[Federal Register Volume 65, Number 150 (Thursday, August 3, 2000)]
[Rules and Regulations]
[Pages 47670-47677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19668]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 413 and 419

[HCFA-1005-IFC]
RIN 0938-AI56


Medicare Program; Prospective Payment System for Hospital 
Outpatient Services: Revisions to Criteria to Define New or Innovative 
Medical Devices, Drugs, and Biologicals Eligible for Pass-Through 
Payments and Corrections to the Criteria for the Grandfather Provision 
for Certain Federally Qualified Health Centers

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

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period changes one 
criterion and postpones the effective date for two other criteria that 
a new device, drug, or biological must meet in order for its cost to be 
considered ``not insignificant'' for purposes of determining its 
eligibility for transitional pass-through payments. It also changes the 
transitional pass-through payment policy to include new single use 
medical devices that come in contact with human tissue and that are 
surgically implanted or inserted in a patient whether or not the 
devices remain with the patient after the patient is released from the 
hospital outpatient department. These policies represent a departure 
from those presented in the April 7, 2000 Federal Register final rule 
with comment period entitled, ``Prospective Payment System for Hospital 
Outpatient Services''.
    This interim final rule with comment period also corrects a trigger 
date for grandfathering of provider-based Federally Qualified Health 
Centers (FQHCs) to conform with the intent not to disrupt existing 
FQHCs with longstanding provider-based treatment that we discussed in 
the April 2000

[[Page 47671]]

final rule. Under the criteria in the April 2000 final rule with 
comment period, FQHCs are treated as departments of a provider without 
regard to the criteria for provider-based status in that document if 
they meet other criteria and were designated as FQHCs before 1995. 
Under this correction, facilities that meet those other criteria and 
were designated as FQHCs or ``look-alikes'' on or before April 7, 2000 
would continue to be treated as provider-based. In addition, we are 
clarifying how the requirement for prior notice to beneficiaries is to 
be applied in emergency situations. Also, we are clarifying the 
protocols for off-campus departments in emergency situations.

DATES: Effective date: This interim final rule is effective August 1, 
2000, except the amendments to Sec. 413.65(m) that are effective 
October 10, 2000.
    Comment date: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
September 5, 2000.

ADDRESSES: Mail an original and 3 copies of written comments to the 
following address only: Health Care Financing Administration, 
Department of Health and Human Services, Attention: HCFA-1005-IFC, P.O. 
Box 8013, Baltimore, MD 21244-8013.
    Since comments must be received by the date specified above, please 
allow sufficient time for mailed comments to be received timely in the 
event of delivery delays.
    If you prefer, you may deliver your written comments by courier (1 
original and 3 copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201 or
Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244.

    Comments mailed to the two above addresses may be delayed and 
received too late to be considered.
    Because of staff and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code HCFA-1005-IFC.
    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 445-G of the Department's offices at 
200 Independence Avenue, SW., Washington, DC, on Monday through Friday 
of each week from 8:30 a.m. to 5 p.m. (phone: (202) 690-7890).

FOR FURTHER INFORMATION CONTACT: Vivian Braxton, (410) 786-4571 (for 
information related to transitional payment policy changes). George 
Morey, (410) 786-4653 (for information related to the grandfathering of 
Federally Qualified Health Centers and ``look-alikes'', the requirement 
for notice to beneficiaries of cost-sharing liability, and the 
protocols for off-campus departments).

SUPPLEMENTARY INFORMATION: This Federal Register document is also 
available from the Federal Register online database through GPO Access, 
a service of the U.S. Government Printing Office. The Website address 
is: http://www.access.gpo.gov/nara/index.html.

I. Background

    On April 7, 2000, we published in the Federal Register (65 FR 
18434) a final rule with comment for implementation of a new 
prospective payment system (PPS) for hospital outpatient services. The 
new system establishes payment rates for each PPS covered service using 
ambulatory payment classification (APC) groups. On June 30, 2000, we 
published a notice in the Federal Register (65 FR 40535) announcing our 
decision to delay the effective date of the outpatient PPS from July 1, 
2000 as set forth in the April 7, 2000 final rule until August 1, 2000. 
We stated in the June 30, 2000 notice that we are delaying the 
effective date because we have to make a major change to the current 
claims processing system to implement the new PPS. We further stated 
that the 1 month postponement would give us additional time to test and 
refine the complex software programs needed to operate the PPS and 
would give hospitals the additional time they require to prepare and 
train for the new system. Therefore, the PPS provisions incorporated in 
the April 7, 2000 final rule are effective August 1, 2000 and the 
provider-based provisions included in that rule are effective October 
10, 2000.
    Among the provisions of the April 7, 2000 final rule are those 
implementing section 1833(t)(6) of the Social Security Act (the Act), 
which was added by section 201(b) of the Balanced Budget Refinement Act 
of 1999 (BBRA 1999). This section provides for temporary additional 
payments, termed ``transitional pass-through payments,'' for certain 
drugs, biologicals, and devices. The provision requires the Secretary 
to make additional payments to hospitals for at least 2 but no more 
than 3 years for specific items. The items designated by the law are 
the following: Current orphan drugs, as designated under section 526 of 
the Federal Food, Drug, and Cosmetic Act; current drugs, biologic 
agents, and brachytherapy devices used for the treatment of cancer; 
current radiopharmaceutical drugs and biological products; and new 
medical devices, drugs, and biologic agents, in instances in which the 
item was not being paid for as a hospital outpatient service as of 
December 31, 1996, and when the cost of the item is ``not 
insignificant'' in relation to the hospital outpatient PPS payment 
amount. For those drugs, biologicals, and devices referred to as 
``current,'' the transitional payment begins on the first date the new 
PPS is implemented, as required by section 1833(t)(6)(B)(i) of the Act.
    In the April final rule, we established three criteria that a new 
device, drug, or biological must meet to determine whether its cost are 
not insignificant relative to the APC payment with which the item is 
associated. We stated that all of the following cost criteria must be 
satisfied in order for a new device, drug, or biological to be eligible 
for transitional pass-through payments:
    (1) Its expected reasonable cost exceeds 25 percent of the 
applicable fee schedule amount for the associated service.
    (2) The expected reasonable cost of the new drug, biological, or 
device must exceed the portion of the fee schedule amount determined to 
be associated with the drug, biological, or device by 25 percent.
    (3) The difference between the expected, reasonable cost of the 
item and the portion of the hospital outpatient department fee schedule 
amount determined to be associated with the item exceed 10 percent of 
the applicable hospital outpatient department fee schedule amount.
    In this interim final rule, we are revising the first criterion and 
delaying the effective date of the other two criteria.
    Our plans for implementation of section 1833(t)(6) of the Act are 
discussed in the April 2000 final rule (65 FR 18478). This section, 
along with other sections implementing BBRA 1999 provisions that were 
included in the April 2000 final rule have not previously been subject 
to public comment were subject to comment until June 6, 2000. We 
explained in the April 2000 final rule that we found good cause to 
waive the customary procedure for prior notice and comment with respect 
to these BBRA 1999 provisions and the final rule provides a 60-day 
period for the public to comment on these provisions. (For a full 
discussion of the waiver of proposed rulemaking, refer to Section XI of 
the April 2000 final rule (65 FR 18535).)

[[Page 47672]]

    The transitional pass-through payments provide a way for ensuring 
appropriate payment for new items for which the use and costs are not 
adequately represented in the 1996 base year claims data on which the 
hospital outpatient prospective payment system is based. Although 
individual items will receive transitional pass-through payments for 2 
to 3 years from either the first date the PPS is implemented or on the 
first date payment is initiated for the specific item, the underlying 
provision is permanent and provides an on-going mechanism for new items 
to qualify for 2 to 3 years pass-through payments in the future.
    Another provision of the April 2000 final rule (65 FR 18477) 
describes the payment approach for new technology services by defining 
a special category of APCs referred to as ``new technology APCs.'' 
Services, such as new surgical techniques (for example, transurethral 
microwave thermotherapy) or items not eligible for transitional pass-
through payments can be paid as a part of these new technology APCs. At 
a later stage, once data about the actual hospital costs incurred to 
furnish a new technology service are available, we expect to move 
payment for these services or items to other, APCs with services that 
are comparable clinically and with respect to resources. As explained 
in the April 2000 final rule, if we cannot move the new technology 
service to an existing APC because it is dissimilar clinically and, 
with respect to resource costs, from all other APCs, we will create a 
separate APC for the service. As stated in our April 2000 final rule, 
the timeframe for treating a service or item as new technology will be 
consistent with that for pass-through payments; that is at least 2 but 
no more than 3 years.
    In the April 2000 final rule (65 FR 18480), we established eight 
specific criteria that new or innovative medical devices must meet to 
be considered eligible for pass-through payments under section 
1833(t)(6) of the Act. We stated in the final rule that new or 
innovative medical devices must meet all of the following criteria to 
be considered eligible for transitional pass-through payments:
    a. They were not recognized for payment as a hospital outpatient 
service prior to 1997.
    b. They have been approved/cleared for use by the Food and Drug 
Administration.
    c. They are determined to be reasonable and necessary for the 
diagnosis or treatment of an illness or injury or to improve the 
functioning of a malformed body part, as required by section 
1862(a)(1)(A) of the Act. We recognize that some investigational 
devices are refinements of existing technologies or replications of 
existing technologies and may be considered reasonable and necessary. 
We will consider devices for coverage under the outpatient PPS if they 
have received an FDA investigational device exemption (IDE) and are 
classified by the FDA as Category B devices. (See Secs. 405.203 (FDA 
categorization of investigational devices) to 405.215 (Confidential 
commercial and trade secret information).) However, in accordance with 
Sec. 405.209 (Payment for a non-experimental/investigational (Category 
B) device), payment for a nonexperimental investigational device is 
based on, and may not exceed, the amount that would have been paid for 
a currently used device serving the same medical purpose that has been 
approved or cleared for marketing by the FDA.
    d. They are an integral and subordinate part of the procedure 
performed, are used for one patient only, are surgically implanted or 
inserted, and remain with that patient after the patient is released 
from the hospital outpatient department.
    e. The associated cost is not insignificant in relation to the APC 
payment for the service in which the innovative medical equipment is 
packaged. (For the definition of ``not insignificant,'' see the April 
2000 final rule (65 FR 18480).)
    f. They are not equipment, instruments, apparatuses, implements, or 
such items for which depreciation and financing expenses are recovered 
as depreciable assets as defined in Chapter 1 of the Medicare Provider 
Reimbursement Manual (HCFA Pub. 15-1). (As discussed in the April 2000 
final rule, these costs are considered overhead expenses that are and 
will continue to be factored into the APC payment.)
    g. They are not materials and supplies such as sutures, clips, or 
customized surgical kits furnished incident to a service or procedure.
    h. They are not materials such as biologicals or synthetics that 
may be used to replace human skin.
    Note that devices that meet criteria ``b'' and ``c'' but not one of 
the others, though they are not eligible for transitional pass-through 
payments under section 1833(t)(6) of the Act, are paid through the 
usual payments for the associated APC. These payment levels will be 
updated over time to reflect the use of new items and services.
    Three of the criteria, ``c'', ``d'', and ``g,'' are the focus of 
the transitional pass-through payment changes contained in this interim 
final rule. In criterion ``c'', we stated that devices cleared by the 
FDA with IDE Category B status would be considered for transitional 
pass-through payment. We further stated that we would limit such 
payment to the amount that would be paid for a currently used device 
serving the same medical purpose that has been approved or cleared for 
marketing by the FDA. In criterion ``d,'' we stated our intent to 
interpret the new device transitional pass-through payment provision in 
a way that would limit these payments to those devices that are 
implantable in the sense that they are surgically inserted in a patient 
and remain with that patient after the patient is released from the 
hospital outpatient department. In criterion ``g'' we expressed our 
intent to treat all ``clips'' equally as though they function solely as 
tools and supplies that are necessary for the surgeon to perform a 
surgical procedure without considering other functions that may qualify 
some as candidates for pass-through consideration.
    In Addendum K of the April 2000 final rule, we published a 
preliminary list of those particular items and services for which we 
expect to make payment based on either the pass-through or new 
technology provision effective August 1, 2000. A slightly different 
version of this list was posted on our web site, www.hcfa.gov, on March 
9, 2000. (A separate notice published elsewhere in the April 7, 2000 
Federal Register (65 FR 18341) specifically identified this web site 
posting.) The April 2000 final rule and the web site posting contain 
instructions about how interested parties may apply for transitional 
pass-through or new technology payment status for items or services. On 
May 12, 2000, we updated our web site posting to reflect additional 
items approved for pass-through and new technology payments on 
implementation of the new system; that is, August 1, 2000. In addition, 
on June 22, 2000 we posted updated instructions and announced the 
application deadline of July 14, 2000 for transitional pass-through and 
new technology payments effective October 1, 2000.
    The April 2000 final rule also specified a number of criteria that 
facilities or organizations must meet to be considered, for purposes of 
Medicare payment, to be ``provider-based.'' We adopted these criteria 
in an attempt to ensure that only appropriately qualified facilities 
and organizations receive the higher payment levels typically 
associated with this status. The criteria for provider-based status are 
set forth in Sec. 413.65 (Requirements for a determination that a 
facility or an

[[Page 47673]]

organization has provider-based status) of the April 2000 final rule 
(65 FR 18538).
    In the April 2000 final rule, we included a special grandfathering 
provision applicable to FQHCs and ``look-alikes'' (facilities that are 
structured like FQHCs and meet all the requirements for grant funding 
but have not actually received these grants). The provision stated that 
a facility or entity would be treated as provider-based, without regard 
to compliance with the provider-based criteria if it has, since April 
7, 1995, furnished only services that were billed as if they had been 
furnished by a department of a provider and received a grant before 
1995 under section 330 of the Public Health Service Act, or is 
receiving funding from such a grant under a contract with the recipient 
of such a grant and meets the requirements to receive a grant under 
section 330 of the Public Health Service Act, or based on the 
recommendation of the Public Health Service (PHS), was determined by 
HCFA before 1995 to meet the requirements for receiving such a grant. 
We included this provision in response to comments suggesting that 
application of provider-based criteria to FQHCs and ``look-alikes'' 
could interfere with the continuity of care to patients served by these 
health centers. We also were concerned that application of the criteria 
could adversely affect access to care for the patients served by these 
facilities. Therefore, we indicated that we were accepting the comments 
and had crafted the criteria to give effect to these concerns.
    The April 2000 final rule (65 FR 18540) also contained a 
requirement, in new Sec. 413.65(g)(7) (Obligations of hospital 
outpatient departments and hospital-based entities), that when a 
Medicare beneficiary is treated in a hospital outpatient department or 
hospital-based entity (other than a rural health clinic) that is not 
located on the main provider's campus, the hospital has a duty to 
furnish written notice to the beneficiary, before the delivery of 
services, of the amount of the beneficiary's potential financial 
liability (that is, of the fact that the beneficiary will incur a 
coinsurance liability for an outpatient visit to the hospital as well 
as for the physician service and of the amount of that liability). The 
notice must be one that the beneficiary can read and understand. If the 
beneficiary is unconscious, under great duress, or for any other reason 
unable to read a written notice and understand and act on his or her 
own rights, the notice must be furnished, before the delivery of 
services, to the beneficiary's authorized representative.
    In addition, the April 2000 final rule amended Sec. 489.24 (Special 
responsibilities of Medicare hospitals in emergency cases), sometimes 
referred to the Emergency Medical Treatment and Active Labor Act 
(EMTALA) regulation. In new Sec. 489.24(i)(2), we required that 
hospitals establish protocols for handling individuals with potential 
emergency conditions at off-campus departments. In new 
Sec. 489.24(i)(2)(ii), we further required that if the off-campus 
department is a physical therapy, radiology, or other facility not 
routinely staffed with physicians, RNs, or LPNs, the department 
personnel must be given protocols that direct them to contact emergency 
personnel at the main hospital campus.

II. Provisions of the Interim Final Rule

A. New Medical Devices, Drugs, and Biologicals

    We are revising Sec. 419.43 (e)(1)(iv) to change one criterion and 
to postpone the effective date for two other criteria that a new 
device, drug, or biological must meet in order for its cost to be 
considered ``not insignificant''. In the April 2000 final rule, (65 FR 
18434), the expected reasonable cost of a device had to exceed 25 
percent of the applicable fee schedule amount for the associated 
service in order for the cost of the device to meet the ``not 
insignificant'' test. Based on the experience that we gained by 
reviewing the applications submitted for approval of new devices, drugs 
and biologicals as pass-through items, we concluded that the 25 
percent-limitation was too restrictive and could result in limiting 
Medicare beneficiaries' access to new products. In order to ensure that 
Medicare beneficiaries will continue to have access to the latest 
technologies, we are changing that criterion. We will now require that 
the expected reasonable cost of a new device must exceed 10 percent of 
the applicable fee schedule amount for the associated service.
    The additional two criteria, proposed in the April 2000 rule, for 
determining whether a new device, drug, or biological cost is ``not 
insignificant'' will be postponed and will apply to devices, drugs, and 
biologicals for which a transitional pass-through payment is first made 
on or after January 1, 2003. The delay in effective date for these 
criteria is necessary so that we will have sufficient time to gather 
and analyze data needed to determine the current portion of the fee 
schedule amounts associated with a device, drug, or biological, which 
is an essential factor in applying these criteria.

B. Revision to Criteria to Define New or Innovative Medical Devices 
Eligible for Pass-through Payments

    In criterion ``c'', we stated that devices cleared by the FDA with 
IDE Category B status would be considered for transitional pass-through 
payment. We further stated that we would limit pass-through payment for 
the eligible IDE Category B device to the amount that would be paid for 
a currently used device serving the same medical purpose that has been 
approved or cleared for marketing by the FDA. This approach was taken 
based on the regulations requirement set forth in Sec. 405.209 that 
limits payment for the IDE Category B device in the manner described. 
Since publishing our April 2000 final rule, we have reviewed this 
policy and now believe that it would be more appropriate to provide 
that the payment amount for IDE Category B items that qualify for 
transitional pass-through payments be determined in the same manner as 
other pass-through items (that is, no cap). Since IDE Category B 
devices are subjected to the same eligibility requirements as any other 
device applying for pass-through status and since pass-through payments 
for a specific device are temporary, we believe that, for purposes of 
making outpatient PPS pass-through payments, it is more appropriate to 
not impose a payment cap on eligible IDE Category B devices. Therefore, 
we are revising criterion ``c'' by removing the cost limitation 
provision for IDE Category B devices that qualify for transitional 
pass-through payments.
    In addition, since publication of the April 2000 final rule, we 
have been processing a large number of applications for transitional 
pass-through payment status for new medical devices. It has become 
apparent that our attempt to distinguish implantable devices using the 
procedure we had outlined in the April 2000 final rule had practical 
limitations. For example, a significant number of applications received 
were for devices that consist of more than one component in which one 
component would be implantable according to the new medical device 
definition stated in the April 2000 final rule (65 FR 18480) while 
other components, such as catheters, guidewires, or certain clips would 
not meet this definition.
    Distinguishing these components of a single product and pricing 
them separately appears unnecessarily cumbersome. In some instances, a 
particularly expensive catheter that is

[[Page 47674]]

surgically inserted, removed, and disposed of in the course of a 
procedure may be used in one of a number of procedures. In this 
instance the new medical device is implanted temporarily rather than 
permanently as indicated in our original policy published in the April 
2000 final rule. However, we did not intend for our policy to exclude 
new medical devices that are implanted or inserted during a procedure 
but also may be removed during that procedure so that the patient 
leaves the hospital without the device. Rather, we believe that these 
devices should be considered for pass-through payments because they 
also are implantables.
    In other instances, it became apparent that some clips are 
expensive and function other than as tools or supplies necessary for a 
surgeon to perform a surgical procedure. Some clips are radiological 
site or tissue markers that are implanted and may be used months after 
implantation to locate an area for imaging and later removed. We did 
not intend to exclude such clips from consideration for pass-through 
payments.
    Separating components of a single product and pricing them 
separately could require the establishment of a number of new payment 
groups consisting of just one product as a result of introduction of a 
single, high-priced item. Industry representatives also indicated 
significant concerns about our way of proceeding.
    Therefore, we are modifying our interpretation of which devices are 
eligible for transitional pass-through payments to include new medical 
devices that are used for one patient only, are single use, come in 
contact with human tissue, and are surgically implanted or inserted in 
a patient during a procedure but may also be removed during that 
procedure so that the patient leaves the hospital without the device. 
Our revised interpretation also includes clips that are used as 
radiological site or tissue markers.
    In addition, we are clarifying our interpretation of criterion 
``g'' to include as supplies pharmacological imaging and stressing 
agents other than radiopharmaceuticals (for which payment under the 
transitional pass-through provision is established by section 
1833(t)(6)(A) of the Act). Also, in criterion ``g'' we have become 
aware of the need, based on our review of pass-through applications, to 
clarify that supplies include contrast media and stressing agents, 
excluding radiopharmaceuticals, that are used in imaging procedures. We 
are revising criteria ``c'', ``d'' and ``g'' of the eight criteria for 
defining new medical devices for pass-through payments that were 
discussed in the preamble of the April 2000 final rule to reflect this 
change. These three revised criteria are as follows:
     Criterion--c. They are determined to be reasonable and 
necessary for the diagnosis or treatment of an illness or injury or to 
improve the functioning of a malformed body part, as required by 
section 1862(a)(1)(A) of the Act. Some investigational devices are 
refinements of existing technologies or replications of existing 
technologies and may be considered reasonable and necessary. If such 
devices have received an FDA investigational device exemption (IDE) and 
are classified by the FDA as Category B devices in accordance with 
Secs. 405.203 to 405.215 of this chapter, excluding Sec. 405.209, they 
will be considered for coverage under the hospital outpatient 
prospective payment system.
     Criterion--d. They are an integral and subordinate part of 
the procedure performed, are used for one patient only, are single use, 
come in contact with human tissue, and are surgically implanted or 
inserted, whether or not they remain with the patient when the patient 
is released from the hospital outpatient department.
     Criterion--g. They are not materials and supplies such as 
sutures, customized surgical kits, clips (other than radiological site 
or tissue markers), or furnished incident to a service or procedure. 
Supplies include pharmacological imaging and stressing agents other 
than radiopharmaceuticals (for which transitional pass-through payment 
is authorized under section 1833(t)(6)(A) of the Act).
    Also, we are revising Sec. 419.43(e)(4) (Transitional pass-through 
for additional costs of innovative medical devices, drugs, and 
biologicals) to include all eight criteria to define new or innovative 
medical devices eligible for pass-through payments.
    The policies discussed above represent a change from the policies 
stated in the April 2000, final rule. This interim final rule with 
comment, thus, supersedes the relevant aspects of the previous rule. 
Comments on our revised policy will be considered if received by 
September 5, 2000.

C. Revision to Grandfather Provision for Certain FQHCs and Look-Alikes

    Since publication of the April 2000 final rule, we have become 
aware that, as currently worded, the rule would not fulfill its 
intended purpose in that the continuity of care and access to care for 
patients of some health centers could be jeopardized. This is because 
those centers meet other criteria for grandfathering but were not 
designated as FQHCs or ``look-alikes'' before 1995. To meet our 
original policy intent of helping to ensure that the new criteria do 
not disrupt the delivery of services to patients of these facilities, 
we are correcting Sec. 413.65(m) to state that a facility or entity 
would be treated as provider-based, without regard to compliance with 
the provider-based criteria, if it has since April 7, 1995 furnished 
only services that were billed as if they had been furnished by a 
department of a provider and received a grant on or before April 7, 
2000 under section 330 of the Public Health Service Act and continues 
to receive funding under such a grant, or is receiving funding from a 
grant made on or before April 7, 2000 under section 330 of the Public 
Health Service Act; or based on the recommendation of the PHS, was 
determined by HCFA on or before April 7, 2000 to meet the requirements 
for receiving a grant under section 330 of the Public Health Service 
Act, and continues to meet such requirements. We are making this change 
to clarify that grandfathering under Sec. 413.65 is based on continued 
status as a section 330 of the Public Health Service Act grantee or a 
``look-alike'' facility.

III. Clarification Issues

A. Clarification of Transitional Pass-Through/New Technology Codes

    We wish to clarify that the ``C'' codes assigned to many items 
shown in the May 12, 2000 web site posting are temporary HCFA Common 
Procedure Coding System (HCPCS) codes that are to be used exclusively 
to bill pass-through and new technology items paid under the hospital 
outpatient PPS. These codes cannot be used to bill other Medicare 
payment systems, for example, the durable medical equipment fee 
schedule. Assignment of the ``C'' category of HCPCS codes for use in 
the hospital outpatient PPS is intended to expedite the processing of 
requests for pass-through and new technology status and to ensure 
beneficiaries timely access to new and appropriate technologies. 
Therefore, applicants may submit a single application as detailed in 
the April 2000 final rule (65 FR 18481) for such items that do not have 
an established HCPCS code to ATTN: PPS New Tech/Pass-Throughs, Division 
of Practitioner and Ambulatory Care, Mailstop C4-03-06, Health Care 
Financing Administration, 7500 Security Boulevard, Baltimore, MD 21244-
1850. HCPCS applications unrelated to the pass-through and new 
technology provisions should continue

[[Page 47675]]

to follow the regular HCPCS application process found on the Internet 
at http://www.hcfa.gov/medicare/hcpcs.htm.
    As stated in the April 2000 final rule, if the item for which pass-
through or new technology status is requested requires approval/
clearance by the Food and Drug Administration (FDA), submit a copy of 
the FDA approval/clearance letter. Products may be considered for pass-
through status as soon as they are approved/cleared by the FDA without 
a specified period of marketing experience. This approach reflects our 
policy on assigning ``C'' codes since the creation of these codes under 
the HCPCS.

B. Clarification of Notice of Beneficiary Cost-Sharing Liability

    Following publication of the April 2000 final rule, some hospitals 
and their representatives have asked whether it is our intent that the 
beneficiary notice requirement in new Sec. 413.65(g)(7) be followed in 
cases when the prohibition on patient dumping requirements in 
Sec. 489.24, sometimes referred to as the Emergency Medical Treatment 
and Active Labor Act (EMTALA) requirements, apply. The concern 
expressed is that, in such cases, it would not be appropriate to delay 
mandated screening and stabilization services to deliver a notice of 
patient financial liability. Questions also have arisen as to whether 
hospitals can reasonably be expected to furnish an exact statement of 
the patient's financial liability, since the exact scope of services 
needed may not be known at the time notice must be given.
    We understand this concern and wish to confirm that in EMTALA cases 
the requirements of Sec. 489.24 continue to apply, so that hospitals 
are not required to deliver the notices before screening and 
stabilizing a patient with an emergency medical condition. We further 
understand the concerns that have been expressed regarding estimates of 
financial liability. We are clarifying that when the exact type and 
extent of care needed is not known, the hospital may furnish a written 
notice to the patient that explains the fact that the beneficiary will 
incur a coinsurance liability to the hospital that they would not incur 
if the facility were not provider-based. The hospital may furnish an 
estimate based on typical or average charges for visits to the facility 
or organization, while stating that the patients actual liability will 
depend upon the actual services furnished by the hospital. We are 
developing a separate proposed rule that will further revise and 
clarify the notice requirements and will issue that proposed rule for 
public comment as soon as possible.

C. Clarification of Protocols for Off-Campus Departments

    Following publication of the April 2000 final rule, some hospitals 
and their representatives have asked whether it is our intent that the 
staff of off-campus departments described in new 
Sec. 489.24(i)(2)(ii)), such as physical therapy, radiology, or other 
facilities not routinely staffed with physicians, RNs, or LPNs, be 
required to contact emergency personnel at the main hospital campus (as 
described in new Sec. 489.24(i)(3)(ii) before arranging an appropriate 
transfer to a medical facility other than the main hospital. This 
question refers to cases in which an appropriate transfer is necessary 
either because the main hospital campus does not have the specialized 
capability or facilities required by the individual or because the 
individual's condition is deteriorating so rapidly that the time needed 
to move the individual to the main hospital campus would significantly 
jeopardize the individual's life or health.
    We understand this concern and do not intend that new 
Sec. 489.24(i)(2)(ii) be interpreted in a way that could delay an 
appropriate transfer. Therefore, we are clarifying that in any case 
arising in an off-campus department, of the kind described in new 
Sec. 489.24(i)(2)(ii), the contact with emergency personnel at the main 
hospital campus should be made either after or concurrently with, the 
actions needed to arrange an appropriate transfer under new 
Sec. 489.24(i)(3)(ii) if doing otherwise would significantly jeopardize 
the individual's life or health. We note that this clarification does 
not relieve the off-site department of the responsibility for making 
this contact, but only clarifies that the contact may be delayed in 
specific cases when doing otherwise would endanger a patient subject to 
EMTALA protection.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

V. Regulatory Impact Statement

    We have examined the impacts of this rule as required by Executive 
Order 12866 and the Regulatory Flexibility Act (RFA) (Pub. L. 96-354). 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, if regulation is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity). A regulatory impact analysis (RIA) 
must be prepared for major rules with economically significant effects 
($100 million or more annually). This interim final rule is not a major 
rule because we have determined that the economic impact will be 
negligible for the revisions related to the transitional pass-through 
payments for new or innovative medical devices and the grandfathering 
of FQHCs and ``look-alikes.''
    In addition, the budget impact related to the transitional pass-
through provision has already been addressed in the April 2000 final 
rule (65 FR 18530). As stated in that rule, the pass-through provision 
is budget neutral as required by section 1833(t)(2)(E) of the Act as 
amended by section 201(c) of the BBRA. Section 1833(t)(6)(D) of the Act 
caps the projected additional payments annually at 2.5 percent of the 
total projected payments for hospital outpatient services each year 
before calendar year 2004 and no more than 2.0 percent in year 2004 and 
in subsequent years. Under this provision, we have the authority to 
reduce pro rata the amount of the additional payments, if before the 
beginning of a year, we estimate that these payments would otherwise 
exceed the caps. We advised, in the April 2000 final rule, that it is 
extremely difficult for us to estimate projected pass-through 
expenditures as required by law because we do not have claims data 
available for most items that would be eligible for pass-through 
payments and because many eligible items would be added after the new 
system is implemented. For these reasons, in the April 2000 final rule, 
we stated that there would be no uniform reduction applied to the pass-
through payments for calendar years 2000 and 2001. The pass-through 
change incorporated in this interim final rule does not alter these 
circumstances.
    Also, the budgetary impact related to the grandfathering provision 
was already calculated in the April 2000 final rule (65 FR 18530) as if 
these providers were designated before April 7, 2000.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit

[[Page 47676]]

status or by having revenues of $5 million or less annually. For 
purposes of the RFA, all FQHCs and ``look-alikes'' are considered to be 
small entities. Individuals and States are not included in the 
definition of a small entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any final rule that may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. Such an analysis must conform to the provisions of 
section 604 of the RFA. With the exception of hospitals located in 
certain New England counties, for purposes of section 1102(b) of the 
Act, we define a small rural hospital as a hospital with not more than 
100 beds that is located outside of a Metropolitan Statistical Area 
(MSA) or New England County Metropolitan Area (NECMA). Section 601(g) 
of the Social Security Amendments of 1983 (Pub. L. 98-21) designated 
hospitals in certain New England counties as belonging to the adjacent 
NECMA. Thus, for purposes of the prospective payment system, we 
classify these hospitals as urban hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an expenditure in any one year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $100 million. This interim final rule will not have 
a significant economic effect on these governments or the private 
sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct compliance costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. This 
interim final rule will not have a substantial effect on States or 
local governments.
    For these reasons, we are not preparing analyses for either the RFA 
or section 1102(b) of the Act because we have determined, and we 
certify, that this rule will not have a significant economic impact on 
a substantial number of small entities or a significant impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

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

VII. Waiver of Proposed Rulemaking and Waiver of the 30-Day Delay 
in the Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued. For the 
reasons set forth below, we find good cause to waive the requirement 
for notice and comment procedures for the refinement of rules 
concerning provider based status for FQHCs (including ``look-alike'' 
facilities).
    We believe that implementing the provider-based provisions 
contained in the April 2000 final rule without the refinements 
incorporated in this document could jeopardize continuity of care at 
certain facilities currently treated as provider-based FQHCs, and 
consequently disrupt care for Medicare beneficiaries served in those 
facilities. It would have been impracticable to complete notice-and-
comment procedures by August 1, 2000. Given the limited timeframe and 
the time required to complete notice-and-comment procedures (to develop 
proposed policies, draft the proposed rule, provide a 60-day public 
comment period, consider public comments, develop final policies, and 
draft a final rule), it would not have been possible to issue this 
document as a proposed rule and issue a final rule by August 1, 2000. 
Therefore we find that notice and comment procedures on this issue 
would be impracticable and contrary to the public interest.
    With respect to outpatient PPS, this rule revises a policy 
reflected in the April 7 final rule with comment period. The April 7 
rule provided a waiver of notice and comment procedures for, among 
other things, the outpatient PPS policy revised herein.
    We find the circumstances surrounding this interim final rule make 
it impracticable and contrary to the public interest to allow a 30-day 
delay in its effective date with respect to outpatient PPS. This 
interim final rule refines policies set forth in the April 2000 final 
rule including the definition of new medical devices, drugs, and 
biologicals eligible for pass-through payments. The provisions 
contained in the April 2000 final rule regarding the transitional pass-
through payments will be implemented on August 1, 2000, while the 
provider-based provisions will be implemented on October 10, 2000. We 
do not believe that it would be feasible or desirable to implement 
pass-through provisions contained in the April 2000 final rule without 
the refinements incorporated in this document. We believe that it would 
be impracticable and contrary to the public interest to have an 
effective date for the policy revisions in this document relating to 
devices that differs from the effective date for the rest of outpatient 
PPS. If we allow a 30-day delay in the effective date of this rule, 
hospitals and fiscal intermediaries will be placed at greater risks to 
make additional changes soon after implementing major systems changes; 
will find it cumbersome; and will consider it an inefficient use of 
resources.
    Therefore, we find good cause to waive the 30-day delay in the 
effective date.

List of Subjects

42 CFR Part 413

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

42 CFR Part 419

    Health facilities, Hospitals, Medicare.

    For the reasons set forth in the preamble, 42 CFR Chapter IV is 
amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT 
RATES FOR SKILLED NURSING FACILITIES

    A. Part 413 is amended as set forth below:
    1. The authority citation for part 413 continues ro read as 
follows:

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and 
(n), 1871, 1881, 1883, and 1886 of the Social Security Act (42 
U.S.C. 1302, 1395f(b), 1395g, 1395l, 1395l(a), (i), and (n), 
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww).

[[Page 47677]]

Subpart E--Payments to Providers

    2. In Sec. 413.65, paragraph (m) is revised to read as follows:


Sec. 413.65  Requirements for a determination that a facility or an 
organization has provider-based status.

* * * * *
    (m) FOHCs and ``look-alikes''. A facility that has, since April 7, 
1995, furnished only services that were billed as if they had been 
furnished by a department of a provider will continue to be treated, 
for purposes of this section, as a department of the provider without 
regard to whether it complies with the criteria for provider-based 
status in this section, if the facility--
    (1) Received a grant on or before April 7, 2000 under section 330 
of the Public Health Service Act and continues to receive funding under 
such a grant, or is receiving funding from a grant made on or before 
April 7, 2000 under section 330 of the Public Health Service Act under 
a contract with the recipient of such a grant, and continues to meet 
the requirements to receive a grant under section 330 of the Public 
Health Service Act; or
    (2) Based on the recommendation of the Public Health Service, was 
determined by HCFA on or before April 7, 2000 to meet the requirements 
for receiving a grant under section 330 of the Public Health Service 
Act, and continues to meet such requirements.
* * * * *

PART 419--PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
DEPARTMENT SERVICES

    B. Part 419 is amended as set forth below:
    1. The authority citation continues to read as follows:

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

Subpart D--Payments to Hospitals

    2. Section 419.43 is amended by:
    A. Revising paragraph (e)(1)(iv).
    B. Redesignating paragraph (e)(4) as paragraph (e)(5).
    C. Adding new paragraph (e)(4).
    The revision and addition reads as follows:


Sec. 419.43  Adjustments to national program payment and beneficiary 
coinsurance amounts.

* * * * *
    (e) Transitional pass-through for additional costs of innovative 
medical devices, drugs, and biologicals-- * * *
    (1) * * *
    (iv) New medical devices, drugs, and biologicals. A medical device, 
drug, or biological not described in paragraph (e)(1)(i), (e)(1)(ii), 
or (e)(1)(iii) of this section if--
    (A) Payment for the device, drug, or biological as an outpatient 
hospital service under this part was not being made as of December 31, 
1996; and
    (B) The cost of the device, drug, or biological is not 
insignificant (as defined in paragraph (e)(1)(iv)(C) and (D) of this 
section) in relation to the hospital outpatient fee schedule amount (as 
calculated under Sec. 419.32(c)) payable for the service (or group of 
services) involved.
    (C) In the case of a new device, drug, or biological for which a 
transitional pass-through payment is first made before January 1, 2003, 
the cost of the device, drug, or biological is considered not 
insignificant if its expected reasonable cost exceeds 10 percent of the 
applicable fee schedule amount for the associated service.
    (D) In the case of a new device, drug, or biological for which a 
transitional pass-through payment is first made on or after January 1, 
2003, the cost of the device, drug, or biological is considered not 
insignificant if it meets all of the following thresholds:
    (1) Its expected reasonable cost exceeds 10 percent of the 
applicable fee schedule amount for the associated service.
    (2) The expected reasonable cost of the new drug, biological, or 
device must exceed the current portion of the fee schedule amount 
determined to be associated with the drug, biological, or device by 25 
percent.
    (3) The difference between the expected reasonable cost of the item 
and the portion of the hospital outpatient fee schedule amount 
determined to be associated with the item exceeds 10 percent of the 
applicable hospital outpatient fee schedule amount.
* * * * *
    (4) Criteria to define new or innovative medical devices eligible 
for pass-through payments. HCFA makes pass-through payment for new or 
innovative medical devices that meet all of the following criteria:
    (i) They were not recognized for payment as a hospital outpatient 
service prior to 1997.
    (ii) They have been approved/cleared for use by the FDA.
    (iii) They are determined to be reasonable and necessary for the 
diagnosis or treatment of an illness or injury or to improve the 
functioning of a malformed body part, as required by section 
1862(a)(1)(A) of the Act. Some investigational devices are refinements 
of existing technologies or replications of existing technologies and 
may be considered reasonable and necessary. If such devices have 
received an FDA investigational device exemption (IDE) and are 
classified by the FDA as Category B devices in accordance with sections 
Secs. 405.203 to 405.215 of this chapter, excluding Sec. 405.209, they 
will be considered for coverage under the hospital outpatient 
prospective payment system.
    (iv) They are an integral and subordinate part of the procedure 
performed, are used for one patient only, are single use, come in 
contact with human tissue, and are surgically implanted or inserted 
whether or not they remain with the patient when the patient is 
released from the hospital outpatient department.
    (v) The associated cost is not insignificant, as determined under 
paragraph (e)(1)(iv) of this section, in relation to the APC payment 
for the service in which the related medical device is packaged.
    (vi) They are not equipment, instruments, apparatuses, implements, 
or such items for which depreciation and financing expenses are 
recovered as depreciable assets as defined in Chapter 1 of the Medicare 
Provider Reimbursement Manual (HCFA Pub. 15-1).
    (vii) They are not materials and supplies such as sutures, 
customized surgical kits, or clips, other than radiological site 
markers, furnished incident to a service or procedure. Supplies include 
pharmacological imaging and stressing agents other than 
radiopharmaceutical (for which transitional pass-through payment is 
authorized under section 1833(t)(6)(A) of the Act).
    (viii) They are not materials such as biologicals or synthetics 
that may be used to replace human skin.
* * * * *

(Catalog of Federal Domestic Assistance 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: July 27, 2000.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Approved: July 27, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 00-19668 Filed 7-31-00; 2:48 pm]
BILLING CODE 4120-01-U