[Title 42 CFR G]
[Code of Federal Regulations (annual edition) - October 1, 2007 Edition]
[Title 42 - PUBLIC HEALTH]
[Chapter IV - CENTERS FOR MEDICARE]
[Subchapter A - GENERAL PROVISIONS]
[Part 419 - PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES]
[Subpart G - Transitional Pass-through Payments]
[From the U.S. Government Printing Office]


42PUBLIC HEALTH32007-10-012007-10-01falseGSubpart GPUBLIC HEALTHCENTERS FOR MEDICAREGENERAL PROVISIONSPROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES
              Subpart G_Transitional Pass-through Payments

    Source: 66 FR 55856, Nov. 2, 2001, unless otherwise noted.



Sec. 419.62  Transitional pass-through payments: General rules.

    (a) General. CMS provides for additional payments under Sec. Sec. 
419.64 and 419.66 for certain innovative medical devices, drugs, and 
biologicals.

[[Page 224]]

    (b) Budget neutrality. CMS establishes the additional payments under 
Sec. Sec. 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 Sec. Sec. 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 
Sec. Sec. 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.
    (d) CY 2002 incorporated amount. For the portion of CY 2002 affected 
by these rules, CMS incorporated 75 percent of the estimated pass-
through costs (before the incorporation and any pro rata reduction) for 
devices into the procedure APCs associated with these devices.

[66 FR 55856, 55865, Nov. 2, 2001; 67 FR 9568, Mar. 1, 2002]

    Effective Date Note: At 66 FR 55865, Nov. 2, 2001, Sec. 419.62 was 
amended by adding paragraph (d), effective Jan. 1, 2002. At 66 FR 67494, 
Dec. 31, 2001, the amendment was delayed indefinitely.



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.

[[Page 225]]

    (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 equals the amount determined under section 1842(o) of the 
Social Security Act, minus the portion of the APC payment amount that 
CMS determines is associated with the drug or biological.

[65 FR 18542, Apr. 7, 2000, as amended at 69 FR 832, Jan. 6, 2004; 69 FR 
65863, Nov. 15, 2004]



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 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 Sec. Sec. 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 appropriately described by any of the existing categories or by any 
category previously in effect, 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.

[[Page 226]]

    (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.

[66 FR 55856, Nov. 2, 2001, as amended at 67 FR 66813, Nov. 1, 2002; 70 
FR 68728, Nov. 10, 2005]