, gives explicit
authority to use an interim final rule with comment period. Therefore,
we find good cause to waive
[[Page 55855]]
the notice of proposed rulemaking and to issue this final rule on an
interim basis.
V. Collection of Information Requirements
Under the Paperwork Reduction Act (PRA) of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval.
In order to fairly evaluate whether an information collection
should be approved by OMB, section 3506(c)(2)(A) of the PRA of 1995
requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
Therefore, we are soliciting public comments on each of the issues
for the information collection requirement discussed below.
Process and Information Required To Apply for Additional Device
Categories For Transitional Pass-Through Payment Status Under the
Hospital Outpatient Prospective Payment System
The application itself for additional device categories may be
found at www.hcfa.gov. The application process is very similar to the
process that was previously used for item-specific review of devices
and that is currently used for drugs and biologicals. Details regarding
deadlines and other aspects of the application process will be
available on the above web site. (See also section II. Above.)
We estimate that approximately 100 entities will file an
application yearly. We believe it will take each of these entities
around 16 hours to gather the necessary information and fill out the
application.
We have submitted a copy of this interim final rule with comment to
OMB for its review of the information collection requirement described
above. The requirement is not effective until it has been approved by
OMB.
If you comment on these information collection requirements, please
mail copies directly to the following:
Centers for Medicare & Medicaid Services, Office of Information
Services, DHES, SSG, Attn: John Burke, CMS-1179-IFC, Room N2-14-26,
7500 Security Boulevard, Baltimore, MD 21244-1850;
and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC 20503
Attn: Allsion Eydt, Desk Officer.
VI. Regulatory Impact Statement
A. Overall Impact
We have examined the impacts of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review) and the
Regulatory Flexibility Act (RFA) (September 19, 1980 Public Law 96-
354). Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major rules with economically
significant effects ($100 million or more annually). This interim final
rule is not a major rule because we have determined that the economic
impact will be negligible for the revisions related to the transitional
pass-through payments for new or innovative medical devices. In
addition, the budget impact related to the transitional pass-through
provision has already been addressed in the outpatient prospective
payment system implementing rule published on April 7, 2000 (65 FR
18530). As stated in that rule, the pass-through provision is
implemented in a budget-neutral manner as required by section
1833(t)(2)(E) of the Act. Section 1833(t)(6)(E) of the Act, as amended
by BBRA and redesignated by BIPA, caps the projected additional
payments annually at 2.5 percent of the total projected payments for
hospital outpatient services each year before calendar year 2004 and no
more than 2.0 percent in year 2004 and subsequent years.
The RFA requires agencies to determine whether a rule will have a
significant economic impact on a substantial number of small entities.
For purposes of the RFA, small entities include small businesses,
nonprofit organizations, and government agencies. Most hospitals and
most other providers and suppliers are small entities, either by
nonprofit status or by having revenues ranging between $5 million and
$25 million or less annually, depending on the particular health care
industry (for details see the Small Business Administration's final
rule size standards for health care at 65 FR 69432). Individuals and
States are not included in the definition of a small entity.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis for any final rule that may have a
significant impact on the operations of a substantial number of small
rural hospitals. This analysis must conform to the provisions of
section 604 of the RFA. With the exception of hospitals located in
certain New England counties, for purposes of section 1102(b) of the
Act, we define a small rural hospital as a hospital with not more than
100 beds that is located outside of a Metropolitan Statistical Area
(MSA) or New England County Metropolitan Area (NECMA). Section 601(g)
of the Social Security Amendments of 1983 (Pub. L. 98-21) designated
hospitals in certain New England counties as belonging to the adjacent
NECMA. Thus, for purposes of the prospective payment system, we
classify these hospitals as urban hospitals.
We are not preparing analyses for either the RFA or section 1102(b)
of the Act because we have determined, and we certify, that this rule
will not have a significant economic impact on a substantial number of
small entities or a significant impact on the operations of a
substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in an expenditure in any one year by
State, local, or tribal governments, in the aggregate, or by the
private sector, of $110 million. This interim final rule will not have
a significant economic effect on these governments or the private
sector.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a final rule that imposes
substantial direct compliance costs on State and local governments,
preempts State law, or otherwise has Federalism implications. This
interim final rule will not have a substantial effect on States or
local governments.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 419
Health facilities, Hospitals, Medicare.
[[Page 55856]]
For the reasons set forth in the preamble, 42 CFR part 419 is
amended as follows:
PART 419--PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT
DEPARTMENT SERVICES
1. The authority citation continues to read as follows:
Authority: Secs. 1102, 1833(t), and 1871 of the Social Security
Act (42 U.S.C. 1302, 1395l(t), and 1395hh).
2. Section 419.43 is amended by--
A. Removing paragraph (e).
B. Redesignating paragraph (f) as paragraph (e) and revising it to
read as follows.
Sec. 419.43 Adjustments to national program payment and beneficiary
coinsurance amounts.
* * * * *
(e) Budget neutrality. CMS establishes payment under paragraph (d)
of this section in a budget-neutral manner.
3. Section 419.60(e) is revised to read as follows:
Sec. 419.60 Limitations on administrative and judicial review.
* * * * *
(e) The determination of the fixed multiple, or a fixed dollar
cutoff amount, the marginal cost of care, or applicable percentage
under Sec. 419.43(d) or the determination of insignificance of cost,
the duration of the additional payments (consistent with subpart G of
this part), the determination of initial and new categories under
Sec. 419.66, the portion of the Medicare hospital outpatient fee
schedule amount associated with particular devices, drugs, or
biologicals, and the application of any pro rata reduction under
Sec. 419.62(c).
4. Redesignate Subpart G as Subpart H.
5. New Subpart G is added to read as follows:
Subpart G Transitional Pass-through Payments
Sec.
Sec. 419.62 Transitional pass-through payments: general rules.
Sec. 419.64 Transitional pass-through payments: Drugs and
biologicals.
Sec. 419.66 Transitional pass-through payments: Medical devices.
Sec. 419.62 Transitional pass-through payments: General rules.
(a) General. CMS provides for additional payments under
Secs. 419.64 and 419.66 for certain innovative medical devices, drugs,
and biologicals.
(b) Budget neutrality. CMS establishes the additional payments
under Secs. 419.64 and 419.66 in a budget neutral manner.
(c) Uniform prospective reduction of pass-through payments. (1) If
CMS estimates before the beginning of a calendar year that the total
amount of pass-through payments under Secs. 419.64 and 419.66 for the
year would exceed the applicable percentage (as described in paragraph
(c)(2) of this section) of the total amount of Medicare payments under
the outpatient prospective payment system. CMS will reduce, pro rata,
the amount of each of the additional payments under Secs. 419.64 and
419.66 for that year to ensure that the applicable percentage is not
exceeded.
(2) The applicable percentages are as follows:
(i) For a year before CY 2004, the applicable percentage is 2.5
percent.
(ii) For 2004 and subsequent years, the applicable percentage is a
percentage specified by CMS up to (but not to exceed) 2.0 percent.
Sec. 419.64 Transitional pass-through payments: drugs and biologicals.
(a) Eligibility for pass-through payment. CMS makes a transitional
pass-through payment for the following drugs and biologicals that are
furnished as part of an outpatient hospital service:
(1) Orphan drugs. A drug or biological that is used for a rare
disease or condition and has been designated as an orphan drug under
section 526 of the Federal Food, Drug and Cosmetic Act if payment for
the drug or biological as an outpatient hospital service was being made
on August 1, 2000.
(2) Cancer therapy drugs and biologicals. A drug or biological that
is used in cancer therapy, including, but not limited to, a
chemotherapeutic agent, an antiemetic, a hematopoietic growth factor, a
colony stimulating factor, a biological response modifier, and a
bisphosphonate if payment for the drug or biological as an outpatient
hospital service was being made on August 1, 2000.
(3) Radiopharmaceutical drugs and biological products. A
radiopharmaceutical drug or biological product used in diagnostic,
monitoring, and therapeutic nuclear medicine services if payment for
the drug or biological as an outpatient hospital service was being made
on August 1, 2000.
(4) Other drugs and biologicals. A drug or biological that meets
the following conditions:
(i) It was first payable as an outpatient hospital service after
December 31, 1996.
(ii) CMS has determined the cost of the drug or biological is not
insignificant in relation to the amount payable for the applicable APC
(as calculated under Sec. 419.32(c)) as defined in paragraph (b) of
this section.
(b) Cost. CMS determines the cost of a drug or biological to be not
insignificant if it meets the following requirements:
(1) Services furnished before January 1, 2003. The expected
reasonable cost of a drug or biological must exceed 10 percent of the
applicable APC payment amount for the service related to the drug or
biological.
(2) Services furnished after December 31, 2002. CMS considers the
average cost of a new drug or biological to be not insignificant if it
meets the following conditions:
(i) The estimated average reasonable cost of the drug or biological
in the category exceeds 10 percent of the applicable APC payment amount
for the service related to the drug or biological.
(ii) The estimated average reasonable cost of the drug or
biological exceeds the cost of the drug or biological portion of the
APC payment amount for the related service by at least 25 percent.
(iii) The difference between the estimated reasonable cost of the
drug or biological and the estimated portion of the APC payment amount
for the drug or biological exceeds 10 percent of the APC payment amount
for the related service.
(c) Limited period of payment. CMS limits the eligibility for a
pass-through payment under this section to a period of at least 2
years, but not more than 3 years, that begins as follows:
(1) For a drug or biological described in paragraphs (a)(1) through
(a)(3) of this section--August 1, 2000.
(2) For a drug or biological described in paragraph (a)(4) of this
section--the date that CMS makes its first pass-through payment for the
drug or biological.
(d) Amount of pass-through payment. Subject to any reduction
determined under Sec. 419.62(b), the pass-through payment for a drug or
biological is 95 percent of the average wholesale price of the drug or
biological minus the portion of the APC payment amount CMS determines
is associated with the drug or biological.
Sec. 419.66 Transitional pass-through payments: medical devices.
(a) General rule. CMS makes a pass-through payment for a medical
device that meets the requirements in paragraph (b) of this section and
that is described by a category of devices
[[Page 55857]]
established by CMS under the criteria in paragraph (c) of this section.
(b) Eligibility. A medical device must meet the following
requirements:
(1) If required by the FDA, the device must have received FDA
approval or clearance (except for a device that has received an FDA
investigational device exemption (IDE) and has been classified as a
Category B device by the FDA in accordance with Secs. 405.203 through
405.207 and 405.211 through 405.215 of this chapter) or another
appropriate FDA exemption.
(2) The device is determined to be reasonable and necessary for the
diagnosis or treatment of an illness or injury or to improve the
functioning of a malformed body part (as required by section
1862(a)(1)(A) of the Act).
(3) The device is an integral and subordinate part of the service
furnished, is used for one patient only, comes in contact with human
tissue, and is surgically implanted or inserted whether or not it
remains with the patient when the patient is released from the
hospital.
(4) The device is not any of the following:
(i) Equipment, an instrument, apparatus, implement, or item of this
type for which depreciation and financing expenses are recovered as
depreciable assets as defined in Chapter 1 of the Medicare Provider
Reimbursement Manual (CMS Pub. 15-1).
(ii) A material or supply furnished incident to a service (for
example, a suture, customized surgical kit, or clip, other than
radiological site marker).
(iii) A material that may be used to replace human skin (for
example, a biological or synthetic material).
(c) Criteria for establishing device categories. CMS uses the
following criteria to establish a category of devices under this
section:
(1) CMS determines that a device to be included in the category is
not described by any of the existing categories, and was not being paid
for as an outpatient service as of December 31, 1996.
(2) CMS determines that a device to be included in the category has
demonstrated that it will substantially improve the diagnosis or
treatment of an illness or injury or improve the functioning of a
malformed body part compared to the benefits of a device or devices in
a previously established category or other available treatment.
(3) Except for medical devices identified in paragraph (e) of this
section, CMS determines the cost of the device is not insignificant as
described in paragraph (d) of this section.
(d) Cost criteria. CMS considers the average cost of a category of
devices to be not insignificant if it meets the following conditions:
(1) The estimated average reasonable cost of devices in the
category exceeds 25 percent of the applicable APC payment amount for
the service related to the category of devices.
(2) The estimated average reasonable cost of the devices in the
category exceeds the cost of the device-related portion of the APC
payment amount for the related service by at least 25 percent.
(3) The difference between the estimated average reasonable cost of
the devices in the category and the portion of the APC payment amount
for the device exceeds 10 percent of the APC payment amount for the
related service.
(e) Devices exempt from cost criteria. The following medical
devices are not subject to the cost requirements described in paragraph
(d) of this section, if payment for the device was being made as an
outpatient service on August 1, 2000:
(1) A device of brachytherapy.
(2) A device of temperature-monitored cryoablation.
(f) Identifying a category for a device. A device is described by a
category, if it meets the following conditions:
(1) Matches the long descriptor of the category code established by
CMS.
(2) Conforms to guidance issued by CMS relating to the definition
of terms and other information in conjunction with the category
descriptors and codes.
(g) Limited period of payment for devices. CMS limits the
eligibility for a pass-through payment established under this section
to a period of at least 2 years, but not more than 3 years beginning on
the date that CMS establishes a category of devices.
(h) Amount of pass-through payment. Subject to any reduction
determined under Sec. 419.62(b), the pass-through payment for a device
is the hospital's charge for the device, adjusted to the actual cost
for the device, minus the amount included in the APC payment amount for
the device.
(Catalog of Federal Domestic Assistance Program No. 93.774,
Medicare--Supplementary Medical Insurance Program)
Dated: August 2, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
Approved: October 19, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-27658 Filed 10-31-01; 9:17 am]
BILLING CODE 4120-01-P