[Federal Register Volume 60, Number 22 (Thursday, February 2, 1995)]
[Notices]
[Pages 6537-6547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2559]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
[BPD-812-NC]
RIN 0938-AG83


Medicare Program; Criteria for Medicare Coverage of Lung 
Transplants

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice with comment period.

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SUMMARY: This notice announces a Medicare national coverage decision 
for lung and heart-lung transplantations. Lung transplantation refers 
to the transplantation of one or both lungs from a single cadaver 
donor. Heart-lung transplantation refers to the transplantation of one 
or both lungs and the heart from a single cadaver donor.
    We have determined that, under certain circumstances, lung 
transplants and heart-lung transplants are a medically reasonable and 
necessary service when furnished to patients with progressive end-stage 
pulmonary or cardiopulmonary disease and when furnished by Medicare 
participating facilities that meet specific criteria, including patient 
selection criteria.

DATES: This notice is effective February 2, 1995. For information on 
how this notice effects Medicare payment for lung and heart-lung 
transplants, see sections E and F of this notice.

ADDRESSES: Applications. A facility seeking Medicare coverage and 
payment for lung transplantation should mail 10 copies of the 
application to the address below in a manner which provides the 
facility with documentation that it was received by us: Director, 
Office of Hospital Policy, Room 189 East High Rise, 6325 Security 
Boulevard, Baltimore, Maryland 21207.
    Comments. Comments will be considered if we received them at the 
appropriate address, as provided below, no later than 5 p.m. on April 
3, 1995.
    Mail written comments (1 original and 3 copies) to the following 
address: Health Care Financing Administration, Department of Health and 
Human Services, Attention: BPD-812-NC, P.O. Box 26676, Baltimore, MD 
21207.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room 132, East High Rise Building, 6325 Security Building, Baltimore, 
MD 21207.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-812-NC. 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 309-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).
    If you wish to submit comments on the information collection 
requirements contained in this rule, you may submit comments to: Office 
of Information and Regulatory Affairs, Office of Management and Budget, 
Room 3001, New Executive Office Building, Washington, DC 20503, Attn: 
Allison Herron Eydt, HCFA Desk Officer.

FOR FURTHER INFORMATION CONTACT:
Claude Mone, (410) 966-5666.

SUPPLEMENTARY INFORMATION: 

I. Background

    Administration of the Medicare program is governed by the Medicare 
law, title XVIII of the Social Security Act (the Act). The Medicare law 
provides coverage for broad categories of benefits, including inpatient 
and outpatient hospital care, skilled nursing facility (SNF) care, home 
health care, and physicians' services. It places general and 
categorical limitations on the coverage of the services furnished by 
certain health care practitioners, such as dentist, chiropractors and 
podiatrists, and it specifically excludes some categories of services 
from coverage, such as cosmetic surgery, personal comfort items, 
custodial care, routine physical checkups, and procedures that are not 
reasonable and necessary for diagnosis or treatment of an illness or 
injury.
    The Act also provides direction as to the manner in which payment 
is made for Medicare services, the rules governing eligibility for 
services, and the health, safety, and quality standards to be met in 
institutions furnishing services to Medicare beneficiaries. The 
Medicare law does not, however, provide an all-inclusive list of 
specific items, services, treatments, procedures, or technologies 
covered by Medicare. Thus, except for the examples of durable medical 
equipment in section 1861(n) of the Act, and some of the medical and 
other health services listed in section 1861(s) and 1862(a) of the Act, 
the Act does not specify medical devices, surgical procedures, or 
diagnostic or therapeutic services that should be covered or excluded 
from coverage.
    The intention of the Congress, at the time the Medicare Act was 
enacted in 1965, was that Medicare would provide health insurance to 
protect the elderly or disabled from the substantial costs of acute 
health care services, principally hospital care. The program was 
designed generally to cover services ordinarily furnished by hospitals, 
SNFs, and physicians licensed to practice medicine. The Congress 
understood that questions as to coverage of specific services would 
invariably arise and would require specific coverage decisions by those 
administering the program. It vested in the Secretary the authority to 
make those decisions.
    Section 1862(a)(1)(A) of the Act prohibits payment for any expenses 
incurred for items or services ``which are not reasonable or necessary 
for the diagnosis or treatment of illness or injury or to improve the 
functioning of a malformed body member.'' We have interpreted this 
statutory provision to exclude from Medicare coverage those medical and 
health care services that have not been demonstrated by acceptable 
clinical evidence to be safe and effective. Effectiveness in this 
context is defined as the probability of benefit to individuals from a 
medical item, service, or procedure for a given medical problem under 
average conditions of use, that is, day-to-day medical practice.
    To date, the Medicare program has not issued a national coverage 
policy on lung or heart-lung transplantation. In the absence of 
national coverage policy, the contractors that process Medicare claims 
are authorized to develop Medicare coverage policy for their service 
area using medical literature, the advice of medical consultants and 
local medical societies, and their private line business practices.
    Several contractors have determined lung transplantation to be a 
Medicare covered service prior to this notice, and a small number of 
contractors have covered heart-lung transplant. However, most of these 
contractors do not have a clearly defined coverage policy that would 
allow a beneficiary to know in advance if the procedure would be 
covered. Rather, they review each case individually after it has 
occurred and determine coverage without published 

[[Page 6538]]
criteria. Other Medicare contractors do not cover the procedure at all. 
Thus, there is inconsistency within the nation.
    On January 30, 1989, we published a proposed rule in the Federal 
Register, at 54 FR 4302, which describes our process for formulating 
new national coverage decisions and reevaluating existing decisions. As 
discussed in that notice, we sometimes rely on the Office of Health 
Technology Assessment (OHTA) in the Agency for Health Care Policy and 
Research (AHCPR) of the Public Health Service (PHS) for medical 
consultation and advice. We also rely on other PHS components, such as 
the National Institutes of Health.
    The AHCPR evaluates the risks, benefits, and clinical effectiveness 
of new, existing, or unestablished medical technologies. The assessment 
process includes a comprehensive review of the medical literature and 
emphasis broad participation from within and outside the Federal 
government. The OHTA conducted an assessment of lung transplantation in 
1991 and concluded that experience has shown that lung transplants can 
provide adequate pulmonary function for extended periods in some 
patients with otherwise fatal lung disease. In addition, the National 
Heart, Lung, and Blood Institute (NHLBI) in the National Institutes of 
Health, Public Health Service, reported to us in 1993 that lung 
transplantation in carefully selected patients and by experienced teams 
yields significant increases in survival with reasonable quality of 
life.
    We believe it is appropriate in the face of these findings to issue 
a national policy rather than to maintain the current system of 
inconsistency among the contractors. In addition, we believe it is more 
beneficial to develop a national policy where facilities and 
beneficiaries will know in advance the criteria and facilities covered 
rather than to maintain the system in many areas of making coverage 
decisions on a case by case basis without clearly defined criteria.

II. Provisions

    We have carefully reviewed the reports and recommendations of the 
Office of Health Technology Assessment and the National Heart, Lung, 
and Blood Institute. Based on these reports, the opinions of our 
medical advisors, consultations with PHS, and review of the medical 
literature, consultation with medical advisors and reconsultation with 
NHLBI since the OHTA assessment, we are establishing national coverage 
of lung transplant under the Medicare program, under the authority of 
section 1862(a)(1)(A) of the Act.
    Sections 1869(b)(3)(B) and 1871(a)(2) of the Act specifically 
exempt national coverage decisions from the notice-and-comment 
rulemaking process ordinarily required by section 553 of the 
Administrative Procedure Act. Despite this authority, we have indicated 
that we would use the prior comment process in discontinuing coverage 
of procedures. However, we do not believe that the establishment of 
this policy is a discontinuation of coverage. Rather, we view this 
policy as establishment of national coverage policy where no such 
policy previously existed. Consequently, we are proceeding with a final 
notice in this regard. Nonetheless, we wish to receive comments on 
these criteria within 60 days of the publication of this notice.
    Medicare will cover lung transplants for beneficiaries with 
progressive end-stage pulmonary disease and when performed by 
facilities that (1) make an application to HCFA for approval as a lung 
transplant facility under the criteria established by this notice; (2) 
supply documentation showing their satisfaction of compliance with the 
criteria discussed later in this notice; and (3) are approved by HCFA 
under these criteria. Medicare will also cover lung transplantation for 
end-stage cardiopulmonary disease when it is expected that transplant 
of the lung will result in improved cardiac function.
    In addition, Medicare will also cover heart-lung transplants for 
beneficiaries with progressive end-stage cardiopulmonary disease when 
they are provided in a facility that has been approved by Medicare for 
both heart and lung transplantation. The NHLBI's studies of this 
procedure have persuaded us that, though provided infrequently, this 
procedure is sometimes the appropriate intervention for specific 
patients. We believe the procedure may be safely and effectively done 
in a facility that is Medicare approved for both heart and lung 
transplantation. We are not establishing specific patient selection 
criteria for the procedure; however, we expect that facilities that 
perform heart-lung transplants will develop and use appropriate 
criteria.
    Organs transplanted as a heart-lung procedure should be included in 
the volume and survival statistics for each organ. Thus, facilities may 
meet the volume and survival criteria delineated in this notice through 
both lung and heart-lung transplant procedures.

A. Specific Clinical Conditions Required for Lung Transplantation 
Coverage
    Medicare will cover lung transplants only for those beneficiaries 
who are diagnosed as having progressive end-state pulmonary disease 
(or, in some instances, end-stage cardiopulmonary disease) and when the 
procedure is performed in a participating facility that meets specific 
criteria.

    Note: See effective date section for further explanation.

    We are requiring that facilities meet specific criteria in areas 
such as patient selection, patient management, commitment, plans, 
experience and survival rates, maintenance of data, organ procurement, 
laboratory services, and billing. Facilities must have patient 
selection criteria for determining suitable candidates for lung 
transplants.

B. Facility Requirements

    Under current Medicare policies, a procedure can be considered 
medically reasonable and necessary only if its safety and efficacy have 
been demonstrated adequately by scientific evidence, such as controlled 
clinical studies, and it has been generally accepted by the medical 
community. Normally, surgical procedures and medical regimens, although 
requiring competent, skilled personnel, are of a nature that they can 
be performed successfully on most patients who require them in most 
facilities that meet the Medicare conditions of participation for 
hospitals in 42 CFR part 482. In the case of lung transplantation, 
however, we believe many other factors are related to the safety and 
efficacy of the procedure. Thus, coverage of lung transplants requires 
detailed criteria to identify the context in which lung 
transplantations can be considered medically reasonable and necessary.
    We are covering only those lung transplantations performed in 
facilities that demonstrate good patient outcomes (for example, 
initially a 1-year survival rate of 69 percent for patients receiving a 
lung transplant) and compliance with the facility criteria. While we 
believe that survival rates are important measures of successful 
outcomes, we do not believe that they can serve as the only criteria a 
center has to meet in order to be approved for Medicare payment for 
lung transplants. Once a facility applies for approval under these 
criteria and is approved as a lung transplant facility for Medicare 
purposes, it is obliged to report immediately to HCFA any events or 
changes that would affect its approved status. Specifically, a facility 
is required to report, within a reasonable period of time, any 
significant decrease in its experience level or survival rates, the 
departure of key members of the transplant team or any other major 

[[Page 6539]]
changes that could affect the performance of lung transplants at the 
facility. Changes from the terms of approval may lead to prospective 
withdrawal of approval for Medicare coverage of lung transplants 
performed at the facility.
    A discussion of the criteria that we are requiring facilities to 
meet in order to receive Medicare payment for lung transplantation 
follows. A very similar approach is being used in determining 
eligibility of heart and liver transplant facilities and has proved 
very successful.
1. Patient Selection Criteria
    The NHLBI of the National Institutes of Health, Public Health 
Service, has reported to us that lung transplantation in carefully 
selected patients and by experienced teams yields significant increases 
in survival with reasonable quality of life. Therefore, we believe that 
careful patient selection for lung transplants, as suggested by NHLBI, 
is essential to achieve optimal results. We require that facilities 
have written patient selection criteria that they follow in determining 
suitable candidates for lung transplants, such as the following:
    a. A patient is selected based upon both a critical medical need 
for transplantation and a strong likelihood of successful clinical 
outcome.
    b. A patient who is selected for a lung transplant has 
irreversible, progressively disabling, end-stage pulmonary disease (or, 
in some instances, end-stage cardiopulmonary disease).
    c. The facility has tried or considered all other medically 
appropriate medical and surgical therapies that might be expected to 
yield both short- and long-term survival comparable to that of 
transplantation.
    d. Plans for long-term adherence to a disciplined medical regimen 
are feasible and realistic for the individual patient.
    Many factors must be recognized as exerting an adverse influence 
upon the patient's outcome after transplantation. The following adverse 
factors are among those that should be considered in selecting patients 
for transplantation:
     Primary or metastatic malignancies of the lung.
     Current significant acute illness that is likely to 
contribute to a poor outcome if the patient receives a lung transplant 
or current use of mechanical ventilation for more than a very brief 
period.
     Significant or advanced heart, liver, kidney, 
gastrointestinal or other systemic or multi-system disease that is 
likely to contribute to a poor outcome after lung transplantation.
     Significant extra-pulmonary infection.
     Chronic pulmonary infection in candidates for single lung 
transplantation.
     Continued cigarette smoking or failure to have abstained 
for long enough to indicate low likelihood of recidivism.
     Systemic hypertension that requires more than two drugs 
for adequate control.
     Cachexia, even in the absence of major end-organ failure.
     Obesity.
     Previous thoracic or cardiac surgery or other bases for 
pleural adhesions.
     Age beyond that at which there has been substantial 
favorable experience.
     Chronic corticoid therapy that cannot be tapered to a low 
dose (10 mg prednisone per day) or discontinued prior to 
transplantation.
     A history of behavior pattern or psychiatric illness 
considered likely to interfere significantly with a disciplined medical 
regimen.
    Except for the matter of primary or metastatic malignancies of the 
lung, all these factors were explicitly enumerated in the National 
Heart, Lung, and Blood Institute memorandum upon which we primarily 
relied in developing this notice. Primary or metastatic malignancies of 
the lung are implicit in the National Heart, Lung, and Blood 
Institute's listing of systemic and multi-system diseases as an adverse 
factor. We are explicitly listing primary or metastatic malignancy of 
the lung to emphasize it should be an adverse factor in patient 
selection. We note that we have received a report which surveyed major 
lung transplant facilities regarding, among other things, appropriate 
patient selection criteria for lung transplants. The results of the 
survey indicate Medicare coverage criteria for lung transplantation 
should include patient selection criteria that exclude malignancies. 
The American College of Cardiology believes that malignancy (other than 
basal cell carcinoma) is an absolute contraindication for heart-lung 
transplant. (See Health Technology Assessment ``Institutional and 
Patient Criteria for Heart/Lung Transplantation,'' Agency for Health 
Care Policy and Research). In addition, a New England Journal of 
Medicine article by Steven E. Weinberger, M.D. (Volume 328, Number 20, 
May 20, 1993) indicated that lung transplant patients ``* * * should 
not have an underlying cancer or other systemic illness,'' and that 
same view was reflected in a survey of lung transplant programs.
    These criteria take into consideration advances in the 
transplantation field and reflect discussions with experts in pulmonary 
medicine, infectious diseases, transplantation, surgery, biostatistics, 
and other experts. We realize that the indicators to measure the safety 
and efficacy of lung transplantations will continue to evolve. Thus, we 
may need to update the criteria periodically to recognize further 
developments in lung transplantation technology. We intend to re-
evaluate the criteria through survey and data gathering within the next 
3 years.
2. Patient Management
    A facility must have adequate patient management plans and 
protocols that include the following:
     Therapeutic and evaluative procedures for the acute and 
long-term management of a patient, including commonly encountered 
complications. The facility must state the basis for confidence in 
these plans.
     Patient management and evaluation during the waiting and 
immediate post-discharge, as well as in-hospital, phases of the 
program.
     Long-term management and evaluation, including education 
of the patient, liaison with the patient's attending physician, and the 
maintenance of active patient records for a period of at least 5 years.
3. Commitment
    A facility must make a sufficient commitment of resources and 
planning to the lung transplant program to carry through its 
application. Indications of this commitment should include a commitment 
by the facility to the lung transplant program at all levels and which 
is broadly evident throughout the facility. (A lung transplantation 
program requires a major commitment of resources, which may 
intermittently include many other departments as well as the principal 
sponsoring departments.)
    The facility must have expertise in medical, surgical, and other 
relevant areas, particularly thoracic surgery, vascular surgery, 
anesthesiology, immunology, infectious diseases, pulmonary diseases, 
pathology, radiology, nursing, blood banking, and social services. The 
facility must identify individuals in these areas in order to achieve 
an identifiable and stable transplant team. Responsible medical/
surgical members of the team must be board certified or eligible to 
take the boards in their respective disciplines or have, in the opinion 
of the non-Federal experts discussed in section II.D. of this notice, 
demonstrated 

[[Page 6540]]
competence irrespective of board status. We believe board eligibility 
is required to assure high quality care.
    The facility's commitment should also be evident by the following:
     The component teams must be integrated into a 
comprehensive team with clearly defined leadership and corresponding 
responsibility.
     The anesthesia service must identify a team for 
transplantation that must be available at all times.
     The infectious disease service must have both the 
professional skills and laboratory resources needed to discover, 
identify, and manage the complications from a whole range of organisms, 
may of which are uncommonly encountered.
     The nursing service must identify a team or teams trained 
not only in hemodynamic support of the patient, but also in the special 
problems of managing immunosuppressed patients.
      Pathology resources must be available for studying and 
reporting promptly the pathological responses to transplantation.
     Adequate social service resources must be available.
     Mechanisms must be in place for managing the lung 
transplant program that assure that patient selection criteria are 
consistent with those set forth in the facility's written patient 
selection criteria and that the facility is responsible for the ethical 
and medical considerations involved in the patient selection process 
and application of patient selection criteria.
     Adequate plans exist for organ procurement meeting legal 
and ethical criteria, as well as yielding viable transplantable organs 
in reasonable numbers.



4. Facility Plans
    The facility must have overall facility plans, commitments, and 
resources for a program that will ensure a reasonable concentration of 
experience; specifically, 10 or more lung transplantation cases per 
year in patients who have end-state pulmonary or cardiopulmonary 
disease. The facility must show that this level of activity is feasible 
and likely to continue on the basis of plans, commitments, and 
resources.
5. Experience and Survival Rates
    The facility must demonstrate experience and success with a 
clinical organ transplantation program involving immunosuppressive 
technique. The facility must have an established lung transplantation 
program with documented evidence of 10 or more patients, who have end-
stage pulmonary or cardiopulmonary disease, in each of the two 
preceding 12-month periods. The facility can use single lung, double 
lung and heart-lung transplant patients in meeting this criterion. The 
Medicare cardiac and liver transplant criteria require a minimum volume 
of 12 transplants annually. However, based on the recommendation of the 
National Heart, Lung, and Blood Institute, we have established 10 cases 
per year as the basic standard for a lung transplant program.
    We are establishing a minimum volume criterion because we believe a 
significant number of transplants is generally needed to maintain the 
entire transplant team commitment and skills to assure that procedures 
are of appropriate quality and safety. Our own research in heart 
transplantation has documented improved survival associated with 
Medicare approved facilities over those that do not meet the Medicare 
criteria, which includes minimum volume thresholds. In addition, 
Jeffrey Hosenpud, M.D. et al., reported in the Journal of the American 
Medical Association (volume 271, No. 23, June 15, 1994, page 1844) on 
the effect of transplant center volume on cardiac transplant outcome. 
These researchers found increased risk of mortality in centers 
performing fewer than 9 cardiac transplants per year. Further, research 
conducted by Erick B. Edward, et al and presented in the Fifteenth 
world Congress of the Transplantation Society demonstrated that, after 
correcting for patient mix covariates, patients mortality following 
liver transplantation in the United States is a function of center 
transplant volume. Such articles confirm our view that volume generally 
is a strong factor in predicting survival. Although we are not aware of 
published studies such as those with heart and liver transplants, 
empirically demonstrating that volume is associated with successful 
outcome and team proficiency in lung transplantion, we believe it is 
reasonable to assume a similar relationship would exist for lung 
transplants.
    We have established the minimum volume of 10 transplants per year 
for lungs based on the fact that there are fewer lungs than hearts and 
livers available for transplanation. The NHLBI recommended 10 
transplants as an appropriate number.
    We have contacted a large sample of active lung transplant programs 
to gather data regarding the volume of transplants performed over the 
past three years. In arraying the results of these data, we found that 
the vast majority of centers that are designated as lung transplant 
centers perform a very small number of procedures. In fact, a 
significant number of these centers performed less than two transplants 
annually. Over 80 percent of the total transplants in the data were 
performed in those centers that exceeded the volume thereshold 
recommended by NHLBI. Thus, although a relatively small number of the 
total facilities designated to perform lung transplants by the organ 
Procurement and Transplanation Network are expected to qualify 
initially (approximately 15 of 77), we expect the facilities that are 
approved initially to perform over 80 percent of the lung transplants. 
Thus, we do not anticipate adverse impact on beneficiary access as a 
result of this criterion.
    Based on the results of this analysis, we believe that 10 is a 
reasonable threshold for volume criteria. However, we welcome comments 
during the comment period as to the appropriateness of the number. 
Further, as we discuss later, exceptions to the facility criteria, 
including the number of persons who received transplants, may be 
warranted if there is justification. However, as a general matter, we 
believe less than 10 transplants a year is not sufficient to maintain 
the standard of performance needed for approval.
    Survival rates may be influenced by many factors including random 
chance and patient selection. However, most authorities agree that a 
patient who is not free of adverse prognostic factors warrants lung 
transplantation only if he or she has a reasonable prognosis and the 
donor lung cannot be used in a patient who is a good candidate with at 
least a moderately urgent need and who is in reasonable geographic 
proximity. Based on data from the NHLBI report for the 996 patients 
receiving lung transplants in the United States prior to January 1, 
1993, Kaplan-Meier actuarial survivals at 1, 2, and 3 years are 72 
percent, 66 percent, and 63 percent, respectively. For patients 
receiving a single lung transplant (669 patients), and sequential 
bilateral transplantation of two lungs (161 patients), survival data 
are similar--73 percent, and 75 percent, respectively, at 1 year, and 
67 percent and 71 percent at 2 years. With the two lungs transplanted 
while joined (``en bloc''), results seem less favorable, with 63 
percent and 57 percent 1 and 2-year survivals. When all lung and heart-
lung data are aggregated, the U.S. experience for 1,287 patients (1987 
through 1992) is 69 percent, 62 percent and 59 percent actuarial 
survival at 1, 2, and 3 years, respectively.

[[Page 6541]]

    Since we will be covering single, double and heart-lung transplants 
and collecting data for all these types of transplants in evaluating 
volume and survival statistics for applicant hospitals, we believe that 
we should use the NHLBI reported aggregate survival. That survival is 
69 percent at 1 year and 62 percent at 2 years. These numbers reflect 
the same types of organ transplants (single lung, double lung and 
heart-lung) as are used by facilities in meeting volume criteria.
    At the time of the application, the facility must demonstrate 
actuarial 1-year survival rates of 69 percent for patients who have 
end-stage pulmonary or cardiopulmonary disease and who have had lung or 
heart-lung transplants at that facility using the Kaplan-Meier 
technique described below and a 2-year survival rate of 62 percent. All 
patients transplanted after 1989 should be included in the calculation. 
We have chosen 1990 as the beginning date for the facility's survival 
rate experience because the procedure was infrequently performed before 
that date. We specifically invite comment on these percentages.
    In reporting their actuarial survival rates, facilities must use 
the Kaplan-Meier technique and must report both 1-year and 2-year 
survival rates for all transplant cases occurring on or after January 
1, 1990. Generally, we would expect applicants to have at least 3 years 
of lung transplant experience to be used in the data array and survival 
calculations. The following definitions and rules also must be used:
    a. The date of transplantation (or, if more than one 
transplantation is performed, the date of the first transplantation) 
must be the starting date for calculation of the survival rate.
    b. For those dead, the date of death if used, if known. If the date 
of death is unknown, it must be assumed as 1 day after the date of the 
last ascertained survival.
    c. For those who have been ascertained as surviving within 60 days 
before the fiducial date (the point in time when the facility's 
survival rates are calculated and its experience is reported), survival 
is considered to be the date of the last ascertained survival, except 
for patients described in paragraph (e) below.
    Note: The fiducial date cannot be in the future; it must be within 
90 days before the date we receive the application.
    d. Any patient who is not known to be dead but whose survival 
cannot be ascertained to a date that is within 60 days before the 
fiducial date, must be considered as ``lost to followup'' for the 
purposes of this analysis.
    e. Any patient who receives a lung transplant between 61 and 120 
days before the fiducial date must be considered as ``list to 
followup'' if he or she is not known to be dead and his or her survival 
has not been ascertained for at least 60 days before the fiducial date. 
Any patient transplanted within 60 days before the fiducial date must 
be considered as ``lost to followup'' if he or she is not known to be 
dead and his or her survival has not been ascertained on the fiducial 
date.
    f. A facility must submit its survival analyses using the 
assumption that each patient in the ``lost to followup'' category died 
1 day after the last date of ascertained survival. However, a facility 
may submit additional analyses that reflect each patient in the ``lost 
to followup'' category as alive at the date of the last ascertained 
survival.
    g. Survival is calculated based on patient survival, not graft 
survival. Consequently, facilities should not consider 
retransplantation as termination.
    h. In addition to reporting actuarial survival rates, the facility 
must submit the following actual information on every Medicare and non-
Medicare patient who received a lung transplant between January 1, 1990 
and the date of the application:
     Patient transplant number.
     Age.
     Sex.
     Clinical indication for transplant (diagnosis).
     Date of transplant.
     Date of most recent ascertained survival.
     Date of death.
     Category of patient (living, dead or ``lost to 
followup'').
     Survival after lung transplant in days.
     Type of lung transplant (for example, single, bilateral, 
double lung or heart-lung).
     Date of retransplant.
     Number of retransplants.
    Unique patient identifiers are not needed for data prior to the 
application. The facility may submit additional information on any of 
the cases that it would like considered in the review.
    Although we are not requiring that these data be submitted in a 
particular format, our review will be facilitated if the data are 
submitted as follows:
     Data are tabulated in twelve columns, with data for each 
patient appearing as one line and listed in the sequence of date of 
transplant.
     The fiducial date should appear on each page.
     The transplant numbers listed may be existing lung 
transplant numbers used by the applicant facility. If so, the basis for 
any missing numbers should be explained.
     The tabulation should include no more than these required 
data. If more data are provided, they should be provided through 
additional tables or supplemental explanation.
    In addition to the data above on the individual patient, the 
facility must submit its retransplantation rate per year for the last 2 
years for lung transplants.
6. Maintenance of Data
    The facility must agree to maintain and, when requested, 
periodically submit data to HCFA, in standard format, about patients 
selected (including patient identifiers), protocols used, and short- 
and long-term outcome on all patients who undergo lung transplantation, 
not only those for whom payment under Medicare is sought. Such data are 
necessary to provide a data base for an ongoing assessment of lung 
transplantation and to ensure that approved facilities maintain 
appropriate patient selection criteria, adequate experience levels and 
satisfactory patient outcomes. In addition, facilities must agree to 
notify HCFA immediately of any change related to the facility's 
transplant program (including turnover of key staff members) that could 
affect the health or safety of patients selected for covered Medicare 
lung transplants or that would otherwise alter specific elements in 
their application. For example, a facility must report any significant 
decrease in its experience level or survival rates, the departure of 
key members of the transplant team, the transplantation of patients who 
do not meet the facility's patient selection criteria, or any other 
major changes that could affect the performance of lung transplants at 
the facility. Changes from the terms of approval may lead to withdrawal 
of approval for Medicare coverage of lung transplants performed at the 
facility.
    Facilities not approved for Medicare covered lung transplants are 
not required to maintain data in standard format. However, if and when 
these facilities apply for Medicare approval, they will be required to 
submit such data for all patients receiving a lung transplant.
7. Organ Procurement
    The facility must be a member of the Organ Procurement and 
Transplantation Network as a lung transplant center and abide by the 
Network's approved rules. The Organ Procurement and 

[[Page 6542]]
Transplantation Network is currently administered under an HHS contract 
by the United Network for Organ Sharing. The facility must participate 
in an organ procurement program to obtain donor organs.
    If a lung transplantation center is not a Medicare approved organ 
procurement organization, it must have a written arrangement with such 
an approved organization to share organs. The authority for this 
requirement is section 1138(a)(1) of the Act. The lung transplantation 
center must notify HCFA in writing within 30 days of terminating such 
arrangements.
    An ``organ procurement organization'' is defined as an organization 
that meets the criteria in section 371(b) of the Public Health Service 
Act, 42 U.S.C. 273(b), and has been designated by HCFA as an organ 
procurement organization under section 1138(b) of the Act. Such an 
agency performs or coordinates all of the following services:
     Retrieval of donated lungs.
     Preservation of donated lungs.
     Transportation of donated lungs.
     Maintenance of a system to locate prospective recipients 
for retrieved organs.
8. Laboratory Services
    The facility must make available, directly or under arrangements, 
laboratory services (including blood banking) to meet the needs of 
patients. Laboratory services are performed in a laboratory facility 
certified for those services under the Clinician Laboratories 
Improvement Amendments of 1988.
9. Billing
    The facility must agree to submit claims to Medicare only for lung 
transplants performed on individuals who have been diagnosed as having 
end-stage pulmonary or cardiopulmonary disease.
10. Pediatric Hospitals
    The Congress addressed the issue of Medicare coverage of pediatric 
heart transplants. It enacted section 4009(b) of the Omnibus Budget 
Reconciliation Act of 1987 (Pub. L. 100-203) which essentially deemed 
pediatric facilities to be certified as heart transplant facilities if 
they met certain specified conditions. We have adopted these same 
conditions that were specified for pediatric heart centers for use in 
pediatric liver transplantation, and we believe it is appropriate to do 
so likewise for pediatric lung transplantation.
    There fore, lung transplantation will be covered for Medicare 
beneficiaries when performed in a pediatric hospital that performs 
pediatric lung transplants if the hospital submits an application that 
HCFA approves as documenting the following:
    The hospital's pediatric lung transplant program is operated 
jointly by the hospital and another facility that has been found by 
HCFA to meet the institutional coverage criteria in this notice; the 
unified program shares the same transplant surgeons and quality 
assurance program (including oversight committee, patient protocol, and 
patient selection criteria); and the hospital is able to provide the 
specialized facilities, services, and personnel that are required by 
pediatric lung transplant patients.

C. Application Procedure

    We will accept and begin to review applications after the 
publication date of this notice. The application procedure is as 
follows.
    An original and 10 copies of the application must be submitted to 
HCFA on 8\1/2\ by 11 inch paper, signed by a person authorized to do 
so. The facility must be a participating hospital under Medicare and 
must specify its provider number, the name and title of its chief 
executive officer, and the name and telephone number of an individual 
we could contact should we have questions regarding the application.
    Information and data must be clearly stated, well organized, and 
appropriately indexed to aid in review against the criteria specified 
in this notice. Each page must be numbered. To the extent possible, the 
application should be organized into nine sections corresponding to 
each of the nine major criteria and addressing, in order, each of the 
sub-criteria identified.
    The application should be mailed to the address below in a manner 
which provides the facility with documentation that it was received by 
us: Director, Office of Hospital Policy, Room 189 East High Rise, 6325 
Security Boulevard, Baltimore, Maryland 21207.

D. Process for Review and Approval of Facilities

    We are requiring that facilities that wish to obtain lung 
transplantation coverage for their Medicare patients under this notice 
submit an application and supply documentation showing their compliance 
with the criteria at the time of application, and, in some instances, 
their ongoing compliance with the criteria. We will approve facilities 
based on a review of the materials submitted regarding their experience 
and expertise, as well as their commitment to the lung transplant 
program. We intend to conduct the review using the aid and advice of 
non-Federal expert consultants in relevant fields. Generally, the 
consultants will have the responsibility of reviewing applications at 
the request of HCFA, making recommendations to HCFA on a timely basis 
concerning qualified facilities, and supporting each recommendation 
with written documentation. Consensus of the consultants is not 
required. The individual consultants report to us on their findings 
with respect to individual applications. Based on these findings and 
our evaluations and review, HCFA makes decisions as to the approval or 
disapproval of such applications.
    Based on our experience in using a similar approach to review 
applications from hospitals seeking approval as Medicare heart or liver 
transplant programs, we believe this method is the most effective way 
to determine promptly and efficiently whether applicants meet the lung 
transplant facility criteria. It permits relatively rapid 
implementation of the criteria and should help assure applicants that 
their qualifications have been thoroughly and objectively reviewed by 
experts in the field of lung transplantation. While the amount of time 
needed to process applications will vary depending on the quality of 
the application and the volume of applications on hand, we believe 
those applications that fully address and demonstrate meeting all of 
the criteria may be completed within 60-90 days.
    In approving facilities, we compare the facility's submission 
against the criteria specified in this notice. In addition to reviewing 
applications, the individual expert consultants may propose specific 
changes to the coverage criteria. Changes in coverage criteria will not 
be implemented, however, without appropriate notice and opportunity for 
public comment.
    Finally, in certain limited cases, exceptions to the strict 
criteria may be warranted if there is justification and if the facility 
ensures our objectives of safety and efficacy. We would consider an 
exception or waiver of a particular criterion if all other criteria are 
met and the facility is able to provide reasonable justification for 
not meeting the criterion. For example, we have granted exceptions 
under the heart transplant program to facilities that fail to meet the 
volume or survival criteria in one year by a small number due to 
extraordinary circumstances. We would also consider exceptions for a 
facility that has only minimally missed the volume criteria but has 
displayed exemplary survival performance. Another example of a 
potential exception situation may involve patient selection criteria 
that do 

[[Page 6543]]
not comply with those in this notice due to participation in ongoing 
research work.
    Under no circumstances will exceptions be made for facilities whose 
transplant programs have been in existence for less than 2 years, and 
applications from consortia will not be approved. We do not believe 
programs that have been in existence for less than 2 years have data to 
demonstrate, in a statistically meaningful way, the quality of their 
program. Further, it is difficult to demonstrate continued commitment 
to the program without ongoing experience.
    We do not believe waivers to allow consortia are appropriate 
because we have no assurance that the individual facilities that make 
up the consortia independently meet the conditions of this notice. We 
believe these conditions must be met individually by a facility in 
order to demonstrate substantial experience with the procedure. 
Although we will not approve consortia as lung transplant centers, 
individual members of a consortium may submit individual applications 
at any time, and, if they meet the criteria, they will be approved. In 
these cases, disapprovals would be made by HCFA and do not require 
prior reviews by the expert consultants. Additionally, exceptions will 
not be granted on the basis of geographic considerations.

E. Effective Dates

1. Summary of Effective Dates
     A facility that submits a completed application to HCFA by 
May 3, 1995 and meets all the requirements of this notice will be 
approved for lung transplants performed beginning February 2, 1995 or 
the date on which they meet the conditions, whichever is later.
     A facility that submits a completed application to HCFA 
after May 3, 1995 and meets all the requirements of this notice will be 
approved for lung transplants performed beginning on the date of the 
Administrator's approval letter.
     A facility that does not submit application or has not met 
the requirements of this notice by July 31, 1995 is not eligible for 
Medicare payment for lung transplants effective July 31, 1995 except as 
provided below.
     A facility that has received Medicare payment for lung 
transplants performed based on individual determinations made by the 
Medicare carrier before July 31, 1995 may continue to receive payment 
for lung transplants performed for patients who are on a waiting list 
with that facility as of February 2, 1995.
2. Discussion of Effective Dates
    It is not our intent to disrupt the availability of covered lung 
transplants for Medicare beneficiaries. Consequently, the 180-day limit 
on Medicare coverage in facilities not meeting the approved criteria in 
this notice does not apply to those beneficiaries already on the 
waiting lists of facilities that are currently being paid under the 
Medicare contractors' local Medicare coverage policy. The contractor 
will process the claims for all beneficiaries on the lung or heart-lung 
transplant waiting list as of February 2, 1995 using its current 
coverage policy regardless of whether the facility meets the criteria 
contained in this notice. This policy will continue until all Medicare 
beneficiaries on the waiting list as of February 2, 1995, have been 
transplanted.
    A beneficiary who is not currently on the lung or heart-lung 
transplant waiting list will be limited to procedures performed in 
those facilities that meet the provisions of this notice, unless the 
beneficiary receives a transplant before July 31, 1995 publication that 
would have been paid under the Medicare contractors' local Medicare 
coverage policy that was in effect as of the effective date of this 
notice. We recognize that those beneficiaries not presently on the 
waiting lists will not know with assurance which facilities will 
ultimately be approved for coverage before July 31, 1995. However, we 
wish to point out that if the facility where a beneficiary is wait-
listed is not approved for Medicare coverage as the patient nears the 
time of transplant, the beneficiary may transfer to an approved center 
without lose of waiting time. That is, the patient will be transferred 
to the new center with the date he or she was originally wait-listed at 
the old facility as the start date.
    We recognize that 180 days is more than we generally permit for 
advance notice of implementation of new policy. However, based on 
previous experience in the heart and liver transplant center approval 
process, we anticipate that some facilities that meet the criteria will 
delay application until the last month of the initial 90 day period. 
Because it generally takes us approximately 2 months to process a 
complete application we believe it is a reasonable expectation that 
facilities will have been notified of the decision on their application 
by that time. By delaying implementation for 180 days, we will assume 
that there are not lapses in Medicare coverage due to processing time. 
At the end of the 180 day period, Medicare coverage for transplants 
other than for beneficiaries on the waiting list as of February 2, 1995 
will be limited to approved facilities.
    For facilities that apply within 90 days of publication of this 
notice, and are approved based on that application, payment may be made 
for transplants as early as the date of publication of this notice, or 
the date on which they met the conditions, whichever is later.
    For facilities that apply more than 90 days from the date of this 
notice, coverage (for beneficiaries other than those on the facility's 
waiting list as of the date of this notice in those States where the 
contractors cover lung transplantation) is effective the date of the 
Administrator's approval letter. Some contractors are currently 
covering lung transplants in facilities that may not meet the criteria 
in this notice. Coverage under the contractors' criteria will be 
maintained until July 31, 1995. After this date, (except for the 
beneficiaries identified above) only those facilities approved for 
national coverage may receive Medicare payment for lung transplants.

F. Payment

    For facilities that are approved to perform lung transplants, 
Medicare covers under Part A (Hospital Insurance) all medically 
reasonable and necessary inpatient services. For discharges occurring 
before October 1, 1994, lung transplants were assigned to DRG 75, Major 
Chest Procedures. As of that date, we established a new DRG 495, Lung 
Transplant, for lung transplant cases.
    We have assigned a relative weight of 12.8346 to DRG 495. This 
weight is based on Medicare bill data from the federal fiscal year (FY) 
1993 Medicare Provider Analysis and Review (MedPAR) file updated 
through December 1993. The MedPAR file contains 100 percent of the 
hospital discharge bills for Medicare beneficiaries received by HCFA.
    We used the same methodology to calculate the weight for DRG 495 as 
we do every year in recalibrating the weights for all DRGs. The final 
rule implementing the FY 1995 changes to the hospital inpatient 
prospective payment system, which was published in the Federal Register 
on September 1, 1994 (59 FR 45348), contains a complete description of 
the methodology used to calculate weights.
    The Medicare DRG grouping program used under the prospective 
payment system already groups heart-lung transplant procedures to DRG 
103. The weight for DRG 103 is higher than that 

[[Page 6544]]
assigned to DRG 495, the new lung transplantation DRG. We intend to 
continue to pay for heart-lung transplants under DRG 103. The 
mechanisms by which DRG weights are updated allows us to continue to 
examine the costs associated with heart and heart-lung transplants to 
assure that payments reflect service intensity.
    Organ acquisition costs will be paid separately on a cost basis, in 
the same manner as kidney acquisition costs are handled in the End-
Stage Renal Disease program under Medicare. Physician services, as well 
as other non-hospital services related to the transplant, and pre- and 
post-transplant care, may be covered under Medicare Part B and paid 
under the physician fee schedule or on a reasonable cost basis or other 
bases.
    In accordance with section 1861(s) of the Act, outpatient drugs 
used in immunosuppressive therapy, including drugs that a patient can 
self-administer, such as cyclosporine, are covered under Medicare for a 
period of up to 1 year beginning with the beneficiary's date of 
discharge from the inpatient hospital stay during which a covered organ 
transplant was performed. Beginning in 1995, Medicare coverage will be 
extended to 18 months after the date of discharge for the covered 
transplant procedure. During 1996, Medicare coverage will be extended 
to 24 months, and during 1997 to 30 months. For all years thereafter, 
Medicare coverage will be extended to 36 months after the date of 
discharge for the covered transplant procedure.
    If a Medicare beneficiary receives a covered lung transplant from 
an approved facility, reasonable and necessary services for follow up 
care and for complications are covered, as determined by our 
contractors. In fact, as discussed below, such follow-up or remedial 
services may be covered even if they are furnished by a hospital that 
is eligible for Medicare payment but was not specifically approved by 
Medicare for lung transplantation at the time the lung transplant was 
performed.
    With the exception of those individuals on the waiting list of a 
facility currently approved for coverage by the fiscal intermediary on 
the date of this notice, noted earlier, Medicare will not cover lung 
transplants or retransplants in facilities that have not been approved 
as Medicare lung transplant facilities under the criteria of this 
notice as of July 31, 1995. If a Medicare beneficiary received a lung 
transplant from a facility that is not approved by Medicare for lung 
transplantation at the time the lung transplant was performed, we will 
not cover any hospital inpatient services associated with the 
transplantation procedure. Nor will we cover physician services 
associated with the transplantation procedure in such cases. Thus, 
payment will not be made for the performance of the transplant or for 
any other services associated with the transplantation procedure if 
performed in a nonapproved facility.
    However, after a beneficiary has been discharged from a hospital 
(whether or not it has been approved by Medicare as a lung transplant 
center) in which he or she received the noncovered lung transplant, 
subsequent medical and hospital services required as a result of the 
transplant are covered in a facility otherwise eligible for in a 
facility otherwise eligible for Medicare payment if they are reasonable 
and necessary in all other respects. Thus, coverage is provided for 
subsequent inpatient stays or outpatient treatment ordinarily covered 
by Medicare even if the need for treatment arose because of a previous 
noncovered lung transplant procedure. These services also are covered 
for Medicare beneficiaries who were not beneficiaries at the time they 
received a lung transplant, regardless of whether or not the transplant 
was performed at an approved facility.
    We will pay those hospitals currently receiving coverage by local 
contractors for transplants furnished on or before July 31, 1995. For 
transplants furnished after that date, except for those beneficiaries 
on their waiting list on the date of this notice, we will pay only 
approved facilities. For facilities approved for coverage, we will pay 
for any covered transplants furnished on or after the date of 
publication of this notice (if the facility applied during the initial 
90 day period) or the date the facility is approved, whichever is 
later.

III. Waiver of Proposed Notice

    We ordinarily publish a proposed notice in the Federal Register  
and invite prior public comment before issuing a final notice. However, 
the Medicare law, at sections 1871(a)(2) and 1869(b)(3)(B), provide for 
exception of prior public notice in the establishment of national 
coverage policy. Specifically, section 1871(a)(2) of the Act states 
that ``No rule, requirement, or other statement of policy (other than a 
national coverage determination) that establishes * * * shall take 
effect unless it is promulgated by the Secretary under regulation * * 
*'' Section 1869(b)(3)(B) of the Act further specifies that a national 
coverage determination under section 1862(a)(1) shall not be set aside 
on the grounds that publication in the Federal Register or an 
opportunity for public comment was not satisfied.
    Despite this clear statutory authority to issue national coverage 
policy without prior public comment, we have historically offered an 
opportunity for prior public comment in establishing our national 
coverage policy for heart and liver transplantation. However, in the 
case of these organ transplants, we had previously established a 
uniform non-coverage policy. In the case of lung transplants, there is 
not pre-existing national coverage policy and differing policies have 
been established by our local intermediaries. Consequently, we believe 
it is impracticable, unnecessary and contrary to public interest to 
delay the implementation of this policy while awaiting public comment.
    In this final notice with comment period, we are extending Medicare 
coverage to lung transplantation in facilities that meet specified 
criteria. Patients currently on the waiting list in facilities that are 
being paid under the Medicare contractor's local policy will continue 
to retain coverage regardless of whether the facility is approved under 
the criteria contained in this notice.
    Patients not currently on a waiting list for a lung transplant may 
be listed at the facility of their choice pending approval of the 
facility by the Administrator. If the facility is not approved when the 
patient is getting close to the top of the list, the patient my be 
transferred to an approved center without loss of waiting time. That 
is, it is the policy of the United Network for Organ Sharing (UNOS) to 
manually adjust the waiting time for patients who transfer facilities 
so that patients are credited wait time from when they were first 
listed. UNOS has adopted this policy to encourage patients to be 
transplanted at centers that are most proficient in transplantation. 
Consequently, no Medicare beneficiaries would be adversely impacted by 
this rule.
    On the other hand, delay of this final notice until we could 
publish a proposed notice would result in the unavailability of 
coverage of lung transplantion to some facilities that would meet the 
quality standards, due to the fact that the contractor in their area 
has not determined the procedure to be covered under Medicare. In an 
informal survey of the Medicare contractors, we believe at least 16 
contractors are not currently covering lung transplantation and even do 
not cover heart-lung transplantation. Further, immunosuppressive drug 
therapy is covered only if the transplant is covered. Thus, 
beneficiaries currently being denied coverage under local contractor 
policies are excluded from coverage of needed drug therapy. 

[[Page 6545]]

    More importantly, we are concerned that Medicare beneficiaries may 
be receiving transplants in facilities that do not offer the assurance 
of high quality services that are commensurate with the criteria 
contained in this notice. That is, given the reliance on outcome and 
patient care practices inherent in this coverage policy, we are 
convinced that facilities meeting the criteria set forth in this notice 
clearly provide significantly superior services from a quality 
perspective as demonstrated by the facility's patient care polices and 
survival data. We are concerned that beneficiaries electing to have 
lung transplants performed in facilities that do not meet this criteria 
may not be aware of the increased risk of poor outcome that is 
associated with this decision.
    Further, we are concerned that due to individual contractor local 
decisions, Medicare program expenditures may be spent in facilities 
that are not yet proficient in the procedure so as to produce high 
quality outcomes. Thus, continued coverage of lung transplants in these 
high risk situations may result in increased expenditures for 
complications that may arise from the transplant procedure that may 
have been avoided had the procedure been performed in a facility that 
meets these criteria.
    Thus, it would be impracticable, unnecessary, and contrary to the 
public interest to delay this extension of coverage until we could 
publish a proposed notice and solicit comments. That is, since no 
beneficiaries are disadvantaged by this notice due to the construction 
of the effective date in a fashion that recognizes the coverage for 
patients already on the waiting list of facilities so covered, it is 
impracticable and contrary to public interest to delay implementation 
of these standards that promote highest quality services to Medicare 
beneficiaries and the extension of coverage to qualified facilities 
located in areas where the Medicare contractor local policy excludes or 
restricts coverage. We, therefore, find good cause to waive prior 
proposed notice.

IV. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on FR 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, if we proceed with a subsequent document, we 
will respond to the comments in that document.

V. Paperwork Burden

    This notice contains information collection requirements that are 
subject to the Office of Management and Budget approval under the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). When OMB 
approves these provisions, we will publish a notice to that effect. The 
information collection concerns the requirement that a facility that 
wishes to obtain Medicare coverage for lung transplantation submit an 
application for approval and, once approved, report events or changes 
that would affect its approved status. We also require that the 
facility periodically submit data documenting such things as patients 
selected for transplants, protocols used, short- and long-term outcomes 
on patients who undergo lung transplantation. Public reporting burden 
for this collection of information is expected to be 100 hours.
    Organizations and individuals desiring to submit comments on the 
information collection and recordkeeping requirements should direct 
them to the OMB official whose name appears in the ADDRESSES section of 
this notice.

VI. Regulatory Impact Analysis

A. Introduction

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612) unless the Secretary certifies that a final notice will 
not have a significant economic impact on a substantial number of small 
entities. For purposes of the RFA, all facilities that consider 
themselves capable of performing lung transplants are considered to be 
small entities. Individuals and States are not included in the 
definition of a small entity.
    In addition, section 1102(b) of the Act requires the Secretary to 
prepare a regulatory impact analysis for any notice that may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. This analysis must also conform to the provisions of 
section 604 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital which is located outside a 
Metropolitan Statistical Area and has fewer than 50 beds.
    This notice will affect all facilities that are, or are planning 
on, performing lung transplants and may have an effect on the ability 
of those facilities to compete. We believe this notice will not have a 
significant impact on a substantial number of small rural hospitals 
since it is unlikely that small rural hospitals will be performing lung 
transplants. However, if there are any, they will not be affected by 
this notice differently than any other hospital. We have prepared the 
following analysis which, in combination with the other sections of 
this notice, is intended to conform to the objectives of the RFA and 
section 1102(b) of the Act.

B. Entities Affected

    This notice provides for Medicare coverage of lung transplants 
furnished to patients with certain conditions in facilities approved by 
HCFA as meeting the minimum criteria specified in the notice. Lung 
transplantation, as many developing procedures, grew rapidly--from 11 
in 1987 to 535 in 1992. However, donor availability is a significant 
limitation, and the rate of growth is slowing--in 1993 only 654 
persons, from a waiting list of 1,300, received lung transplants. 
Although we do not have complete data, based on informal interviews 
with staff from a large sample of active lung transplant programs, we 
believe only a small number of Medicare beneficiaries (approximately 
100) presently are lung transplant candidates because of their age and 
the presence of other complicating conditions. Our billing data 
indicate that, in 1993, Medicare contractors approved payments 
associated with 90 transplants.
    Typically, a small number of facilities are involved in initially 
developing procedures such as lung transplantation. As of January 1994, 
the number of medical institutions in the United States with lung 
transplant programs had grown to 76 (according to information from the 
United Network for Organ Sharing). However, data indicate that there 
still is a concentration of experience among a much smaller number of 
facilities. We believe that the demand for lung transplants will grow 
as more physicians and patients recognize lung transplantation as a 
treatment resulting in increased life expectancy and in improved 
quality of life, and that the demand will be met by facilities offering 
the procedure.
    The number of lung transplants performed is dependent upon many 
factors, including the supply of suitable donor organs (only 5 to 10 
percent of available donors have lungs considered acceptable for 
transplantation), the existence of qualified facilities and personnel, 
and the availability of funding for the procedure.
    Payment for lung transplants is available from some third party 
insurers, some State Medicaid programs, 

[[Page 6546]]
private funds, and public fund-raising efforts. In the absence of a 
national Medicare coverage policy, each of the Medicare contractors 
uses its customary review and approval procedures to determine whether 
bills or claims associated with lung transplants should be paid.
    Payment data indicate that Medicare beneficiaries make up only a 
small portion of lung transplant recipients. The proportion of 
transplants covered by Medicare is assumed to grow slightly over time--
from 13 percent in 1993 to 20 percent in 1995, and up to 24 percent in 
1999--as improved techniques allow transplantation of older and 
disabled patients.
    The United Network for Organ Sharing currently lists 77 facilities 
as lung transplant centers. Seven of these facilities are children's 
hospitals and not subject to the criteria in sections II.B.1-9 of this 
notice. Of the remaining 70 facilities, 40 do not maintain an active 
ongoing lung transplant program. Although these facilities operate 
active transplant programs for other organs, they do lung 
transplantation sporadically, sometimes going an entire year without a 
single lung transplant. These centers currently have less than 10 
people on their waiting list, and based on an informal survey of a 
sample of these centers, we estimate that it is rare for a Medicare 
beneficiary to be listed at one of these centers. Consequently, we do 
not believe that these centers are significantly impacted by this 
notice.
    Based on our experience with application of a similar approval 
process to liver transplant facilities and review of available data on 
volume, we estimate that application of the criteria in this notice 
will result in the approval of 10 to 15 of the remaining 30 facilities 
within the first year, with the total rising to approximately 20 within 
the next year. Thus, we expect to approve at least two-thirds of the 
active lung transplant programs within the first 2 years. Many of the 
remaining third are expected to qualify by the third year, and we 
estimate the addition to the list of approved facilities of at least 
one facility per year for several more years. Ultimately, we expect all 
30 of the active programs will be approved for Medicare coverage.
    Many facilities that have performed few lung transplants will not 
meet the levels of experience and success required under the facility 
criteria. However, some might be found to have acceptable clinical 
programs with an adequate prospect for successful outcomes. We would 
encourage these facilities to apply when they have achieved that 
success. We recognize that the criteria for experience, survival rates, 
and facility commitment are demanding. However, our goal in requiring 
facilities to meet certain criteria is not to restrict competition but 
to maintain the quality of services required by this complex procedure.
    Facilities that apply (or reapply) will continue to be approved as 
they come to meet the facility criteria. There will be neither a cutoff 
date for receipt of applications nor a limit on the number of approved 
facilities. For the purpose of estimating the costs of covering lung 
transplants, we expect, by fiscal year 1998, that many, if not most, of 
the hospitals actively performing lung transplants could meet the 
criteria if they desire Medicare approval. We do not have any advance 
information on which facilities will apply or meet the criteria.
    Medicare approval status could eventually provide those hospitals 
that meet the criteria for performing lung transplants with what are 
perceived to be advantages over non-approved facilities. In addition to 
the guaranteed Medicare payment for approved procedures, these 
hospitals might expect to see their prestige and standing as health 
care providers increase as a result of their approval as a Medicare 
lung transplant center. This, in turn, could enable them to increase 
their overall market share of lung transplants and other complicated 
procedures at the expense of hospitals that also perform lung 
transplants but do not meet our criteria. Therefore, those facilities 
that do not meet the criteria may view our notice as having a 
significant adverse effect on competition.
    Some facilities may choose to not apply for approval as a 
transplant facility and to discontinue their transplant programs. So as 
to not curtail availability of coverage to individuals currently on a 
waiting list at a facility now recognized by a fiscal intermediary 
under procedures in effect prior to the date of this notice, we are 
making a special exception. Lung transplants furnished by a facility to 
a Medicare patient on its waiting list on the date of this notice, will 
continue to be paid by Medicare using the contractor's current coverage 
criteria, even if the procedure occurs more than 180 days after the 
publication of the notice and the facility is not approved under the 
criteria of this notice on the date the transplant occurs. Thus, we do 
not believe that the criteria would in any way reduce the number or 
availability of transplants to patients that are currently on a waiting 
list for a lung transplant.
    We expect that Medicare coverage of lung transplantation could 
prompt additional third party payers, including some State Medicaid 
plans, to consider covering this procedure and to create incentives for 
some facilities to establish lung transplant programs. However, third 
party payers that either already cover or intend to cover lung 
transplants are not required to adopt our coverage standards.

C. Projected Expenditures Under Medicare

    It is difficult to make a precise estimate of future Medicare 
costs, largely due to the difficulty of predicting the availability of 
donor organs over the next few years. All dollar estimates depend on 
assumptions and estimates related to the number of covered transplants. 
In 1993, Medicare beneficiaries received 122 of the 654 lung 
transplants performed. In the absence of a national Medicare coverage 
policy, Medicare contractors approved payments associated with 90 of 
the 122 transplants.
    Our projected estimates are based on some facilities meeting our 
requirements effective on the date of this notice. In developing these 
estimates, we made assumptions about the total number of lung 
transplants performed nationwide and the future rate of increase of the 
number of transplants performed at approved facilities. We assumed this 
would go up with the number of facilities, but the rate of increase 
would level off due to competition for suitable recipients and donor 
organs. The estimates include not only the cost of transplantation in 
an approved facility, but associated immunosuppressive drugs, and 
follow-up care resulting from the extension of this coverage.
    Due to the sensitivity of these assumptions and the uncertainty of 
actual outcomes, we view our projection of expenditure increases as an 
opinion, rather than an estimate.

                                                                        

[[Page 6547]]
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of                  
                                         Projected   Number paid                     additional                 
                                           total     by Medicare   Medicare costs     LTs as a      Additional  
              Fiscal year                number of      under       under current    result of       Medicare   
                                            LTs        current    policy(millions)    expanded   costs(millions)
                                                        policy                        coverage                  
----------------------------------------------------------------------------------------------------------------
1995..................................          817    162 (20%)             $18              7             $1  
1996..................................          878    183 (21%)              22              8              2  
1997..................................          939    205 (22%)              26              9              3  
1998..................................         1003    229 (23%)              31              9              3  
1999..................................         1068    254 (24%)              36             10              4  
----------------------------------------------------------------------------------------------------------------



D. Projected Savings Under Medicaid

    Medicaid coverage of transplants is a decision of the individual 
State. As of 1990, lung transplants were covered by 15 States. We 
cannot predict whether Medicare coverage will increase the number of 
State Medicaid programs that will cover lung transplants or whether the 
Medicare coverage criteria will cause more restrictive policies than 
would otherwise occur. Medicare coverage of lung transplants will 
reduce States' payments for transplantation in Medicare beneficiaries 
who also qualify under Medicaid. To the extent that Medicare payment 
supplants Medicaid funding, the Federal budget receives an offset for 
the Federal share of Medicaid expenditures. Under current policy, we 
estimate the annual offset to be $5 million.

E. Alternatives Considered

    We considered allowing all Medicare participating hospitals to 
establish transplant programs without additional facility criteria. Our 
major reason for rejecting this alternative was that it would permit 
uncontrolled proliferation of transplant facilities, raising questions 
about the quality of services, given the limited availability of donor 
organs and experienced teams. Further, because the procedure would be 
spread among a larger number of facilities, it is likely the average 
experience level would be lower and would probably result in lower 
success and survival rates among recipients. Our responsibilities for 
the well-being of Medicare beneficiaries and for the prudent 
expenditure of Medicare trust funds dictate that we pursue a cautious 
policy with respect to a procedure as complex as lung transplantation.

F. Conclusion

    We believe that the criteria we have developed are the most 
effective means available to ensure that the lung transplants that are 
made available to Medicare beneficiaries are provided in a safe and 
effective manner so that they can be considered to be reasonable and 
necessary within the meaning of the law. We believe that the conditions 
set forth in this notice would maintain the quality of services 
required by this complex procedure, provide Medicare coverage of the 
procedure only at facilities and under conditions that have been shown 
to be safe and effective, and allow entry of new qualified providers. 
Although the criteria are somewhat restrictive, we believe this 
approach is justified, particularly in view of the typical relationship 
between experience and quality of service.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

    Authority: Section 1862(a)(1)(A) of the Social Security Act (42 
U.S.C. 1395y(a)).

    (Catalog of Federal Domestic Assistance Program No. 13.773 
Medicare--Hospital Insurance Program; and No. 13.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: September 26, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: December 7, 1994.
Donna E. Shalala,
Secretary .
[FR Doc. 95-2559 Filed 2-1-95; 8:45 am]
BILLING CODE 4120-01-M