[Federal Register Volume 66, Number 213 (Friday, November 2, 2001)]
[Rules and Regulations]
[Pages 55857-55866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27659]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 419

[CMS-1159-F1]
RIN 0938-AK54


Medicare Program; Announcement of the Calendar Year 2002 
Conversion Factor for the Hospital Outpatient Prospective Payment 
System and a Pro Rata Reduction on Transitional Pass-Through Payments

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule announces the Medicare hospital outpatient 
prospective payment system conversion factor for calendar year (CY) 
2002. In addition, it describes the Secretary's estimate of the total 
amount of transitional pass-through payments for CY 2002 and the 
implementation of a uniform reduction in each of the pass-through 
payments for that year.

EFFECTIVE DATE: This final rule is effective January 1, 2002 and 
applies to services furnished on or after January 1, 2002. This rule is 
a major rule as defined in 5 U.S.C. 804(2). According to 5 U.S.C. 
801(a)(1)(A), we are submitting a report to the Congress on this rule 
on November 1, 2001.

FOR FURTHER INFORMATION CONTACT: Anne Tayloe, (410) 786-0600.

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[[Page 55858]]

online database through GPO Access, a service of the U.S. Government 
Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html. 

I. Background

    Section 1833(t) of the Social Security Act (the Act), as added by 
section 4523 of the Balanced Budget Act of 1997 (BBA), Pub. L. 105-133, 
provided for implementation of a prospective payment system (PPS) for 
hospital outpatient services furnished to Medicare beneficiaries. The 
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 
(BBRA), Pub. L. 106-113, amended section 1833(t) of the Act to make 
major changes that affected the new prospective payment system. On 
April 7, 2000, we published a final rule with comment period in the 
Federal Register (65 FR 18434) to implement the new PPS for hospital 
outpatient services. The new system established payment rates for each 
service paid under this system using ambulatory payment classification 
(APC) groups. On June 30, 2000, we published a notice in the Federal 
Register (65 FR 40535) announcing a delay in the effective date of the 
hospital outpatient PPS (OPPS) from July 1, 2000 (as set forth in the 
April 7, 2000 final rule) until August 1, 2000. Therefore, OPPS became 
effective on August 1, 2000. The regulations implementing the payment 
system appear at 42 CFR part 419.
    On August 3, 2000, we published an interim final rule with comment 
period (65 FR 47670) that modified criteria that we use to determine 
which medical devices are eligible for transitional pass-through 
payments. On November 13, 2000, we published an interim final rule with 
comment period in the Federal Register (65 FR 67798) that provided for 
the annual update to the amounts and factors for OPPS payment rates 
effective for services furnished on or after January 1, 2001. We also 
responded to public comments on those portions of the April 7, 2000 
final rule that implemented related provisions of the BBRA and public 
comments on the August 3, 2000 rule.
    On August 24, 2001, we published a proposed rule in the Federal 
Register (66 FR 44672) that set forth proposed changes to the OPPS to 
implement applicable statutory requirements, including relevant 
provisions of the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 (BIPA) (Pub. L. 106-554), enacted on 
December 21, 2000, as well as changes arising from our continuing 
experience with the system. That document described proposed changes to 
the amounts and factors used to determine the payment rates for 
services paid under the hospital OPPS for CY 2002. These amounts and 
factors include the updated conversion factor, APC classifications and 
relative weights, wage index values, copayment amounts, and the 
discussion of a possible pro rata reduction to be applied to the 
transitional pass-through payments for certain drugs, biologicals, and 
medical devices.
    We received approximately 400 timely items of correspondence 
containing multiple comments on the August 24, 2001 proposed rule. In 
this final rule, we will respond to those comments addressing the 
Secretary's estimate of the total amount of pass-through payments for 
CY 2002 and the need for a uniform reduction to those payments in 2002 
as well as the determination of the OPPS conversion factor for CY 2002.
    In a subsequent final rule to be published by December 1, 2001, we 
will address the remainder of the comments and include the tables 
necessary to calculate CY 2002 payment rates and beneficiary copayment 
amounts.

II. Transitional Pass-Through Payments

A. Background

    Section 1833(t)(6) of the Act provides for temporary additional 
payments or ``transitional pass-through payments'' for certain 
innovative medical devices, drugs, and biologicals. As originally 
enacted by the BBRA, this provision required the Secretary to make 
additional payments to hospitals for current orphan drugs, as 
designated under section 526 of the Federal Food, Drug and Cosmetic 
Act; current drugs, biologicals, and brachytherapy devices used for the 
treatment of cancer; and current radiopharmaceutical drugs and 
biologicals. Transitional pass-through payments are also required for 
new medical devices, drugs, and biologicals that were not being paid 
for as a hospital outpatient service as of December 31, 1996 and whose 
cost is ``not insignificant'' in relation to the OPPS payment for the 
procedures or services associated with the new device, drug, or 
biological. Under the statute, transitional pass-through payments for 
any given device, drug, or biological are to be made for at least 2 
years but not more than 3 years.
    Section 1833(t)(6)(D)(i) of the Act sets the payment rate for drugs 
and biologicals eligible for a transitional pass-through payment as the 
amount by which the amount determined under section 1842(o) of the Act 
(that is, 95 percent of the applicable average wholesale price) exceeds 
the portion of the otherwise applicable fee schedule amount (that is, 
the APC payment rate) that the Secretary determines is associated with 
the drug or biological. Section 1833(t)(6)(D)(ii) of the Act sets the 
transitional pass-through payment for a medical device at the amount by 
which the hospital's charges, adjusted to cost, exceeds the portion of 
the otherwise applicable fee schedule amount (that is, the APC payment 
rate) that the Secretary determines is associated with the device.

B. Pro Rata Reductions

    Section 1833(t)(6)(E) of the Act limits the total projected amount 
of transitional pass-through payments for a given year to an 
``applicable percentage'' of projected total payments under the 
hospital OPPS. For a year before 2004, the applicable percentage is 2.5 
percent; for 2004 and subsequent years, the applicable percentage is a 
percentage specified by the Secretary up to 2.0 percent. If the 
Secretary estimates before the beginning of the calendar year that the 
total amount of pass-through payments in that year would exceed the 
applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a 
uniform prospective reduction in the amount of each of the transitional 
pass-through payments for that year to ensure that the limit is not 
exceeded.
    In the August 24, 2001 proposed rule setting out the proposed 
changes for CY 2002 in the OPPS, we described the extensive data base 
that we have constructed in order to prepare for making an estimate of 
pass-through payments for 2002. This data base includes outpatient 
claims data submitted by hospitals for services furnished on or after 
July 1, 1999 and before July 1, 2000, as well as device cost and 
utilization data extracted from applications for pass-through status 
submitted by manufacturers, hospitals, specialty societies, and other 
entities. In their applications for pass-through status, manufacturers 
have supplied information on the expected cost to hospitals of devices 
and the procedures with which the devices are commonly used.
    In the August 24, 2001 proposed rule, we indicated that the 
information collected to that time suggested that a significant pro 
rata reduction might be required for 2002 in order to meet the 
statutory limit on the amount of the pass-through payments. We also 
announced that we were considering the appropriateness of a number of 
possible alternative approaches that would have the effect of 
minimizing the amount of any potential reduction in these

[[Page 55859]]

payments. Finally, we presented a discussion of the methodology that we 
contemplate using in the development of our estimate.
    We announced in the August 24, 2001 proposed rule that we were 
considering a number of possible approaches to different technical 
aspects of estimating payments. We also indicated that, as is always 
the case in making these types of estimates, it would be necessary to 
make a number of assumptions in interpreting the data. We were 
tentatively contemplating using the following assumptions and 
techniques in developing our methodology:
1. Data and Procedures for Estimation
    We planned to base the estimate of 2002 pass-through expenditures 
on the claims we would use to set payment rates for 2002; 2001 pass-
through amounts for drugs and radiopharmaceuticals; and device cost and 
use data from pass-through applications submitted by manufacturers, 
hospitals, specialty societies, and other entities. We proposed to make 
projections to CY 2002 on the basis of price, volume, and service-mix 
inflators consistent with our baseline for OPPS spending. Estimates for 
drugs, radiopharmaceuticals, and devices would be made separately and 
combined for the final projection of pass-through spending.
2. Drug Estimate
    We also proposed to identify those drugs eligible for pass-through 
status that have been separately billed to the Medicare program on the 
claims that we intend to employ for the estimate. We proposed to 
multiply the frequency of use for each of these drugs (that is, the 
number of line items multiplied by the number of units billed as shown 
in the claims data) by its 2001 pass-through payment amount. We would 
determine a reasonable adjustment to account for those drugs that do 
not appear in the claims data. Such an adjustment might take into 
account the extent to which the noncoded items were classified as 
orphan drugs and therefore to be used infrequently.
3. Radiopharmaceutical Estimate
    As in the case of the drug estimates, we proposed to identify those 
radiopharmaceuticals eligible for pass-through status that were 
separately billed to Medicare in the claims data file. We proposed to 
estimate expenditures for these radiopharmaceuticals directly as 
described above. For radiopharmaceutical drugs, we would multiply the 
frequency of use for each item by the 2001 pass-through amount. We 
would estimate expenditures for the remaining items by using the 
frequency counts for all nuclear medicine procedures not billed with 
one of these radiopharmaceuticals.
4. Device Estimate
    We proposed to estimate the transitional pass-through payments 
attributable to devices by linking the frequencies for all device-
related procedures in the claims data file with the cost and use data 
supplied by the manufacturers or other entities as part of their 
applications for pass-through status. We proposed to match each device 
eligible as of January 2001 with the procedures with which it would be 
used. We would then calculate an average cost for each device or device 
package associated with a procedure.
    The statute requires that we calculate transitional pass-through 
payments for devices by adjusting the hospital's charge for the device 
to cost and then subtracting an amount that reflects the device costs 
already included in the payment for the associated APC. As we explained 
in the April 7, 2000 final rule (65 FR 18481), we were not able to 
implement these subtractions at the time of implementation of the 
system. For 2001, we made these deductions for pacemakers and 
neurostimulators. In the August 24, 2001 proposed rule, we proposed to 
make these subtractions for most other devices beginning in 2002. For 
the purpose of doing this estimation, we proposed to deduct these 
amounts from each device package before multiplying that cost by the 
procedure frequencies.
5. Projecting to 2002
    We planned to project prices and quantities in the estimates 
determined as above to 2002 using actuarial projections of price and 
enrollee volume and service increase consistent with the OPPS baseline. 
We then proposed to add the three separate results in an estimate of 
total pass-through spending.
    We received over 80 comments in response to our proposal, including 
comments from national provider associations, hospitals, device and 
drug manufacturers, and their representative associations.
    Comment: Many commenters expressed concern about the data and the 
methodology that we proposed to use in developing an estimate of pass-
through spending for 2002. A number of these commenters specifically 
cited the lack of actual claims data under the OPPS as one major 
concern. Commenters doubted that claims from the period before 
implementation of the OPPS would contain sufficiently accurate coding 
or adequately reflect utilization of pass-through items to allow us to 
make an accurate estimate.
    Response: We believe that the outpatient claims data submitted by 
hospitals for services furnished on or after July 1, 1999 and before 
July 1, 2000 provide adequate information for use in projecting pass-
through spending for 2002. These claims are the most recent outpatient 
data available to us, and we are also using these claims for the 
purpose of recalibrating the APC relative weights for 2002. These data 
provide useful information on the frequencies of the procedures in 
which pass-through items are used, as well as of the utilization 
frequencies of some of the pass-through items themselves (especially 
drugs). Claims data for the period after the implementation of the 
prospective payment system are not at present available for analysis. 
Under the best of circumstances, we would only expect data from the 
prior calendar year to be available. Thus, only data from the first 5 
months under the OPPS (August to December 2000) might be available at 
this point in the update cycle. However, the extent to which these 
data, were they available, would offer any significant improvement for 
these purposes is unclear. Those claims data would not contain 
information on most of the devices approved for pass-through payment in 
2002 because those items became eligible for payment after January 1, 
2001. It would still be necessary to use a crosswalk that maps devices 
to procedures in order to project spending for pass-through devices in 
2002.
    Comment: Some commenters questioned the appropriateness of using 
data on cost, utilization, and coding derived from applications from 
device manufacturers for pass-through status in developing the 
estimate. These commenters specifically contended that these data were 
not collected for the purpose of establishing payment amounts. They 
also contended that the cost, utilization, and coding information were 
not requested in a specific format on the applications, and that this 
information was therefore not presented in an appropriately consistent 
manner for the requisite level of analysis.
    Response: The assertions of the commenters are incorrect. We were 
aware that we would have to develop estimates of pass-through costs for 
the purposes of applying the statutory limit on these costs when we 
developed the applications for pass-through status. We also knew at 
that time that we needed cost data in order to apply the cost 
significance eligibility criteria for pass-

[[Page 55860]]

through status. We deliberately developed the applications in order to 
generate reliable information on the cost, coding, and use of devices.
    We specifically requested that the following information be 
uniformly provided: ``Current cost of the item or service to hospitals 
(i.e., actual cost paid by hospitals net of all discounts, rebates, and 
incentives in cash or in-kind).'' We also specifically asked applicants 
to identify the Healthcare Common Procedure Coding System (HCPCS) or 
American Medical Association Current Procedural Terminology (CPT) 
service codes associated with each device application. We certainly 
assume that the manufacturers would be reliable sources of this 
information. We did not derive information on utilization frequencies 
solely from the manufacturers' applications for pass-through status. 
Rather, we calculated our projections of utilization by analyzing the 
claims at our disposal using a crosswalk of pass-through items to 
procedure codes that our clinical staff developed from the information 
supplied by manufacturers. The crosswalk established the CPT codes and 
the APCs with which the particular devices are used, while the claims 
data provided the frequency of use for devices in those APCs.
    Comment: Many commenters questioned the validity of matching items 
eligible for pass-through payment with the procedures with which they 
would be used, citing the complexity of the CPT coding system and the 
variety and number of pass-through items that could be associated with 
particular procedure codes. The commenters asserted that a crosswalk 
that matched pass-through items and codes would require external review 
and validation. One commenter expressed concern that this crosswalk 
could overstate the frequencies of device use, since devices may not 
actually be used in every procedure where they could have been used.
    Response: Using the information from the applications, our clinical 
staff (including physicians, nurses, and coding specialists) developed 
the device-to-procedure crosswalk. The staff employed a rigorous 
process of analysis and verification in developing this crosswalk. All 
members of the staff reviewed each tentative assignment of pass-through 
items to procedures. In order to minimize the use of individual 
clinical judgement, the staff made final decisions only after reaching 
a consensus on the assignment of pass-through items to each procedure. 
We are confident that the crosswalk reflects an appropriate level of 
analytical rigor and independent validation.
    The clinical staff also followed a conservative approach in 
matching devices to procedures. Specifically, they assigned pass-
through items only to procedures for those pass-through items that 
would be typically used, even if there were other procedures in which 
those items might occasionally be used. Moreover, the crosswalk 
specifically accounts for procedures where a device or devices might be 
used less than 100 percent of the time. We are confident that the 
crosswalk procedure itself has not in any way led to an overstatement 
of pass-through costs.
    Comment: Many commenters asserted that the method described in the 
August 24, 2001 proposed rule is necessarily flawed because we excluded 
multiple service claims from the data.
    Response: We use only single service claims in calibrating the APC 
weights because we have no way of allocating ancillary service costs 
among the various procedures on multiple service claims. However, for 
all other facets of our annual calculation of OPPS payment amounts and 
factors (for example, our estimate of outlier spending and resulting 
thresholds), we use both single and multiple service claims. Similarly, 
we included both single service and multiple service claims in 
developing our estimate of pass-through costs and the pro rata 
reduction. Specifically, we used both types of claims in developing the 
count of the procedures associated with the use of pass-through items.
    Comment: Several commenters questioned whether we had provided 
sufficient notice of a possible pro rata reduction to comply with the 
requirements of the Administrative Procedure Act. These commenters 
contended that the description of the proposed method for calculating a 
pro rata reduction was too general to allow for adequate public comment 
and that the data supporting the need for such a reduction should have 
been published to allow for public review and analysis. One commenter 
argued that a pro rata reduction cannot be implemented legally without 
specifying the size of the reduction in a proposed rule with an 
adequate comment period. A commenter from the drug industry stated that 
data on utilization should be released in time for review and analysis 
so that the industry could have sufficient opportunity to assess the 
contribution of its products to pass-through spending and to develop 
options and recommendations for legislative and administrative action.
    Response: At the time the August 24, 2001 proposed rule was 
published, we had assembled a data base and developed a preliminary 
methodology for making an estimate of pass-through spending in 2002. 
Our best judgment was that further review and analysis of the data and 
methodology were warranted before we announced a specific estimate of 
2002 pass-through spending and any requisite pro rata reduction. We 
therefore confined our discussion in the proposed rule to the 
information that was then clearly known to us, namely the general 
methodology that we proposed to employ, and the likely magnitude of a 
pro rata reduction.
    We believe that our description of our data sources and methodology 
allowed ample opportunity for substantive comment, and we did receive 
numerous substantive comments on both the data sources and the 
methodology. Furthermore, our notice that a ``significant pro rata 
reduction could be required for 2002'' provided interested parties 
sufficient opportunity to assess the situation and to develop options 
and recommendations for both legislative and administrative action. We 
received many comments with proposals and recommendations for 
administrative action, as well as proposals for possible legislative 
measures that commenters have urged us to bring to the attention of the 
Congress. (We respond to these comments below.) Finally, we note that 
section 1833(t)(12) of the Act provides that there ``shall be no 
administrative or judicial review * * * of the application of any pro 
rata reduction * * *.''
    Based on the methodology described above, we estimate that the 
total amount of transitional pass-through payments for 2002 would 
exceed the limit of 2.5 percent of total spending under the OPPS. 
Specifically, we estimate that total transitional pass-through payments 
for 2002 would be about $2.26 billion, of which about $1.89 billion is 
attributable to devices and about $0.37 billion is attributable to 
drugs and radiopharmaceuticals. (Of the latter number, 
radiopharmaceuticals account for about $0.17 billion, and drugs account 
for about $0.20 billion.) Estimated total pass-through payments would 
thus be approximately 13 percent of the baseline projection of $17.5 
billion in total payments (including both program and beneficiary 
payments) to hospitals in 2002 under the OPPS, and pass-through 
payments for devices are approximately 11 percent total of OPPS 
payments in 2002. Based on this estimate, a pro rata reduction of 80.7 
percent would be required by the statute.

[[Page 55861]]

    Many commenters recommended measures to delay or mitigate the 
effects of any pro rata reduction. These comments and our responses are 
set forth below.
    Comment: A number of commenters requested a 1-year delay in 
implementing a pro rata reduction, citing their concerns about data 
limitations and methodological weaknesses as reasons for such a delay. 
Other commenters recommended that any pro rata reduction should be 
phased in over a period of several years in order to allow vendors and 
hospitals adequate time to adjust to the reduced payment.
    Response: The statute specifically requires that, if the Secretary 
estimates before the beginning of a year that the amount of the pass-
through payments for that year will exceed the limit, ``the Secretary 
shall reduce pro rata the amount of each of the additional payments * * 
* for that year.'' (Emphasis added.) Therefore, we can legally neither 
delay the reduction until a later year nor spread the reduction over 
the payments for several years. We now have an estimate of pass-through 
spending for 2002, and we have explained above why we believe that our 
methodology for determining it was reasonable.
    Comment: Several commenters recommended that we use the amount 
``reserved'' for outlier payments (up to 2.5 percent of OPPS payments) 
to increase the amount of money available for pass-through payments in 
order to reduce the need for a pro rata reduction. (As we have 
explained in other contexts, outlier payments are financed through a 
prospective reduction to PPS rates. We do not ``set aside'' money in a 
discrete fund to pay for outliers, and the same is true for pass-
through payments.) Another commenter advocated that we fold the pass-
through payments into the outlier ``pool,'' and pay for the high costs 
of new technology as part of our payment for high cost services of all 
types. Other commenters contended that the 2.5 percent limit on pass-
through payments was inadequate to pay for the costs of new 
technologies and recommended that the limit be raised.
    Response: The statute provides for both the outlier and 
transitional pass-through payments and establishes the 2.5 percent 
limits on those payments for the years before 2004 (when the limit for 
outliers increases to 3.0 percent and the limit for transitional pass-
throughs decreases to 2.0 percent). Thus, we do not have the 
administrative authority to make any of the changes that these 
commenters have recommended. Rather, legislative action would be 
required to make any of these changes.
    Comment: One commenter recommended that we move the procedures 
associated with pass-through items to the inpatient list so that they 
can be paid under the hospital inpatient PPS.
    Response: We believe that the commenter is confused about the 
purpose of the inpatient list. The inpatient list identifies procedures 
that may not be paid under the OPPS. If medically necessary, any 
procedure, including those not on the inpatient list, that is performed 
in an inpatient setting may be paid under the hospital inpatient PPS. 
We decide which procedures are included on the inpatient list on the 
basis of clinical criteria alone. We believe that procedures should not 
be included on the inpatient list for payment reasons.
    Comment: Several commenters asserted that a pro rata reduction will 
be necessary in 2002 only because we have failed to implement the 
transitional pass-through program as the Congress intended it. 
Specifically, these commenters contended that we have failed to 
restrict the pass-through payments to the incremental costs of new 
technologies by identifying the costs for predecessor technologies that 
are already represented in the APC payment rates and subtracting those 
amounts from the pass-through payments, as contemplated by the statute.
    Response: Because of constraints on our data analysis before 
implementation of the pass-through provision, we did have difficulty 
initially in determining appropriate offsets for the technology costs 
already represented in the payment rates for many APCs. However, in the 
August 24, 2001 proposed rule, based on the updated claims data, we 
proposed appropriate offset amounts for 25 APCs that are associated 
with the use of pass-through devices. We will announce our final 
computations of the offset amounts for the affected APCs in a 
subsequent rule, which will be published before the beginning of the 
year. We will thus have substantially accounted for the technology 
costs that are already represented in APC payment rates, and, 
therefore, the magnitude of the pro rata reduction cannot be attributed 
to a failure to restrict pass-through payments to the incremental costs 
of new technology.
    Comment: Many commenters expressed their concern about the prospect 
for a significant pro rata reduction, and the potential effect of such 
a reduction on access of Medicare beneficiaries to necessary treatments 
in the outpatient setting. These commenters therefore urged us not to 
implement a pro rata reduction in 2002.
    Response: A significant pro rata reduction could affect the 
availability of improved medical technology for Medicare beneficiaries, 
but the possibility of such a result is inherent in the statutory 
scheme. The Congress has set up a scheme to limit the aggregate amount 
of (projected) pass-through payments in a given year, including a 
requirement for a pro rata reduction. The statute reflects a balance of 
competing considerations-- providing pass-through payments for new 
technologies but limiting the aggregate amount of those payments so 
that payments for other services are not reduced significantly (if 
there were no limit on projected pass-through payments, then, other 
things being equal, we would be reducing the base payments by 13 
percent rather than 2.5 percent to ensure budget neutrality). In order 
to promote access to new technologies, we have decided to take a 
significant administrative action in order to reduce the size of the 
reduction. That action, which incorporates a portion of the pass-
through costs into the base APCs, is discussed below. We believe that 
there are no other feasible and prudent administrative options 
available to reduce the amount of a pro rata reduction.
    Comment: Several commenters, including device manufacturers and the 
associations that represent them, recommended that we fold the costs of 
pass-through devices into the base APC rates. These commenters noted 
that such a step would limit pass-through payments to the incremental 
costs of new technologies, and at least reduce the size of a pro rata 
reduction. Some of these commenters urged us not to implement any pro 
rata reduction until we have revised the base rates to include these 
costs.
    Response: The transitional pass-through payment provision was 
intended as an interim measure to allow for adequate payment of new, 
innovative technology while we collected the necessary data to 
incorporate the costs for these items into the base APC rates. The 
statute and regulations specifically limit the payment for individual 
pass-through items to at least 2 years but no more than 3 years, with 
the intention that the costs for these items should be incorporated 
into the APC rates for the procedures associated with these items after 
that period. We agree with these commenters that we have the discretion 
to fold some of these costs into the APC rates before the time period 
for

[[Page 55862]]

transitional payment of specific devices has expired. (We cannot fold 
all of the current pass-through costs into the APC rates at this time, 
because the statute implies that pass-through payments for devices that 
have been eligible for less than 2 years must continue to be made.)
    We also agree with the commenters that it is reasonable and prudent 
to incorporate some of the pass-through costs into the APC rates now, 
before we are legally required to do so, in order to mitigate the 
effects of the significant pro rata reduction that is mandated by the 
statute. Prudence also dictates, however, that we take into account all 
the other effects of incorporating these costs into the base rates at 
this time in deciding how much of the costs to incorporate into the 
base rates for 2002.
    In addition to reducing the size of the pro rata reduction, 
incorporating a portion of the cost of pass-through devices into the 
basic APC costs has an effect on the APC relative weights. This is 
because the costs to be incorporated are not evenly distributed among 
the APCs, but are rather concentrated in a relatively small number of 
APCs that include the procedures that use pass-through devices. The 
effect of incorporating pass-through costs into the APCs is thus to 
decrease the APC weights for services such as clinic visits, preventive 
care, and diagnostic tests, while the weights for the APCs into which 
the pass-through costs are incorporated generally increase, often by 
large percentages.
    In addition, increases in the relative weights for some APCs can 
lead to increases in beneficiary copayments because, by statute, the 
coinsurance rate cannot be less than 20 percent of the payment rate for 
an APC. We note, however, that beneficiaries are protected from much of 
this increase on an individual APC basis because section 1833(t)(8)(C) 
of the Act limits the copayment for a procedure performed in a year to 
no more than the amount of the inpatient hospital deductible for that 
year. For CY 2002, that amount is $812.
    Accordingly, choosing a percentage of the estimated pass-through 
costs for devices to fold into the APCs associated with the use of 
those devices requires us to balance several considerations. We must be 
mindful not only of the effect on transitional pass-through payments 
for drugs and devices, but also on the payments for other services and 
on beneficiary copayments. In addition, we note that, in CY 2003, 
almost all of the items currently receiving transitional pass-through 
payments will have reached the end of their eligibility for this 
payment status, and their costs must be folded into the APCs at that 
time. Changes made in CY 2002 will thus provide a transition to rates 
in CY 2003. After weighing these factors, and considering the potential 
impacts of a variety of options, we have concluded it is appropriate to 
incorporate 75 percent of the estimated pass-through costs for devices 
into the procedure APCs associated with these devices. We are 
incorporating 75 percent of the device pass-through payments, or 
approximately $1.4 billion, into the costs that are used to establish 
the APC relative weights for 2002.
    We are not incorporating any of the current drug and biological 
pass-through costs into the APCs for two reasons. First, the costs for 
drugs and biologicals are already incorporated to a large extent into a 
base APC rate. As discussed more fully in the August 24, 2001 proposed 
rule (66 FR 44701), we assume that, for most drugs, 68 percent of the 
AWP is acquisition costs of the drug or biological that is already 
recognized in the base costs. Thus, the pass-through payment for those 
drugs and biologicals is 27 percent of the AWP. Second, it is generally 
not feasible to determine which APCs are associated with the use of 
drugs and biologicals from our current claims data. Unlike devices, 
which are used solely in the performance of certain procedures, drugs 
and biologicals can be provided in connection with almost any 
outpatient service. Thus, we are postponing the incorporation of these 
costs until we have data that allow us to determine the APCs with which 
the use of these items is associated. We note, however, that the pro 
rata reduction will be applied to the pass-through payment for drugs 
and biologicals as well as devices.
    To incorporate 75 percent of the device payments, we are employing 
the following methodology. We use the crosswalk that we developed as 
part of the methodology for estimating total pass-through spending as 
the basis for determining the device costs that we include in setting 
the relative weight for each APC. As we have discussed above, this 
crosswalk matches devices to the typical procedures in which they are 
used.
    In developing the total pass-through estimate, we used this 
crosswalk to produce a device package for each CPT code associated with 
device use, based on the device or devices used in each procedure 
included in an APC. We adjusted the costs of each package by 
subtracting the device costs already represented in the payment amount 
for the APC. (These are the costs that we deduct from each pass-through 
payment to ensure that the pass-through payments are limited to the 
incremental costs of the new technologies. The principle for making 
this subtraction is the same in each case: to avoid double-counting 
costs already represented in the APC rates.) We then add 75 percent of 
these adjusted costs of the package to the costs at the claim level for 
each device-related procedure in the APC. At this point, we determine a 
revised median cost for the APC. That new median cost in turn is the 
basis for the APC's new relative weight.
    The costs folded in will affect the relative weights of the APCs. 
The resulting APC payment rates will not increase on a dollar-for-
dollar basis with the device costs folded into the APCs. In most cases, 
the device costs folded into an APC will not be uniformly distributed 
among the procedures in that APC. This is because procedures in an APC 
may require different types or numbers of devices and some procedures 
may not require devices at all. Therefore, the increase in median cost 
for an affected APC is unlikely to exactly equal the amount of the cost 
folded in. Furthermore, the statute requires that APC recalibration and 
reclassification changes be made in a manner that assures that 
aggregate payments will be neither greater nor less than they would 
have been without the changes. Changes in an APC's payment rate 
therefore cannot be expected to vary on a dollar-for-dollar basis with 
changes in the costs used to determine the APC's relative weight.
    Finally, we note that the initial payments under the OPPS were 
calculated to be budget neutral to the methodology in use before the 
implementation of the OPPS. The prior payment methodology paid 
hospitals, on average, approximately 83 percent (the actual payment-to-
cost ratio under the prior system) of their costs for furnishing 
outpatient services. Under the pass-through payment methodology, 
eligible devices are paid at 100 percent of their costs. Once these 
costs are incorporated into the APCs, they will also be paid at rates 
calculated to reflect these reductions.
    The increase in APC rates due to the incorporation of these pass-
through costs will be offset against the estimated 2002 pass-through 
payments. (As discussed above, we subtract the amount of the pass-
through costs represented in the rate for the associated APC from each 
pass-through payment.) The remaining amount of estimated pass-through 
spending for 2002, once we have applied these offsets, will be subject 
to the pro rata reduction. Because we have not completed the 
recalculation of the adjusted APC payments, we are unable to provide 
the

[[Page 55863]]

specific amount of the pro rata reduction at this time. We will 
announce the exact amount of the reduction that will be required before 
the beginning of 2002. In the meantime, we are announcing that we 
expect the required reduction will be in the range of 65 to 70 percent. 
As can be seen from this estimate, folding in 75 percent of the device 
costs into the APCs does not reduce the pro rata by 75 percent. The 
following is a simplified illustration of the process.
    Example: Assume there is only one device eligible for a pass-
through and only one associated APC. That APC has a payment rate of 
$3,000, of which $1,000 is associated with device costs already in 
the APC. If a hospital bills a device with that APC whose charge 
adjusted to cost is $9,000, the payment for the pass-through is 
$9,000 minus $1,000, or $8,000. Thus, the payment for the entire 
service is $3,000 for the base APC and $8,000 for the device, for a 
total payment of $11,000. The pro rata reduction would be applied to 
the $8,000. If we were to implement the 80.7 percent reduction, the 
total payment would be $4,544 ($3,000 + $8,000 (0.193)).

    For the 75 percent fold-in, we would first adjust the $9,000 device 
cost to account for the $1,000 in device costs already represented in 
the APC rate. The remaining $8,000 represents the adjusted costs for 
the device. We would then incorporate $6,000 of the $8,000 in adjusted 
costs into the APC rate. As discussed above, the increase in the APC 
rate is not a dollar-for-dollar match with the amount folded in. 
Therefore, assume that the APC rate increases by $3,500, for a total of 
$6,500. The $6,500 payment rate now reflects $4,500 in device costs `` 
the original $1,000 plus the difference between the original APC 
payment ($3,000) and the APC payment rate after the fold-in ($6,500), 
or $3,500. The increase in the amount of device costs reflected in the 
APC is a dollar-for-dollar match with the increase in the payment rate. 
The total payment for the service is now $6,500 for the base APC and 
$4,500 for the device ($9,000 minus $4,500), for a total payment of 
$11,000. Even though 75 percent of the $8,000, or $6,000, has been 
folded into the APC rate, the pass-through payment (before any pro rata 
reduction) is reduced by only $4,500, to $4,500. Thus, folding in 75 
percent of the device costs does not reduce the total pass-through 
estimate by that same 75 percent. However, any remaining pro rata 
reduction would be applied only to the $4,500. Based on an expected 
reduction of between 65 and 70 percent, total payment would be between 
$8,075 and $7,850, respectively.
    Comment: Several commenters requested that we clarify how the 
incorporation of pass-through costs into the associated APCs would 
affect the APC payments. Specifically, some of these commenters 
requested that we clarify whether there would be a dollar-for-dollar 
match between the costs incorporated into an APC and the resulting 
increase in the APC's rate. Others asked whether there would be a 
dollar-for-dollar match between the increase in the APC's rate and the 
increase in the reduction in the pass-through payments to account for 
the device costs incorporated into the APC.
    Response: As discussed in the response immediately preceding, there 
is not a dollar-for-dollar match between the costs incorporated into an 
APC and the resulting increase in the APC's payment rate. There is, 
however, a dollar-for-dollar match between the increase in an APC's 
rate and the increase in the reduction for the pass-through payment for 
devices associated with that APC. This is because the additional 
payment for a pass-through item equals the amount by which the 
hospital's cost for the item exceeds the portion of the applicable APC 
payment amount that is associated with the item. There is thus 
necessarily a dollar-for-dollar match between the increase in the APC's 
rate that is due to the new costs being incorporated into the APC, and 
the reduction applied to the pass-through payments.
    Comment: Several commenters made specific requests for data files 
and other information related to any possible pro rata reduction. These 
requests included the following:
     The data files used to estimate pass-through spending, 
including claims data from the period July 1, 1999 and July 1, 2000.
     A comprehensive description of the methods used to 
identify gaps in the reporting of drugs, biologicals, and devices, and 
the assumptions used to estimate utilization of pass-through items.
     An estimate of projected pass-through payments for 2002, 
including breakdowns by category (orphan drugs, cancer drugs, devices, 
etc.).
     An estimate of the magnitude of any proposed reduction in 
pass-through payments to meet the 2.5 percent statutory cap.
     A detailed description of how any pro rata reduction would 
be implemented.
    Response: It is our general practice to release the data we use in 
setting Medicare payment amounts to the public when we announce 
proposed payment amounts. Some of the data requested by these 
commenters, especially the relevant claims data for the period July 1, 
1999 and July 1, 2000, were in fact released at the time of the August 
24, 2001 proposed rule because these data were used in developing the 
proposed APC payment rates in that rule. We did publish a substantive 
description of the methodology that we were proposing to use in 
developing an estimate of pass-through costs, and we received numerous 
comments on that proposed methodology. To the degree that we did not 
release some of the other information requested by these commenters, 
such as an estimate of a proposed pro rata reduction and a breakdown of 
pass-through costs by category, it was because we were still reviewing 
our methodology and analyzing the data. We did, however, present the 
public with the likely magnitude of a reduction at that time.
    In this final rule, in response to the comments, we are providing 
more information on the methodology that we have used to determine the 
pro rata reduction. We are also providing a detailed account of our 
calculation of 2002 pass-through costs. We plan to release additional 
information when we announce the exact percentage of the required pro 
rata reduction before the beginning of the year. The pro rata reduction 
will be implemented by our systems as a uniform reduction to every 
pass-through payment.
    Comment: The Medicare Payment Assessment Commission commented that 
the transitional pass-through provision has three flaws:
     The use of categories to determine the eligibility of 
devices allows devices the costs of which had already been taken into 
account in setting the base rates to qualify for pass-through payments.
     The pass-through payments for drugs and biologicals are 
set at 95 percent of average wholesale cost, thus creating an incentive 
to increase Medicare payments by raising prices for these items.
     Pass-through payment rates are based on hospital-specific 
cost-to-charge ratios, allowing hospitals to increase their payments by 
raising the charges for eligible items.
    The Commission recommended that the Congress enact three statutory 
changes to improve the transitional pass-through provision:
     Restrict the eligibility for pass-through payments to 
technologies that are new or substantially improved and that add 
substantially to the cost of care.
     Allow for the costs of pass-through items to be completely 
incorporated into the base APC rates more quickly than the current 
statutory eligibility period of 2 to 3 years allows.

[[Page 55864]]

     Replace the facility-specific payments for devices with 
national payments.
    Response: We appreciate the Commission's comments about flaws in 
the transitional pass-through provision. We will be available to 
provide technical assistance to the appropriate congressional 
committees in developing measures to improve the provision. We do note, 
however, that although the use of categories allows devices whose costs 
had previously been included in the calculation of the APC payment 
rates to qualify for pass-through payments, those payments will be 
reduced by the amount that we have calculated to be reflected in that 
APC. However, this subtraction of the costs in the APC may not reduce 
the pass-through payment for those devices to zero.

III. Conversion Factor Update for CY 2002

    Section 1833(t)(3)(C)(ii) of the Act requires us to update the 
conversion factor used to determine payment rates under the OPPS on an 
annual basis. Section 1833(t)(3)(C)(iv) of the Act, as redesignated by 
section 401 of the BIPA, provides that for 2002, the update is equal to 
the hospital inpatient market basket percentage increase applicable to 
hospital discharges under section 1886(b)(3)(B)(iii) of the Act, 
reduced by one percentage point. Further, section 401 of the BIPA 
increased the conversion factor for 2001 to reflect an update equal to 
the full market basket percentage increase amount.
    To set the proposed OPPS conversion factor for 2002, we increased 
the 2001 conversion factor of $50.080, which reflects the BIPA 
provision of the full market basket update, by 2.3 percent, that is, 
the full market basket percentage increase of 3.3 percent minus 1 
percentage point.
    In accordance with section 1833(t)(9)(B) of the Act, we further 
adjusted the conversion factor for 2002 to ensure that the revisions we 
made to update the wage index are made on a budget-neutral basis. A 
proposed budget neutrality factor of 0.9924 was calculated for wage 
index changes by comparing total payments from our simulation model 
using the proposed FY 2002 hospital inpatient PPS wage index values to 
those payments using the current (FY 2001) wage index values.
    The increase factor of 2.3 percent for 2002 and the required wage 
index budget neutrality adjustment of 0.9924 resulted in a proposed 
conversion factor for 2002 of $50.842.
    Based on the 2.3 percent update factor and the final FY 2002 
hospital inpatient wage index values, the final wage index budget 
neutrality adjustment is 0.9936, which results in a final conversion 
factor for 2002 of $50.904.
    We received one comment on the calculation of the conversion 
factor.
    Comment: One commenter requested clarification of the methodology 
used to calculate the conversion factor for CY 2002, particularly as it 
relates to the payment update provided by section 401 of BIPA. The 
commenter is concerned that we did not explain that the CY 2001 
conversion factor we set forth in the August 24, 2001 proposed rule as 
the basis for the CY 2002 conversion factor was never used to make 
payment in CY 2001.
    Response: Before the enactment of BIPA on December 21, 2000, 
section 1833(t)(3)(C)(iii) of the Act provided for a 2001 update of the 
market basket percentage increase reduced by 1 percentage point. This 
is the update that was implemented by the November 13, 2000 final rule 
(65 FR 67827).
    Section 401(a) of BIPA amended section 1833(t)(3)(C)(iii) 
(redesignated by section 401(b) of BIPA as section 1833(t)(3)(C)(iv)) 
of the Act to provide for a full market basket percentage increase for 
CY 2001. However, section 401(c) of BIPA also provided a special 
payment rule for CY 2001 that requires the payment rate for services 
furnished under the OPPS on or after April 1, 2001 and before January 
1, 2002 to be updated by an additional 0.32 percent to account for the 
timing of the implementation of the full market basket update for 2001. 
Thus, the conversion factor used to make payment on or after January 1 
and before April 1, 2001 was based on a market basket percentage 
increase minus 1 percentage point, and the conversion factor used to 
make payment on or after April 1, 2001 was based on a full market 
basket percentage increase increased by 0.32 percent. Payment was never 
made in 2001 using a conversion factor based on a full market basket 
percentage increase. However, it is this last conversion factor (which 
is equal to $50.080) that must be used to update the conversion factor 
for CY 2002.

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 (44 U.S.C. 35).

V. Regulatory Impact Analysis

A. General

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review) 
and the Regulatory Flexibility Act (RFA) (September 19, 1980 Public Law 
96-354). Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more annually).
    The statutory effects of the provisions that are implemented by 
this final rule result in expenditures exceeding $100 million per year. 
We estimate the total impact of these changes for CY 2002 payments 
compared to CY 2001 payments to be approximately a $400 million 
increase. Therefore, this final rule is an economically significant 
rule under Executive Order 12866, and a major rule under 5 U.S.C. 
804(2).
    The RFA requires agencies to determine whether a rule will have a 
significant economic impact on a substantial number of small entities. 
For purposes of the RFA, small entities include small businesses, 
nonprofit organizations, and government agencies. Most hospitals and 
most other providers and suppliers are small entities, either by 
nonprofit status or by having revenues of $5 to $25 million or less 
annually (see 65 FR 69432). For purposes of the RFA, all providers of 
hospital outpatient services are considered 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 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 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 that is located outside of a Metropolitan 
Statistical Area (MSA) and has fewer than 100 beds, 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

[[Page 55865]]

England counties as belonging to the adjacent NECMA. Thus, for purposes 
of the OPPS, we classify these hospitals as urban hospitals.
    It is clear that the changes in this final rule affect both a 
substantial number of rural hospitals as well as other classes of 
hospitals, and the effects on some may be significant. The discussion 
below, in combination with the rest of this final rule, constitutes a 
regulatory impact analysis.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule that may result in an expenditure in 
any one year by State, local, or tribal governments, in the aggregate, 
or by the private sector, of $110 million. This final rule does not 
mandate any requirements for State, local, or tribal governments.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it publishes a proposed rule (and subsequent 
final rule) that imposes substantial direct costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. We have examined this final rule in accordance with 
Executive Order 13132, Federalism, and have determined that it will not 
have any negative impact on the rights, roles, and responsibilities of 
State, local, or tribal governments.

B. Changes in This Final Rule

    This final rule implements changes to the OPPS that are required by 
the statute. We are required under section 1833(t)(3)(C)(ii) of the Act 
to update annually the conversion factor used to determine the APC 
payment rates. In addition, section 1833(t)(6)(E)(iii) of the Act 
requires a uniform reduction in the amount of each of the transitional 
pass-through payments made in a year if the Secretary estimates, before 
the beginning of that year, that the total pass-through payments will 
exceed an applicable percentage of total payments estimated to be made 
under OPPS in that year. For CY 2002, the applicable percentage is 2.5 
percent.
    The projected aggregate impact of updating the conversion factor is 
to increase total payments to hospitals by 2.3 percent. As described in 
the preamble, a budget neutrality adjustment is made to the conversion 
factor to assure that the revision in the wage index does not affect 
aggregate payments.

C. Estimated Impacts of This Final Rule

    The 2.3 percent update in the conversion factor results, in the 
aggregate, in an increase in payments for hospitals under the OPPS of 
approximately $400 million.
    As discussed above in section II of this preamble, we have 
estimated that the total amount of pass-through payments for CY 2002 
would be $2.26 billion if we did not fold in costs of pass-through 
devices into the base APC rates. Of that amount, approximately $0.37 
million represents payments for drugs and biologicals and $1.89 billion 
represents payments for medical devices. Total OPPS payments in CY 2002 
are estimated to be $17.5 billion. Because the estimate of pass-through 
payments exceeds 2.5 percent of estimated total payments, which is 
approximately $437 million (2.5 percent of $17.5 billion), we must 
implement a uniform reduction of all pass-through payments. Absent any 
administrative action, the estimate of the reduction necessary to 
account for the full pass-through estimate would be 80.7 percent. That 
is, we would pay 19.3 percent of the otherwise applicable pass-through 
payment for drugs, biologicals, and devices.
    As further discussed above in section II of this preamble, in order 
to mitigate the effects of this significant pro rata reduction, we are 
incorporating, into the base APC costs, 75 percent of the cost of the 
devices currently eligible for pass-through payment. In the proposed 
rule, we estimated for most APCs that involve devices, an amount that 
represents the cost of devices already included in the APC payments. 
Those amounts would be subtracted from any pass-through payments 
associated with those APCs (before the pro rata reduction). That policy 
reduced the total estimate of pass-through payments by approximately 
$450 million. Because we are now incorporating additional device costs 
into the base APC costs, those subtraction amounts will increase to 
reflect the additional amounts included in the device-related APC 
payments. Thus, the total amount of pass-through payments estimated to 
be made in CY 2002 will be reduced, which will, in turn, reduce the 
amount of the pro rata reduction necessary to meet the 2.5 percent 
limit. As noted above in this preamble, because we have not yet 
completed our analysis and computations related to the fold in, we 
cannot yet announce the exact size of the pro rata reduction. However, 
we estimate that the amount of the reduction will be between 65 and 70 
percent. The incorporation of costs into the base APCs results in the 
pro rata reduction being applied only to the marginal costs of the 
pass-through devices not incorporated into the APCs.
    We believe that the changes we have made in this final rule will 
lessen the impact on hospitals of the required pro rata reduction on 
pass-through payments.
    We estimate that the implementation of the pro rata reduction on 
pass-through payments for devices will affect urban hospitals more than 
rural hospitals and, in urban areas, large urban and teaching hospitals 
will be affected more than other urban hospitals. This is due to the 
fact that the types of outpatient procedures that use the pass-through 
devices are more frequently performed in large urban hospitals, 
particularly teaching hospitals. We estimate that the effect of the 
reduction on pass-through payments for drugs and biologicals may be 
more uniform across types of hospitals. Use of these items is more 
widespread among hospitals, although hospitals that furnish 
chemotherapy may be affected to a greater degree than others.
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 419

    Hospitals, Medicare, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, 42 CFR part 419 is 
amended as follows:

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

    1. The authority citation continues to read as follows:

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

    2. In Sec. 419.62, paragraph (c) is republished and a new paragraph 
(d) is added to read as follows:


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

* * * * *
    (c) Uniform prospective reduction of pass-through payments. (1) If 
CMS estimates before the beginning of a calendar year that the total 
amount of pass-through payments under Secs. 419.64 and 419.66 for the 
year would exceed the applicable percentage (as described in paragraph 
(c)(2) of this section) of the total amount of Medicare payments under 
the outpatient prospective payment system. CMS will reduce, pro rata, 
the amount of each of the additional payments under Secs. 419.64 and 
419.66 for that year to ensure that the applicable percentage is not 
exceeded.

[[Page 55866]]

    (2) The applicable percentages are as follows:
    (i) For a year before CY 2004, the applicable percentage is 2.5 
percent.
    (ii) For 2004 and subsequent years, the applicable percentage is a 
percentage specified by CMS up to (but not to exceed) 2.0 percent.
    (d) CY 2002 incorporated amount. For CY 2002, CMS incorporated 75 
percent of the estimated pass-through costs (before the incorporation 
and any pro rata reduction) for devices into the procedure APCs 
associated with these devices.

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

    Dated: October 30, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: October 26, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-27659 Filed 10-31-01; 12 pm]
BILLING CODE 4120-01-P