[Federal Register Volume 60, Number 143 (Wednesday, July 26, 1995)]
[Proposed Rules]
[Pages 38400-38433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18144]




[[Page 38399]]

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Part II





Department of Health and Human Services





_______________________________________________________________________



Health Care Financing Administration



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42 CFR Part 400, 405, et al.



Medicare Program; Revisions to Payment Policies Under the Physician Fee 
Schedule for Calendar Year 1996; Proposed Rule

  Federal Register / Vol. 60, No. 143 / Wednesday, July 26, 1995 / 
Proposed Rules  

[[Page 38400]]


DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 400, 405, 410, 411, 412, 413, 414, 415, 417, and 489

[BPD-827-P]
RIN 0938-AG96


Medicare Program; Revisions to Payment Policies Under the 
Physician Fee Schedule for Calendar Year 1996

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule discusses several policy changes affecting 
payment for physician services including:
     Medicare payment for physician services in teaching 
settings.
     Changes in calculating the default Medicare volume 
performance standard beginning in fiscal year 1996.
     Our efforts to implement the statutory requirement in the 
Social Security Act Amendments of 1994 to develop a resource-based 
system for practice expenses.
    The rule would redesignate current regulations on teaching 
hospitals, on the services of physicians to providers, on the services 
of physicians in providers, and on the services of interns and 
residents. This redesignation would consolidate related rules affecting 
a specific audience in a separate part and, thereby, make them easier 
to use.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
September 25, 1995.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: BPD-827-P, P.O. Box 7519, 
Baltimore, MD 21207-0519.
    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

Before August 4, 1995

Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, 
MD 21207.

After August 6, 1995

Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-827-P. 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).
    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8. As an alternative, you can view and 
photocopy the Federal Register document at most libraries designated as 
Federal Depository Libraries and at many other public and academic 
libraries throughout the country that receive the Federal Register.

FOR FURTHER INFORMATION CONTACT: Elizabeth Holland, (410) 966-1309 
(after September 1, 1995, (410) 786-1309) (for all issues except those 
related to physician services in teaching settings). William Morse, 
(410) 966-4520 (after September 1, 1995, (410) 786-4520) (for issues 
related to physician services in teaching settings).

SUPPLEMENTARY INFORMATION: To assist readers in referencing sections 
contained in this preamble, we are providing the following table of 
contents. Some of the issues discussed in this preamble affect the 
payment policies but do not require changes to the regulations in the 
Code of Federal Regulations (CFR).

Table of Contents

I. Background
    A. Legislative History
    B. Published Changes to the Fee Schedule
II. Specific Proposals for Calendar Year (CY) 1996
    A. Budget-Neutrality Adjustments for Relative Value Units (RVUs)
    B. Bundled Services
    1. Hydration Therapy and Chemotherapy
    2. Evaluation of Psychiatric Records and Reports and Family 
Counseling Services
    3. Fitting of Spectacles
    C. X-Rays and Electrocardiograms (EKGs) Taken in the Emergency 
Room
    D. Extension of Site-of-Service Payment Differential to Services 
in Ambulatory Surgical Centers (ASCs)
    E. Services of Teaching Physicians
    1. General Background
    2. Payment for Physician Services Furnished in Teaching Settings
    3. Payments for Supervising Physicians in Teaching Settings and 
for Residents in Certain Settings
    F. Unspecified Physical and Occupational Therapy Services (HCPCS 
Codes M0005 Through M0008 and H5300)
    G. Transportation in Connection With Furnishing Diagnostic Tests
    H. Maxillofacial Prosthetic Services
    I. Coverage of Mammography Services
    J. Use of Category-Specific Volume and Intensity (VI) Growth 
Allowances in Calculating the Default Medicare Volume Performance 
Standard (MVPS)
III. Issue for Change in Calendar Year (CY) 1998--Two Anesthesia 
Providers Involved in One Procedure
IV. Issues for Discussion
    A. Resource-Based Practice Expense (PE) Relative Value Units 
(RVUs)
    B. Primary Care Case Management and Other Managed Care 
Approaches
V. Collection of Information Requirements
VI. Response to Comments
VII. Regulatory Impact Analysis
    A. Regulatory Flexibility Act
    B. Budget-Neutrality Adjustments for Relative Value Units
    C. Bundled Services
    1. Hydration Therapy and Chemotherapy
    2. Evaluation of Psychiatric Records and Reports and Family 
Counseling Services
    3. Fitting of Spectacles
    D. X-Rays and Electrocardiograms (EKGs) Taken in the Emergency 
Room
    E. Extension of Site-of-Service Payment Differential to Services 
in Ambulatory Surgical Centers (ASCs)
    F. Services of Teaching Physicians
    G. Unspecified Physical and Occupational Therapy Services (HCPCS 
Codes M0005 Through M0008 and H5300)
    H. Transportation in Connection With Furnishing Diagnostic Tests
    I. Maxillofacial Prosthetic Services
    J. Coverage of Mammography Services
    K. Use of Category-Specific Volume and Intensity (VI) Growth 
Allowances in Calculating the Default Medicare Volume Performance 
Standard (MVPS)
    L. Two Anesthesia Providers Involved in One Procedure
    M. Rural Hospital Impact Statement

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

AMA  American Medical Association
ASC  Ambulatory surgical center
CF  Conversion factor
CFR  Code of Federal Regulations
COBRA  Consolidated Omnibus Budget Reconciliation Act
CPEP  Clinical Practice Expert Panel
CPT  [Physicians'] Current Procedural Terminology [4th Edition, 
1994, 

[[Page 38401]]
copyrighted by the American Medical Association]
CRNA  Certified Registered Nurse Anesthetist
CY  Calendar year
DEFRA  Deficit Reduction Act
EKG  Electrocardiogram
ESRD  End-stage renal disease
FQHC  Federally Qualified Health Centers
FTE  Full-Time Equivalent
FY  Fiscal year
GAF  Geographic adjustment factor
GPCI  Geographic practice cost index
GPVS  Group-Specific Volume Performance Standards
HCFA  Health Care Financing Administration
HCPAC  Health Care Professional Advisory Council
HCPCS  HCFA Common Procedure Coding System
HHA  Home health agency
HHS  [Department of] Health and Human Services
I.L.  Intermediary Letter
IPL  Independent Physiological Laboratory
MAC  Maryland Access to Care
ME  Malpractice Expense
MVPS  Medicare volume performance standards
NCI  National Cancer Institute
OBRA  Omnibus Budget Reconciliation Act
OMB  Office of Management and Budget
ORA  Omnibus Reconciliation Act
OTIP  Occupational Therapists in Independent Practice
PE  Practice Expense
PMP  Primary Medical Provider
PPS  Prospective Payment System
PTIP  Physical Therapists in Independent Practice
RCE  Reasonable compensation equivalency
RFA  Regulatory Flexibility Act
RFP  Request for Proposal
RHC  Rural Health Clinics
RUC  [AMA Specialty Society] Relative [Value] Update Committee
RVU  Relative Value Unit
SNF  Skilled Nursing Facility
TEFRA  Tax Equity and Fiscal Responsibility Act
TEG  Technical Expert Group
VI  Volume and Intensity

I. Background

A. Legislative History

    The Medicare program was established in 1965 by the addition of 
title XVIII to the Social Security Act (the Act). Since January 1, 
1992, Medicare pays for physician services under section 1848 of the 
Act, ``Payment for Physicians' Services.'' This section contains three 
major elements: (1) A fee schedule for the payment of physician 
services; (2) a Medicare volume performance standard (MVPS) for the 
rates of increase in Medicare expenditures for physician services; and 
(3) limits on the amounts that nonparticipating physicians can charge 
beneficiaries. The Act requires that payments under the fee schedule be 
based on national uniform relative value units (RVUs) based on the 
resources used in furnishing a service. Section 1848(c) of the Act 
requires that national RVUs be established for physician work, practice 
expense (PE), and malpractice expense (ME).
    Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments 
in RVUs because of changes resulting from a review of those RVUs may 
not cause total physician fee schedule payments to differ by more than 
$20 million from what they would have been had the adjustments not been 
made. If this tolerance is exceeded, we must make adjustments to 
preserve budget neutrality.

B. Published Changes to the Fee Schedule

    We published a final rule on November 25, 1991, (56 FR 59502) to 
implement section 1848 of the Act by establishing a fee schedule for 
physician services furnished on or after January 1, 1992. In the 
November 1991 final rule (56 FR 59511), we stated our intention to 
update RVUs for new and revised codes in the American Medical 
Association's (AMA's) Physicians' Current Procedural Terminology (CPT) 
through an ``interim RVU'' process every year. The updates to the RVUs 
and fee schedule policies follow:
     November 25, 1992, as a final notice with comment period 
on new and revised RVUs only (57 FR 55914).
     December 2, 1993, as a final rule with comment period (58 
FR 63626) to revise the refinement process used to establish physician 
work RVUs and to revise payment policies for specific physician 
services and supplies. (We solicited comments on new and revised RVUs 
only.)
     December 8, 1994, as a final rule with comment period (59 
FR 63410) to revise the geographic adjustment factor (GAF) values, fee 
schedule payment areas, and payment policies for specific physician 
services. The final rule also discussed the process for periodic review 
and adjustment of RVUs not less frequently than every 5 years as 
required by section 1848(c)(2)(B)(i) of the Act.
    This proposed rule would affect the regulations set forth at 42 CFR 
part 400, which consists of an introduction to, and definitions for, 
the Medicare and Medicaid programs; part 405, which encompasses 
regulations on Federal health insurance for the aged and disabled; part 
410, which consists of regulations on supplementary medical insurance 
benefits; part 414, which covers regulations on payment for Part B 
medical and other health services; and new part 415, which contains 
regulations on services of physicians in providers, supervising 
physicians in teaching settings, and residents in certain settings. We 
are making technical and conforming amendments to parts 411, 412, 413, 
417, and 489.
II. Specific Proposals for Calendar Year (CY) 1996

A. Budget-Neutrality Adjustments for Relative Value Units (RVUs)

    We make annual adjustments to RVUs for the physician fee schedule 
to reflect changes in CPT codes and changes in estimated physician 
work. As stated earlier, the statute requires that these revisions may 
not change physician expenditures by more than $20 million compared to 
estimated expenditures that would have occurred if the RVU adjustments 
had not been made. To maintain this statutorily-mandated budget 
neutrality, we make an adjustment across all RVUs in the physician fee 
schedule.
    We have received a number of suggestions (including those from the 
American Medical Association (AMA), private payers, and State Medicaid 
programs that base payments on the Medicare RVUs) that we apply these 
adjustments to the conversion factors (CFs) rather than across all 
RVUs. This would reduce the number of billing system changes required 
by the annual revisions to the physician fee schedule.
    We agree with the commenters that it would be administratively 
simpler to apply the adjustments to the CFs rather than the RVUs. We 
propose that these budget-neutrality adjustments be applied to the 
physician fee schedule CFs. The impact on payment amounts would be 
minimal (slight differences could be caused by rounding). This 
alternative approach would be administratively simpler for Medicare and 
other payers that base payments on the Medicare RVUs, including many 
State Medicaid programs. In addition, this change would provide for 
consistent RVUs from year to year, thus making it easier to analyze 
payment and policy changes. For example, CPT code 99215 had 1.53 work 
RVUs in 1994. Because of the 1.1 percent budget-neutrality adjustment 
in 1995, this code has 1.51 work RVUs this year. If the proposed policy 
had been in effect in 1995, the work RVUs for CPT code 99215 would have 
remained at 1.53, but all 1995 CFs would have been reduced 1.1 percent.
    Therefore, in Sec. 414.28 (``Conversion factors''), we propose to 
revise paragraph (b) (``Subsequent CFs'') to state that beginning 
January 1, 1996, the 

[[Page 38402]]
CF for each CY may be further adjusted to maintain budget neutrality.

B. Bundled Services

1. Hydration Therapy and Chemotherapy
    Hydration therapy intravenous (IV) infusion is billed under CPT 
codes 90780 (up to 1 hour) and 90781 (each additional hour, up to 8 
hours). The saline solution used in hydration therapy IV infusion is 
billed and paid separately under the appropriate HCFA Common Procedure 
Coding System (HCPCS) ``J'' code. Chemotherapy IV infusion is billed 
under CPT codes 96410 (up to 1 hour), 96412 (each additional hour, up 
to 8 hours), and 96414 (more than 8 hours). The chemotherapy drug is 
billed and paid separately under the appropriate HCPCS ``J'' code.
    Hydration therapy IV infusion may be administered at the same time 
as chemotherapy. In some cases, the saline solution is mixed with the 
chemotherapy drug. We believe that paying for hydration therapy IV 
infusion and chemotherapy IV infusion administered at the same time 
represents duplicate payment. Therefore, we propose not paying 
separately for CPT codes 90780 and 90781 when billed on the same day as 
CPT codes 96410, 96412, and 96414. We would continue to pay separately 
for the saline solution and the chemotherapy drug. This proposal 
reflects a policy change that is not explicitly addressed in our 
regulations.
2. Evaluation of Psychiatric Records and Reports and Family Counseling 
Services
    At present, we allow separate payment for the following codes:
     CPT code 90825 (Psychiatric evaluation of hospital 
records, other psychiatric reports, psychometric and/or projective 
tests, and other accumulated data for medical diagnostic purposes).
     CPT code 90887 (Interpretation or explanation of results 
of psychiatric, other medical examinations and procedures, or other 
accumulated data to family or other responsible persons, or advising 
them how to assist the patient).
    We believe that these activities are generally performed as part of 
the prework and postwork of other physician services. For example, the 
work involved in a psychiatric evaluation of records and tests as 
described by CPT code 90825 is a fundamental element of the prework and 
postwork of other psychiatric services, such as individual 
psychotherapy (CPT codes 90842 through 90844). The interpretation or 
explanation of the results of medical examinations or procedures as 
described by CPT code 90887 is also an integral part of the prework and 
postwork of other physician services. Counseling of the family is part 
of the postwork of evaluation and management services.
    When these types of activities are performed in conjunction with 
evaluation and management services or with surgical services, payment 
for them is included in the prework and postwork components of the 
visit or procedure. The psychiatric evaluation of hospital records and 
the interpretation or explanation of psychiatric examinations are not 
significantly different from other types of medical evaluations of 
records or interpretation of other examinations. With the exception of 
family counseling services, the RVUs for psychiatric services (CPT 
codes 90801 and 90835 through 90857) already include the prework and 
postwork activities described by CPT codes 90825 and 90887. Thus, 
continuing to allow separate payment for these procedures, in addition 
to payment for other psychiatric services, results in duplicate 
payments and is inconsistent with our policy for other services. (We 
also note that the times associated with the individual medical 
psychotherapy CPT codes 90842 through 90844 are face-to-face times. 
While payment for the review and preparation of records is included in 
the fee schedule payment for these codes, the time spent in those 
activities should not be counted for purposes of determining and 
reporting the level of the individual psychotherapy code.)
    With respect to family counseling services, Medicare has a 
longstanding policy of covering these services if they are needed to 
assess the capability of the family in, and to assist family members 
in, managing the patient. The service must relate primarily to the 
management of the beneficiary's problems and not to the treatment of 
problems of the family member. Counseling principally concerned with 
the effects of the beneficiary's condition on the family member is not 
considered part of the physician's personal service to the beneficiary; 
thus, it is not covered under Medicare. While we have always considered 
counseling activities to be included in the evaluation and management 
services, such as office and hospital visits that are described by CPT 
codes 99201 through 99353, we have not had the same policy for the 
psychotherapy codes. We believe it is appropriate to bundle covered 
family counseling procedures into the other psychiatric codes so that 
our policy is consistent with our policy on services furnished by other 
physician specialties.
    Therefore, we propose to change the status indicator for CPT codes 
90825 and 90887 to ``B'' to show that payment for these codes is 
bundled into the payment for another service, and separate payment 
would not be allowed. We would implement this change in a budget-
neutral manner by redistributing the RVUs for CPT codes 90825 and 90887 
across the following psychiatric codes: 90801, 90820, 90835, 90842 
through 90847, and 90853 through 90857. This proposal reflects a policy 
change that is not explicitly addressed in our regulations.
3. Fitting of Spectacles
    The fitting, repair, and adjustment of prosthetic devices 
(including spectacles) are covered under section 1861(s)(8) of the Act. 
Services under section 1861(s)(8) are not included in the definition of 
physician services as defined in section 1848(j)(3) of the Act and 
should not be payable under the physician fee schedule. Nevertheless, 
we inadvertently established payment amounts for the fitting of 
spectacles and low vision systems under the physician fee schedule. 
Payment for the fitting of spectacles is included in the payment for 
the spectacles in the same way that payment for other prosthetic 
fitting services is included in the payment for the prosthetic device.
    Therefore, we propose to cease paying separately for the fitting of 
spectacles and low vision systems to end this duplicate payment for the 
fitting service. We propose to assign a ``B'' status indicator for the 
following CPT codes to indicate that the services are covered under 
Medicare, but payment for them is bundled into the payment for the 
spectacles:

------------------------------------------------------------------------
  CPT code                            Description                       
------------------------------------------------------------------------
92352.......  Fitting of spectacle prosthesis for aphakia; monofocal.   
92353.......  Fitting of spectacle prosthesis for aphakia; multifocal.  
92354.......  Fitting of spectacle mounted low vision aid; single       
               element system.                                          
92355.......  Fitting of spectacle mounted low vision aid; telescopic or
               other compound lens system.                              
92358.......  Prosthesis service for aphakia, temporary (disposable or  
               loan, including materials).                              
92371.......  Repair and refitting spectacles; spectacle prostheses for 
               aphakia.                                                 
------------------------------------------------------------------------

    This proposed change clarifies both the coverage and payment 
policies. The 

[[Page 38403]]
coverage policy is clarified in that the fitting service is clearly 
covered as part of the prosthesis. The payment policy is clarified in 
that the payment for the spectacles includes the fitting services. This 
proposal reflects a policy change that is not explicitly addressed in 
our regulations.

C. X-Rays and Electrocardiograms (EKGs) Taken in the Emergency Room

    This issue concerns our policy regarding the interpretation of x-
rays or electrocardiograms (EKGs) by a hospital emergency room 
physician and a second interpretation by a hospital's radiologist or 
cardiologist. The emergency room physician may be an emergency medicine 
specialist, a physician covering the emergency room, or the patient's 
personal physician.
    Our current national policy, issued in 1981 in section 2020G of the 
Medicare Carriers Manual, states that when a hospital radiologist 
interprets an x-ray that has already been interpreted by another 
physician, the service of the radiologist almost always constitutes a 
physician service and should be paid by the Medicare carrier. The 
instruction also states that any interpretation performed by the 
physician in the emergency room is paid through his or her emergency 
room visit fee. (This manual section also applies this policy to the 
interpretation of EKGs by cardiologists.)
    Some Medicare carriers are paying separately for the 
interpretations of both the emergency room physician and the 
radiologist or cardiologist.
    In our deliberations about the nature of the appropriate Medicare 
policy on payments for these interpretations, we have taken into 
account the following factors:
     The statement in the existing manual instruction about the 
inclusion of the x-ray interpretation in the emergency room visit is 
inconsistent with the AMA's CPT coding system that we use to describe 
and process claims for physician services. In discussing the guidelines 
for the evaluation and management service codes, the CPT states on page 
2 of the 1995 Edition:

    The actual performance of diagnostic tests/studies for which 
specific CPT codes are available is not included in the levels of E/
M [evaluation and management] services. Physician performance of 
diagnostic tests/studies for which specific CPT codes are available 
should be reported separately, in addition to the appropriate E/M 
code.

    We note that the AMA has not distinguished between the evaluation 
and management codes applicable to the emergency room and other 
evaluation and management codes in this regard.
     Somewhat differently, the questionnaire used by the 
Harvard School of Public Health (in a cooperative agreement with us) to 
develop work RVUs for the physician fee schedule specifically indicates 
that the interpretation of x-rays is included in the emergency room 
codes (but not in the other evaluation and management codes). However, 
we do not believe that the use of the term ``interpretation'' in this 
context indicates that the emergency room physician has furnished an 
in-depth interpretation with a report analogous to an interpretation 
and a report performed by a radiologist. We believe it is common 
practice for an emergency room physician to ``review'' x-rays and use 
the information gained in diagnosing and treating the patient, but that 
this review, without a report for inclusion in the patient's medical 
record maintained by the hospital, does not meet the requirement for 
payment of a professional component radiologic service.
     Section 13514 of the Omnibus Reconciliation Act of 1993, 
Public Law 103-66, enacted on August 10, 1993, requires us to make 
separate payment for EKG interpretations and to exclude the RVUs for 
EKG interpretations from the RVUs for visits and consultations.
     In a July 1993 report entitled, ``Medicare's Reimbursement 
for Interpretations of Hospital Emergency Room X-rays,'' the Office of 
Inspector General (OIG) recommended that we pay for a reinterpretation 
of x-rays only if the attending physician specifically requests a 
second physician's interpretation to furnish appropriate medical care 
before the patient is discharged. The report stated that any other 
reinterpretation of the attending physician's original interpretation 
should be treated and paid as part of the hospital's quality assurance 
program. (We note that the costs of quality control activities as 
discussed above are taken into account in determining payments made to 
the hospital by the hospital's Medicare fiscal intermediary.) The net 
effect of the OIG's proposal would be that, in many cases, Medicare 
carriers would not pay separately for the interpretation of x-rays by 
either the radiologist or the emergency room physician since the OIG 
operated on the assumption (as set forth in the Medicare Carriers 
Manual) that the emergency room physician is paid for the 
interpretation through the emergency room visit charge.
     The CPT coding system differs in its treatment of EKGs and 
x-rays. For EKGs, there is a separate code for the taking of an EKG 
tracing (CPT code 93005) and for the interpreting and reporting of the 
procedure (CPT code 93010). For x-rays, the code represents all aspects 
of the procedure, and a CPT modifier -26 is used when only the 
professional component is billed. On page 230 of the 1995 Edition, the 
CPT states: ``A written report, signed by the interpreting physician, 
should be considered an integral part of a radiologic procedure or 
interpretation.''
     Under Sec. 405.550(b)(2) (proposed to be redesignated as 
Sec. 415.100(b)(2)), the Medicare carrier pays for services of 
physicians to patients of hospitals only if the services contribute 
directly to the diagnosis and treatment of an individual patient.
     There is no legal basis for a Medicare carrier to deny 
payment to any physician for the interpretation of a reasonable and 
necessary diagnostic test if payment for the interpretation is not made 
in some other way.
    We believe that, in any situation in which the interpretation of 
the radiologist or cardiologist is furnished contemporaneously with the 
diagnosis and treatment of the patient, the Medicare carrier should pay 
for the interpretation made by the radiologist or cardiologist and deny 
any claim submitted by an emergency room physician for the x-ray 
interpretation. However, in the case of emergency room services, the 
specialist often does not perform the interpretation and prepare the 
report until a significant period of time (days in some situations) 
after the patient has been diagnosed, treated, and discharged. We 
believe that there are situations in which an emergency room physician 
performs the interpretation and report required by the patient and that 
a later interpretation furnished by the cardiologist or radiologist is 
essentially a quality control activity, the costs of which may be taken 
into account by Medicare fiscal intermediaries in their payments to 
hospitals. Nevertheless, if the hospital elects to have the 
cardiologist or radiologist perform and receive payment for the 
interpretation in every emergency room case, the hospital should ensure 
that other physicians who practice on its premises do not also bill for 
the same interpretation.
    We believe that when a physician bills for the interpretation of an 
EKG or the professional component of an x-ray furnished to a 
beneficiary in an emergency room, the physician is indicating that he 
or she has prepared a written report of the findings for inclusion in 
the patient's medical record maintained by the hospital. We note that 
this also means the physician is 

[[Page 38404]]
assuming legal responsibility for the interpretation and report.
    We believe that, in most situations, the Medicare carrier should 
receive only one claim for an interpretation of each procedure. 
However, when multiple claims are received for the interpretation and 
report or professional component of an x-ray or an EKG, the carrier 
should pay for the service that directly contributed to the diagnosis 
and treatment of the beneficiary.
    We will provide further guidance to the Medicare carriers through 
operating instructions. However, in practice, the carrier would almost 
always pay the first claim received (since the carrier would not know 
if a second bill will arrive). If a second bill is received, the 
Medicare carrier would suspend the claim to determine whether to pay 
the claim.
    Listed below are the elements of our proposed policy. If the policy 
is adopted, we will incorporate the policy in a new Medicare Carriers 
Manual instruction.
     The carrier should generally pay separately for only one 
interpretation of an EKG or x-ray procedure furnished to an emergency 
room patient. However, there should be provision for an additional 
interpretation under unusual circumstances such as a questionable 
finding for which the physician performing the initial interpretation 
believes another physician's expertise is needed.
     The professional component of a diagnostic procedure 
furnished to a beneficiary in a hospital includes an interpretation and 
written report for inclusion in the beneficiary's medical record 
maintained by the hospital. We propose to place this requirement in the 
radiology section of the regulations on services of physicians in 
providers at Sec. 405.554(a). (Under the recodification proposed in 
this regulation, this section would become 415.120(a).)
     We would distinguish between an ``interpretation and 
report'' of an x-ray or an EKG procedure and a ``review'' of the 
procedure. An interpretation and report of the procedure is separately 
payable by the carrier. A review of the findings of these procedures, 
without a written report, does not meet the conditions for separate 
payment of the service since the review is already included in the 
emergency room visit payment.
     In the case of multiple bills for the same interpretation 
and report, we would instruct the carriers to adopt the following 
procedures:
    + End the policy of considering physician specialty to be the prime 
consideration in deciding which interpretation and report to pay 
regardless of when the service is performed.
    + Pay for the interpretation and report that directly contributed 
to the diagnosis and treatment of the individual patient.
    + Pay for the interpretation billed by the cardiologist or 
radiologist if the interpretation of the procedure is performed 
contemporaneously with the diagnosis and treatment of the beneficiary. 
(This interpretation may be a verbal report conveyed to the treating 
physician that will be written in a report at a later time.)
     We propose to minimize the carrier's need to make 
decisions about which claim to pay when multiple claims for the 
interpretation and report of the same procedure are received by--
    + Encouraging hospitals to exercise their authority over the 
medical staff to ensure that only one claim per interpretation is 
submitted;
    + Advising hospitals that if they allow a physician to perform and 
bill for a medically necessary service (the interpretation and report) 
in an emergency room and permit another physician to perform and bill 
for the same service, the Medicare carrier will not pay two claims;
    + Advising hospitals that the Medicare carrier may determine that 
the hospital's ``official interpretation'' is for quality control and 
liability purposes only and is a service to the hospital rather than to 
an individual beneficiary; and
    + Advising hospitals that Medicare fiscal intermediaries consider 
costs incurred for quality control activities in determining payments 
to hospitals.
     When the Medicare carrier receives only one claim for an 
interpretation and the procedure is reasonable and necessary, the 
carrier will pay the claim. When the claim is from a cardiologist or 
radiologist, we will not require the Medicare carrier to make a 
determination of whether the service is a quality control service. We 
will presume that the one service billed was a service to the 
individual beneficiary.

D. Extension of Site-of-Service Payment Differential to Services in 
Ambulatory Surgical Centers (ASCs)

    Services that are performed more than 50 percent of the time in 
office settings are subject to a site-of-service payment differential 
if they are performed in hospital outpatient departments and inpatient 
settings. For these procedures, the PE RVUs are reduced by 50 percent. 
We base the PE RVUs on charge data from the office setting. We assume 
that office charge data accurately reflect physician PEs in the office 
setting. Therefore, for office-based services, the PE RVUs reflect 
office practice costs. The payment differential reflects the fact that 
PEs are lower for services performed in hospital settings using 
hospital equipment, personnel, and space. We developed the site-of-
service payment differential under the authority of section 1848(c)(4) 
of the Act, which permits the Secretary to establish ancillary policies 
necessary to implement the physician fee schedule. Services furnished 
in ASCs were originally exempt from the site-of-service payment 
differential because ASC-approved procedures were performed less than 
50 percent of the time in a physician's office, that is, the ASC list 
and site-of-service payment differential were mutually exclusive.
    However, now a procedure furnished more than 50 percent of the time 
in a physician's office may be an ASC-approved procedure, for example, 
when the ASC setting is more appropriate in cases when a patient needs 
anesthesia. Therefore, we propose extending the site-of-service payment 
differential to office-based services if those services are performed 
in an ASC.
    We see no reason for exempting these procedures from the site-of-
service payment differential because payments for overhead and other 
expenses included in the PE RVUs duplicate the expenses paid in the ASC 
facility payment rate, that is, the physician does not bear these 
expenses himself as he would in his own office. Therefore, in 
Sec. 414.32 (``Determining payments for certain physician services 
furnished in facility settings''), we propose to remove from paragraph 
(d) (``Services excluded from the reduction'') the subordinate 
paragraph (d)(2), which would have the effect of applying the site-of-
service payment differential to ASC services.
    The following procedure codes currently on the ASC list are 
furnished more than 50 percent of the time in a physician's office. 
Therefore, we propose adding them to the list of services subject to 
the site-of-service payment differential.

  Procedure Codes To Be Added to the Site-of-Service Differential List  
------------------------------------------------------------------------
     HCPCS                             Description                      
------------------------------------------------------------------------
11042..........  Cleansing of skin/tissue.                              
11404..........  Removal of skin lesion.                                
11424..........  Removal of skin lesion.                                
11444..........  Removal of skin lesion.                                
11446..........  Removal of skin lesion.                                
11604..........  Removal of skin lesion.                                
11624..........  Removal of skin lesion.                                

[[Page 38405]]
                                                                        
11644..........  Removal of skin lesion.                                
12021..........  Closure of split wound.                                
13100..........  Repair of wound or lesion.                             
13101..........  Repair of wound or lesion.                             
13120..........  Repair of wound or lesion.                             
13121..........  Repair of wound or lesion.                             
13131..........  Repair of wound or lesion.                             
13132..........  Repair of wound or lesion.                             
13150..........  Repair of wound or lesion.                             
13151..........  Repair of wound or lesion.                             
13152..........  Repair of wound or lesion.                             
14000..........  Skin tissue rearrangement.                             
14020..........  Skin tissue rearrangement.                             
14040..........  Skin tissue rearrangement.                             
14041..........  Skin tissue rearrangement.                             
14060..........  Skin tissue rearrangement.                             
14061..........  Skin tissue rearrangement.                             
15740..........  Island pedicle flap graft.                             
19100..........  Biopsy of breast.                                      
20670..........  Removal of support implant.                            
21025..........  Excision of bone, lower jaw.                           
21026..........  Excision of facial bone(s).                            
21040..........  Removal of jaw bone lesion.                            
21041..........  Removal of jaw bone lesion.                            
21208..........  Augmentation of facial bones.                          
21210..........  Face bone graft.                                       
21215..........  Lower jaw bone graft.                                  
21248..........  Reconstruction of jaw.                                 
21249..........  Reconstruction of jaw.                                 
21440..........  Repair dental ridge fracture.                          
21485..........  Reset dislocated jaw.                                  
21550..........  Biopsy of neck/chest.                                  
21920..........  Biopsy soft tissue of back.                            
23066..........  Biopsy shoulder tissues.                               
23330..........  Remove shoulder foreign body.                          
23620..........  Treat humerus fracture.                                
23931..........  Drainage of arm bursa.                                 
24065..........  Biopsy arm/elbow soft tissue.                          
24362..........  Reconstruct elbow joint.                               
25065..........  Biopsy forearm soft tissues.                           
25624..........  Treat wrist bone fracture.                             
25635..........  Treat wrist bone fracture.                             
26070..........  Explore/treat hand joint.                              
26432..........  Repair finger tendon.                                  
26605..........  Treat metacarpal fracture.                             
26645..........  Treat thumb fracture.                                  
27086..........  Remove hip foreign body.                               
27323..........  Biopsy thigh soft tissues.                             
27520..........  Treat kneecap fracture.                                
27604..........  Drain lower leg bursa.                                 
27613..........  Biopsy lower leg soft tissue.                          
27760..........  Treatment of ankle fracture.                           
27780..........  Treatment of fibula fracture.                          
27786..........  Treatment of ankle fracture.                           
27788..........  Treatment of ankle fracture.                           
28003..........  Treatment of foot infection.                           
28030..........  Removal of foot nerve.                                 
28043..........  Excision of foot lesion.                               
28092..........  Removal of toe lesions.                                
28222..........  Release of foot tendons.                               
28261..........  Revision of foot tendon.                               
28313..........  Repair deformity of toe.                               
28400..........  Treatment of heel fracture.                            
28635..........  Treat toe dislocation.                                 
28665..........  Treat toe dislocation.                                 
29850..........  Knee arthroscopy/surgery.                              
30124..........  Removal of nose lesion.                                
30560..........  Release of nasal adhesions.                            
30580..........  Repair upper jaw fistula.                              
30801..........  Cauterization inner nose.                              
31233..........  Nasal/sinus endoscopy, dx.                             
31235..........  Nasal/sinus endoscopy, dx.                             
31237..........  Nasal/sinus endoscopy, surg.                           
31238..........  Nasal/sinus endoscopy, surg.                           
31525..........  Diagnostic laryngoscopy.                               
31570..........  Laryngoscopy with injection.                           
33011..........  Repeat drainage of heart sac.                          
38300..........  Drainage lymph node lesion.                            
38505..........  Needle biopsy, lymph node(s).                          
40510..........  Partial excision of lip.                               
40801..........  Drainage of mouth lesion.                              
40814..........  Excise/repair mouth lesion.                            
40816..........  Excision of mouth lesion.                              
40819..........  Excise lip or cheek fold.                              
40820..........  Treatment of mouth lesion.                             
41000..........  Drainage of mouth lesion.                              
41008..........  Drainage of mouth lesion.                              
41105..........  Biopsy of tongue.                                      
41110..........  Excision of tongue lesion.                             
41112..........  Excision of tongue lesion.                             
41113..........  Excision of tongue lesion.                             
41800..........  Drainage of gum lesion.                                
41805..........  Removal foreign body, gum.                             
41806..........  Removal foreign body, jawbone.                         
41827..........  Excision of gum lesion.                                
42000..........  Drainage mouth roof lesion.                            
42104..........  Excision lesion, mouth roof.                           
42106..........  Excision lesion, mouth roof.                           
42107..........  Excision lesion, mouth roof.                           
42160..........  Treatment mouth roof lesion.                           
42300..........  Drainage of salivary gland.                            
42310..........  Drainage of salivary gland.                            
42335..........  Removal of salivary stone.                             
42340..........  Removal of salivary stone.                             
42405..........  Biopsy of salivary gland.                              
42408..........  Excision of salivary cyst.                             
42700..........  Drainage of tonsil abscess.                            
45305..........  Proctosigmoidoscopy; biopsy.                           
45308..........  Proctosigmoidoscopy.                                   
45309..........  Proctosigmoidoscopy.                                   
46050..........  Incision of anal abscess.                              
46220..........  Removal of anal tab.                                   
46610..........  Anoscopy; remove lesion.                               
46611..........  Anoscopy.                                              
51710..........  Change of bladder tube.                                
51725..........  Simple cystometrogram.                                 
51726..........  Complex cystometrogram.                                
51772..........  Urethra pressure profile.                              
51785..........  Anal/urinary muscle study.                             
52000..........  Cystoscopy.                                            
52010..........  Cystoscopy & duct catheter.                            
52281..........  Cystoscopy and treatment.                              
52285..........  Cystoscopy and treatment.                              
53420..........  Reconstruct urethra, stage 1.                          
54065..........  Destruction, penis lesion(s).                          
55700..........  Biopsy of prostate.                                    
56405..........  I & D of vulva/perineum.                               
56605..........  Biopsy of vulva/perineum.                              
57180..........  Treat vaginal bleeding.                                
57800..........  Dilation of cervical canal.                            
60000..........  Drain thyroid/tongue cyst.                             
61070..........  Brain canal shunt procedure.                           
63600..........  Remove spinal cord lesion.                             
64420..........  Injection for nerve block.                             
65270..........  Repair of eye wound.                                   
65805..........  Drainage of eye.                                       
66030..........  Injection treatment of eye.                            
66762..........  Revision of iris.                                      
67031..........  Laser surgery, eye strands.                            
67101..........  Repair, detached retina.                               
67105..........  Repair, detached retina.                               
67141..........  Treatment of retina.                                   
67208..........  Treatment of retinal lesion.                           
67921..........  Repair eyelid defect.                                  
69424..........  Remove ventilating tube.                               
------------------------------------------------------------------------


E. Services of Teaching Physicians

1. General Background
    The focus of this proposal is Medicare payment for those services 
furnished under graduate medical education (GME) programs that are not 
payable through the mechanisms established for direct GME costs by 
section 1886(h) of the Act. Section 1886(h) addresses Medicare payments 
to hospitals and hospital-based providers for the costs of approved GME 
programs in medicine, osteopathy, dentistry, and podiatry. These costs 
include residents' salaries and fringe benefits, physician compensation 
costs for GME program activities that are not payable on a fee schedule 
basis, and other GME program costs.
    Medicare intermediary expenditures under section 1886(h) of the Act 
for fiscal year (FY) 1996 are estimated to be approximately $1.9 
billion. In addition, under section 1886(d)(5)(B) of the Act, Medicare 
makes additional payments to teaching hospitals under the prospective 
payment system (PPS) for the higher indirect operating costs hospitals 
incur by having GME programs. (These are costs other than direct GME 
costs.) Medicare indirect GME payments for FY 1996 are estimated to be 
approximately $4.9 billion. Medicare also supports GME programs in 
teaching hospitals through billings for the services of attending 
physicians who involve residents in the care of their patients. The 
amount of Medicare expenditures for these services is not known since 
attending physicians are not required to distinguish between services 
they personally furnish and those they furnish as attending physicians 
in claims submitted to the part B carriers.
    This proposal addresses services of teaching physicians that are 
payable on a fee schedule basis, services of residents in settings that 
are not payable under section 1886(h), and services of moonlighting 
residents. In addition, the proposed rule addresses, but does not 
substantially change, existing rules on related issues on Medicare 
payments for the services of residents in approved 

[[Page 38406]]
GME programs furnished in certain freestanding skilled nursing 
facilities (SNFs) and home health agencies (HHAs), and services of 
residents who are not in approved GME programs. We refer to the section 
1886(h) mechanisms to distinguish between that payment methodology and 
other payment mechanisms.
    Title XVIII of the Act provides separate coverage and payment bases 
for provider services and physician services. Under Medicare, provider 
services, such as inpatient hospital services and SNF services, are 
covered under Hospital Insurance (Part A) and are paid from the Part A 
Trust Fund. Outpatient hospital services are covered under 
Supplementary Medical Insurance (Part B) and are paid from the Part B 
Trust Fund. Provider services are paid on a prospective payment, 
reasonable cost, or other payment mechanism through Medicare 
contractors called ``fiscal intermediaries.'' Physician services and 
other ``medical and other health services,'' as defined in section 
1861(s) of the Act are generally paid under Part B through Medicare 
contractors called ``carriers.'' To administer the Medicare program, we 
must distinguish clearly between provider services and physician 
services to determine the appropriate payment methodology and the 
appropriate Trust Fund that is liable for payment.
    In part 405 (``Federal Health Insurance for the Aged and 
Disabled''), subpart D (``Principles of Reimbursement for Services by 
Hospital-Based Physicians''), regulations beginning with Sec. 405.480 
set forth the basic principles regarding payment for services of 
physicians who practice in providers. Additional principles applicable 
to payment for physician services in teaching hospitals appear in 
subpart E (``Criteria for Determination of Reasonable Charges; Payment 
for Services of Hospital Interns, Residents, and Supervising 
Physicians'') in Secs. 405.520 and 405.521. Principles applicable to 
services of interns and residents appear in Secs. 405.522 through 
405.525. Sections 405.465 and 405.466 address the payment methodology 
for teaching hospitals that elect reasonable cost payments for 
physician services. (See sections 1832(a)(2)(B)(i)(II) and 1861(b)(7) 
of the Act.) Since the publication of these regulations, the Congress 
has enacted a series of legislative changes that affect payments for 
these services, and we propose to revise the regulations to conform to 
these statutory changes and to clarify current policy.
    Section 948 of the Omnibus Reconciliation Act of 1980 (ORA '80) 
(Pub. L. 96-499), enacted on December 5, 1980, as amended by section 
2307 of the Deficit Reduction Act of 1984 (DEFRA '84) (Pub. L. 98-369), 
enacted on July 18, 1984, addressed payments for physician services in 
teaching settings. (See section 1842(b)(7) of the Act.) Another 
pertinent legislative change, section 108 of the Tax Equity and Fiscal 
Responsibility Act of 1982 (TEFRA '82) (Pub. L. 97-248), enacted on 
September 3, 1982, added a new section 1887 to the Act. That 
legislation dealt explicitly with distinguishing between the 
professional services physicians furnish to individual patients in a 
provider and services physicians furnish to the provider itself. While 
section 1887 of the Act does not specifically address teaching 
physicians or GME issues, it is consistent with Medicare policy on 
classifying the activities in which physicians in teaching hospitals 
are engaged.
    We published a final rule with comment period in the Federal 
Register on March 2, 1983 (48 FR 8902), which implemented the 
provisions of section 1887 of the Act. That final rule revised the 
regulations that govern Medicare payment for services of physicians who 
practice in providers such as hospitals, SNFs, and comprehensive 
outpatient rehabilitation facilities. As a part of that final rule, we 
revised Secs. 405.480 through 405.482, removed Secs. 405.483 through 
405.488, and added new Secs. 405.550 through 405.557. Those 
regulations--
     Set forth basic criteria for distinguishing those 
physician services furnished in providers that are payable by Part B 
carriers as physician services to individual patients from those 
services that are payable by fiscal intermediaries as physician 
services to the provider itself;
     Set limits on the amounts payable on a reasonable cost 
basis to providers for physician services to the provider; and
     Established more specific criteria for determining the 
basis and amount of payment for physician services in the specialties 
of anesthesiology, radiology, and pathology.
    In the preamble to the March 1983 final rule (48 FR 8906), we 
stated that because of problems related to applying portions of the 
revised regulations to teaching hospitals and to implement sections 
1842(b)(6) and 1861(b)(7) of the Act for physician payment (as amended 
by section 948 of ORA '80), we planned to publish, in a separate 
document, proposed regulations that would establish special rules 
governing payment for services of physicians in teaching hospitals. 
These rules would have superseded Secs. 405.520 and 405.521 if they 
became effective. Subsequently, however, the Congress passed DEFRA '84, 
which further amended section 1842(b)(6) of the Act and redesignated it 
as section 1842(b)(7).
    Another statutory change that affected payments to teaching 
hospitals was section 9202 of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (COBRA '85) (Pub. L. 99-272), enacted on 
April 7, 1986, as amended by section 9314 of the Omnibus Budget 
Reconciliation Act of 1986 (OBRA '86) (Pub. L. 99-509), enacted on 
October 21, 1986, which added a new section 1886(h) to the Act. Section 
1886(h) of the Act revised the method of calculating Medicare payment 
for the direct costs of approved GME activities such as residents' 
salaries and fringe benefits, from reasonable cost payment to payments 
based on hospital-specific per-resident amounts multiplied by the 
number of full-time equivalent (FTE) residents working in the hospital 
during a hospital's cost reporting period.
    A major change in the Medicare payment rules for physician services 
in general was enacted as part of the Omnibus Budget Reconciliation Act 
of 1989 (OBRA '89) (Pub. L. 101-239), enacted on December 19, 1989, 
which added section 1848 to the Act. Section 1848 replaced the 
reasonable charge payment mechanism with a fee schedule for physician 
services. The Omnibus Budget Reconciliation Act of 1990 (OBRA '90) 
(Pub. L. 101-508), enacted on November 5, 1990, contained several 
modifications and clarifications to the OBRA '89 provisions that 
established the physician fee schedule.
2. Payment for Physician Services Furnished in Teaching Settings
    a. Current Practices. Of the nearly 7,000 hospitals that 
participate in Medicare, approximately 1,200 have GME programs that are 
approved for residency training by the appropriate accrediting 
organization. (We are using the term ``residents'' in this preamble to 
include residents, interns, and fellows who are in formally organized 
and approved GME programs.)
    For hospital cost reporting periods beginning on or after July 1, 
1985, the costs of residents' compensation (representing payment for 
the residents' services), certain physician compensation costs related 
to GME programs, and other GME program costs are payable based on 
hospital-specific per-resident amounts as described in 

[[Page 38407]]
Sec. 413.86, in accordance with section 1886(h) of the Act. Physician 
compensation costs for administrative and supervisory services 
unrelated to the GME program or other approved educational activities 
are payable as operating costs through diagnosis-related group payments 
under PPS for inpatient services and on a reasonable cost basis for 
inpatient services in hospitals excluded from PPS and for outpatient 
services.
    In the case of those few teaching hospitals that elect reasonable 
cost payments for physician direct medical and surgical services under 
section 1861(b)(7) of the Act instead of billing for services to 
Medicare beneficiaries on a fee-for-service basis, the election and 
payment mechanisms described in current Secs. 405.465 and 405.466 would 
be set forth in this proposed rule in new Sec. 415.160 and in 
redesignated Secs. 415.162 and 415.164.
    Practices vary widely among and within teaching hospitals with 
respect to the degree of physician involvement in the care of patients. 
In some cases, teaching physicians personally direct residents in 
furnishing patient care services. In others, residents assume a greater 
degree of responsibility for the care patients receive, and the 
teaching physicians exercise only general control over the residents' 
activities.
    b. Statutory and Other Developments Pertaining to Teaching 
Physician Services. (1) Original Medicare Law and Regulations. As 
originally enacted, title XVIII of the Act excluded the services of 
physicians, interns, and residents from the definition of ``inpatient 
hospital services,'' except for the services of interns and residents 
in approved training programs. The services of residents in an approved 
program of a hospital with which an SNF has a transfer agreement are 
included in the definition of ``extended care services'' and in the 
definition of ``home health services'' in the case of an HHA that is 
affiliated with or under common control of a hospital having the 
program. These provisions established the costs of approved GME 
programs for provider services payable by intermediaries on a 
reasonable cost basis. The Act did not include special rules for 
payment of physician services in teaching hospitals.
    Under Secs. 405.520 and 405.521 for teaching physician services, 
and Secs. 405.522 through 405.525 for residents' services, a physician 
in a teaching setting is considered the attending physician for a 
Medicare patient, and thereby qualifies for Part B payment, only if he 
or she furnishes ``personal and identifiable direction'' to the interns 
and residents who provide the actual services to the patient. Before 
January 1, 1992, Part B physician services were paid under the 
reasonable charge payment system. As of January 1, 1992, these 
physician services are paid under the physician fee schedule set forth 
in part 414 (56 FR 59502).
    Although Sec. 405.521(b) lists examples that illustrate the types 
of responsibilities attending physicians typically carry out, the list 
is not exhaustive. In individual cases, it may be difficult to 
determine, by referring to Sec. 405.521, whether a physician in a 
teaching setting is the ``attending physician'' for a Medicare patient. 
It may be necessary for the carrier to review hospital charts to see if 
the attending physician requirements were met; however, the involvement 
of the teaching physician in individual services is often unclear from 
a review of the charts.
    It became apparent, shortly after Secs. 405.520 and 405.521 were 
issued, that some Medicare carriers were paying charges for physician 
services in some teaching hospitals, even though interns and residents 
were primarily responsible for the care of the patients. The physicians 
who were billing for these services were often assuming only limited 
responsibility for the medical management of the patients' treatment. 
It also became clear that some physicians were submitting charges for 
services furnished to Medicare patients even though non-Medicare 
patients were not billed for similar services, and patients generally 
were not obligated to pay for these physician services.
    In April 1969, these problems led to the issuance of Intermediary 
Letter (I.L.) 372, which sets forth specific conditions that physicians 
in teaching settings must meet to be considered attending physicians 
and, thus, qualify to charge the carrier for services in which they 
involve residents. It also specifies how carriers must determine the 
reasonable charges for these services. Although I.L. 372, which is 
still in effect, has provided guidance to Medicare carriers and 
intermediaries on payment for these services, it has not been applied 
uniformly by all Medicare carriers.
    (2) 1972 Amendments. On October 30, 1972, the Congress amended the 
Act to provide rules on payment for physician services (as 
distinguished from the services of interns and residents) furnished in 
teaching hospitals. Section 227 of the Social Security Amendments of 
1972 (Pub. L. 92-603) amended section 1861(b) of the Act to require 
that Medicare treat these services as hospital services and pay for 
them on a reasonable cost basis, except under certain specific 
circumstances. Section 227 also made certain incentives available to 
hospitals that elected to be paid for physician services on a 
reasonable cost basis.
    In subsequent legislation (section 15 of Pub. L. 93-233, enacted on 
December 31, 1973, and section 7 of the End-Stage Renal Disease Program 
Amendments of 1978 (Pub. L. 95-292), enacted on June 13, 1978), the 
Congress deferred implementation of all provisions of section 227 of 
the 1972 amendments except for the incentives to elect reasonable cost 
payment for physician direct medical and surgical services. The cost 
reimbursement provisions were implemented through Sec. 405.465, as 
published in a final rule on August 8, 1975 (40 FR 33440). The 
statutory provisions for which the Congress deferred implementation 
were eventually replaced by new provisions passed by the Congress in 
ORA '80. ORA '80 reaffirmed, but did not otherwise affect, the 
provisions of section 227 of the 1972 amendments authorizing cost 
reimbursement incentives.
    (3) ORA '80. Section 948 of ORA '80 made several important changes 
in the sections of the Medicare statute that address payment for 
physician services in teaching hospitals. Specifically, section 948--
     Repealed the provisions of the 1972 Amendments that 
required Medicare to pay for these services (with certain exceptions) 
on a reasonable cost basis;
     Amended section 1861(b) of the Act to allow hospitals with 
approved teaching programs to elect to be paid on a reasonable cost 
basis for physician direct medical and surgical services furnished to 
their Medicare patients and for the supervision of interns and 
residents in the care of individual patients if all physicians in the 
hospital agree not to bill charges for their services furnished to 
Medicare patients; and
     Added section 1842(b)(6) of the Act (now section 
1842(b)(7)) to specify the conditions that must be met to permit 
payment under Part B for physician services in teaching hospitals that 
do not elect cost reimbursement, and to provide special payment rules 
for determining the customary charges applicable in this situation.
    In the Conference Report accompanying ORA '80 (H.R. Rep. No. 1479, 
96th Cong., 2d Sess. 145 (1980)), the Conference Committee stated that 
its intention was to permit payment for physician services in a 
teaching hospital on a reasonable charge basis only if the physician is 
the patient's ``attending physician.'' The conferees also endorsed 

[[Page 38408]]
the attending physician criteria in I.L. 372.
    The Conference Report further states that ``[t]he conferees intend 
(without precluding reasonable changes in the future) that in 
determining the amount payable on a charge basis under Medicare Part B 
for services of physicians in teaching hospitals, the policies 
contained in I.L. 372 should be generally followed where these are not 
inconsistent with the provisions of the conference agreement.'' Ibid. 
p. 146.
    (4) DEFRA '84. Subsequently, section 2307(a) of DEFRA '84 further 
amended section 1842(b)(7) of the Act concerning conditions for payment 
for physician services furnished in teaching hospitals that do not 
elect cost reimbursement. Section 2307(a) was later amended by sections 
3(b) (5) and (6) of the DEFRA Technical Amendments (Pub. L. 98-617), 
enacted on November 8, 1984. As revised, section 1842(b)(7) of the Act 
(which was redesignated from section 1842(b)(6) of the Act by section 
2306 of DEFRA '84) provides that--
     The customary charge of a physician qualifying as a 
teaching physician is set no lower than 85 percent of the prevailing 
charge paid for similar services in the same locality; and
     If all the teaching physicians in a teaching hospital 
agree to accept assignment for all the services they furnish to 
Medicare patients in that hospital, the customary charge is set at 90 
percent of the prevailing charge paid for similar services in the same 
locality.
    (5) 1989 Proposed Rule. On February 7, 1989, we published a 
proposed rule that would have implemented the teaching physician 
payment provisions of both ORA '80 and DEFRA '84 (54 FR 5946). In that 
document, we proposed the following changes relating to teaching 
physicians:
     Revise the regulations governing the conditions under 
which Medicare payment is made for the services of physicians in 
teaching settings and implement a special methodology for determining 
customary charges for the services of teaching physicians.
     Revise the regulations governing Medicare payment to 
providers for compensation paid to physicians who furnish services that 
are of general benefit to patients in the provider.
    That proposed rule was never published in final because legislation 
enacted in 1989 and 1990 that mandated the implementation of the 
Medicare physician fee schedule had the effect of replacing the payment 
methodology of the proposed rule.
3. Payments for Supervising Physicians in Teaching Settings and for 
Residents in Certain Settings
    We propose to revise the regulations because of the substantial 
changes that have taken place in the way Medicare payments for 
physician services are determined (that is, the replacement of the 
reasonable charge system with the physician fee schedule); the length 
of time since the publication of the February 1989 proposed rule; and 
our decision to propose to replace the attending physician criteria of 
that proposed rule.
    We propose to change the attending physician criteria from those of 
I.L. 372 to make the criteria more flexible in terms of the individual 
teaching physician who may serve as the responsible physician for a 
particular service while ensuring that a physician is present during at 
least some portion of each service payable by the carrier. We also 
propose rules based on other Medicare policies that have been in effect 
for years but have never been explicitly addressed in the regulations.
    a. Distinction Between Teaching Hospital and Teaching Setting. We 
propose to distinguish between ``teaching hospital'' and ``teaching 
setting,'' because the former is more directly related to intermediary 
payments, and the latter (although defined in terms of intermediary 
payments) is more directly related to carrier payments. We propose to 
define ``teaching hospital'' as a hospital engaged in an approved GME 
residency program in medicine, osteopathy, dentistry, or podiatry. We 
propose to define ``teaching setting'' as a provider or freestanding 
setting in which Medicare payment for the services of residents is made 
under the direct GME payment provisions of Sec. 413.86 (hospitals, 
hospital-based providers, and settings, including nonprovider settings, 
meeting the requirements for residents in Sec. 413.86(f)(1)(iii)), or 
on a reasonable cost basis under the provisions of Sec. 409.26 or 
Sec. 409.40(f) for residents' services furnished in freestanding SNFs 
or HHAs, respectively.
    b. Statutory Requirements for Payment in Teaching Hospitals Not 
Electing Reasonable Costs for Physician Services to Individual 
Patients. Section 1842(b)(7) of the Act is generally premised on the 
use of customary charges, that is, the reasonable charge system, as the 
basis for Medicare payments for the services of physicians in teaching 
hospitals. Section 1848 of the Act, however, established the physician 
fee schedule as the payment methodology for physician services 
furnished beginning January 1, 1992 without any exception for physician 
services furnished in teaching settings. Therefore, we based the 
policies in this proposed rule on principles established in legislation 
on payment for physician services generally under the physician fee 
schedule, on payment for physician services furnished in providers, and 
on payment to hospitals for GME programs. With regard to payment to 
hospitals for GME programs, this proposal addresses activities 
associated with GME programs that are not payable through fiscal 
intermediary payment mechanisms.
    c. Intermediary Letter (I.L.) 372 Attending Physician Criteria. The 
I.L. 372 attending physician criteria and related policy were developed 
by Medicare in 1969 as a means of documenting the involvement of 
teaching physicians in patient care services furnished in teaching 
hospitals and have been controversial ever since. It was recognized 
then and now that residents must furnish patient care services to 
develop their skills as physicians or other types of practitioners. The 
``attending physician'' policy was developed as a mechanism to make 
Part B fee schedule payments for services in which residents were 
involved. The main requirement of the policy was that there would be a 
single attending physician who personally examined the beneficiary 
within a reasonable time after admission, confirmed the diagnosis and 
course of treatment, and was continuously involved in the care of the 
beneficiary throughout the stay. The attending physician policy as set 
forth in I.L. 372 and related issuances specifically stated that the 
attending physician had to be present when a major surgical procedure 
or a complex or dangerous medical procedure was performed, but was 
vague, perhaps necessarily, on the matter of the presence of the 
physician during other occasions of inpatient service. There was less 
ambiguity with regard to hospital outpatients. Part A I.L. No. 70-7/
Part B I.L. No. 70-2 (issued in January 1970), a question-and-answer 
I.L. on I.L. 372, indicated that the supervising physician must either 
personally perform the service or function as the attending physician 
and be present while a service is being furnished (question 14).
    Medicare carriers were directed to periodically review the hospital 
charts for verification of the establishment of attending physician 
relationships and their involvement in individual services. If the 
chart did not substantiate a sufficient level of involvement in the 
care furnished, the teaching physician role was seen as supervisory in 
nature, 

[[Page 38409]]
rather than as an attending physician, even though the teaching 
physician may have had legal responsibility for the care furnished to 
the patient. Consequently, the fiscal intermediary for the hospital 
would pay Medicare's share of the salary costs of the teaching 
physician attributable to the supervision of residents, but the 
Medicare carrier would not make payment for the physician services on 
the basis of reasonable charges.
    We believe, after years of working experience with the I.L. 372 
attending physician policy, that we should replace it. The amount of 
postpayment review necessary to verify the establishment and continuity 
of the attending physician relationship from patient charts has become 
impractical given reductions in contractor budgets and is inconsistent 
with more recent congressional action. While the Congress endorsed the 
attending physician policy in the Conference Report accompanying ORA 
'80, the I.L. 372 policy may be viewed as not entirely consistent with 
the payment mechanism enacted in OBRA '86 under section 1886(h) of the 
Act for payment of direct GME costs in teaching hospitals. For example, 
I.L. 372 indicates that, if a physician is not an attending physician 
but supervises a resident who furnishes a service, the costs of the 
physician services are payable by the intermediary. Under section 
1886(h) of the Act, if a service is determined not to be an attending 
physician service billable under Part B, the service cannot become a 
provider service for purposes of additional payments made under Part A 
since the GME payments are prospectively determined amounts that cannot 
be adjusted based on the individual circumstances of the delivery of 
individual services. Further, allocation agreements between physicians 
and hospitals identifying the various activities in which the 
physicians are involved for purposes of determining the appropriate 
payment amounts have no effect on GME payments in an individual 
hospital cost reporting period. The costs that were allocated during 
the GME base period are carried forward regardless of changes in the 
physician activities.
    Moreover, the I.L. 372 policy left it to individual carriers to 
determine coverage of the services based on customary practices in the 
area or on the competence of individual residents. For example, a 
sentence in I.L. 372.A. reads as follows:

    If the supervising physician was present at surgery, and the 
surgery was performed by a resident acting under his close 
supervision and instruction, he would not be the attending surgeon 
unless it were customary in the community for such services to be 
performed in a similar fashion to private patients who pay for 
services rendered by a private physician.

    While this policy might have been appropriate 30 years ago in the 
early days of Medicare, we now believe it is inappropriate to base the 
determination of whether a carrier will pay several thousand dollars or 
zero dollars for a surgical procedure on this standard, which could 
result in a wide disparity of policy from area to area regarding when 
payment is made.
    Another problem with the I.L. 372 policy is reliance on a single 
physician to be the attending physician for the beneficiary throughout 
the inpatient stay. The only exception permitting an attending 
physician relationship for only a portion of a stay was if the portion 
was a distinct segment of the patient's course of treatment, such as 
the postoperative period. Another example from I.L. 372 reads as 
follows:

    A group of physicians share the teaching and supervision of the 
house staff on a rotating basis. Each physician sees patients every 
third day as he makes rounds. No physician can be held to be one of 
these patients' attending physician for any portion of the hospital 
care although consultations and other services they personally 
perform for the patient might be covered.

    We now believe that this emphasis on a single teaching physician 
serving as the attending physician through the stay is no longer 
necessary, and that we should provide teaching hospitals and GME 
programs with flexibility in the determination of the responsible 
teaching physician in an individual case. We no longer believe the I.L. 
372 requirement that a single physician be recognized by the 
beneficiary as his or her personal physician through a period of 
hospitalization reflects current realities. Further, the existing 
attending physician regulation may operate at cross-purposes with 
managed care arrangements that often employ treatment teams.
    The I.L. 372 requirements for continuity of care may be difficult 
for carriers to verify from reviews of medical records, may be 
interpreted in different ways by different carriers, and may be 
counterproductive and burdensome in the delivery of services to the 
patient. We believe the proposed policy would address potential sources 
of misunderstanding and abuse that have been longstanding Medicare 
program concerns. For example, I.L. 372 requires the attending 
physician to personally examine the patient, review the history and 
record of test results, etc. From discussions with carrier medical 
directors, it is our understanding that some carriers consider the 
requirements to be met if the responsible physician first sees the 
patient 1 or 2 days after admission. In these situations, the carrier 
might pay for an admission history and physical performed by a resident 
on Saturday while the responsible physician does not actually see and 
examine the patient until Monday. Other carriers would maintain that, 
to pay for the admission history and physical as an attending 
physician, the teaching physician would have to see the patient on the 
day the service was performed.
    We now believe that the most important consideration should be the 
presence of the teaching physician during the key portion of the 
service or procedure being furnished by the resident, and that 
requiring both an attending physician relationship and the presence of 
that same physician during every billable service is not warranted. 
Thus, under our proposal, carriers would no longer pay for services 
such as admission evaluation and management services unless a teaching 
physician was present during the key portion of the service.
    d. Carrier Payment for Services of Teaching Physicians--General. We 
propose to eliminate the I.L. 372 attending physician criteria from the 
determination of whether payment should be made for the services of 
physicians in teaching settings. We recognize that the term ``attending 
physician'' is used in academic medicine to denote the responsible 
physician, and we believe that hospitals and GME programs should be 
free to designate any physician to be the attending physician of the 
patients in the teaching setting. We propose to require the following 
conditions for services of teaching physicians (physicians who involve 
residents in the care of their patients) in both inpatient and 
outpatient settings to be payable under the physician fee schedule:
     A teaching physician (a physician other than a resident or 
fellow in an approved program) must be present for a key portion of the 
time during the performance of the service for which payment is sought.
     In the case of surgery or a dangerous or complex 
procedure, the teaching physician must be present during all critical 
portions of the procedure and must be immediately available to furnish 
services during the entire service or procedure. We would specify that 
the teaching physician presence requirement is not met when 

[[Page 38410]]
the presence of a teaching physician is required in two places for 
concurrent major surgeries. The operative notes must indicate when the 
teaching physician presence in individual procedures began and ended. 
In the case of minor procedures, such as an endoscopy in which a body 
area, rather than a representation, is viewed, we would not make 
payment if the teaching physician was not present during the viewing. A 
discussion of the findings with a resident would not be sufficient. The 
situation is contrasted with a diagnostic procedure, such as an x-ray, 
in which the physician would not be expected to be present during the 
performance of a test and could bill for an interpretation by reviewing 
the film with the resident (or by performing an independent 
interpretation).
     In the case of services such as evaluation and management 
services (for example, visits and consultations), for which there are 
several levels of service available for reporting purposes, the 
appropriate payment level must reflect the extent and complexity of the 
service if the service had been fully furnished by the teaching 
physician. In other words, if the medical decisionmaking in an 
individual service is highly complex to an inexperienced resident, but 
straightforward to the teaching physician, payment is made at the lower 
payment level reflecting the involvement of the teaching physician in 
the service. We intend to promote flexibility and leave the decision to 
the teaching physician as to whether the teaching physician should 
perform hands-on care, in addition to the care furnished by the 
resident in the presence of the teaching physician. However, in the 
case of both hospital inpatient and outpatient evaluation and 
management services, the teaching physician must be present during the 
key portion of the visit.
     The presence of the physician during the service or 
procedure must be documented in the medical records.
    The proposal eliminates the I.L. 372 requirement that the attending 
physician personally examine the patient and leaves the decision to the 
teaching physician as to whether he or she should perform an 
examination in addition to the resident's examination based on medical 
and risk management considerations rather than Medicare payment rules. 
For example, a beneficiary may be admitted to the hospital on a 
Saturday and be examined by a resident in the presence of a teaching 
physician on duty at the time. On Monday, another teaching physician 
might be designated to be the attending physician in the case. Under 
the proposal to eliminate the I.L. 372 attending physician criteria, 
the services of both teaching physicians in this example would be 
payable (as long as distinct services are furnished).
    Under our proposal, we are clarifying that services of teaching 
physicians that involve the supervision of residents in the care of 
individual patients are payable under the physician fee schedule only 
if the teaching physician is present during the key portion of the 
service. If a teaching physician is engaged in such activities as 
discussions of the patient's treatment with a resident but is not 
present during any portion of the session with the patient, we believe 
that the supervisory service furnished is a teaching service as 
distinguished from a physician service to an individual patient.
    We believe that this clarification is consistent with existing 
policy. Part A I.L. No. 70-7/Part B I.L. No. 70-2, issued in January 
1970 and still in effect, contains a series of questions and answers 
about the attending physician policy set forth in I.L. No. 372. 
Question 14 of that issuance addresses services furnished in emergency 
rooms and outpatient departments and states the following:

    Q. Intermediary letter No. 372 states, ``An emergency room 
supervising physician may not customarily be considered to be the 
attending physician of patients cared for by the house staff, etc.'' 
Is this also true in the hospital's outpatient department?
    A. Yes, because an attending physician relationship is not 
normally established with anyone other than the treating physician 
in an outpatient department. If the Part B bills are submitted for 
services performed by a physician in either the emergency room or in 
any part of the outpatient department, the hospital records should 
clearly indicate either that: The supervising physician personally 
performed the service; or he functioned as the patient's attending 
physician and was present at the furnishing of the service for which 
payment is claimed.

    At the same time we are concerned about the integrity of the 
Medicare payment process, we recognize that application of this policy 
to the reimbursement of teaching physicians in family practice 
residency programs raises special concerns about the viability of these 
programs. Family practice residency programs are different from other 
programs because training occurs primarily in an outpatient setting, 
known as a family practice center. In these centers, residents are 
assigned a panel of patients for whom they will provide care throughout 
their 3 years of training. While teaching physicians supervise this 
care and, indeed, are present during the actual furnishing of services 
in some circumstances (most notably with first year residents and for 
more complex patient cases) a general requirement that teaching 
physicians be physically present during all visits to the family 
practice center would undermine the development of this physician/
patient relationship. This requirement also would be incompatible with 
the way family practice centers are organized and staffed and could 
require the hiring of additional teaching physicians when the faculty 
are already in short supply.
    We are willing to develop a special rule for paying teaching family 
physicians that takes into account the unique nature of these training 
programs while clarifying the appropriate level of involvement of the 
teaching physician in patient care in family practice centers. We 
invite comments on the structure and content of such a rule, or a 
legislative proposal, along with any supportive data. We also invite 
comments on whether and how such a rule might be applied to other 
primary care training programs.
    e. Special Treatment--Psychiatric Services. During the period in 
which we were developing the February 1989 proposed rule, we met with 
representatives of psychiatric GME programs who indicated that it was 
inappropriate for a physician other than the treating resident to be 
viewed by psychiatric patients as their physician. In psychiatric 
programs, the teaching physician may observe a resident's treatment of 
patients only through one-way mirrors or video equipment. We have 
accepted this position and propose that, with respect to psychiatric 
services (including evaluation and management services) furnished under 
an approved psychiatric GME program, the teaching physician would be 
considered to be ``present'' during each visit for which payment is 
sought as long as the teaching physician observes the visit through 
visual devices and meets with the patient after the visit.
    f. Physician Services Furnished to Renal Dialysis Patients in 
Teaching Hospitals. Effective for services furnished on or after August 
1, 1983, Medicare pays for physician services to end-stage renal 
disease (ESRD) patients on the basis of the physician monthly 
capitation payment method described in Sec. 414.314. This payment 
method generally applies to renal-related physician services furnished 
to outpatient maintenance dialysis patients, regardless of where the 
services are furnished (that is, in an independent ESRD facility, a 
hospital-based ESRD facility, or in the patient's home). Physician 
services furnished to ESRD patients on or after August 7, 

[[Page 38411]]
1990 may also be paid on the basis of the initial method as described 
in Sec. 414.313. We would continue application of these physician 
payment methods to teaching hospitals with ESRD facilities. We would 
not impose any special medical record documentation requirements solely 
because the ESRD facility is based in a teaching hospital.
    Physician fee schedule payments for covered physician services 
furnished to inpatients in a hospital by a physician who elects not to 
continue to receive payment on a monthly capitation basis through the 
period of the inpatient stay, or who is paid based on the initial 
method, would be determined according to the rules described in 
proposed Sec. 415.170. Physicians would have to either personally 
furnish the services, or furnish the services as a teaching physician 
as described in proposed Sec. 415.172.
    g. Special Criteria for Anesthesia Services and Interpretation of 
Diagnostic Tests. Special criteria for anesthesia services involving 
residents appear in Sec. 414.46(c)(2)(iii). In the case of diagnostic 
radiology and other diagnostic tests, we make payment for the 
interpretation if the physician either personally performs the 
interpretation or reviews the resident's interpretation.
    h. Services of Residents. We propose to incorporate into the 
regulations longstanding Medicare coverage and payment policy regarding 
the circumstances under which the services of residents are payable as 
physician services. These policies are currently in operating 
instructions and other issuances.
    Generally, the services of residents in approved GME programs 
furnished in hospitals and hospital-based providers are payable through 
the direct GME payment methodology in Sec. 413.86. For hospital cost 
reporting periods beginning on or after July 1, 1985, a teaching 
hospital is entitled to include residents working in the hospital and 
hospital-based providers in the FTE count used to compute direct GME 
payments. These payments are based on per-resident amounts reflecting 
GME costs incurred during a base period and updated by the Consumer 
Price Index. Further, effective July 1, 1987, under the conditions set 
forth in Sec. 413.86(f)(1)(iii), a teaching hospital may elect to enter 
into a written agreement with another entity for the purpose of 
including the time spent by residents in furnishing patient care 
services in a setting outside the hospital in the hospital's FTE count 
of residents for GME purposes. The agreement must specify that the 
hospital compensate the resident for the services in the nonhospital 
setting. When an agreement is in effect, the teaching setting 
guidelines of proposed Secs. 415.170 through 415.184 would apply to 
services in which physicians involve residents in the nonhospital 
setting. The services of residents in these settings are payable as 
hospital services rather than physician services. Proposed Sec. 415.200 
would replace the current Sec. 405.522.
    The current Sec. 405.523 addresses payment for the services of 
residents who are not in approved programs. The section is applicable 
to the services of a physician employed by a hospital who is authorized 
to practice only in a hospital setting and to residents in an 
unapproved program. We propose to replace this rule with proposed 
Sec. 415.202. The proposed rule incorporates the policy currently in 
section 404.1.B of the Provider Reimbursement Manual (HCFA Pub. 15-1) 
which provides that only the costs of the residents' services are 
allowable as Part B costs, and that other costs, such as teaching 
costs, of an unapproved program are not allowable.
    The current Sec. 405.524 (``Interns' and residents' services 
outside the hospital'') provides for reasonable cost payments for the 
services of residents in freestanding SNFs and HHAs. We propose to 
rename this section to clarify that its scope is limited to these types 
of providers and to include it with only minor changes into a new 
Sec. 415.204.
    We propose to establish a new Sec. 415.206 to address payment 
issues relating to the services of residents in nonprovider settings, 
such as freestanding clinics that are not part of a hospital. Paragraph 
(a) addresses situations when a teaching hospital and another entity 
have entered into a written agreement under which the time the 
residents spend in patient care activities in these nonhospital 
settings is included in the hospital's FTE count used to compute direct 
GME payments. If an agreement is in force, the carrier would make 
payments for teaching physician and other physician services under the 
rules in Secs. 415.170 through 415.190.
    If a nonprovider entity, such as a freestanding family practice or 
multispecialty clinic, does not enter into this type of agreement for 
residency training with a teaching hospital, the payment mechanism in 
proposed Sec. 415.206(b) would apply in the case of services furnished 
by certain residents. We modified the policy on Part B billings for 
services furnished by licensed residents in the late 1970's in an 
action designed to enhance the ability of primary care residency 
programs to finance their training activities outside the teaching 
hospital setting. We revised the Medicare Carriers Manual (HCFA Pub. 
14-3) to cover residents' services furnished in a setting that is not 
part of a hospital as physician services if the resident was fully 
licensed to practice by the State in which the service was performed. 
This policy applies whether or not the residents are functioning within 
the scope of their approved GME program. Under these circumstances, the 
resident is functioning in the capacity of a physician, and the 
teaching physician guidelines do not apply.
    Additionally, the services of residents practicing in freestanding 
Federally qualified health centers (FQHCs) and rural health clinics 
(RHCs) who meet the requirements of proposed Sec. 415.206(b) would be 
eligible for payment under the FQHC payment methodology. (We would make 
payments for residents' services in a hospital-based entity under the 
provisions of Sec. 413.86 for direct GME payments.) We propose to allow 
freestanding FQHCs and RHCs to include the costs of a service performed 
by a resident meeting those requirements as an allowable cost on the 
entity's cost report. We propose to amend Sec. 405.2468(b)(1), which 
sets forth allowable costs for FQHC and RHC services, to recognize 
these costs. Further, a resident is considered to be a physician as 
defined in revised Sec. 405.2401(b) for the purpose of determining 
payments to the FQHC or RHC. Consistent with the FQHC and RHC payment 
method, payments for FQHC and RHC services furnished by residents in 
FQHCs and RHCs would be paid under Sec. 405.2462 rather than under the 
physician fee schedule. In other words, services of the resident would 
be treated in exactly the same manner as services of other physicians 
who are not residents in the FQHC or RHC. We believe that recognizing 
the costs of these residents in FQHC and RHC settings would create more 
uniformity in the way these costs are treated by the Medicare program.
    We propose to establish a new Sec. 415.208 to address carrier 
payments for the services of ``moonlighting'' residents. Paragraph (a) 
defines these services as referring to services that licensed residents 
perform that are outside the scope of an approved GME program. 
Paragraph (b) reflects the policy set forth in section 2020.8.C. of the 
Medicare Carriers Manual under which carriers may pay under the 
physician fee schedule for the services of moonlighting residents in 
the outpatient department or emergency 

[[Page 38412]]
department of a hospital in which they have their training program if 
there is a contract between the resident and the hospital indicating 
that the following criteria are met:
     The services are identifiable physician services and meet 
the criteria in Sec. 415.100(b) (currently Sec. 405.550(b)).
     The resident is fully licensed to practice medicine, 
osteopathy, dentistry, or podiatry in the State in which the services 
are performed.
     The services can be separately identified from those 
services that are required as part of the approved GME program.
    Paragraph (c) indicates that the moonlighting services of a 
resident furnished outside the scope of an approved GME program in a 
hospital or other setting that does not participate in the GME program 
are payable as physician services under the physician fee schedule.
    i. Redesignation of Regulations on Teaching Hospitals, Teaching 
Physicians, and Physicians Who Practice in Providers. As a part of this 
rulemaking process, we would redesignate the regulations currently set 
forth in Secs. 405.465 and 405.466, 405.480 through 405.482, 405.522 
through 405.524, 405.550, 405.551, 405.554, 405.556, and 405.580 into a 
new part 415, along with the new regulations proposed in this rule. 
This redesignation is part of our continuing effort to improve the 
overall organization of title 42 of the CFR and, in this case, 
specifically, the organization of the regulations on teaching 
hospitals, teaching physicians, and physicians who practice in 
providers.
    Except as indicated below, we are making only technical changes to 
conform cross-references, and no substantive changes are included. We 
would remove Secs. 405.520 and 405.521 because the applicable rules for 
payment of services are obsolete. We would also remove the chart for 
payment to interns and residents in Sec. 405.525 as obsolete. In 
addition, we would remove Sec. 405.552 because the applicable payment 
rules for anesthesia services are set forth in Sec. 414.46.
    We intend this redesignation to make these regulations easier to 
use. Following is a distribution table that indicates where each 
section of the original material would be moved or why it would no 
longer be needed, and the new section numbers that would result from 
the redesignation:

                           Distribution Table                           
------------------------------------------------------------------------
            Old section                          New section            
------------------------------------------------------------------------
405.465............................  415.162.                           
405.466............................  415.164.                           
405.480............................  415.55.                            
405.481............................  415.60.                            
405.482............................  415.70.                            
405.520............................  Removed.                           
405.521............................  Removed.                           
405.522............................  415.200.                           
405.523............................  415.202.                           
405.524............................  415.204.                           
405.525............................  Removed.                           
405.550............................  415.100.                           
405.551............................  415.105.                           
405.552............................  Removed.                           
405.554............................  415.120.                           
405.556............................  415.130.                           
405.580............................  415.190.                           
------------------------------------------------------------------------

    Following is a derivation table that shows the origin of each 
section of the new material:

                            Derivation Table                            
------------------------------------------------------------------------
                                                                  Old   
                         New section                            section 
------------------------------------------------------------------------
415.1........................................................           
415.50.......................................................           
415.55.......................................................    405.480
415.60.......................................................    405.481
415.70.......................................................    405.482
415.100......................................................    405.550
415.105......................................................    405.551
415.120......................................................    405.554
415.130......................................................    405.556
415.150......................................................           
415.152......................................................           
415.160......................................................           
415.162......................................................    405.465
415.164......................................................    405.466
415.170......................................................           
415.172......................................................           
415.176......................................................           
415.178......................................................           
415.180......................................................           
415.184......................................................           
415.190......................................................    405.580
415.200......................................................    405.522
415.202......................................................    405.523
415.204......................................................    405.524
415.206......................................................           
415.208......................................................           
------------------------------------------------------------------------

F. Unspecified Physical and Occupational Therapy Services (HCPCS Codes 
M0005 Through M0008 and H5300)

    We propose to eliminate HCPCS codes M0005 through M0008 and H5300 
and redistribute the RVUs to the codes in the physical medicine section 
of the CPT (CPT codes 97010 through 97799). This proposal represents a 
single way of reporting and paying for a service for which there are 
now two ways to report and would be a payment policy change. We propose 
no change to what services may be covered, only to how covered services 
would be billed and paid.
    We propose this change because HCPCS codes M0005 through M0008 and 
H5300 fail to accurately describe the services furnished. Therefore, we 
are unable to establish resource-based work RVUs for them as the 
statute requires. Moreover, because the codes do not accurately 
describe the services being furnished, they preclude effective review 
to determine that the services being paid are covered by Medicare.
    We believe that the CPT codes and the remaining HCPCS codes provide 
a sufficient means for physicians, physical therapists in independent 
practice (PTIPs), and occupational therapists in independent practice 
(OTIPs) to bill and be paid for the covered services they furnish. In 
1995, the AMA revised the codes in the Physical Medicine and 
Rehabilitation section of the CPT to better reflect the provision of 
physical and occupational therapy services. The American Physical 
Therapy Association and the American Occupational Therapy Association 
are members of the Health Care Professional Advisory Committee (HCPAC) 
of the AMA's Relative Value Update Committee (RUC) and participated in 
the creation of new codes for 1995 and in the RUC's recommendations to 
us for the assignment of work RVUs for these codes.
    As a result of these coding changes, we established interim 
resource-based work RVUs for the services described by the new CPT 
codes. We will consider public comments received on the interim RVUs 
and establish final RVUs for these new codes for 1996. The CPT and RUC 
processes of the AMA provide for the opportunity to include all codes 
necessary to bill physical and occupational therapy services listed in 
the CPT, should further changes to the CPT be necessary.
    In addition to the new CPT codes for physical medicine services, 
HCPCS codes Q0103, Q0104, Q0109, and Q0110 describe the evaluation and 
management work of PTIPs and OTIPs when they establish a plan of care 
and periodically review that plan. While physicians may bill the CPT 
evaluation and management codes, PTIPs and OTIPs may not bill these 
codes because, unlike physicians, the evaluation and management 
services PTIPs and OTIPs furnish do not include consideration of 
chemotherapeutic or surgical alternatives to physical or occupational 
therapy. We understand that the HCPAC will be considering creation of 
codes to describe the evaluation and management services furnished by 

[[Page 38413]]
PTIPs and OTIPs for 1997, at which time we expect to eliminate the Q 
codes that currently serve this purpose.
    We believe that each unit of service currently billed under the 
codes we propose to delete will be billed under a CPT or HCPCS code and 
that the total amount of Medicare payment for physical medicine 
services will not change significantly as a result of the elimination 
of these codes. This proposal reflects a policy change that is not 
explicitly addressed in our regulations.

G. Transportation in Connection With Furnishing Diagnostic Tests

    We have received a number of inquiries about the conditions under 
which carriers should pay for the transportation of diagnostic 
equipment used to furnish procedures payable under the physician fee 
schedule. Medicare carriers have been told for years that, in the 
absence of specific instructions from us, it was within their 
discretion to determine when payment for the transportation of 
diagnostic equipment should be made. We are proposing to enunciate a 
national policy now. Under our proposal, Medicare carriers would apply 
the general physician fee schedule policy on additional payments for 
travel expenses to transportation services except as indicated below.
    Section 1861(s)(3) of the Act establishes the coverage of 
diagnostic x-rays furnished in a place of residence used as the 
patient's home if the performance of the tests meets health and safety 
conditions established by the Secretary. This provision is the basis 
for payment of x-ray services furnished by approved portable suppliers 
to beneficiaries in their homes and in nursing facilities.
    Although the Congress did not explicitly so state, we determined 
that, because there were increased costs in transporting the x-ray 
equipment to the beneficiary, the Congress intended that we pay an 
additional amount for the transportation expenses. Therefore, we 
established HCPCS codes R0070 and R0075 (for single-patient and 
multiple-patient trips, respectively) to pay approved portable x-ray 
suppliers a transportation ``component'' when they furnish the services 
listed in section 2070.4.C of the Medicare Carriers Manual.
    We later added the taking of an EKG tracing to the list of services 
approved suppliers of portable x-ray services may furnish (section 
2070.4.F. of the Medicare Carriers Manual) and established HCPCS code 
R0076 to pay for the transportation of EKG equipment. Many Medicare 
carriers have limited the use of HCPCS code R0076 to approved portable 
x-ray suppliers, but some Medicare carriers permit other types of 
entities, such as independent physiological laboratories (IPLs), to use 
the code.
    Further, section 2070.1.G of the Medicare Carriers Manual provides 
for the coverage of an EKG tracing by an independent laboratory--
     In a home if the beneficiary is a ``homebound patient''; 
or
     In an institution used as a place of residence if the 
patient is confined to the facility and the facility does not have on-
duty personnel qualified to perform the service.
     The Act does not make specific provision for furnishing 
diagnostic procedures payable under the physician fee schedule, other 
than portable x-rays, to beneficiaries in their residences. We have 
received inquiries from our regional offices regarding payment for the 
transportation of diagnostic equipment that have generally involved the 
equipment used to furnish ultrasound and cardiography procedures. We 
have also received complaints from suppliers of these types of services 
about variations in individual Medicare carrier policies on 
transportation payments. We have little information about the amounts 
of payments; however, in the case of portable x-ray services (which 
would not be affected by this proposal), the transportation payment is 
often several times higher than the payment for the procedure 
furnished.
    As discussed in the preamble to our November 1991 final rule (56 FR 
59605), the physician fee schedule policy includes travel in the PE of 
a medical practice; therefore, travel is compensated through the PE 
component of the RVUs for a service. The preamble of the November 1991 
final rule further states that CPT code 99081 may be used to bill for 
unusual travel in unusual cases and that carriers would handle these 
billings on a ``by report'' basis. Section 15026 of the Medicare 
Carriers Manual adds the stipulation that CPT code 99082 is payable 
only when the travel is ``very unusual.''
    The scope of this proposal is limited to transportation expenses 
associated with diagnostic tests that are payable under the physician 
fee schedule. It would apply both to payments made in connection with 
the transportation of diagnostic equipment to the beneficiary and to 
the transportation of equipment to a site, such as a physician's 
office, for use in furnishing tests to beneficiaries. We are not 
proposing to place this policy in regulations, but we would change the 
applicable sections of the Medicare Carriers Manual.
    Under our proposal, Medicare carriers would continue to pay for the 
transportation of x-ray and EKG equipment in some cases. The following 
exceptions to the general rule on payment for travel are based on our 
interpretation of statutory requirements in the case of x-rays and 
specific longstanding policy in the case of EKGs.
     Medicare carriers would continue to make transportation 
payments under HCPCS codes R0070 and R0075 in connection with portable 
x-ray procedures if approved suppliers furnish the services described 
in section 2070.4.C. of the Medicare Carriers Manual:
    + Skeletal films involving arms and legs, pelvis, vertebral column, 
and skull.
    + Chest films that do not involve the use of contrast media (except 
routine screening procedures and tests in connection with routine 
physical examinations).
    + Abdominal films that do not involve the use of contrast media.
     Medicare carriers would make transportation payments under 
HCPCS code R0076 in connection with standard EKG procedures if the 
approved portable x-ray supplier furnishes the service described by CPT 
code 93005 (or CPT 93000, if the interpretation is billed with the 
tracing).
     Medicare carriers would make transportation payments under 
HCPCS R0076 in connection with standard EKG procedures (CPT code 93005) 
furnished by an IPL when--
    + The IPL meets applicable State and local licensure laws;
    + The EKG is ordered by a referring physician; and
    + The carrier determines the service to be reasonable and 
necessary. (See section 2070.5. of the Medicare Carriers Manual.)
     We would delete the reference to EKGs in the existing 
section 2070.1.G. of the Medicare Carriers Manual and place the policy 
in a revised section 2070.5 of the Medicare Carriers Manual. However, 
we would remove the requirement that the beneficiary be confined to his 
or her home or to an institution for the EKG tracing to be covered 
since this requirement does not apply to EKG tracings taken by portable 
x-ray suppliers.
     For all other types of diagnostic tests payable under the 
physician fee schedule, Medicare carriers would pay for the 
transportation of equipment only on a ``by report'' basis under CPT 
code 99082 if a physician submits documentation to justify the ``very 
unusual'' travel as set forth in section 

[[Page 38414]]
15026 of the Medicare Carriers Manual. An example of such a 
circumstance could be when a beneficiary in a nursing facility is in 
immediate need of a diagnostic test and there is a problem, such as 
extreme obesity, with transporting the individual to a facility.

H. Maxillofacial Prosthetic Services

    At present, payment amounts for the maxillofacial prosthetic 
services (CPT codes 21079 through 21087 and HCPCS codes G0020 and 
G0021) are determined by individual Medicare carriers. We propose to 
eliminate the carrier-priced status and establish RVUs for these codes 
effective for services performed on or after January 1, 1996. We 
propose to determine fee schedule payment amounts based on the RVUs 
shown in the table below.

                       Proposed Relative Value Units For Maxillofacial Prosthesis Services                      
----------------------------------------------------------------------------------------------------------------
                                                                             Proposed   Proposed PE  Proposed ME
    CPT code                            Description                         work RVUs       RVUs         RVUs   
----------------------------------------------------------------------------------------------------------------
21079...........  Impression and custom preparation; interim obturator           20.88        27.93         2.25
                   prosthesis.                                                                                  
21080...........  Impression and custom preparation; definitive obturator        23.46        31.38         2.52
                   prosthesis.                                                                                  
21081...........  Impression and custom preparation; mandibular resection        21.38        28.59         2.30
                   prosthesis.                                                                                  
21082...........  Impression and custom preparation; palatal augmentation        19.50        26.08         2.10
                   prosthesis.                                                                                  
21083...........  Impression and custom preparation; palatal lift                18.04        24.13         1.94
                   prosthesis.                                                                                  
21084...........  Impression and custom preparation; speech aid                  21.04        28.14         2.28
                   prosthesis.                                                                                  
21085...........  Impression and custom preparation; oral surgical splint         8.41        11.25         0.90
21086...........  Impression and custom preparation; auricular prosthesis        23.29        31.15         2.51
21087...........  Impression and custom preparation; nasal prosthesis....        23.29        31.15         2.51
G0020...........  Impression and custom preparation; surgical obturator          12.54        16.77         1.35
                   prosthesis.                                                                                  
G0021...........  Impression and custom preparation; orbital prosthesis..        31.54        42.18         3.39
----------------------------------------------------------------------------------------------------------------

    The work RVUs that we propose were developed by the American 
Academy of Maxillofacial Prosthetics. We believe they appropriately 
represent the work involved in these procedures. Because the CPT codes 
were new in 1991 and the Level 2 HCPCS codes are new in 1995, we have 
little or no charge data on which to base PE and ME RVUs in accordance 
with section 1848(c)(2)(C) of the Act. Therefore, we have imputed the 
PE and ME RVUs from the work RVUs based on the practice cost shares 
provided by the American Association of Oral and Maxillofacial 
Surgeons. Those shares are 54.7 percent for PE and 4.4 percent for ME.
    We would establish a 90-day global period for these services with 
the exception of CPT code 21085 and HCPCS code G0020, which we believe 
require only a 10-day global period. (Under a global period, a single 
fee is billed and paid for all necessary services normally furnished by 
the surgeon before, during, and after the procedure within the time 
period assigned to the service.)
    CPT codes 21079 through 21087 and HCPCS codes G0020 and G0021 
should be used only if the physician actually designs and prepares the 
prosthesis. If the physician has designed and prepared the prosthesis 
and bills a CPT code in the range of 21079 through 21087 and HCPCS 
codes G0020 and G0021, we will not pay the physician separately for the 
prosthesis. We consider the cost of the materials used in preparing the 
prosthesis to be included in the PE portion of the codes.
    HCPCS codes L8610 through L8618 identify prostheses that are 
prepared by an outside laboratory. Payment for HCPCS codes L8610 
through L8618 is not made under the physician fee schedule. Payment is 
made on an individual consideration basis.
    CPT codes 21079 through 21087 and HCPCS codes G0020 and G0021 are 
on the list of codes subject to the site-of-service payment 
differential since they are predominantly office-based services.
    While we welcome any written public comments, we have found from 
past experience that the most useful comments have followed a 
particular pattern. They include the CPT code, a clinical description 
of the service, and a discussion of the work of that service.
    Physician work has two components: time and intensity. The clinical 
analogy for many services can be strengthened by dividing the service 
into the following three time segments:
     Preservice work--Work performed before the actual 
procedure such as review of records, solicitation of informed consent, 
and preparation of equipment. Time spent by the physician dressing, 
scrubbing, and waiting for the patient should be identified. Preservice 
work also includes the time spent scrubbing, positioning, or otherwise 
preparing the patient. For surgical procedures with global periods, 
commenters should include estimates of the number, time, and type of 
visits from the day before surgery until the time the patient enters 
the operating room. The visit when the physician decides to operate and 
the visits preceding it should not be included in the estimate of 
preservice work since these services are not included in the Medicare 
definition of global period.
     Intraservice work--The actual performance of the 
procedure. For evaluation and management services, this would be 
described as ``face-to-face'' time in the office setting and ``unit/
floor'' time in the inpatient setting. For surgical procedures, the 
customary term would be ``skin-to-skin'' time or its equivalent for 
those procedures not beginning with incisions.
     Postservice work--Analysis of data collected from the 
encounter, preparation of a report, and communication of the results. 
For procedures with global periods, commenters should identify the time 
spent by the physician with the patient after the procedure on the same 
day and whether the patient typically goes home, to an ordinary 
hospital bed, or goes to the intensive care unit. Commenters should 
describe the number, time, and type of physician visits from the day 
after the procedure until the end of the global period.
    They should also distinguish inpatient from outpatient visits.
    We encourage commenters, in making these estimations, to provide 
detailed clinical information such as data derived from operating logs, 
operative reports, and medical charts concerning the length of service, 
the amount of work performed before and after the service, and the 
length of stay in the hospital. The usefulness of these data is greatly 
increased if the data are presented with comparable data for reference 
services and evidence that justifies that the data presented are 
nationally representative of the average work involved in furnishing 
the service. We often receive data that are not helpful to us because 
the data are not representative of national practices. In 

[[Page 38415]]
addition, some commenters have presented a lengthy and elaborate 
description of the work in the service, but omitted, or provided an 
incomplete description of, the comparability of the work in the service 
to the work in a reference procedure or procedures identified.
    Intensity of the work in the service is best compared by breaking 
the intensity into the following elements:
     Mental effort and judgment--Commenters should compare the 
service in question with a reference service as to the amount of 
clinical data that needs to be considered, the depth of knowledge 
required, the range of possible decisions, the number of factors 
considered in making a decision, and the degree of complexity of the 
interaction of these factors.
     Technical skill and physical effort--One useful measure of 
skill is the point in training when a resident is expected to be able 
to perform the procedure. Physical effort can be compared by dividing 
services into tasks and making the direct comparison of tasks. In 
making the comparison, it is necessary to show that the differences in 
physician effort are not reflected accurately by differences in the 
time involved; if they are, considerations of physician effort amount 
to double counting of physician work in the service.
     Psychological stress--Two kinds of psychological stress 
are usually associated with physician work. The first is the pressure 
involved when the outcome is heavily dependent upon skill and judgment 
and a mistake has serious consequences. The second is related to 
unpleasant conditions connected with the work that are not affected by 
skill or judgment. These circumstances would include situations with 
high rates of mortality or morbidity regardless of the physician's 
skill or judgment, difficult patients or families, or physician 
physical discomfort. Of the two forms of stress, only the former is 
fully accepted as an aspect of work; many consider the latter to be a 
highly variable function of physician personality.
    Intensity often varies significantly in the course of furnishing a 
service. Sometimes commenters ``anchor'' the value of the service to a 
point of maximum intensity during the service as the basis for 
comparing services. It is unlikely that the maximum intensity is an 
accurate reflection of the average intensity of a service; a lengthy 
procedure that is simple except for a few moments of extreme intensity 
is probably less work than one of equal length during which a fairly 
high level of intensity is maintained throughout.
    This proposal reflects a policy change that is not explicitly 
addressed in our regulations.

I. Coverage of Mammography Services

    In the December 31, 1990 interim final rule (55 FR 53510) and the 
September 30, 1994 final rule (59 FR 49808), we based our present 
definitions of ``diagnostic'' and ``screening'' mammography and related 
provisions on advice from the Food and Drug Administration (FDA), the 
National Cancer Institute (NCI), our own medical consultants, and other 
components of HHS.
    These definitions are important because of the impact they can have 
on how frequently mammograms are covered under the Medicare program. 
The Medicare law and current regulations limit the frequency of 
coverage for ``screening'' mammography services according to the 
patient's age and for women over age 39 but under age 50 based on 
whether she is considered at high risk of developing breast cancer. On 
the other hand, coverage of ``diagnostic'' mammography is not 
restricted by specific statutory frequency limitations but depends on 
whether the examination has been (1) ordered by the patient's 
physician, and (2) is determined by the local Medicare contractor to be 
medically necessary for the patient.
    In response to inquiries from beneficiaries, practicing physicians, 
and others in the medical community, we have reexamined our definitions 
of ``diagnostic'' and ``screening'' mammography in Sec. 410.34 
(Mammography services: Conditions for and limitations on coverage''). 
In addition, we have consulted further with FDA, NCI, and a Medicare 
Carrier Medical Director workgroup regarding the appropriateness of the 
definitions. We have also reexamined the current definitions in view of 
our previous Medicare policy on diagnostic mammograms as described in 
section 50-21 of the Coverage Issues Manual (HCFA Pub. 6) that permits 
coverage for diagnostic mammograms for patients with a personal history 
of breast cancer and certain other patients, even though they are not 
symptomatic (that is, they do not have any signs or symptoms of a 
medical problem with their breasts).
    Based on our reexamination of this issue, we propose to revise the 
definitions of ``diagnostic'' and ``screening'' mammography in 
Sec. 410.34 to make them consistent with previous Medicare coverage 
policy regarding ``diagnostic'' mammography, and with the way these 
terms are used in general clinical practice in the United States.
    Some clinicians and mammography experts consider patients with a 
personal history of breast disease, such as breast cancer and chronic 
fibrocystic disease, to be candidates for diagnostic mammography for a 
period following treatment of the disease and then candidates for 
screening mammography thereafter. However, most clinicians and 
mammography experts in the United States consider patients with a 
personal history of breast disease to be candidates for diagnostic 
mammography for the rest of their lives, following the onset of their 
disease and its treatment.
    In view of the above information, we propose to expand the 
definition of ``diagnostic'' mammography to include patients with a 
personal history of breast disease; however, we propose to leave the 
definition of ``screening'' mammography unchanged so that patients with 
a personal history of breast cancer can be considered candidates for 
the ``screening'' examination, if the patients and their physicians 
decide that this is appropriate.
    We propose that the present definition of ``diagnostic'' 
mammography in paragraph (a)(1) of Sec. 410.34 be expanded to include 
also, as a candidate for this service, a patient who does not have 
signs or symptoms of breast disease but who has a personal history of 
biopsy-proven breast disease.
    The present regulations include as candidates for ``screening'' 
mammography all asymptomatic women regardless of whether they have had 
a personal history of biopsy-proven breast disease. We propose to leave 
unchanged the substance of the present definition of ``screening'' 
mammography in paragraph (a)(2) of Sec. 410.34 but clarify it to read 
as follows: ``Screening mammography means a radiological procedure 
furnished to a woman without signs or symptoms of breast disease, for 
the purpose of early detection of breast cancer, and includes a 
physician's interpretation of the results of the procedure.'' This 
might include an asymptomatic woman (that is, a woman without signs or 
symptoms of breast disease) with a history of biopsy-proven breast 
disease who might otherwise qualify for a diagnostic mammography as 
defined in the current Sec. 410.34(a)(1). The woman and her physician 
would determine which examination to request (that is, either a 
diagnostic or a screening mammography). Although a history of biopsy-
proven breast disease would ordinarily require recurrent diagnostic 
examinations, in some cases, when the 

[[Page 38416]]
breast disease is no longer present, screening mammography might be 
appropriate.
    We also propose that certain minor and technical changes be made in 
the limitations on coverage of screening mammography services to make 
them consistent with the proposed revisions to the definitions in 
``diagnostic'' and ``screening'' mammography in Sec. 410.34(a)(1) and 
(a)(2), respectively, and to simplify the language in Sec. 410.34(d)(1) 
regarding the postmastectomy patient.

J. Use of Category-Specific Volume and Intensity (VI) Growth Allowances 
in Calculating the Default Medicare Volume Performance Standard (MVPS)

    Currently, the default formula uses an estimate of the average 
annual percentage growth in the VI of physician services that is the 
same for all categories of physician services. Although historically 
the data available to us allowed an accurate estimate of the overall 
growth in the VI of physician services, they did not allow us to 
estimate the VI growth for each individual category of service with the 
degree of accuracy required for the MVPS calculation. More recent data 
now allow us to do this. We propose to calculate the MVPS for FY 1996 
and all future years based on estimates of the average VI growth 
specific to each category. This would be consistent with our use of 
category-specific estimates of the MVPS factors for the weighted-
average increase in physician fees and the percentage change in 
expenditures resulting from changes in law or regulations. The effect 
this proposal would have on a future MVPS for a category depends on the 
difference between the VI growth for that category and for physician 
services overall. To illustrate, the following table compares the 
estimated FY 1996 VI allowance for each category based on the overall 
average and the category-specific average:

------------------------------------------------------------------------
                                                   Overall              
                                                   average    Category- 
                                                      VI       specific 
                                                  (percent)  VI(percent)
------------------------------------------------------------------------
Surgical Services...............................       4.4         2.3  
Primary Care Services...........................       4.4         5.3  
Nonsurgical Services............................       4.4         5.1  
All Physician Services..........................       4.4         4.4  
------------------------------------------------------------------------

    As can be seen from the table, the FY 1996 MVPS VI allowance for 
primary care is higher using the category-specific VI factor than using 
the single VI factor. This is because the average VI growth for primary 
care services has been higher than the average VI growth for all 
physician services. Although for FY 1996 this change in methodology 
would result in a higher primary care MVPS, this does not necessarily 
mean it would have a similar result in future years. The impact on any 
individual category is dependent on the future relationship between the 
average VI growth for that category and for physician services overall. 
If future growth in the VI of primary care services is lower than 
overall physician growth, this change would result in a lower MVPS for 
primary care services. Similar reasoning applies to the surgical and 
other nonsurgical categories. This proposal reflects a policy change 
that is not explicitly addressed in our regulations.
    Although we are proposing this regulatory change now to address 
immediate problems in the fee schedule, it is our intention to move 
toward the development of a legislative proposal to implement a single 
MVPS and CF for all Medicare physician fee schedule services. Because 
of past differential updates, the surgical CF is currently 8 percent 
and 14 percent higher than the CFs for primary care and other 
nonsurgical services, respectively. We are concerned that this 
situation clearly undermines the original intent of the Medicare 
physician fee schedule.

III. Issue for Change in Calendar Year (CY) 1998--Two Anesthesia 
Providers Involved in One Procedure

    The certified registered nurse anesthetist (CRNA) fee schedule 
regulations provide that if an anesthesiologist and a CRNA are both 
involved in a single procedure, we deem the service to be personally 
performed by the anesthesiologist and allow payment only for the 
physician service.
    Approximately equal percentages of CRNAs are employed by physicians 
and hospitals. When the physician employs the CRNA, payment for both 
the CRNA's and the physician's service go into the same practice 
revenue pool that is used to pay both providers. Our policy described 
above does not create any problems for this type of arrangement, since 
the practice views itself as being paid for the service. However, if 
the hospital employs the CRNA and the physician is involved with this 
CRNA in a single procedure, then only the physician is paid. The 
hospital is not paid under the Medicare program for the CRNA service.
    Although we have not received many complaints from hospitals about 
this policy, the CRNAs have stated that our policy causes hospitals to 
lower CRNA salaries. While the CRNAs have not been able to produce 
information on the extent of this practice, they believe that this type 
of arrangement is not unusual.
    The CRNAs also have expressed concern that the CRNA is the person 
furnishing the service to the patient. The anesthesiologist is present 
in the room usually because the hospital has an operating policy that 
the CRNA service always be supervised or directed.
    Currently our medical direction rules apply only to concurrent 
procedures (that is, two, three or four) directed by a physician. We 
have not applied these rules to a single procedure. The application of 
the medical direction payment policy to a single procedure would have 
resulted in increased program payment, approximately 30 percent greater 
than the current policy. Thus, part of our concern for not extending 
the medical direction payment policy to a single procedure has been the 
additional cost to the Medicare program.
    Section 13516 of OBRA '93 established a new payment methodology for 
both the physician's medical direction service and the medically 
directed CRNA service. For 1994, the allowance for each of these 
services is equal to 60 percent of the allowance that would be 
recognized for the procedure personally performed by the physician 
alone. These percentages are reduced each year so that in 1998, the 
allowance for each service is equal to 50 percent of the allowance that 
would be recognized for the procedure personally performed by the 
physician alone. The objective is that in 1998, the allowance for 
anesthesia care in a given area will be the same whether the care is 
furnished by the physician alone, a nonmedically directed CRNA, or the 
anesthesia care team.
    As a result of the revised payment methodology for the anesthesia 
care team, we propose to apply the medical direction payment policy to 
the single procedure involving both the physician and the CRNA. Thus, 
in Sec. 414.46 we propose to revise paragraphs (c) and (d) to state 
that in this situation the allowance for the medical direction 50 
service of the physician and the medically directed service of the CRNA 
or the anesthesiologist assistant is based on the specified percentage 
of the allowance in Sec. 416.40(d)(2). In addition, we propose that in 
1998 and later years, this allowance is equal to 50 percent of the 
allowance for personally performed procedures.
    We propose to implement this policy on January 1, 1998. At that 
time, the change in policy will be done in a budget-neutral manner. If 
we were to 

[[Page 38417]]
implement this policy earlier, the policy would cause program payments 
to increase relative to the current policy.

IV. Issues for Discussion

A. Resource-Based Practice Expense (PE) Relative Value Units (RVUs)

    With the exception of anesthesia services, physician services and 
other diagnostic services paid under the physician fee schedule have PE 
and ME RVUs. Payments for PE RVUs account for approximately 42 percent 
of physician fee schedule payments.
    The PE RVUs are derived from historical allowed charge data. The 
common criticism is that the PE RVUs are not truly resource-based 
because they are not based on resource costs.
    Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 
103-432), enacted on October 31, 1994, requires the Secretary to 
develop a methodology for a resource-based system for determining PE 
RVUs for each physician service. In developing the methodology, the 
Secretary must consider the staff, equipment, and supplies used in the 
provision of medical and surgical services in various settings. The 
Secretary must report to the Congress on the methodology by June 30, 
1996. The new payment methodology is effective for services furnished 
in 1998. There is no transition provision for these services.
    To implement this statutory provision, we published a Request for 
Proposal (RFP) in the Commerce Daily in November 1994. Offerors were 
required to respond by January 17, 1995.
    The objective of the RFP is to develop a uniform database that can 
be used to support a number of analytical methods (for example, 
microcosting or economic cost functions) to estimate PE per service. 
The contractor will provide us with both direct and indirect PE 
estimates for all services paid under the physician fee schedule. 
Further, we expect that these estimates will vary based on the site 
where the service is furnished. For example, the PE for a physician 
service furnished in the hospital outpatient department will differ 
from the PE for the same service furnished in the physician's office. 
The physician does not ordinarily incur the costs of clinical labor, 
medical supplies, or equipment associated with services in the hospital 
outpatient department.
    The contractor will be responsible for identifying candidates for a 
technical expert group (TEG) who will assist with the development of 
data collection instruments to obtain PEs (both direct and indirect) 
and resource profiles. Resource profiles will be used to measure the 
quantities of inputs, such as clinical labor, equipment, and supplies 
used in producing specific services. The group of experts can be 
researchers and others who have published articles in this area or are 
members of the medical community, including clinical personnel, 
nonclinical personnel, and practice managers.
    The TEG can have as many as 20 participants. We will make the final 
selection of participants in the TEG. The TEG will assume an active 
role in the process. It will be responsible for monitoring the entire 
project up to the point of delivery of data for analysis.
    The contractor, with our assistance, will select clinical practice 
expert panels (CPEPs). The contractor will address the following issues 
in selecting the CPEPs:
     The choice and grouping of participating specialties.
     The mix of physicians, other clinicians, and practice 
managers.
     The number of panels.
     The grouping of codes and specialties in panels.
     The overlap of panels.
     Techniques for resolving disagreements across panels.
    The actual number of panels and the size of the panels will be 
determined by the contractor and us. We expect that there will be fewer 
than 15 panels and the size of a panel will vary but will not exceed 12 
persons.
    The primary tasks of the CPEPs will be twofold. The first task will 
be to classify services and procedures into clinical and practice cost 
coherent groups. The common groups will be based on the direct cost of 
the procedure. The second task will be to select a reference procedure 
for each common grouping of codes. The CPEPs will complete a detailed 
resource profile for each reference procedure for the different 
practice sites. These profiles will consider only items that are 
direct-costed.
    After the resource profiles are completed, the contractor will 
assign input prices to the resource inputs. This will produce a direct 
cost estimate for each reference procedure. In addition, the contractor 
will extrapolate the direct cost estimates for the reference procedure 
to other codes included in the same group, based on the relationship 
that the CPEP has established between the reference code and the other 
codes in the same group.
    In addition to the procedure-specific profiles, the following kinds 
of data will be collected:
     Cost information from physician practices categorized by 
direct and indirect costs.
     Profiles of services from physician practices by place of 
service.
     Input price (including wage) information.
    The first two kinds of information will be collected primarily by 
mail or by telephone survey from approximately 3,000 respondents. The 
contractor will gather the input price information from standard 
representative national data sources. Also, the contractor will be 
responsible for designing, organizing, and assembling the results into 
a documented database for access and use by multiple researchers.
    The contractor will be responsible for generating PE estimates 
(both direct and indirect) for all CPT codes including radiology and 
anesthesia codes as well as the technical component and diagnostic 
testing codes that are paid under the physician fee schedule.
    There are a number of methods by which the contractor could derive 
indirect cost estimates per code. Approaches include economic cost 
functions or accounting-based methods, whereby indirect costs are 
allocated based on factors, such as direct expense, physician work, or 
time. Regardless of which option is proposed, direct and indirect PE 
cost estimates will be presented for each code.
    We awarded the contract to Abt Associates on March 31, 1995. The 
principal investigator is Monica Noether, Ph.D. In addition to Abt, the 
project team consists of the following:
     Consulting services furnished by Mark Pauly, Ph.D., and 
Gerald Wedig, Ph.D., economists at the University of Pennsylvania; and 
William Katz, D.B.A., a health care management consultant.
     The subcontractors are EnterMedica Resources, a management 
consulting firm that has conducted microcosting studies of physician 
practices in a variety of settings; and the Center for Research in 
Ambulatory Health Care Administration, the research arm of the Medical 
Group Management Association.
     The clinical consultants are Drs. Sankey Williams and Jose 
Escarce, practicing primary care physicians and health service 
researchers at the University of Pennsylvania.
    The RFP includes the schedule for the completion of certain key 
activities. For example, the data collection and delivery must be 
completed by March 1996, and the report on analysis must be finished by 
September 1996. We expect to publish the proposed rule in the Federal 
Register in March 1997 and the final rule in November 1997. We will 

[[Page 38418]]
implement the resource-based PE RVUs beginning January 1, 1998.
    This discussion of our efforts to implement the requirement in the 
statute to develop a resource-based relative value scale for PEs is not 
a formal proposal. We are notifying the physician community and others 
about our progress to date and are providing other helpful information 
about the effort.

B. Primary Care Case Management and Other Managed Care Approaches

    We are considering approaches to increasing managed care options 
under Medicare. One approach could be to apply primary care case 
management methods currently used by private payers and Medicaid 
programs to the Medicare fee-for-service system. There are many 
interpretations of primary care case management. The CPT defines case 
management as ``a process in which a physician is responsible for 
direct care of a patient, and for coordinating and controlling access 
to or initiating and/or supervising other health care services needed 
by the patient.'' The State of Maryland operates a primary care case 
management system known as Maryland Access to Care (MAC). Under the MAC 
program, Medicaid recipients are linked to a primary medical provider 
(PMP). Each PMP acts as a ``gatekeeper'' to the health care system, 
furnishing primary care and preventive services and making referrals to 
specialty care when necessary. Permutations of the gatekeeper approach 
are being used in many managed care arrangements. Under the physician 
fee schedule, we could construct fee arrangements with primary care 
physicians that would promote greater use of case management. We also 
are considering whether to undertake demonstrations of primary care 
case management that involve beneficiary enrollment or election and 
different approaches for a primary care option. We welcome comments on 
a possible framework for a Medicare primary care case management option 
either under current regulations or through a demonstration project.
    We are already exploring case management options through several 
Medicare demonstration and developmental efforts that are underway. One 
demonstration is a voluntary program of Medicare case management for 
targeted high-cost illnesses such as congestive heart failure and 
cancer. The case management services consist of regular telephone calls 
to provide education and monitor treatment, assistance in arranging 
support services, caregiver support, and occasional in-person visits. 
These services are furnished by teams of nurses and social workers who 
coordinate their efforts with the beneficiary's physician. This 
demonstration tests whether the case management service will reduce the 
cost and aggravation incurred when patients with specific conditions 
are unnecessarily rehospitalized or must revisit a physician.
    Other projects involve a new method for paying physicians that 
provides incentives for effective management of care to beneficiaries. 
Physician groups will be paid either on a capitated basis or incentive 
through payment for specified bundles of services associated with the 
treatment of chronic conditions and acute episodes of care.
    The intent of these new payment arrangements is to transfer 
financial risk to the physician groups, thereby finding efficient ways 
to provide care and increasing incentives to the physician groups to 
contain costs. Five payment models will be evaluated that range from a 
model of full capitation that transfers the financial risk to the 
physician group furnishing all Medicare-covered services to models that 
reduce the amount of risk transferred to the group and limit the 
requirement for an enrolled population.
    These approaches represent a sample of available options. We are 
not prepared to make a specific proposal now. Rather, our intent at 
this time is to solicit information, recommendations, and suggestions 
from the public on how we might apply primary care case management to 
the Medicare fee-for-service system. We are particularly interested in 
the following:
     Which physicians, providers, or other health care 
professionals should be designated as case managers?
     Which types of patients would benefit from case 
management?
     What evidence is there that case management is valuable to 
patients other than those with chronic illness or acute episodes?
     Should Medicare pay for case management services and how 
should they be paid?

V. Collection of Information Requirements

    Sections 415.60(f)(1) (concerning determination and payment of 
allowable physician compensation costs), 415.60(g) (concerning 
recordkeeping requirements for allocation of physician compensation 
costs), and 415.70(e) (concerning limits on compensation for services 
of physicians in providers) of this document contain information 
collection requirements. The information collection requirements in 
Sec. 415.60(f)(1) concern the amounts of time the physician spends in 
furnishing physician services to the provider, physician services to 
patients, and services that are not paid under either Part A or Part B 
of Medicare; and assurance that the compensation is reasonable in terms 
of the time devoted to these services. The information collection 
requirements in Sec. 415.60(g) concern time records used to allocate 
physician compensation, information on which the physician compensation 
allocation is based, and retention of this information for a 4-year 
period after the end of each cost reporting period to which the 
allocation applies. The information collection requirements in 
Sec. 415.70(e) concern an exception to the limits on compensation for 
services of physicians in providers if the provider can demonstrate to 
the intermediary that it is unable to recruit or maintain an adequate 
number of physicians at a compensation level within these limits. 
Respondents who will provide the information include providers, 
intermediaries, and physicians.
    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 preamble.

VI. 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, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

VII. Regulatory Impact Analysis

A. Regulatory Flexibility Act

    Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), we prepare a regulatory flexibility analysis unless the 
Secretary certifies that a rule would not have a significant economic 
impact on a substantial number of small entities. For purposes of the 
RFA, all physicians are considered to be small entities.
    This proposed rule would not have a significant economic impact on 
a substantial number of small entities. Nevertheless, we are preparing 
a regulatory flexibility analysis because the provisions of this rule 
are expected 

[[Page 38419]]
to have varying effects on the distribution of Medicare physician 
payments and services. We anticipate that virtually all of the 
approximately 500,000 physicians who furnish covered services to 
Medicare beneficiaries would be affected by one or more provisions of 
this rule. In addition, physicians who are paid by private insurers for 
non-Medicare services would be affected to the extent that they are 
paid by private insurers that choose to use the proposed RVUs. However, 
with few exceptions, we expect that the impact would be limited.
    If these proposals result in increases in Medicare payment amounts, 
beneficiary liability would also increase because the coinsurance 
amounts would increase. In addition, if nonparticipating physicians do 
not accept assignment, the amount that they may bill above the fee 
schedule amount would also increase because the limiting charge for the 
service would increase. If a proposal results in a decrease in Medicare 
payment amounts or the bundling of payment for one service into payment 
for another, beneficiary liability would decrease.
    Section 1848(c)(2)(B) of the Act requires that adjustments in a 
year may not cause the amount of expenditures for the year to differ by 
more than $20 million from the amount of expenditures that would have 
been made if these adjustments had not been made. If this threshold is 
exceeded, we usually make adjustments to the RVUs in order to preserve 
budget neutrality. The proposals discussed in sections B through K 
below would have no impact on total Medicare expenditures because the 
effects of these changes would be neutralized in the establishment of 
RVUs for 1996.
    In accordance with the provisions of Executive Order 12866, this 
proposed rule was reviewed by the Office of Management and Budget.

B. Budget-Neutrality Adjustments for Relative Value Units

    Under this proposal, budget neutrality adjustments would be applied 
to the fee schedule CFs instead of procedure RVUs. This alternative 
approach would be administratively simpler for Medicare and other 
payers that base their payments on the Medicare RVUs, including many 
Medicaid programs and would facilitate policy and data analyses of 
RVUs. Any changes to procedure payment amounts or total payment would 
be due to rounding and would be minimal.
    We do not expect any objection to this proposal because we are 
responding to requests by the AMA, private payers, and Medicaid 
programs that base payment on Medicare RVUs.

C. Bundled Services

1. Hydration Therapy and Chemotherapy
    Presently, we allow separate payment for hydration therapy IV 
infusion (CPT codes 90780 and 90781) when it is performed on the same 
day as chemotherapy IV infusion (CPT codes 96410, 96412, and 96414). 
The Medicare charge data show that in 1994, CPT codes 90780 and 90781 
(hydration therapy IV infusion) were billed in addition to chemotherapy 
IV infusion only 9.3 percent and 4 percent of the time, respectively, 
and accounted for $8.5 million in Medicare expenditures.
    We believe that paying for hydration therapy IV infusion and 
chemotherapy IV infusion administered on the same day represents 
duplicate payment. Therefore we propose not paying separately for CPT 
codes 90780 and 90781 when billed on the same day as CPT codes 96410, 
96412, and 96414. We propose implementing this proposal in a budget 
neutral manner by redistributing the payment for hydration therapy IV 
infusion performed on the same day as chemotherapy IV infusion across 
all RVUs.
2. Evaluation of Psychiatric Records and Reports and Family Counseling 
Services
    We propose to bundle payment for CPT codes 90825 and 90887 into the 
payment for other psychiatric codes. Thus, separate payment would no 
longer be made for either CPT code 90825 or CPT code 90887. The annual 
expenditures for CPT code 90825 under our current policy are 
approximately $2.3 million. The current policy allowing separate 
payment for CPT code 90887 results in annual expenditures of 
approximately $2.5 million. We would implement this change in policy by 
redistributing the payment for CPT codes 90825 and 90887 equally into 
the following psychiatric procedure codes: 90801, 90820, 90835, 90842 
through 90847, and 90853 through 90857. We estimate that this change 
would increase the RVUs for the latter codes by approximately 0.7 
percent.
3. Fitting of Spectacles
    We propose to cease making separate payment under the physician fee 
schedule for fitting of spectacles and low vision systems, CPT codes 
92352 through 92358 and 92371, beginning January 1, 1996. We would 
redistribute the payment currently made for these codes across all 
physician services, which is what would have occurred had we not 
included these fees when the fee schedule was created. Payment for 
these services is already included in the payment for the prosthetic 
device.
    Because the total payment for spectacle fitting services is 
relatively low (approximately $3 million in CY 1993) compared to the 
total payment for all physician services, we believe the impact on RVUs 
for all physician services would be negligible.
    Virtually all of the providers who have been billing for the 
fitting as a professional service have been optometrists. Under this 
proposal, they would no longer be able to bill separately for this 
service. The effect on individual optometrists would depend upon the 
amount of their income derived from billing for fitting services.

D. X-Rays and Electrocardiograms (EKGs) Taken in the Emergency Room

    Under current policy, issued in 1981, the interpretation of an x-
ray or EKG furnished to an emergency room patient by a radiologist or 
cardiologist, respectively, ``almost always'' constitutes a covered 
Part B service payable by the carrier, regardless of whether the test 
results have been previously used in the diagnosis and treatment of the 
patient by a physician in the emergency room and regardless of when the 
specialist furnishes the interpretation. A study completed by the OIG 
of DHHS, dated July 1993, recommended that we change this policy to 
indicate that the second interpretation is generally a quality control 
service to be taken into account by intermediaries in determining 
hospital reasonable costs. Further, we understand that some carriers 
are currently paying both the emergency room physician and the 
radiologist or cardiologist for the interpretation of the same x-ray or 
EKG.
    We propose to pay for only one interpretation of an x-ray or EKG 
furnished to an ER patient except under unusual circumstances. In 
situations in which both the ER physician and the radiologist or 
cardiologist bill for the interpretation, the carriers would be 
instructed to pay for the interpretation used in the diagnosis and 
treatment of the patient. The second interpretation would be considered 
a quality control service. Under this proposal, the incidence of 
carriers' paying twice for an interpretation would be reduced, but we 
have no estimate of the number of duplicate payments that would be 
eliminated. We believe the specialists would be affected primarily. If 
hospitals want to ensure that their specialists are paid for these 
interpretations, they could make arrangements to preclude 

[[Page 38420]]
the ER physician from billing for the same service.
E. Extension of Site-of-Service Payment Differential to Services in 
Ambulatory Surgical Centers (ASCs)

    We propose to extend the site-of-service payment differential to 
office-based services if those services are furnished in an ASC, 
effective for services furnished beginning January 1, 1996. We propose 
adding 152 codes to the list. Were it not for budget-neutrality 
adjustments, we estimate that these additions would result in a $25.7 
million reduction in Medicare payments.

F. Services of Teaching Physicians

    This proposed change would remove the single attending physician 
criteria for hospital patients and allow and promote supervision of the 
care by physician group practices. We believe allowing for more than 
one teaching physician per beneficiary inpatient stay would result in 
negligible additional cost, but the lack of any data prevents us from 
quantifying the effects of this change. In addition, this proposed rule 
would incorporate long-standing Medicare coverage and payment policy 
regarding the circumstances under which the services of residents are 
payable as physician services.
    We propose to require the physical presence of a teaching physician 
during the key portion of the service. Details regarding the physical 
presence of a teaching physician during different types of services and 
procedures are discussed in section II. F. of this preamble. Although 
we lack specific data, we believe that the provisions of this part of 
the proposed rule would have little budgetary effect.

G. Unspecified Physical and Occupational Therapy Services (HCPCS Codes 
M0005 through M0008 and H5300)

    We propose to eliminate HCPCS codes M0005 through M0008 and H5300 
and redistribute the RVUs to codes in the physical medicine and 
rehabilitation section of the CPT (codes 97010 through 97039). The 
codes we propose to delete are general codes that do not describe 
adequately the service being provided. Their use precludes effective 
review necessary to ensure that the services being paid are covered by 
Medicare. In 1995, the AMA revised the CPT codes in the Physical 
Medicine and Rehabilitation section of the CPT to better reflect the 
provision of physical and occupational therapy services.
    We believe that each unit of service currently billed under the 
codes we propose to delete would be billed under a CPT or HCPCS code 
and that the total amount of Medicare payment for physical medicine 
services would not change significantly as a result of the elimination 
of these codes. Therefore, we are assuming that there would not be any 
additional costs or savings as a result of this proposed change in 
billing. Since the original codes were not descriptive, we would have 
no way of comparing payments. However, we believe we would eliminate 
any manipulation of payment and improve the data we collect by 
requiring these practitioners to use the more specific codes when 
billing for services.

H. Transportation in Connection With Furnishing Diagnostic Tests

    Except for portable x-ray and EKG equipment, this proposed rule 
would no longer authorize payments for the transportation of diagnostic 
equipment to the patient or to a site, such as a physician office, for 
use in furnishing tests to Medicare beneficiaries. The transportation 
expense is ``bundled'' into the payment for the procedure. Individual 
carrier policies on making transportation payments vary. This proposed 
rule would establish a national Medicare policy on payments for the 
transportation of diagnostic test equipment. The little data we have 
indicate that the transportation payment is often several times higher 
than the payment we make for the specific procedure furnished.

I. Maxillofacial Prosthetic Services

    We propose to establish national RVUs for these services and to 
discontinue pricing by individual carriers. We estimate that total 
estimated expenditures for CPT codes 21079 through 21087 and codes 
G0020 and G0021 based on the proposed RVUs will be approximately $2.4 
million in CY 1996. The 1994 Medicare expenditures for the codes under 
the carrier pricing methodology were approximately $1.5 million which, 
if updated for 1995 would be approximately $1.6 million. Thus, we 
estimate an increase of approximately $800,000 for these codes. 
However, total expenditures for physician services would not increase 
as a result of this proposal because we would implement this change in 
a budget neutral manner in accordance with section 1848(c)(2)(B)(II) of 
the Act.
    These services are furnished most frequently by oral surgeons 
(dentists only) and by maxillofacial surgeons. Because the total 
expenditures for these services are estimated to increase slightly, we 
expect that in general the physicians who perform and bill for these 
procedures will realize an increase in payment. However, in some areas, 
the payment amounts based on national RVUs may be lower than those 
calculated by the local carrier.

J. Coverage of Mammography Services

    We propose to expand the definition of ``diagnostic'' mammography 
to include as candidates for this service asymptomatic men or women who 
have had a personal history of biopsy-proven breast disease. At 
present, the definition includes as candidates for mammography services 
only persons showing signs or symptoms of breast disease. We do not 
believe this change will result in a significant increase in the total 
number of mammography services because information from carriers 
indicates that most asymptomatic patients with a personal history of 
breast disease are already receiving diagnostic mammography services.

K. Use of Category-Specific Volume and Intensity (VI) Growth Allowances 
in Calculating the Default Medicare Volume Performance Standard (MVPS)

    The use of category-specific VI in the MVPS default formula would 
be budget neutral overall, although it would have redistributional 
effects on the surgical, primary care, and nonsurgical categories.

L. Two Anesthesia Providers Involved in One Procedure

    We propose to apply the medical direction payment policy to the 
single procedure involving both the physician and the CRNA. We do not 
propose to implement this policy until January 1, 1998 at which time 
the proposal will be budget neutral. In 1998, the allowance for the 
medically-directed CRNA service and the medical-direction service of 
the anesthesiologist will be equivalent to 50 percent of the allowance 
recognized for the service personally performed by the anesthesiologist 
alone. Thus, payment for both services will be no different than what 
would be allowed for the anesthesia service personally performed by the 
anesthesiologist.
    Although this proposal is budget neutral, total payments to 
anesthesiologists will decrease slightly and payments to the CRNAs' 
employers will increase slightly. We cannot quantify the amount of the 
losses to the anesthesiologists or the gains to the CRNAs' employers. 
However, anesthesiologists can lessen their losses by actually 
personally performing as many of these cases as possible and receiving 
the same allowance they 

[[Page 38421]]
would have in the absence of this proposal.
M. Rural Hospital Impact Statement

    Section 1102(b) of the Act requires the Secretary to prepare a 
regulatory impact analysis if a rule 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 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    This proposed rule would have little direct effect on payments to 
rural hospitals since this rule would change only payments made to 
physicians and certain other practitioners under Part B of the Medicare 
program and would make no change in payments to hospitals under Part A. 
We do not believe the changes would have a major, indirect effect on 
rural hospitals.
    Therefore, we are not preparing an analysis for section 1102(b) of 
the Act since we have determined, and the Secretary certifies, that 
this rule would not have a significant impact on the operations of a 
substantial number of small rural hospitals.

List of Subjects

42 CFR Part 400

    Grant programs-health, Health facilities, Health maintenance 
organizations (HMO), Medicaid, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 405

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements, Rural areas, X-rays.

42 CFR Part 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Rural areas, X-rays.

42 CFR Part 411

    Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements, Rural areas, X-rays.

42 CFR Part 415

    Health facilities, Health professions, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 417

    Administrative practice and procedure, Grant programs-health, 
Health care, Health facilities, Health insurance, Health maintenance 
organizations (HMO), Loan programs-health, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.
    42 CFR chapter IV would be amended as set forth below:
    A. Part 400 is amended as set forth below:

PART 400--INTRODUCTION; DEFINITIONS

    1. The authority citation for part 400 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh) and 44 U.S.C. Chapter 35.

    2. In Sec. 400.202, the introductory text is republished and the 
definition of GME is added in alphabetical order to read as follows:


Sec. 400.202  Definitions specific to Medicare.

    As used in connection with the Medicare program, unless the context 
indicates otherwise--
* * * * *
    GME stands for graduate medical education.
* * * * *
    B. Part 405 is amended as set forth below:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

Subpart D--[Removed and Reserved]

    1. Subpart D, consisting of Secs. 405.465 through 405.482, is 
removed and reserved.
    2. Subpart E is amended as set forth below:
    a. The authority citation for subpart E is revised to read as 
follows:

    Authority: Secs. 1102, 1814(b), 1832, 1833(a), 1834(a) (b), and 
(c), 1842(b), (h), and (i), 1848, 1861(b), (s), (v), (aa), and (jj), 
1862(a)(14), 1866(a), 1871, 1881, 1886, 1887, and 1889 of the Social 
Security Act as amended (42 U.S.C. 1302, 1395f(b), 1395k, 1395l(a), 
1395m(a), (b), and (c), 1395u(b), (h), and (i), 1395w-4, 1395x(b), 
(s), (v), (aa), and (jj), 1395y(a)(14), 1395cc(a), 1395hh, 1395rr, 
1395ww, 1395xx, and 1395zz).

    b. The heading for subpart E is revised to read as follows:

Subpart E--Criteria for Determining Reasonable Charges

    c. Subpart E is amended by removing Secs. 405.520 through 405.525.

Subpart F--[Removed and Reserved]

    3. Subpart F, consisting of Secs. 405.550 through 405.580, is 
removed and reserved.
    4. Subpart X is amended as set forth below:

Subpart X--Rural Health Clinic and Federally Qualified Health 
Center Services

    a. The authority citation for subpart X continues to read as 
follows:

    Authority: Secs. 1102, 1833, 1861(aa), and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1395l, 1395x(aa), and 1395hh).

    b. In Sec. 405.2401, paragraph (b), the introductory text is 
republished, and the definition for physician is revised to read as 
follows:


Sec. 405.2401  Scope and definitions.

* * * * *
    (b) Definitions. As used in this subpart, unless the context 
indicates otherwise:
* * * * *
    Physician means the following:
    (1) A doctor of medicine or osteopathy legally authorized to 
practice medicine and surgery by the State in which the function is 
performed.
    (2) Within limitations as to the specific services furnished, a 
doctor of dentistry or dental or oral surgery, a doctor of optometry, a 
doctor of podiatry or surgical chiropody or a chiropractor. (See 
section 1861(r) of the Act for specific limitations.)
    (3) A resident (including residents as defined in Sec. 415.152 of 
this chapter who meet the requirements in Sec. 415.206(b) of this 
chapter for payment under the physician fee schedule).
* * * * *
    C. Part 410 is amended as set forth below:

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

    1. The authority citation for part 410 continues to read as 
follows:


[[Page 38422]]

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh) unless otherwise indicated.

    2. Section 410.34 is amended by republishing the introductory text 
to paragraph (a) and revising paragraphs (a)(1), (a)(2), and (d) to 
read as follows:


Sec. 410.34  Mammography services: Conditions for and limitations on 
coverage.

    (a) Definitions. As used in this section, the following definitions 
apply:
    (1) Diagnostic mammography means a radiologic procedure furnished 
to a man or woman with signs or symptoms of breast disease, or a 
personal history of biopsy-proven breast disease, and includes a 
physician's interpretation of the results of the procedure.
    (2) Screening mammography means a radiologic procedure furnished to 
a woman without signs or symptoms of breast disease, for the purpose of 
early detection of breast cancer, and includes a physician's 
interpretation of the results of the procedure.
* * * * *
    (d) Limitations on coverage of screening mammography services. The 
following limitations apply to coverage of screening mammography 
services as described in paragraph (a)(2) of this section:
    (1) The service must be, at a minimum a two-view exposure (that is, 
a cranio-caudal and a medial lateral oblique view) of each breast.
    (2) Payment may not be made for screening mammography performed on 
a woman under age 35.
    (3) Payment may be made for only 1 screening mammography performed 
on a woman over age 34, but under age 40.
    (4) For a woman over age 39, but under age 50, the following 
limitations apply:
    (i) Payment may be made for a screening mammography performed after 
at least 11 months have passed following the month in which the last 
screening mammography was performed if the woman has--
    (A) A personal history of breast cancer;
    (B) A personal history of biopsy-proven benign breast disease;
    (C) A mother, sister, or daughter who has had breast cancer; or
    (D) Not given birth before age 30.
    (ii) If the woman does not meet the conditions described in 
paragraph (d)(4)(i) of this section, payment may be made for a 
screening mammography performed after at least 23 months have passed 
following the month in which the last screening mammography was 
performed.
    (5) For a woman over age 49, but under age 65, payment may be made 
for a screening mammography performed after at least 11 months have 
passed following the month in which the last screening mammography was 
performed.
    (6) For a woman over age 64, payment may be made for a screening 
mammography performed after at least 23 months have passed following 
the month in which the last screening mammography was performed.
    D. Part 414 is amended as set forth below:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

    1. The authority citation for part 414 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. In Sec. 414.28, the introductory text is republished, and 
paragraph (b) is revised to read as follows:


Sec. 414.28  Conversion factors.

    HCFA establishes CFs in accordance with section 1848(d) of the Act.
* * * * *
    (b) Subsequent CFs. Beginning January 1, 1993, the CF for each year 
is equal to the CF for the previous year, adjusted in accordance with 
Sec. 414.30. Beginning January 1, 1996, the CF for each CY may be 
further adjusted so that adjustments to the fee schedule in accordance 
with section 1848(c)(2)(B)(ii) of the Act do not cause total 
expenditures under the fee schedule to differ by more than $20 million 
from the amount that would have been spent if these adjustments had not 
been made.


Sec. 414.32  [Amended]

    3. In Sec. 414.32, paragraph (d)(2) is removed, and paragraph 
(d)(3) is redesignated as paragraph (d)(2).


Sec. 414.46  [Amended]

    4. In Sec. 414.46, the following changes are made:
    a. The word ``procedure'' in paragraphs (c)(2) introductory text, 
(c)(2)(i), (d)(1) introductory text, and (g) is removed, and the word 
``service'' is added in its place. The word ``procedures'' in 
paragraphs (a)(1), (c)(1), (d)(1)(i), (d)(1)(ii), (d)(1)(iii), 
(d)(1)(iv), (d)(2)(i), (d)(2)(ii), (d)(2)(iii), (d)(2)(iv), (d)(2)(v), 
the heading of paragraph (e), and paragraphs (e) and (g) is removed, 
and the word ``services'' is added in its place.
    b. Paragraphs (c)(2)(ii) and (c)(2)(iii) are redesignated as 
paragraphs (c)(2)(iii) and (c)(2)(ii), respectively.
    c. Newly redesignated paragraph (c)(2)(ii) and paragraph (c)(3) are 
revised, a new paragraph (c)(4) is added, and the introductory text to 
paragraph (d) and paragraph (d)(2) are revised to read as follows:


Sec. 414.46  Additional rules for payment of anesthesia services.

* * * * *
    (c) Physician personally performs the anesthesia service.
* * * * *
    (2) * * *
    (ii) For services furnished before January 1, 1998, the physician 
is continuously involved in a single case involving a certified 
registered nurse anesthetist (CRNA), anesthesiologist assistant (AA), 
or student nurse anesthetist.
* * * * *
    (3) For services furnished before January 1, 1998, no payment is 
made under the CRNA fee schedule for the services of a CRNA or AA 
involved in a service described in paragraph (c)(2) of this section 
unless HCFA determines that it was medically necessary for both the 
physician and the CRNA or AA to be involved in the same case.
    (4) For services furnished on or after January 1, 1998, if a 
physician is continuously involved in a single service involving a CRNA 
or AA, the payment allowance for the service of the CRNA or the AA is 
determined on the basis of the payment methodology in paragraph (d)(2) 
of this section.
    (d) Physician medically directs concurrent anesthesia services. 
HCFA uses one of the following payment methodologies to determine the 
fee schedule amount for concurrent medically directed anesthesia 
services furnished by a physician during a specified CY.
* * * * *
    (2) Beginning CY 1994. Payment is based on a specified percentage 
of the payment allowance recognized for the anesthesia service 
personally performed by a physician alone. For services furnished on or 
after January 1, 1998, if a physician is continuously involved in a 
single service involving a CRNA, AA, or a student nurse anesthetist, 
the payment rules for medical direction in this paragraph apply. The 
following percentages apply for the years specified:
* * * * *
    5. In Sec. 414.60, paragraph (b) is revised, and paragraph (c) is 
added to read as follows:


Sec. 414.60  Payment for the services of certified registered nurse 
anesthetists.

* * * * *
    (b) Beginning CY 1994. The allowance for an anesthesia service 
furnished by a 

[[Page 38423]]
medically directed CRNA beginning CY 1994 is based on a fixed 
percentage, as specified in Sec. 414.46(d)(2), of the allowance 
recognized for the anesthesia service personally performed by the 
physician alone. The CF for an anesthesia service furnished by a 
nonmedically directed CRNA beginning CY 1994 cannot exceed the CF for a 
service personally performed by an anesthesiologist.
    (c) Individuals or entities that can receive payment. The allowance 
for an anesthesia service furnished by a CRNA or an AA can be made to 
the CRNA furnishing the service, or to a hospital, rural primary care 
hospital, physician, group practice, or ambulatory surgical center with 
which the CRNA furnishing the service has an employment or contractual 
relationship that provides for payment to be made for the service to 
the entity. Payment for the service of a CRNA may be made only on an 
assignment-related basis, and any assignment agreed to by a CRNA is 
binding on any other person presenting a claim or request for payment 
for the service.


Secs. 414.450-414.453  [Removed]

    6. Subpart H, consisting of Secs. 414.450 through 414.453, is 
removed.
    E. A new part 415 is added to read as follows:

PART 415--SERVICES OF PHYSICIANS IN PROVIDERS, SUPERVISING 
PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN CERTAIN SETTINGS

Subpart A--General Provisions

Sec.
415.1  Basis and scope.

Subpart B--Fiscal Intermediary Payments to Providers for Physician 
Services

Sec.
415.50  Scope.
415.55  General payment rules.
415.60  Allocation of physician compensation costs.
415.70  Limits on compensation for physician services in providers.

Subpart C--Part B Carrier Payments for Physician Services to 
Beneficiaries in Providers

Sec.
415.100  Conditions for fee schedule payment for physician services 
to beneficiaries in providers: General provisions.
415.105  Payment for physician services to beneficiaries in 
providers.
415.120  Conditions for payment: Radiology services.
415.130  Conditions for payment: Physician pathology services.

Subpart D--Physician Services in Teaching Settings

Sec.
415.150  Scope.
415.152  Definitions.
415.160  Election of reasonable cost payment for direct medical and 
surgical services of physicians in teaching hospitals: General 
provisions.
415.162  Determining payment for physician services furnished to 
beneficiaries in teaching hospitals.
415.164  Payment to a fund.
415.170  Conditions for payment on a fee schedule basis for 
physician services in a teaching setting.
415.172  Physician fee schedule payment for services of teaching 
physicians.
415.176  Renal dialysis services.
415.178  Anesthesia services.
415.180  Teaching setting requirements for the interpretation of 
diagnostic radiology and other diagnostic tests.
415.184  Psychiatric services.
415.190  Conditions of payment: Assistants at surgery in teaching 
hospitals.

Subpart E--Services of Residents

Sec.
415.200  Services of residents in approved GME programs.
415.202  Services of residents not in approved GME programs.
415.204  Services of residents in SNFs and HHAs.
415.206  Services of residents in nonprovider settings.
415.208  Services of moonlighting residents.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart A--General Provisions


Sec. 415.1  Basis and scope.

    (a) Basis. This part is based on the provisions of the following 
sections of the Act: Section 1848 establishes a fee schedule for 
payment for physician services. Section 1861(q) specifies what is 
included in the term ``physician services'' covered under Medicare. 
Section 1862(a)(14) sets forth the exclusion of nonphysician services 
furnished to hospital patients under Part B of Medicare. Section 
1886(d)(5)(B) provides for a payment adjustment under the prospective 
payment system for the operating costs of inpatient hospital services 
furnished to Medicare beneficiaries in cost reporting periods beginning 
on or after October 1, 1983, to account for the indirect costs of 
medical education. Section 1886(h) establishes the methodology for 
Medicare payment of the cost of direct GME activities.
    (b) Scope. This part sets forth rules for fiscal intermediary 
payments to providers for physician services, Part B carrier payments 
for physician services to beneficiaries in providers, physician 
services in teaching settings, and services of residents.

Subpart B--Fiscal Intermediary Payments to Providers for Physician 
Services


Sec. 415.50  Scope.

    This subpart sets forth rules for payment by fiscal intermediaries 
to providers for services furnished by physicians. Payment for covered 
services is made either under the prospective payment system (PPS) to 
PPS-participating providers in accordance with part 412 of this chapter 
or under the reasonable cost method to non-PPS participating providers 
in accordance with part 413 of this chapter.


Sec. 415.55  General payment rules.

    (a) Allowable costs. Except as specified otherwise in Secs. 413.102 
of this chapter (concerning compensation of owners), 415.60 (concerning 
allocation of physician compensation costs), and 415.162 (concerning 
payment for physician services furnished to beneficiaries in teaching 
hospitals), costs a provider incurs for services of physicians are 
allowable only if the following conditions are met:
    (1) The services do not meet the conditions in Sec. 415.100(b) 
regarding fee schedule payment for services of physicians to a 
beneficiary in a provider.
    (2) The services include a surgeon's supervision of services of a 
qualified anesthetist, but do not include physician availability 
services, except for reasonable availability services furnished for 
emergency rooms and the services of standby surgical team physicians.
    (3) The provider has incurred a cost for salary or other 
compensation it furnished the physician for the services.
    (4) The costs incurred by the provider for the services meet the 
requirements in Sec. 413.9 of this chapter regarding costs related to 
patient care.
    (5) The costs do not include supervision of interns and residents 
unless the provider elects reasonable cost payment as specified in 
Sec. 415.160, or any other costs incurred in connection with an 
approved GME program that are payable under Sec. 413.86 of this 
chapter.
    (b) Allocation of allowable costs. The provider must follow the 
rules in Sec. 415.60 regarding allocation of physician compensation 
costs to determine its costs of services.
    (c) Limits on allowable costs. The intermediary must apply the 
limits on compensation set forth in Sec. 415.70 to determine its 
payments to a provider for the costs of services. 

[[Page 38424]]



Sec. 415.60  Allocation of physician compensation costs.

    (a) Definition. For purposes of this subpart, physician 
compensation costs means monetary payments, fringe benefits, deferred 
compensation, and any other items of value (excluding office space or 
billing and collection services) that a provider or other organization 
furnishes a physician in return for the physician services. Other 
organizations are entities related to the provider within the meaning 
of Sec. 413.17 of this chapter or entities that furnish services for 
the provider under arrangements within the meaning of the Act.
    (b) General rule. Except as provided in paragraph (d) of this 
section, each provider that incurs physician compensation costs must 
allocate those costs, in proportion to the percentage of total time 
that is spent in furnishing each category of services, among--
    (1) Physician services to the provider (as described in 
Sec. 415.50);
    (2) Physician services to beneficiaries (as described in 
Sec. 415.100); and
    (3) Activities of the physician, such as funded research, that are 
not paid under either Part A or Part B of Medicare.
    (c) Allowable physician compensation costs. Only costs allocated to 
paid physician services to the provider (as described in Sec. 415.50) 
are allowable costs to the provider under this subpart.
    (d) Allocation of all compensation to services to the provider. The 
total physician compensation received by a physician is allocated among 
all services furnished by the physician to the provider, unless--
    (1) The provider certifies that the compensation is attributable 
solely to the physician services furnished to the provider; and
    (2) The physician bills all patients for the physician services he 
or she furnishes to those patients and personally receives the payment 
from the billings. If returned directly or indirectly to the provider 
or an organization related to the provider within the meaning of 
Sec. 413.17 of this chapter, these payments are not compensation for 
physician services furnished to the provider.
    (e) Assumed allocation of all compensation to beneficiary services. 
If the provider and physician agree to accept the assumed allocation of 
all the physician services to direct services to beneficiaries as 
described under Sec. 415.100(b), HCFA does not require a written 
allocation agreement between the physician and the provider.
    (f) Determination and payment of allowable physician compensation 
costs. (1) Except as provided under paragraph (e) of this section, the 
intermediary pays the provider for these costs only if--
    (i) The provider submits to the intermediary a written allocation 
agreement between the provider and the physician that specifies the 
respective amounts of time the physician spends in furnishing physician 
services to the provider, physician services to beneficiaries, and 
services that are not paid under either Part A or Part B of Medicare; 
and
    (ii) The compensation is reasonable in terms of the time devoted to 
these services.
    (2) In the absence of a written allocation agreement, the 
intermediary assumes, for purposes of determining reasonable costs of 
the provider, that 100 percent of the physician compensation cost is 
allocated to services to beneficiaries as specified in paragraph (b)(2) 
of this section.
    (g) Recordkeeping requirements. Except for services furnished in 
accordance with the assumed allocation under paragraph (e) of this 
section, each provider that claims payment for services of physicians 
under this subpart must meet all of the following requirements:
    (1) Maintain the time records or other information it used to 
allocate physician compensation in a form that permits the information 
to be validated by the intermediary or the carrier.
    (2) Report the information on which the physician compensation 
allocation is based to the intermediary or the carrier on an annual 
basis and promptly notify the intermediary or carrier of any revisions 
to the compensation allocation.
    (3) Retain each physician compensation allocation, and the 
information on which it is based, for at least 4 years after the end of 
each cost reporting period to which the allocation applies.


Sec. 415.70  Limits on compensation for physician services in 
providers.

    (a) Principle and scope. (1) Except as provided in paragraphs 
(a)(2) and (a)(3) of this section, HCFA establishes reasonable 
compensation equivalency (RCE) limits on the amount of compensation 
paid to physicians by providers. These limits are applied to a 
provider's costs incurred in compensating physicians for services to 
the provider, as described in Sec. 415.50(a).
    (2) Limits established under this section do not apply to costs of 
physician compensation attributable to furnishing inpatient hospital 
services that are paid for under the prospective payment system 
implemented under part 412 of this chapter or to costs of physician 
compensation attributable to approved GME programs that are payable 
under Sec. 413.86 of this chapter.
    (3) Compensation that a physician receives for activities that may 
not be paid for under either Part A or Part B of Medicare is not 
considered in applying these limits.
    (b) Methodology for establishing limits. HCFA establishes a 
methodology for determining annual RCE limits and considers average 
physician incomes by specialty and type of location to the extent 
possible using the best available data.
    (c) Application of limits. If the level of compensation exceeds the 
limits established under paragraph (b) of this section, Medicare 
payment is based on the level established by the limits.
    (d) Adjustment of the limits. The intermediary may adjust limits 
established under paragraph (b) of this section to account for costs 
incurred by the physician or the provider related to malpractice 
insurance, professional memberships, and continuing medical education.
    (1) For the costs of membership in professional societies and 
continuing medical education, the intermediary may adjust the limit by 
the lesser of--
    (i) The actual cost incurred by the provider or the physician for 
these activities; or
    (ii) Five percent of the appropriate limit.
    (2) For the cost of malpractice expenses incurred by either the 
provider or the physician, the intermediary may adjust the RCE limit by 
the cost of the malpractice insurance expense related to the physician 
service furnished to beneficiaries in providers.
    (e) Exception to limits. An intermediary may grant a provider an 
exception to the limits established under paragraph (b) of this section 
only if the provider can demonstrate to the intermediary that it is 
unable to recruit or maintain an adequate number of physicians at a 
compensation level within these limits.
    (f) Notification of changes in methodologies and payment limits. 
(1) Before the start of a cost reporting period to which limits 
established under this section will be applied, HCFA publishes a notice 
in the Federal Register that sets forth the amount of the limits and 
explains how it calculated the limits.
    (2) If HCFA proposes to revise the methodology for establishing 
payment limits under this section, HCFA publishes a notice, with 
opportunity for public comment, in the Federal Register. The notice 
explains the 

[[Page 38425]]
proposed basis and methodology for setting limits, specifies the limits 
that would result, and states the date of implementation of the limits.
    (3) If HCFA updates limits by applying the most recent economic 
index data without revising the limit methodology, HCFA publishes the 
revised limits in a notice in the Federal Register without prior 
publication of a proposal or public comment period.

Subpart C--Part B Carrier Payments for Physician Services to 
Beneficiaries in Providers


Sec. 415.100  Conditions for fee schedule payment for physician 
services to beneficiaries in providers: General provisions.

    (a) Scope. This section implements section 1887(a)(1) of the Act by 
providing general conditions that must be met in order for services 
furnished by physicians to beneficiaries in providers to be paid for on 
the basis of the physician fee schedule under part 414 of this chapter. 
Section 415.105 sets forth general requirements for determining the 
amounts of payment for services that meet the conditions of this 
section. Sections 415.120 through 415.130 set forth additional 
conditions for payment for physician services in the specialties of 
radiology and pathology (laboratory services).
    (b) Conditions for payment for physician services to beneficiaries 
in providers. The carrier pays for services of physicians furnished to 
beneficiaries in providers on a fee schedule basis if the following 
requirements are met:
    (1) The services are personally furnished for an individual 
beneficiary by a physician.
    (2) The services contribute directly to the diagnosis or treatment 
of an individual beneficiary.
    (3) The services ordinarily require performance by a physician.
    (4) In the case of radiology or laboratory services, the additional 
requirements in Sec. 415.120 or Sec. 415.130, respectively, are met.
    (c) Services of physicians to providers. If a physician furnishes 
services in a provider that do not meet the requirements in paragraph 
(b) of this section, but are related to beneficiary care by the 
provider, the intermediary pays for those services, if otherwise 
covered, under the rules for payment of physician services to providers 
in Secs. 415.50 and 415.60 on the basis of reasonable cost or PPS, as 
appropriate.
    (d) Effect of billing charges for physician services to a provider. 
(1) For services furnished by a physician that may be paid under the 
reasonable cost rules in Sec. 415.50 or Sec. 415.60, or would be paid 
under those rules except for the PPS rules in part 412 of this chapter, 
and under the payment rules for GME established by Sec. 413.86 of this 
chapter, neither the provider nor the physician may seek payment from 
the carrier, beneficiary, or another insurer.
    (2) The carrier does not pay on a fee schedule basis for services 
furnished by a physician to an individual beneficiary that do not meet 
the applicable conditions in Secs. 415.120 (concerning conditions for 
payment for radiology services) and 415.130 (concerning conditions for 
payment for physician pathology services).
    (3) If the physician, the provider, or another entity bills the 
carrier or the beneficiary or another insurer for physician services 
furnished to the provider, as described in Sec. 415.50(a), HCFA 
considers the provider to whom the services are furnished to have 
violated its provider participation agreement, and may terminate that 
agreement. See part 489 of this chapter for rules governing provider 
agreements.
    (e) Effect of physician assumption of operating costs. If a 
physician or other entity enters into an agreement (such as a lease or 
concession) with a provider, and the physician (or entity) assumes some 
or all of the operating costs of the provider department in which the 
physician furnishes physician services, the following rules apply:
    (1) If the conditions set forth in paragraph (b) of this section 
are met, the carrier pays for the physician services under the 
physician fee schedule in part 414 of this chapter.
    (2) To the extent the provider incurs a cost payable on a 
reasonable cost basis under part 413 of this chapter, the intermediary 
pays the provider on a reasonable cost basis for the costs associated 
with producing these services, including overhead, supplies, equipment 
costs, and services furnished by nonphysician personnel.
    (3) The physician (or other entity) is treated as being related to 
the provider within the meaning of Sec. 413.17 of this chapter 
(concerning cost to related organizations).
    (4) The physician (or other entity) must make its books and records 
available to the provider and the intermediary as necessary to verify 
the nature and extent of the costs of the services furnished by the 
physician (or other entity).


Sec. 415.105  Payment for physician services to beneficiaries in 
providers.

    (a) General rule. The carrier determines amounts of payment for 
physician services to beneficiaries in providers in accordance with the 
general rules governing the physician fee schedule payment in part 414 
of this chapter, except as provided in paragraph (b) of this section.
    (b) Application in certain settings--(1) Teaching hospitals. In 
determining whether fee schedule payment should be made for physician 
services to individual beneficiaries in a teaching hospital, the 
carrier applies the rules in subpart D of this part (concerning 
physician services in teaching settings), in addition to those in this 
section.
    (2) Hospital-based ESRD facilities. The carrier applies 
Secs. 414.310 through 414.314 of this chapter, which set forth 
determination of reasonable charges under the ESRD program, to 
determine the amount of payment for physician services furnished to 
individual beneficiaries in a hospital-based ESRD facility approved 
under part 405 subpart U.


Sec. 415.120  Conditions for payment: Radiology services.

    (a) Services to beneficiaries. The carrier pays for radiology 
services furnished by a physician to a beneficiary on a fee schedule 
basis only if the services meet the conditions for fee schedule payment 
in Sec. 415.100(b) and are identifiable, direct, and discrete 
diagnostic or therapeutic services furnished to an individual 
beneficiary, such as interpretation of x-ray plates, angiograms, 
myelograms, pyelograms, or ultrasound procedures. The carrier pays for 
interpretations only if there is a written report prepared for 
inclusion in the patient's medical record maintained by the hospital.
    (b) Services to providers. The carrier does not pay on a fee 
schedule basis for physician services to the provider (for example, 
administrative or supervisory services) or for provider services needed 
to produce the x-ray films or other items that are interpreted by the 
radiologist. However, the intermediary pays the provider for these 
services in accordance with Sec. 415.50 for provider costs; 
Sec. 415.100(e)(2) for costs incurred by a physician, such as under a 
lease or concession agreement; or part 412 of this chapter for payment 
under PPS.


Sec. 415.130  Conditions for payment: Physician pathology services.

    (a) Physician pathology services. The carrier pays for pathology 
services furnished by a physician to an individual beneficiary on a fee 
schedule basis only if the services meet the conditions for payment in 
Sec. 415.100(b) and are one of the following services:
    (1) Surgical pathology services. 

[[Page 38426]]

    (2) Specific cytopathology, hematology, and blood banking services 
that have been identified to require performance by a physician and are 
listed in program operating instructions.
    (3) Clinical consultation services that meet the requirements in 
paragraph (b) of this section.
    (4) Clinical laboratory interpretative services that meet the 
requirements of paragraphs (b)(1), (b)(3), and (b)(4) of this section 
and that are specifically listed in program operating instructions.
    (b) Clinical consultation services. For purposes of this section, 
clinical consultation services must meet the following requirements:
    (1) Be requested by the beneficiary's attending physician.
    (2) Relate to a test result that lies outside the clinically 
significant normal or expected range in view of the condition of the 
beneficiary.
    (3) Result in a written narrative report included in the 
beneficiary's medical record.
    (4) Require the exercise of medical judgment by the consultant 
physician.
    (c) Physician pathology services furnished by an independent 
laboratory. Laboratory services, including the technical component of a 
service, furnished to a hospital inpatient or outpatient by an 
independent laboratory are paid on a fee schedule basis under this 
subpart only if they are physician pathology services as described in 
paragraph (a) of this section.

Subpart D--Physician Services in Teaching Settings


Sec. 415.150  Scope.

    This subpart sets forth the rules governing payment for the 
services of physicians in teaching settings and the criteria for 
determining whether the payments are made as one of the following:
    (a) Services to the hospital under the reasonable cost election in 
Secs. 415.160 through 415.164.
    (b) Provider services through the direct GME payment mechanism in 
Sec. 413.86 of this chapter.
    (c) Physician services to beneficiaries under the physician fee 
schedule as set forth in part 414 of this chapter.


Sec. 415.152  Definitions.

    As used in this subpart--
    Approved graduate medical education (GME) program  means a 
residency program approved by the Accreditation Council for Graduate 
Medical Education of the American Medical Association, by the Committee 
on Hospitals of the Bureau of Professional Education of the American 
Osteopathic Association, by the Council on Dental Education of the 
American Dental Association, or by the Council on Podiatric Medicine 
Education of the American Podiatric Medical Association.
    Direct medical and surgical services means services to individual 
beneficiaries that are either personally furnished by a physician or 
furnished by a resident under the supervision of a physician in a 
teaching hospital making the cost election described in Secs. 415.160 
through 415.162.
    Nonprovider setting means a setting other than a hospital, SNF, 
HHA, or CORF in which residents furnish services. These include, but 
are not limited to, family practice or multispecialty clinics and 
physician offices.
    Resident means one of the following:
    (1) An individual who participates in an approved GME program, 
including programs in osteopathy, dentistry, and podiatry.
    (2) A physician who is not in an approved GME program, but who is 
authorized to practice only in a hospital, for example, individuals 
with temporary or restricted licenses, or unlicensed graduates of 
foreign medical schools. For purposes of this subpart, the term 
resident is synonymous with the terms intern and fellow.
    Teaching hospital means a hospital engaged in an approved GME 
residency program in medicine, osteopathy, dentistry, or podiatry.
    Teaching physician means a physician (other than another resident) 
who involves residents in the care of his or her patients.
    Teaching setting means any provider, hospital-based provider, or 
nonprovider settings in which Medicare payment for the services of 
residents is made under the direct GME payment provisions of 
Sec. 413.86, or on a reasonable-cost basis under the provisions of 
Sec. 409.26 or Sec. 409.40(f) for resident services furnished in SNFs 
or HHAs, respectively.


Sec. 415.160  Election of reasonable cost payment for direct medical 
and surgical services of physicians in teaching hospitals: General 
provisions.

    (a) Scope. A teaching hospital may elect to receive payment on a 
reasonable cost basis for the direct medical and surgical services of 
its physicians in lieu of fee schedule payments that might otherwise be 
made for these services.
    (b) Conditions. A teaching hospital may elect to receive these 
payments only if--
    (1) The hospital notifies its intermediary in writing of the 
election and meets the conditions of either paragraph (b)(2) or 
paragraph (b)(3) of this section;
    (2) All physicians who furnish services to Medicare beneficiaries 
in the hospital agree not to bill charges for these services; or
    (3) All physicians who furnish services to Medicare beneficiaries 
in the hospital are employees of the hospital and, as a condition of 
employment, are precluded from billing for these services.
    (c) Effect of election. If a teaching hospital elects to receive 
reasonable cost payment for physician direct medical and surgical 
services furnished to beneficiaries--
    (1) Those services and the supervision of interns and residents in 
the care of individual beneficiaries are covered as hospital services, 
and
    (2) The intermediary pays the hospital for those services on a 
reasonable cost basis under the rules in Sec. 415.162. (Payment for 
other physician compensation costs related to approved GME programs is 
made as described in Sec. 413.86 of this chapter.)
    (d) Election declined. If the teaching hospital does not make this 
election, payment is made--
    (1) For physician services furnished to beneficiaries on a fee 
schedule basis as described in part 414 subject to the rules in this 
subpart, and
    (2) For the supervision of interns and residents as described in 
Sec. 413.86.


Sec. 415.162  Determining payment for physician services furnished to 
beneficiaries in teaching hospitals.

    (a) General. Payments for direct medical and surgical services of 
physicians furnished to beneficiaries and supervision of interns and 
residents in the care of beneficiaries is made by Medicare on the basis 
of reasonable cost if the hospital exercises the election as provided 
for in Sec. 415.160. If this election is made, the following occurs:
    (1) Physician services furnished to beneficiaries and supervision 
of interns and residents in the care of beneficiaries are paid on a 
reasonable-cost basis, as provided for in paragraph (b) of this 
section.
    (2) Payment for certain medical school costs may be made as 
provided for in paragraph (c) of this section.
    (3) Payments for services donated by volunteer physicians to 
beneficiaries are made to a fund designated by the organized medical 
staff of the teaching hospital or medical school as provided for in 
paragraph (d) of this section.
    (b) Reasonable cost of physician services furnished to 
beneficiaries and supervision of interns and residents in 

[[Page 38427]]
the care of beneficiaries in a teaching hospital. Physician services 
furnished to beneficiaries and supervision of interns and residents in 
the care of beneficiaries in a teaching hospital are payable as 
provider services on a reasonable-cost basis. For purposes of this 
paragraph, reasonable cost is defined as the direct salary paid to 
these physicians, plus applicable fringe benefits. The costs must be 
allocated to the services as provided by paragraph (j) of this section 
and apportioned to program beneficiaries as provided by paragraph (g) 
of this section. Other allowable costs incurred by the provider related 
to the services described in this paragraph are payable subject to the 
requirements applicable to all other provider services.
    (c) Reasonable costs incurred by a teaching hospital for the 
services furnished by a medical school or related organization in a 
hospital. An amount is payable to the hospital by HCFA under the 
Medicare program provided that the costs would be payable if incurred 
directly by the hospital rather than under the arrangement. The amount 
must not be in excess of the reasonable costs (as defined in paragraphs 
(c)(1) and (c)(2) of this section) incurred by a teaching hospital for 
services furnished by a medical school or organization as described in 
Sec. 413.17 of this chapter for certain costs to the medical school (or 
a related organization) in furnishing services in the hospital.
    (1) Reasonable costs of physician services furnished to 
beneficiaries and supervision of interns and residents in the care of 
beneficiaries in a teaching hospital by physicians on the faculty of a 
medical school or organization related to the medical school. (i) If 
the medical school (or organization related to the medical school) and 
the hospital are related by common ownership or control as described in 
Sec. 413.17 of this chapter, the cost of these services are allowable 
costs to the hospital under the provisions of Sec. 413.17 of this 
chapter and the reimbursable costs to the hospital are determined under 
the provisions of this section in the same manner as the costs incurred 
for physicians on the hospital staff and without regard to payments 
made to the medical school by the hospital.
    (ii) If the medical school and the hospital are not related 
organizations under the provisions of Sec. 413.17 of this chapter and 
the hospital makes payment to the medical school for the costs of those 
services furnished to all patients, payment is made by Medicare to the 
hospital for the reasonable cost incurred by the hospital for its 
payments to the medical school for services furnished to beneficiaries. 
Costs incurred under an arrangement must be allocated to the full range 
of services furnished to the hospital by the medical school physicians 
on the same basis as provided for under paragraph (j) of this section, 
and costs allocated to direct medical and surgical services furnished 
to hospital patients must be apportioned to beneficiaries as provided 
for under paragraph (g) of this section. If the medical school and the 
hospital are not related organizations under the provisions of 
Sec. 413.17 of this chapter and the hospital makes payment to the 
medical school only for the costs of those services furnished to 
beneficiaries, costs of the medical school not to exceed 105 percent of 
the sum of physician direct salaries, applicable fringe benefits, 
employer's portion of FICA taxes, Federal and State unemployment taxes, 
and workmen's compensation paid by the medical school or an 
organization related to the medical school may be recognized as 
allowable costs of the medical school. These allowable medical school 
costs must be allocated to the full range of services furnished by the 
physicians of the medical school or organization related as provided by 
paragraph (j) of this section. Costs allocated to direct medical and 
surgical services furnished to hospital patients must be apportioned to 
beneficiaries as provided by paragraph (g) of this section.
    (2) Reasonable costs of other than physician services furnished to 
beneficiaries and supervision of interns and residents in the care of 
beneficiaries in a teaching hospital by medical school faculty (or 
organization related to the medical school). These costs are determined 
in accordance with paragraph (c)(1) of this section except that--
    (i) If the hospital makes payment to the medical school for other 
than physician services furnished to beneficiaries and supervision of 
interns and residents in the care of beneficiaries, these payments are 
subject to the required cost-finding and apportionment methods 
applicable to the cost of other hospital services (except for direct 
medical and surgical services furnished to beneficiaries); or
    (ii) If the hospital makes payment to the medical school only for 
these services furnished to beneficiaries, the cost of these services 
is not subject to cost-finding and apportionment as otherwise provided 
by this subpart, and the reasonable cost paid by Medicare must be 
determined on the basis of the health insurance ratio(s) used in the 
apportionment of all other provider costs (excluding physician direct 
medical and surgical services furnished to beneficiaries) applied to 
the allowable medical school costs incurred by the medical school for 
the services furnished to all patients of the hospital.
    (d) ``Salary equivalent'' payments for physician direct medical and 
surgical services furnished to beneficiaries in a teaching hospital by 
physicians on the voluntary staff of the hospital (or medical school or 
organization under arrangement with the hospital). (1) HCFA makes 
payments under the Medicare program to a fund as defined in 
Sec. 415.164 for direct medical and surgical services furnished on a 
regularly scheduled basis by physicians on the unpaid voluntary medical 
staff of the hospital (or medical school under arrangement with the 
hospital) to beneficiaries.
    These payments represent compensation for contributed medical staff 
time which, if not contributed, would have to be obtained through 
employed staff on a payable basis. Payments for volunteer services are 
determined by applying to the regularly scheduled contributed time an 
hourly rate not to exceed the equivalent of the average direct salary 
(exclusive of fringe benefits) paid to all full-time, salaried 
physicians (other than interns and residents) on the hospital staff or, 
if the number of full-time salaried physicians is minimal in absolute 
terms or in relation to the number of physicians on the voluntary 
staff, to physicians at like institutions in the area. This ``salary 
equivalent'' is a single hourly rate covering all physicians regardless 
of specialty and is applied to the actual regularly scheduled time 
contributed by the physicians in furnishing direct medical and surgical 
services to beneficiaries including supervision of interns and 
residents in that care. A physician who receives any compensation from 
the hospital or a medical school related to the hospital by common 
ownership or control (within the meaning of Sec. 413.17 of this 
chapter) for direct medical and surgical services furnished to any 
patient in the hospital is not considered an unpaid voluntary physician 
for purposes of this paragraph. If, however, a physician receives 
compensation from the hospital or related medical school or 
organization only for services that are other than direct medical and 
surgical services, a salary equivalent payment for his or her regularly 
scheduled direct medical and surgical services to beneficiaries in the 
hospital may be imputed. However, the sum of the imputed value for 
volunteer services and his or her actual compensation from the hospital 
and the related medical school (or organization) may not exceed 

[[Page 38428]]
the amount that would have been imputed if all of the physician's 
hospital and medical school services (compensated and volunteer) had 
been volunteer services, or paid at the rate of $30,000 per year, 
whichever is less.
    (2) The following examples illustrate how the allowable imputed 
value for volunteer services is determined. In each example, it has 
been assumed that the average salary equivalent hourly rate is equal to 
the hourly rate for the individual physician's compensated services.

    Example No. 1. Dr. Jones received $3,000 a year from Hospital X 
for services other than direct medical services to all patients, for 
example, utilization review and administrative services. Dr. Jones 
also voluntarily furnished direct medical services to beneficiaries. 
The imputed value of the volunteer services amounted to $10,000 for 
the cost reporting period. The full imputed value of Dr. Jones' 
volunteer direct medical services would be allowed since the total 
amount of the imputed value ($10,000) and the compensated services 
($3,000) does not exceed $30,000.
    Example No. 2. Dr. Smith received $25,000 from Hospital X for 
services as a department head in a teaching hospital. Dr. Smith also 
voluntarily furnished direct medical services to beneficiaries. The 
imputed value of the volunteer services amounted to $10,000. Only 
$5,000 of the imputed value of volunteer services would be allowed 
since the total amount of the imputed value ($10,000) and the 
compensated services ($25,000) exceeds the $30,000 maximum amount 
allowable for all of Dr. Smith's services. Computation:

Maximum amount allowable for all services performed by Dr. Smith for 
purposes of this         computation
$30,000
Less compensation received from Hospital X for other than direct 
medical services to individual patients
$25,000
Allowable amount of imputed value for the volunteer services furnished 
by Dr. Smith
$5,000

    Example No. 3. Dr. Brown is not compensated by Hospital X for 
any services furnished in the hospital. Dr. Brown voluntarily 
furnished direct surgical services to beneficiaries for a period of 
6 months, and the imputed value of these services amounted to 
$20,000. The allowable amount of the imputed value for volunteer 
services furnished by Dr. Brown would be limited to $15,000 
($30,000 x \6/12\).

    (3) The amount of the imputed value for volunteer services 
applicable to beneficiaries and payable to a fund is determined in 
accordance with the aggregate per diem method described in paragraph 
(g) of this section.
    (4) Medicare payments to a fund must be used by the fund solely for 
improvement of care of hospital patients or for educational or 
charitable purposes (which may include but are not limited to medical 
and other scientific research). No personal financial gain, either 
direct or indirect, from benefits of the fund may inure to any of the 
hospital staff physicians, medical school faculty, or physicians for 
whom Medicare imputes costs for purposes of payment into the fund. 
Expenses met from contributions made to the hospital from a fund are 
not included as a reimbursable cost when expended by the hospital, and 
depreciation expense is not allowed with respect to equipment or 
facilities donated to the hospital by a fund or purchased by the 
hospital from monies in a fund.
    (e) Requirements for payment for physician direct medical and 
surgical services (including supervision of interns and residents) to 
beneficiaries furnished in a teaching hospital--(1) Physicians on the 
hospital staff. The requirements under which the costs of physician 
direct medical and surgical services (including supervision of interns 
and residents) to beneficiaries are the same as those applicable to the 
cost of all other covered provider services except that the costs of 
these services are separately determined as provided by this section 
and are not subject to cost-finding as described in Sec. 413.24 of this 
chapter.
    (2) Physicians on the medical school faculty. Payment is made to a 
hospital for the costs of services of physicians on the medical school 
faculty, provided that if the medical school is not related to the 
hospital (within the meaning of Sec. 413.17 of this chapter, concerning 
cost to related organizations), the hospital does not make payment to 
the medical school for services furnished to all patients and the 
following requirements are met: If the hospital makes payment to the 
medical school for services furnished to all patients, these 
requirements do not apply. (See paragraph (c)(1)(ii) of this section.)
    (i) There is a written agreement between the hospital and the 
medical school or organization, specifying the types and extent of 
services to be furnished by the medical school and specifying that the 
hospital must pay to the medical school an amount at least equal to the 
reasonable cost (as defined in paragraph (c) of this section) of 
furnishing the services to beneficiaries.
    (ii) The costs are paid to the medical school by the hospital no 
later than the date on which the cost report covering the period in 
which the services were furnished is due to HCFA.
    (iii) Payment for the services furnished under an arrangement would 
have been made to the hospital had the services been furnished directly 
by the hospital.
    (3) Physicians on the voluntary staff of the hospital (or medical 
school under arrangement with the hospital). If the conditions for 
payment to a fund outlined in Sec. 415.164 are met, payments are made 
on a ``salary equivalent'' basis (as defined in paragraph (d) of this 
section) to a fund.
    (f) Requirements for payment for medical school faculty services 
other than physician direct medical and surgical services furnished in 
a teaching hospital. If the requirements for payment for physician 
direct medical and surgical services furnished to beneficiaries in a 
teaching hospital described in paragraph (e) of this section are met, 
payment is made to a hospital for the costs of medical school faculty 
services other than physician direct medical and surgical services 
furnished in a teaching hospital.
    (g) Aggregate per diem methods of apportionment for physician 
direct medical and surgical services (including supervision of interns 
and residents) to beneficiaries furnished in a teaching hospital--(1) 
Aggregate per diem method of apportionment for the costs of physician 
direct medical and surgical services (including supervision of interns 
and residents) to beneficiaries. The cost of physician direct medical 
and surgical services furnished in a teaching hospital to beneficiaries 
is determined on the basis of an average cost per diem as defined in 
paragraph (h)(1) of this section for physician direct medical and 
surgical services to all patients (see Secs. 415.172 through 415.184) 
for each of the following categories of physicians:
    (i) Physicians on the hospital staff.
    (ii) Physicians on the medical school faculty.
    (2) Aggregate per diem method of apportionment for the imputed 
value of physician volunteer direct medical and surgical services. The 
imputed value of physician direct medical and surgical services 
furnished beneficiaries in a teaching hospital is determined on the 
basis of an average per diem, as defined in paragraph (h)(1) of this 
section, for physician direct medical and surgical services to all 
patients except that the average per diem is derived from the imputed 
value of the physician volunteer direct medical and surgical services 
furnished to all patients.
    (h) Definitions. (1) Average cost per diem for physician direct 
medical and surgical services (including supervision of interns and 
residents) furnished in a teaching hospital to patients in each 
category of physician services described in paragraph (g)(1) of this 
section means 

[[Page 38429]]
the amount computed by dividing total reasonable costs of these 
services in each category by the sum of--
    (i) Inpatient days (as defined in paragraph (h)(2) of this 
section); and
    (ii) Outpatient visit days (as defined in paragraph (h)(3) of this 
section).
    (2) Inpatient days are determined by counting the day of admission 
as 3.5 days and each day after a patient's day of admission, except the 
day of discharge, as 1 day.
    (3) Outpatient visit days are determined by counting only one visit 
day for each calendar day that a patient visits the outpatient 
department.
    (i) Application. (1) The following illustrates how apportionment 
based on the aggregate per diem method for costs of physician direct 
medical and surgical services furnished in a teaching hospital to 
patients is determined.
Teaching Hospital Y
    Statistical and financial data:

Total inpatient days as defined in paragraph (h)(2) of this section and 
outpatient visit days as defined in paragraph (h)(3) of this section
75,000
Total inpatient Part A days
20,000
Total inpatient Part B days where Part A coverage is not available
1,000
Total inpatient Part B visit days
5,000
Total cost of direct medical and surgical services furnished to all 
patients by physicians on the hospital staff as determined in 
accordance with paragraph (i) of this section
$1,500,000
Total cost of direct medical and surgical services furnished to all 
patients by physicians on the medical school faculty as determined in 
accordance with paragraph (i) of this section
$1,650,000

    Computation of cost applicable to program for physicians on the 
hospital staff:
    Average cost per diem for direct medical and surgical services to 
patients by physicians on the hospital staff: $1,500,000  
75,000 = $20 per diem.

Cost of physician direct medical and surgical services furnished to 
inpatient beneficiaries covered under Part A: $20 per diem  x  20,000
$400,000
Cost of physician direct medical and surgical services furnished to 
inpatient beneficiaries covered under Part B: $20 per diem  x 
    1,000
$20,000
Cost of physician direct medical and surgical services furnished to 
outpatient beneficiaries covered under Part B: $20 per diem  x 
    5,000
$100,000

    Computation of cost applicable to program for physicians on the 
medical school faculty:

Average cost per diem for direct medical and surgical services to 
patients by physicians on the medical school faculty: $1,650,000 
 75,000 =
$22 per diem.
Cost of physician direct medical and surgical services furnished to 
inpatient beneficiaries covered under Part A: $22 per diem  x  20,000
$440,000
Cost of physician direct medical and surgical services furnished to 
inpatient beneficiaries covered under Part B: $20 per diem  x 
    1,000
$22,000
Cost of physician direct medical and surgical services furnished to 
outpatient beneficiaries covered under Part B: $22 per diem  x 
    5,000
$110,000

    (2) The following illustrates how the imputed value of physician 
volunteer direct medical and surgical services furnished in a teaching 
hospital to beneficiaries is determined.

    Example: The physicians on the medical staff of Teaching 
Hospital Y donated a total of 5,000 hours in furnishing direct 
medical and surgical services to patients of the hospital during a 
cost reporting period and did not receive any compensation from 
either the hospital or the medical school. Also, the imputed value 
for any physician volunteer services did not exceed the rate of 
$30,000 per year per physician.
    Statistical and financial data:

Total salaries paid to the full-time salaried physicians by the 
hospital (excluding interns and
    residents)
$800,000
Total physicians who were paid for an average of 40 hours per week or 
2,080 (52 weeks  x  40 hours per week) hours per year
20
Average hourly rate equivalent: $800,000  41,600 (2,080  x  20)
$19.23

    Computation of total imputed value of physician volunteer services 
applicable to all patients:

(Total donated hours  x  average hourly rate equivalent): 5,000  x  
$19.23
$96,150
Total inpatient days (as defined in paragraph (h)(2) of this section) 
and outpatient visit days (as defined in paragraph (h)(3) of this 
section)
75,000
Total inpatient Part A days
20,000
Total inpatient Part B days if Part A coverage is not available
1,000
Total outpatient Part B visit days
5,000

    Computation of imputed value of physician volunteer direct medical 
and surgical services furnished to Medicare beneficiaries:
    Average per diem for physician direct medical and surgical services 
to all patients: $96,150  75,000 = $1.28 per diem.

Imputed value of physician direct medical and surgical services 
furnished to inpatient beneficiaries covered under Part A: $1.28 per 
diem  x  20,000
25,600
Imputed value of physician direct medical and surgical services 
furnished to inpatient beneficiaries covered under Part B: $1.28 per 
diem  x  1,000
1,280
Imputed value of physician direct medical and surgical services 
furnished to outpatient beneficiaries covered under Part B: $1.28 per 
diem  x  5,000
$6,400
Total
$33,280

    (j) Allocation of compensation paid to physicians in a teaching 
hospital. In determining reasonable cost under this section, the 
compensation paid by a teaching hospital, or a medical school or 
related organization under arrangement with the hospital, to physicians 
in a teaching hospital must be allocated to the full range of services 
implicit in the physician compensation arrangements. (However, see 
paragraph (d) of this section for the computation of the ``salary 
equivalent'' payments for volunteer services furnished to patients.) 
This allocation must be made and must be capable of substantiation on 
the basis of the proportion of each physician's time spent in 
furnishing each type of service to the hospital or medical school.


Sec. 415.164  Payment to a fund.

    (a) General rules. Payment for certain voluntary services by 
physicians in teaching hospitals (as these services are described in 
Sec. 415.160) is made on a salary equivalent basis (as described in 
Sec. 415.162(d)) subject to the conditions and limitations contained in 
parts 405 and 413 of this chapter and this part 415, to a single fund 
(as defined in paragraph (b) of this section) designated by the 
organized medical staff of the hospital (or, if the services are 
furnished in the hospital by the faculty of a medical school, to a fund 
as may be designated by the faculty), if the following conditions are 
met:
    (1) The hospital (or medical school furnishing the services under 
arrangement with the hospital) incurs no actual cost in furnishing the 
services.
    (2) The hospital has an agreement with HCFA under part 489 of this 
chapter.
    (3) The intermediary, or HCFA as appropriate, has received written 
assurances that--
    (i) The payment is used solely for the improvement of care of 
hospital patients or for educational or charitable purposes; and
    (ii) Neither the individuals who are furnished the services nor any 
other persons are charged for the services (and if charged, provision 
is made for the return of any monies incorrectly collected). 

[[Page 38430]]

    (b) Definition of a fund. For purposes of paragraph (a) of this 
section, a fund is an organization that meets either of the following 
requirements:
    (1) The organization has and retains exemption, as a governmental 
entity or under section 501(c)(3) of the Internal Revenue Code 
(nonprofit educational, charitable, and similar organizations), from 
Federal taxation.
    (2) The organization is an organization of physicians who, under 
the terms of their employment by an entity that meets the requirements 
of paragraph (b)(1) of this section, are required to turn over to that 
entity all income that the physician organization derives from the 
physician services.
    (c) Status of a fund. A fund approved for payment under paragraph 
(a) of this section has all the rights and responsibilities of a 
provider under Medicare except that it does not enter into an agreement 
with HCFA under part 489 of this chapter.


Sec. 415.170  Conditions for payment on a fee schedule basis for 
physician services in a teaching setting.

    Services meeting the conditions for payment in Sec. 415.100(b) 
furnished in teaching settings are payable under the physician fee 
schedule if--
    (a) The services are personally furnished by a physician who is not 
a resident; or
    (b) The services are furnished by a resident in the presence of a 
teaching physician except as provided in Sec. 415.172 (concerning 
physician fee schedule payment for services of teaching physicians), 
Sec. 415.176 (concerning renal dialysis services), or Sec. 415.184 
(concerning psychiatric services), as applicable.


Sec. 415.172  Physician fee schedule payment for services of teaching 
physicians.

    (a) General rule. When residents participate in a service furnished 
in a teaching setting, physician fee schedule payment is made only when 
a teaching physician is present during the key portion of any service 
or procedure for which payment is sought. In the case of surgery or a 
dangerous or complex procedure, the teaching physician must be present 
during all critical portions of the procedure and immediately available 
to furnish services during the entire service or procedure. In the case 
of evaluation and management services (that is, visits and 
consultations), the teaching physician must be present during the 
portion of the service that determines the level of service billed, 
that is, type of decisionmaking, type of history, and examination, etc.
    (b) Documentation. In the case of every service billed, the 
hospital chart must document the presence of the teaching physician at 
the time of the service. The presence of the teaching physician may be 
demonstrated by the notes made by a physician, resident, or nurse.
    (c) Payment level. In the case of services such as evaluation and 
management for which there are several levels of service codes 
available for reporting purposes, the appropriate payment level must 
reflect the extent and complexity of the service when fully furnished 
by the teaching physician.


Sec. 415.176  Renal dialysis services.

    In the case of renal dialysis services, physicians who are not paid 
under the physician monthly capitation payment method (as described in 
Sec. 414.314 of this chapter) must meet the requirements of 
Secs. 415.170 and 415.172 (concerning physician fee schedule payment 
for services of teaching physicians).
Sec. 415.178  Anesthesia services.

    (a) General rule. An unreduced physician fee schedule payment may 
be made if an anesthesiologist is not involved in directing concurrent 
services with more than one resident or with a resident and a 
nonphysician anesthetist (see Sec. 414.46(c)(1)(iii) for additional 
rules for payment of anesthesia services).
    (b) Documentation. Documentation must indicate the physician's 
presence or participation in the administration of the anesthesia and a 
preoperative and postoperative visit by the physician.


Sec. 415.180  Teaching setting requirements for the interpretation of 
diagnostic radiology and other diagnostic tests.

    (a) General rule. Physician fee schedule payment is made for the 
interpretation of diagnostic radiology and other diagnostic tests if 
the interpretation is performed or reviewed by a physician other than a 
resident.
    (b) Documentation. Documentation must indicate that the physician 
personally performed the interpretation or reviewed the resident's 
interpretation with the resident.


Sec. 415.184  Psychiatric services.

    To qualify for physician fee schedule payment for psychiatric 
services furnished under an approved GME program, the physician must 
meet the requirements of Secs. 415.170 and 415.172, including 
documentation, except that the requirement for the presence of the 
teaching physician during the service in which a resident is involved 
may be met by observation of the service through a one-way mirror, 
video tape, or similar device.


Sec. 415.190  Conditions of payment: Assistants at surgery in teaching 
hospitals.

    (a) Basis, purpose, and scope. This section describes the 
conditions under which Medicare pays on a fee schedule basis for the 
services of an assistant at surgery in a teaching hospital. This 
section is based on section 1842(b)(7)(D)(i) of the Act and applies 
only to hospitals with an approved GME residency program. Except as 
specified in paragraph (c) of this section, fee schedule payment is not 
available for assistants at surgery in hospitals with--
    (1) A training program relating to the medical specialty required 
for the surgical procedure; and
    (2) A resident in a training program relating to the specialty 
required for the surgery available to serve as an assistant at surgery.
    (b) Definition. Assistant at surgery means a physician who actively 
assists the physician in charge of a case in performing a surgical 
procedure.
    (c) Conditions for payment for assistants at surgery. 
    Payment on a fee schedule basis is made for the services of an 
assistant at surgery in a teaching hospital only if the services meet 
one of the following conditions:
    (1) Are required as a result of exceptional medical circumstances.
    (2) Are complex medical procedures performed by a team of 
physicians, each performing a discrete, unique function integral to the 
performance of a complex medical procedure that requires the special 
skills of more than one physician.
    (3) Constitute concurrent medical care relating to a medical 
condition that requires the presence of, and active care by, a 
physician of another specialty during surgery.
    (4) Are medically required and are furnished by a physician who is 
primarily engaged in the field of surgery, and the primary surgeon does 
not use interns and residents in the surgical procedures that the 
surgeon performs (including preoperative and postoperative care).
    (5) Are not related to a surgical procedure for which HCFA 
determines that assistants are used less than 5 percent of the time.

Subpart E--Services of Residents


Sec. 415.200  Services of residents in approved GME programs.

    (a) General rules. Services of residents in approved GME programs 
furnished in hospitals are specifically excluded from 

[[Page 38431]]
being paid as ``physician services'' defined in Sec. 414.2 of this 
chapter and are payable as hospital services. This exclusion applies 
whether or not the resident is licensed to practice under the laws of 
the State in which he or she performs the services. The payment 
methodology for services of residents in hospitals and hospital-based 
providers is set forth in Sec. 413.86 of this chapter.
    (b) Definitions. See Sec. 415.152 for definitions of terms used in 
this subpart E.


Sec. 415.202  Services of residents not in approved GME programs.

    (a) General rules. Payment is made to a hospital for the services 
of a resident who is not in an approved GME program on a Part B 
reasonable cost basis regardless of whether the services are furnished 
to hospital inpatients or outpatients. For purposes of this section, 
these services are deemed to include services of a physician employed 
by a hospital who is authorized to practice only in a hospital setting.
    (b) Payment. Payment is made under Part B for a resident's services 
by reducing the reasonable costs of furnishing the services by the 
beneficiary deductible and paying 80 percent of the remaining amount. 
No payment is made for other costs of unapproved programs, such as 
administrative costs related to teaching activities of physicians.


Sec. 415.204  Services of residents in SNFs and HHAs.

    (a) Medicare Part A payment. Payment is made under Medicare Part A 
for interns' and residents' services furnished in the following 
settings that meet the specified requirements:
    (1) SNF. Payment to a participating SNF may include the cost of 
services of an intern or resident who is in an approved GME program in 
a hospital with which the SNF has a transfer agreement that provides, 
in part, for the transfer of patients and the interchange of medical 
records.
    (2) HHA. A participating HHA may receive payment for the cost of 
the services of an intern or resident who is under an approved GME 
program of a hospital with which the HHA is affiliated or under common 
control if these services are furnished as part of the posthospital 
home health visits for a Medicare beneficiary. (Nevertheless, see 
Sec. 413.86 of this chapter for the costs of approved GME programs in 
hospital-based providers.)
    (b) Medicare Part B payment. Medical services of a resident of a 
hospital that are furnished by a SNF or HHA are paid under Medicare 
Part B if payment is not provided under Medicare Part A. Payment is 
made under Part B for a resident's services by reducing the reasonable 
costs of furnishing the services by the beneficiary deductible and 
paying 80 percent of the remaining amount.


Sec. 415.206  Services of residents in nonprovider settings.

    Patient care activities of residents in approved GME programs that 
are furnished in nonprovider settings are payable in one of the 
following two ways:
    (a) Direct GME payments. If the conditions in 
Sec. 413.86(f)(1)(iii) regarding patient care activities and training 
of residents are met, the time residents spend in nonprovider settings 
such as clinics, nursing facilities, and physician offices in 
connection with approved GME programs is included in determining the 
number of full-time equivalency residents in the calculation of a 
teaching hospital's resident count. The teaching physician rules on 
carrier payments in Secs. 415.170 through 415.184 apply in these 
teaching settings.
    (b) Physician fee schedule. (1) Services furnished by a resident in 
a nonprovider setting are covered as physician services and payable 
under the physician fee schedule if the following requirements are met:
    (i) The resident is fully licensed to practice medicine, 
osteopathy, dentistry, or podiatry in the State in which the service is 
performed.
    (ii) The time spent in patient care activities in the nonprovider 
setting is not included in a teaching hospital's full-time equivalency 
resident count for the purpose of direct GME payments.
    (2) Payment may be made regardless of whether a resident is 
functioning within the scope of his or her GME program in the 
nonprovider setting.
    (3) If fee schedule payment is made for the resident's services in 
a nonprovider setting, payment must not be made for the services of a 
teaching physician.
    (4) The carrier must apply the physician fee schedule payment rules 
set forth in subpart A of part 414 of this chapter to payments for 
services furnished by a resident in a nonprovider setting.


Sec. 415.208  Services of moonlighting residents.

    (a) Definition. For purposes of this section, the term services of 
moonlighting residents refers to services that licensed residents 
perform that are outside the scope of an approved GME program.
    (b) Services in GME program hospitals. (1) The services of 
residents to inpatients of hospitals in which the residents have their 
approved GME program are not covered as physician services and are 
payable under Sec. 413.86 regarding direct GME payments.
    (2) Services of residents that are not related to their approved 
GME programs and are performed in an outpatient department or emergency 
department of a hospital in which they have their training program are 
covered as physician services and payable under the physician fee 
schedule if all of the following criteria are met:
    (i) The services are identifiable physician services and meet the 
conditions for payment of physician services to beneficiaries in 
providers in Sec. 415.100(b).
    (ii) The resident is fully licensed to practice medicine, 
osteopathy, dentistry, or podiatry by the State in which the services 
are performed.
    (iii) The services performed can be separately identified from 
those services that are required as part of the approved GME program.
    (3) If the criteria specified in paragraph (b)(2) of this section 
are met, the services of the moonlighting resident are considered to 
have been furnished by the individual in his or her capacity as a 
physician, rather than in the capacity of a resident. The carrier must 
review the contracts and agreements for these services to ensure 
compliance with the criteria specified in paragraph (b)(2) of this 
section.
    (4) No payment is made for services of a ``teaching physician'' 
associated with moonlighting services, and the time spent furnishing 
these services is not included in the teaching hospital's full-time 
equivalency count for the indirect GME payment (Sec. 412.105 of this 
chapter) and for the direct GME payment (Sec. 413.86 of this chapter).
    (c) Other settings. Moonlighting services of a licensed resident in 
an approved GME program furnished outside the scope of that program in 
a hospital or other setting that does not participate in the approved 
GME program are payable under the physician fee schedule as set forth 
in Sec. 415.206(b)(1).
F. Technical Amendments


Sec. 400.310  [Amended]

    1. In Sec. 400.310, the following changes are made:
    a. The entries for Secs. 405.481 and 405.552 are removed.
    b. In Sec. 400.310, the table is amended by adding the following 
entries: 

[[Page 38432]]



Sec. 400.310  Display of currently valid OMB control numbers.

------------------------------------------------------------------------
                                                             Current OMB
 Sections in 42 CFR that contain collections of information    control  
                                                               numbers  
------------------------------------------------------------------------
                                                                        
                  *        *        *        *        *                 
415.60.....................................................    0938-0301
415.70.....................................................    0938-0301
                  *        *        *        *        *                 
------------------------------------------------------------------------

Sec. 405.501  [Amended]

    2. In Sec. 405.501, the following changes are made:
    a. Paragraphs (c) and (d) are removed, and paragraphs (e) and (f) 
are redesignated as paragraphs (c) and (d), respectively.
    b. In newly redesignated paragraph (c), the phrase ``Secs. 405.480 
through 405.482 and Secs. 405.550 through 405.557'' is removed, and the 
phrase ``Secs. 415.55 through 415.70 and Secs. 415.100 through 415.130 
of this chapter'' is added in its place.


Sec. 405.502  [Amended]

    3. In Sec. 405.502(a)(10), the phrase ``Sec. 405.580(c) (2) or 
(3)'' is removed, and the phrase ``Sec. 415.190 (c)(2) or (c)(3) of 
this chapter'' is added in its place.

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

    4. The authority citation for part 411 continues to read as 
follows:

    Authority: Secs. 1102, 1834, 1842(l), 1861, 1862, 1866, 1871, 
1877, and 1879 of the Social Security Act (42 U.S.C. 1302, 1395m, 
1395u(l), 1385x, 1395y, 1395cc, 1395hh, 1395nn, and 1395pp).


Sec. 411.15  [Amended]

    5. In Sec. 411.15(m)(2)(i), the phrase ``Sec. 405.550(b) of this 
chapter'' is removed, and the phrase ``Sec. 415.100(b) of this 
chapter'' is added in its place.

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    6. The authority citation for part 412 continues to read as 
follows:

    Authority: Secs. 1102, 1815(e), 1820, 1871, and 1886 of the 
Social Security Act (42 U.S.C. 1302, 1395g(e), 1395i-4, 1395hh, and 
1395ww).


Sec. 412.50  [Amended]

    7. In Sec. 412.50, the following changes are made:
    a. In paragraph (a), the phrase ``Sec. 405.550(b) of this chapter'' 
is removed, and the phrase ``Sec. 415.100(b) of this chapter'' is added 
in its place.
    b. In paragraph (b), the phrase ``Sec. 405.550(b) of this chapter'' 
is removed, and the phrase ``Sec. 415.100(b) of this chapter'' is added 
in its place.


Sec. 412.71  [Amended]

    8. In Sec. 412.71(c)(1)(i), the phrase ``Sec. 405.550(b) of this 
chapter'' is removed, and the phrase ``Sec. 415.100(b) of this 
chapter'' is added in its place.


Sec. 412.105  [Amended]

    9. In Sec. 412.105(g)(1)(i)(A), the phrase ``Sec. 405.522(a) of 
this chapter'' is removed, and the phrase ``Sec. 415.200(a) of this 
chapter'' is added in its place.

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES

    10. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1122, 1814(b), 1815, 1833 (a), (i), and 
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act 
as amended (42 U.S.C. 1302, 1320a-1, 1395f(b), 1395g, 1395l (a), 
(i), and (n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww).


Sec. 413.5  [Amended]

    11. In Sec. 413.5(c)(9), the phrase ``(as described in Sec. 405.465 
of this chapter) where elected as provided for in Sec. 405.521 of this 
chapter'' is removed, and the phrase ``(as described in Sec. 415.162 of 
this chapter if elected as provided for in Sec. 415.160 of this 
chapter)'' is added in its place.
Sec. 413.13  [Amended]

    12. In Sec. 413.13(g)(1)(i), the phrase ``Secs. 405.480 through 
405.482 of this chapter'' is removed, and the phrase ``Secs. 415.55 
through 415.70 of this chapter'' is added in its place.


Sec. 413.80  [Amended]

    13. In Sec. 413.80(h), the phrase ``, as described in Sec. 414.450 
of this chapter,'' is removed.


Sec. 413.86  [Amended]

    14. In Sec. 413.86, the following changes are made:
    a. In paragraph (b), in the definition of ``Approved medical 
residency program'' in paragraph (1), the phrase ``Sec. 405.522(a) of 
this chapter'' is removed, and the phrase ``Sec. 415.200(a) of this 
chapter'' is added in its place.
    b. In paragraph (g)(1)(ii), the phrase ``Sec. 405.522(a) of this 
chapter'' is removed, and the phrase ``Sec. 415.200(a) of this 
chapter'' is added in its place.


Sec. 413.174  [Amended]

    15. In Sec. 413.174(b)(4)(iv), the phrase ``Sec. 405.465 through 
405.482 of this chapter'' is removed, and the phrase ``Secs. 415.55 
through 415.70, Sec. 415.162, and Sec. 415.164 of this chapter'' is 
added in its place.


Sec. 414.2  [Amended]

    16. In Sec. 414.2, in the definition for ``Physicians' services,'' 
in paragraph (2), the phrase ``physicians' services'' is removed, and 
the phrase ``physician services'' is added in its place.


Sec. 414.58  [Amended]

    17. In Sec. 414.58, the following changes are made:
    a. In paragraph (a), the phrase ``Secs. 405.550 through 405.580 of 
this chapter'' is removed, and the phrase ``Secs. 415.100 through 
415.130, and Sec. 415.190 of this chapter'' is added in its place.
    b. In paragraph (b), the phrase ``Sec. 405.465 of this chapter if 
the hospital exercises the election described in Sec. 405.521(c)(2) of 
this chapter'' is removed, and the phrase ``Sec. 415.162 of this 
chapter if the hospital exercises the election described in 
Sec. 415.160 of this chapter'' is added in its place.

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL 
PLANS, AND HEALTH CARE PREPAYMENT PLANS

    18. The authority citation for part 417 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public 
Health Service Act (42 U.S.C. 300e, 300e-5, and 300e-9); and 31 
U.S.C. 9701.


Sec. 417.554   [Amended]

    19. In Sec. 417.554, the phrase ``Sec. 405.480, part 412 of this 
chapter, and Secs. 413.55 and 413.24 of this chapter'' is removed, and 
the phrase ``part 412, Secs. 413.24 and 413.55, and Sec. 415.55 of this 
chapter'' is added in its place.

PART 489--PROVIDER AND SUPPLIER AGREEMENTS

    20. The authority citation for part 489 continues to read as 
follows:

    Authority: Secs. 1102, 1819, 1861, 1864(m), 1866, and 1871 of 
the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 1395aa(m), 
1395cc, and 1395hh).


Sec. 489.20  [Amended]

    21. In Sec. 489.20(d)(1), the phrase ``Sec. 405.550(b) of this 
chapter'' is removed, and the phrase Sec. 415.100(b) of this chapter'' 
is added in its place.


Sec. 489.21  [Amended]

    22. In Sec. 489.21(f), the phrase ``Sec. 405.550(b) of this 
chapter'' is removed, and the phrase ``Sec. 415.100(b) of this 
chapter'' is added in its place.


[[Page 38433]]

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: July 5, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: July 6, 1995.
Donna E. Shalala,
Secretary.
[FR Doc. 95-18144 Filed 7-20-95; 9:37 am]
BILLING CODE 4120-01-P