Medicare: Technology Assessment and Medical Coverage Decisions (Fact
Sheet, 07/20/94, GAO/HEHS-94-195FS).

Thousands of medical procedures, devices, and drugs are available for
patient care in this country. Each year, public and private health care
insurers make coverage decisions for these medical technologies. To make
these decisions, insurers increasingly rely on formal technology
assessments, which evaluate a technology's safety and effectiveness. In
this fact sheet, GAO provides general information about the technology
assessment resources and activities of the Public Health Service's
Agency for Health Care Policy and Research, the resources and processes
of the Health Care Financing Administration (HCFA) for making Medicare
coverage decisions, and HCFA's process for making hospital payments that
account for the use of new technologies.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-94-195FS
     TITLE:  Medicare: Technology Assessment and Medical Coverage 
             Decisions
      DATE:  07/20/94
   SUBJECT:  Medicare programs
             Eligibility determinations
             Medical information systems
             Health resources utilization
             Medical economic analysis
             Medical services rates
             Medical research
             Product safety
             Medical expense claims
             Technology transfer
IDENTIFIER:  Civilian Health and Medical Program of the Uniformed 
             Services
             CHAMPUS
             Medicare Trust Fund
             
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Cover
================================================================ COVER


Fact Sheet for the Subcommittee on Technology, Environment and
Aviation, Committee on Science, Space, and Technology, House of
Representatives

July 1994

MEDICARE - TECHNOLOGY ASSESSMENT
AND MEDICAL COVERAGE DECISIONS

GAO/HEHS-94-195FS

Technology Assessments for Medicare


Abbreviations
=============================================================== ABBREV

  AHCPR - Agency for Health Care Policy and Research
  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  DOD - Department of Defense
  DRG - Diagnostic Related Group
  FDA - Food and Drug Administration
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  OHTA - Office of Health Technology Assessment
  PPS - prospective payment system
  ProPAC - Prospective Payment Assessment Commission

Letter
=============================================================== LETTER


B-255636

July 20, 1994

The Honorable Tim Valentine
Chairman
The Honorable Tom Lewis
Ranking Minority Member
Subcommittee on Technology, Environment and Aviation
Committee on Science, Space, and Technology
House of Representatives

Literally thousands of medical procedures, devices, and drugs are
available for patient care in this country.  Each year, public and
private health care insurers make coverage decisions for these
medical technologies.  To make these decisions, insurers increasingly
rely on formal technology assessments, which evaluate a technology's
safety and effectiveness.  Without these assessments, insurers may be
more likely to pay for devices and procedures that are not effective
and could harm patients. 

Insurers and other private-sector organizations, such as the American
Medical Association, conduct their own technology assessments.  In
the public sector, the Health Care Financing Administration (HCFA),
which administers the Medicare program, makes a few national coverage
decisions annually for medical technologies it believes greatly
concern Medicare beneficiaries.  For medical technology assessments
used to make these national decisions, HCFA has historically relied
almost exclusively on the Office of Health Technology Assessment
(OHTA), a small organization in the Public Health Service's Agency
for Health Care Policy and Research (AHCPR).\1 On the basis primarily
of HCFA requests, OHTA formally assesses the safety and effectiveness
of between one and nine health care technologies each year and
forwards a recommendation on coverage to HCFA. 

Most Medicare coverage decisions are, in fact, made by 79 contractors
that HCFA hires to process claims.\2

Historically, contractors have played a significant role in making
Medicare coverage decisions in order to promote collaboration with
the local medical community.  The process these contractors use to
assess technology and to make coverage decisions is much less
structured than the process OHTA uses to conduct formal technology
assessments. 

This fact sheet responds to your request that we provide general
information about AHCPR's technology assessment resources and
activities, HCFA's resources and process for making Medicare coverage
decisions, and HCFA's process for making hospital payments that
account for the use of new technologies. 

In summary, AHCPR has few resources for its technology assessment
activities.  With five professional staff devoted to this activity,
it is responsible for responding to HCFA requests for technology
assessments on issues of national concern to Medicare.  This staffing
level has allowed, on average, fewer than 10 technology assessments
per year, with about 60 percent of AHCPR's technology assessment
activities devoted to HCFA requests.  Recent legislation changing
AHCPR's priorities for technology assessments may mean fewer
assessments for HCFA than in the past. 

HCFA makes few national coverage decisions each year and does not
devote substantial resources to technology assessments.  For example,
between October 1992 and February 1994, HCFA published five national
coverage decisions, three of which were based on OHTA technology
assessments.  In the absence of national coverage decisions, HCFA
relies on its claims processing contractors to make coverage
decisions for their local areas.  In making these local coverage
decisions, some contractors develop their own criteria and processes. 
Some use criteria developed by national insurers; others do not use
any formal criteria.  Some create internal committees to perform
technology assessments, although others have a more informal process. 

Concerning hospital payments, HCFA has several methods to adjust
payment rates to account for changes in technology.  First, all
hospital payments receive an equal annual adjustment to account for a
number of factors, including the overall effect of new technology. 
Second, HCFA annually revises payment rates for hospital procedures
to account for the specific effects of new technologies on individual
procedures.  Third, HCFA makes separate payments to hospitals for
capital-related costs, including those associated with new
technology. 

We did our work between March 1994 and July 1994 in accordance with
generally accepted government auditing standards.  We reviewed HCFA's
regulations and policies on coverage decisions; discussed them with
officials from HCFA, OHTA, and Medicare contractors; and reviewed
documentation they provided.  We visited two Medicare contractors to
examine how they assess new technologies and make coverage decisions. 
In addition, we reviewed reports on technology assessment activities
from several private organizations and studies on Medicare contractor
assessment activities from the Office of the Inspector General for
the Department of Health and Human Services (HHS).  As agreed with
your staff, we did not collect information on industry perceptions of
these issues because of time constraints and because you already had
access to this information through other resources. 

We discussed the results of our work with responsible HCFA and OHTA
program officials and have incorporated their comments where
appropriate. 

We are sending copies of this fact sheet to the Secretary of HHS and
the Administrator of HCFA; the Director, Office of Management and
Budget; and interested congressional committees.  Copies will also be
made available to others upon request. 

Please call me at (202) 512-7104 if you or your staff have any
questions.  Other major contributors to this fact sheet include Edwin
P.  Stropko, Assistant Director, (202) 512-7108, Joan Mahagan, John
Ficociello, Michelle St.  Pierre, and Donald Walthall. 

Leslie G.  Aronovitz Associate Director,  Health Financing Issues


--------------------
\1 The Food and Drug Administration (FDA) also evaluates the safety
and effectiveness of new technologies, specifically drugs and
devices; however, it does not evaluate new medical procedures. 

\2 Some contractors process claims for the Medicare Part A program,
which includes hospital and nursing home services, while others
process claims for the Medicare Part B program, which includes
physician and hospital outpatient services.  When not otherwise
indicated, "contractors" refers to both Part A and Part B
contractors. 


MEDICARE COVERAGE DECISIONS
========================================================= Chapter 1

How and when does HCFA decide to cover technologies, and what
resources does it devote annually to making national coverage
decisions? 

HCFA makes relatively few national coverage decisions each year; it
devotes few resources to this activity.  Instead, HCFA uses a highly
decentralized process whereby 79 Medicare claims processing
contractors make individual decisions. 

The basic criteria for making both national and local Medicare
coverage decisions appears in the legislation that created the
Medicare program.  The legislation prohibits Medicare payment for
services that are not reasonable and necessary for diagnosing or
treating a medical condition.  Historically, HCFA has interpreted
this provision to exclude from Medicare coverage medical services and
devices that have not been demonstrated to be safe and effective by
acceptable clinical evidence or that have not been generally accepted
in the medical community as safe and effective. 


      HCFA MAKES FEW NATIONAL
      COVERAGE DECISIONS
----------------------------------------------------- Chapter 1:0.1

HCFA makes relatively few coverage decisions each year applicable to
all Medicare beneficiaries.  Historically, HCFA has relied on OHTA's
assessments as the basis for many of its national coverage decisions. 
For example, between October 1992 and February 1994, HCFA published
five national coverage decisions:  three were based on OHTA
assessments, one recommending coverage, one recommending denial of
coverage, and one recommending withdrawal of existing coverage. 

HCFA's Bureau of Policy Development makes national coverage
determinations for medical services.  The bureau has approximately 20
professional staff who work on coverage determination issues for
medical services, but most do not work full time on these tasks. 
(Other divisions in the bureau work on coverage issues relating to
specific medical settings, such as skilled nursing homes.) Provided
that a technology is not statutorily barred from coverage, HCFA
considers several factors when deciding on the need for a national
coverage decision, including the potential expense to the Medicare
program, the potential for widespread use in medical practice, the
level of disagreement about the technology's safety and
effectiveness, and the variation among contractor coverage decisions. 

Officials told us that HCFA collects information from many sources
when considering national coverage decisions, including physicians,
suppliers, and manufacturing groups, as well as its contractors.  A
major source of input is HCFA's Technology Advisory Committee, which
studies national issues and makes recommendations for national
coverage decisions.  The 26-member Committee meets for 1- 1/2 days
every quarter.  Half of the Committee members are HCFA physicians and
other officials; the remainder are contractor medical directors (7)
and officials from the National Institutes of Health, the Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS), the
Blue Cross and Blue Shield Association, FDA, and OHTA.  The Committee
discusses a number of new technologies each year and distributes
meeting minutes to contractors even when no national coverage
recommendation is made. 

According to HCFA officials, developing and finalizing national
coverage decisions can be time consuming.  Decisions involving simple
issues or expansion of existing coverage can be developed and
implemented in 2 to 12 months.  When complicated clinical issues are
involved, however, the information needed to make coverage decisions
can take several years to develop.  Further, once HCFA decides to
establish a new type of coverage or to withdraw existing coverage, it
publishes a proposed rule in the Federal Register, reviews and
incorporates public comments, and then publishes a final notice. 
This can add another 9 to 12 months to the process.  It took HCFA 4
to 5 years to decide to cover liver transplants and more than 10
years to withdraw coverage for thermography, a diagnostic technique
that measures temperature variation on the body's surface.\3

Currently, HCFA is seeking to broaden its access to technology
assessments beyond OHTA.  HCFA would like to better use the medical
expertise of its Technology Advisory Committee and is encouraging the
Committee to conduct its own uncomplicated technology assessments. 
In addition, HCFA has $50,000 for external technology assessments
budgeted for fiscal year 1994 but has not yet awarded any contracts
for this purpose. 


--------------------
\3 The decision on thermography was delayed several times to review
and respond to additional information submitted by interested
parties. 


      CONTRACTORS MAKE MOST
      MEDICARE COVERAGE DECISIONS
----------------------------------------------------- Chapter 1:0.2

HCFA relies on its contractors to make most coverage decisions for
the Medicare program.  In the absence of national coverage decisions,
for example, individual Medicare Part B contractors review
technologies themselves and make their own local coverage decisions. 
Each of the 32 Part B contractors is required to have the equivalent
of a full-time medical director who is responsible for making these
decisions with the contractor's medical staff and consultants.  In
addition, HCFA requires that representatives from the local provider
community review all proposed local medical policies. 

In making local coverage decisions, each Part B contractor develops
its own criteria and process.  Some Part B contractors use criteria
developed by the national Blue Cross/Blue Shield Association;\4
others do not use any formal criteria.  Part B contractors sometimes
create internal committees to conduct technology assessments,
although others have a more informal process.  The Part B contractor
medical directors we spoke with consulted medical literature and
local medical specialty societies in making their coverage decisions. 


--------------------
\4 To be approved for Blue Cross/Blue Shield coverage, technologies
must (1) have all necessary regulatory approvals, (2) have scientific
evidence that permits conclusions about their effects, (3) improve
the net health outcome, (4) be as beneficial as any established
alternatives, and (5) be proven effective outside investigational
settings. 


OHTA TECHNOLOGY ASSESSMENT
ACTIVITIES
========================================================= Chapter 2

For whom does OHTA conduct technology assessments?  How are they
conducted?  How long do they take?  What resources are used?  What
have they recommended?  Could outside vendors perform them more
efficiently? 

OHTA, with five professional staff, is responsible for responding to
HCFA's requests for technology assessments on issues of national
concern to Medicare.  On average, this staffing level has allowed
OHTA to evaluate fewer than 10 technologies per year.  About 60
percent of OHTA's work has traditionally been devoted to Medicare
requests; however, 1992 legislation changed the way OHTA will
prioritize the technologies it assesses.\5 The new procedure may mean
that OHTA will do even fewer Medicare requests than it did in the
past.  OHTA's relatively few resources limit the potential gains that
might be expected through contracting with outside vendors. 

OHTA assessments present detailed analyses of the risks, clinical
effectiveness, and uses of medical technologies.  The technologies
are reviewed to form the basis for a reimbursement decision by a
federally financed health care program such as Medicare or CHAMPUS. 
Requesting agencies use the assessments and the resulting
recommendations in determining coverage policy.  OHTA also conducts
technology reviews--brief evaluations of health care technologies
conducted in place of assessments.  Unlike assessments, technology
reviews do not contain recommendations for coverage.  Since October
1992, assessments also consider the cost-effectiveness of
technologies when such information is available and reliable.  As
shown in table 1, OHTA completed 18 assessments between January 1990
and March 1994, recommending coverage for three-quarters of these
technologies. 



                           Table 1
           
           Summary of OHTA Coverage Recommendations
           for Assessments Completed, January 1990
                         -March 1994


                                  Cove       Not  Inconclusi
Year                                 r     cover          ve
--------------------------------  ----  --------  ----------

1990                                 6         2           1
1991                                 4
1992                                 1         1
1993                                 1
1994 (through Mar.)                  1
Subtotal                            14         3           1
Total                               18
------------------------------------------------------------
Note:  Three of these assessments were conducted at the request of
CHAMPUS, and the remainder were conducted for Medicare. 

Once OHTA accepts a request from Medicare or CHAMPUS, it publishes a
notice in the Federal Register announcing plans for conducting a
technology assessment and soliciting public comments and information
about the technology within a 60 to 90 day period.  Concurrently with
the Federal Register notice, OHTA initiates a comprehensive review of
medical and scientific literature to obtain all the information
available about the technology.  OHTA does not perform or contract
for primary research.  It collects and synthesizes existing knowledge
of health care technologies. 

The quality of the medical and scientific evidence is important in
formulating assessment conclusions.  Although the analysts consider
all available evidence, they place the most importance on
well-designed studies that are less subject to bias and error. 
Randomized, controlled trials provide the most reliable medical and
scientific evidence.  OHTA uses a graded, hierarchical system for
examining evidence based on study design.  OHTA then uses this
evidence to determine if the technology results in improved health
outcomes. 

OHTA's budget, which is funded by the Medicare Trust Fund,\6

has remained at about $1 million annually for fiscal years 1992
through 1994.  In addition, OHTA officials told us that the
Department of Defense (DOD) annually makes a nominal payment to OHTA
for CHAMPUS assessments and reviews. 

OHTA's budget supports one part-time and five full-time analysts who
work on technology assessments and reviews.  According to the
Director, OHTA, four are medical doctors, one is a registered nurse
and certified registered nurse anesthetist, and one holds a
bachelor's degree in chemistry.  The Director also told us that
several analysts have master's degrees, one holds a doctorate, and
all had been previously employed by other health-related government
agencies. 

Although OHTA does not track resources used for different requesters,
the majority of its work has clearly been done for the Medicare
program.  Since 1983, OHTA has completed 106 technology assessments
for Medicare.  As shown in table 2, HCFA initiated about 80 percent
of the 28 OHTA assessments requested between January 1990 and May
1994.  Further, as shown in table 3, for this same period, HCFA
requested about 40 percent of the 20 technology reviews; DOD
requested about 55 percent of the reviews for the CHAMPUS program. 



                           Table 2
           
                 Requests for OHTA Technology
             Assessments, January 1990 -May 1994

Technologi
es          Requester
----------  ------------------------------------------------
Automatic   Medicare
implantabl
e
defibrilla
tor -
patient
selection
criteria

Bone        Medicare
mineral
density
studies
(in
progress)

Cardiac     Medicare
rehabilita
tion
services

Carotid     Medicare
endarterec
tomy

Combined    Medicare
kidney-
pancreas
transplant
ation (in
progress)

Computeriz  Medicare
ed signal-
averaged
EKG (in
progress)

Electrosti  Medicare
mulation
of
salivary
production
in
Sjï¿½gren's
disease

Expert      Medicare
consensus
on the
appropriat
e uses of
ultrasound

Extracrani  Medicare
al-
intracrani
al bypass
surgery

External    Medicare
insulin
infusion
pumps

Gating and  Medicare
surface
coil
devices
with MRI

Hypertherm  Medicare
ia with/
without
chemothera
py for
cancer

Intermitte  Medicare
nt
positive-
pressure
breathing

Liver       Medicare
transplant
ation

Magnetic    Medicare
resonance
angiograph
y

PET         Medicare
scanning-
-release
pending
FDA review
of certain
positron
emitters

Plethysmog  Medicare
raphy (in
progress)

Protein A   Medicare
columns to
treat
immune
disorders

Reassessme  Medicare
nt of
cardiac
output
measuremen
t by
bioimpedan
ce

Refractive  Medicare
keratoplas
ty (in
progress)

Routine     Medicare
testing
requiremen
ts for
dialysis
patients

Sleep       Medicare
disorder
centers
and
polysomnog
raphy

Biofeedbac  CHAMPUS
k
(requested
)

Intensive   CHAMPUS
EEG video
monitoring
for
epilepsy

Isolated    CHAMPUS
pancreas
transplant
ation (in
progress)

Patient     CHAMPUS
and
institutio
nal
selection
criteria
for heart-
lung
transplant
ation

Peripheral  CHAMPUS
stem cell
support of
high-dose
chemothera
py (in
progress)

Single and  CHAMPUS
double
lung
transplant
ation
------------------------------------------------------------
Note:  All 28 assessments are completed unless otherwise noted. 



                           Table 3
           
            Requests for OHTA Technology Reviews,
                    January 1990 -May 1994

Technolo
gies      Requester
--------  --------------------------------------------------
Drug      Medicare
delivery
devices

Implanta  Medicare
ble
electric
al
stimulat
or and
spinal
fusion

Laparosc  Medicare
opic
cholecys
tectomy

Lymphede  Medicare
ma pump

Neuromus  Medicare
cular
electric
al
stimulat
ion in
patients
with a
nonintac
t
nervous
system

Outpatie  Medicare
nt
surgery
for
cochlear
implanta
tion

Self-     Medicare
administ
ration
of
erythrop
oietin

Translum  Medicare
inal
angiopla
sty for
hemodial
ysis
fistulae

Autologo  CHAMPUS
us bone
marrow
transpla
ntation
in
chronic
myelogen
ous
leukemia

Brachyth  CHAMPUS
erapy

Combined  CHAMPUS
liver-
kidney
transpla
nts

Combined  CHAMPUS
small
bowel-
liver
transpla
nts

Home      CHAMPUS
cardiore
spirator
y
monitori
ng
(request
ed)

Hyperfra  CHAMPUS
ctionate
d
radiatio
n
therapy

Photothe  CHAMPUS
rapy and
photoche
motherap
y for
dermatol
ogic
diseases

Platelet  CHAMPUS
-
derived
growth
factor
for
treatmen
t of
wounds
and
chronic
skin
ulcers

Proton    CHAMPUS
beam
therapy
for
chordoma
s

Sensory   CHAMPUS
evoked
potentia
l
testing
(request
ed)

Use of    CHAMPUS
serial
dilution
endpoint
titratio
n test
and
immunoth
erapy

Home      PHS\a
uterine
monitori
ng
------------------------------------------------------------
Note:  All 20 reviews are completed unless otherwise noted. 

\a Public Health Service. 

OHTA also does not track the time it takes to conduct assessments. 
However, we can provide a general estimate by calculating the average
number of assessments and reviews OHTA completed during 1990 through
1993.  On average, OHTA completed 4.65 technology assessments and 4.2
technology reviews per year during this period.  According to the
Director, OHTA, the length of time a technology assessment or review
takes depends on the complexity of the subject matter as well as the
quantity and quality of medical and scientific information available
for the assessment. 

Because of OHTA's limited resources, it is unlikely that either OHTA
or outside vendors could conduct more technology assessments.  HCFA
may be able to increase its assessment capabilities by more
effectively using its contractors' medical directors in evaluating
technologies of national concern.  HCFA could also make greater use
of technology assessments available from private insurers such as
Aetna and Blue Cross/Blue Shield. 


--------------------
\5 The new process, which has yet to be implemented, requires OHTA to
solicit public suggestions for potential technology assessments.  The
suggestions will be ranked in order of importance on the basis of
established selection criteria.  OHTA will then conduct these
assessments in the order of relative importance. 

\6 The Medicare Trust Fund pays for Medicare benefits and
administrative expenses.  It is financed through a tax on earnings,
beneficiary premiums, and general revenues from the federal
government. 


DIAGNOSTIC-RELATED GROUP SYSTEM
AND NEW TECHNOLOGY
========================================================= Chapter 3

How does HCFA adjust its diagnostic-related group (DRG) system to
account for new or revised technologies?  Since implementation in
1983, how many decisions have been made on the coverage/proper
payment level for new or revised technologies?  How often have new
DRGs been created to cover new or revised technologies? 

The prospective payment system (PPS), which is based on DRGs,
accounts for new technology in its payment policies.  Under PPS, HCFA
groups Medicare patients whose inpatient care is similar (in clinical
indications and cost) into DRGs and reimburses hospitals at a
predetermined rate for each hospital discharge.\7 Medicare Part A
contractors make coverage determinations independently of DRG
classifications.  In the absence of a national coverage decision,
they remain responsible for making coverage decisions for individual
procedures. 

Under PPS, HCFA accounts for new technologies in its Medicare
reimbursement rates through the three processes described below. 


--------------------
\7 Each DRG has a relative weight, indicating how expensive it is
relative to the other DRGs.  To calculate DRG prices, Medicare
multiplies the DRG relative weight by a standard (base) payment
amount adjusted for several hospital-specific factors. 


      ANNUAL ADJUSTMENT TO PAYMENT
      AMOUNT
----------------------------------------------------- Chapter 3:0.1

Each year, the Prospective Payment Assessment Commission (ProPAC)\8
recommends to the Congress a general payment adjustment for all DRGs
to account for the cost-increasing effect of new technologies.  For
fiscal year 1995, ProPAC considered the effects of selected
technologies, such as thrombolytic therapy and implantable
cardioverter-defibrillators, on overall Medicare spending and
recommended a .3-percent increase to payment rates to account for
technological advances.  For fiscal year 1994, a 1-percent increase
was recommended. 


--------------------
\8 ProPAC was established in 1983 as an independent, nonpartisan
commission to advise the Congress on Medicare-related payment issues. 


      ANNUAL REVISION OF THE DRG
      SYSTEM
----------------------------------------------------- Chapter 3:0.2

HCFA is required by law to revise the DRG system each year to reflect
changes in hospital costs due to several factors, including new
technology.  For this revision, HCFA considers the effects of new
technology on individual DRGs.  The following examples illustrate how
HCFA takes new technologies into account for this annual revision. 

  HCFA revises DRG weights each year using the most recent charge
     data.  As HCFA incorporates charges for new technologies into
     its database, DRGs that cost more receive a higher weight and,
     therefore, receive higher payments.  So, if a new technology
     increases the cost of a DRG compared to other DRGs, it will
     receive a higher weight and increased payment. 

  HCFA adjusts the procedures assigned to DRGs as necessary to ensure
     that assigned procedures have proper payment levels.  For
     example, HCFA received complaints that reimbursement for
     cochlear implants, devices for treating severe deafness, was too
     low.  HCFA analyzed hospital cost data and determined that the
     complaints were valid.  In fiscal year 1994, HCFA rearranged the
     procedures assigned to the particular DRG in order to increase
     the payment level for cochlear implants and other procedures in
     the DRG. 

  HCFA creates new DRGs when necessary, generally when too much
     variation occurs in average costs within a DRG.  For instance,
     HCFA created three new DRGs for fiscal year 1991 for patients
     with human immunodeficiency virus (HIV) because these patients
     had higher costs than other patients in the same DRGs.  PPS
     began in October 1983 with 470 DRGs; since that time, HCFA has
     created 24 additional DRGs.  HCFA does not typically create DRGs
     for a single technology but did create a new DRG exclusively for
     liver transplants and bone marrow transplants when it decided to
     expand coverage for these procedures.  In addition, in fiscal
     year 1994, HCFA created new DRGs specifically for a new
     technology used in gall bladder removal surgery or
     cholecystectomy, a very common procedure for Medicare patients. 
     The two new cholecystectomy DRGs reflect the lower average cost
     for cholecystectomies when done laparoscopically.\9


--------------------
\9 In laparoscopic surgery, surgical instruments and a viewing
instrument are inserted into the abdomen through several small
incisions.  The surgeon views a remote image of the abdominal area on
a television monitor while operating.  This technique is less
invasive than traditional "open" surgery and results in shorter
hospital stays. 


      PPS FOR CAPITAL EXPENSES
----------------------------------------------------- Chapter 3:0.3

In fiscal year 1992, HCFA began reimbursing the inpatient
capital-related costs of PPS hospitals on a prospective basis.\10
Under this system, a predetermined amount per hospital discharge is
made for Medicare inpatient capital-related costs.  These costs
include depreciable assets used for patient care, such as magnetic
resonance imaging machines and lithotripters, which break up kidney
stones using shock waves.  The cost of the actual equipment is
reimbursed under this system, while the associated operating costs
continue to be reimbursed under the DRG system described above.  HCFA
plans to determine an annual update for this system based on
increases in the cost of capital and appropriate changes in capital
requirements resulting from new technology and other factors. 


--------------------
\10 PPS for capital-related costs is in its transition period, during
which capital-related costs are reimbursed partly on the basis of
prospective rates and partly on the traditional reasonable cost
method.  By October 1, 2001, all PPS hospitals will receive payment
for capital-related costs under a completely prospective method.