Re: [CMS-1179-IFC] Medicare Program - Prospective Payment System for Hospital Outpatient Services: Criteria for Establishing Additional Pass-Through Categories for Medical Devices (66 Federal Register 55850), November 2, 2001

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Wednesday, January 2nd 2002

Thomas Scully
Centers for Medicare & Medicaid Services
Hubert H. Humphrey Building - Room 443-G
200 Independence Avenue, SW
Washington, DC 20201

Dear Mr. Scully:

On behalf of our nearly 5,000 member hospitals, health care systems, networks and other providers of ambulatory care, the American Hospital Association (AHA) welcomes the opportunity to comment on the Centers for Medicare & Medicaid Services' (CMS) interim final rule which establishes additional categories of medical devices eligible for transitional pass-through payments under the Medicare outpatient prospective payment system (OPPS). The timely incorporation of new technology is a critical issue, as it has significant implications for quality of patient care as well as the long-run fiscal solvency of the Medicare program.

To ensure beneficiary access to new technologies, the Balanced Budget Refinement Act of 1999 (BBRA) created temporary additional payments or "transitional pass-through payments" for certain innovative medical devices, drugs and biologicals. These payments are to supplement the standard ambulatory payment classification (APC) rate when a specific technology, whose cost is not included in the base 1996 data used to calculate the payment rate, is used in caring for a patient. Pass-through payments are to be paid for two to three years until standard payment rates can be modified to incorporate the costs of new devices. In addition, pass-through payments are capped at 2.5 percent of total outpatient payments prior to 2004, and at 2 percent thereafter. If CMS estimates that the payment cap will be exceeded, then CMS is to make a proportional reduction for all pass-through payments to prevent an increase in overall spending for the program.

From the initial implementation of OPPS in August 2000 through March 31, 2001, the eligibility for pass-through payment was made on an item-specific basis, distinguished by individual trade names and, in some instances, model numbers. CMS adopted this approach to better identify those technologies that were not paid as an outpatient hospital service prior to December 31, 1996.

The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), however, required the use of categories to determine the eligibility of devices (but not drugs or biologicals) for transitional pass-through payments beginning April 1, 2001. The Act set broad criteria for establishing initial categories, which were released through Program Memorandum on March 22, 2001, and requires CMS to develop criteria for establishing additional categories. Congress has mandated that new categories be established for devices that were not paid for as an outpatient hospital service prior to December 31, 1996, in such a way that no device is described by more than one category and such that the average cost of devices included in a category is not insignificant in relation to the APC payment amount for the associated service.

Based on these requirements, CMS has indicated that it will utilize two criteria in establishing new categories of devices. First, the device must offer "substantial clinical improvement" in medical benefits for Medicare beneficiaries, as compared to the benefits obtained by devices in previously established categories or other available treatments. In determining whether a device offers "substantial clinical improvement," CMS will consider whether:

  • The device represents a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments.

  • The device offers the ability to diagnose a medical condition where that medical condition currently is undetectable or offers the ability to diagnose a medical condition earlier than allowed by currently available methods, where the diagnosis made by such a device affects the management of the patient.

  • The device significantly improves clinical outcomes for a patient population when compared to currently available treatments by, for example:
    - reducing mortality rates
    - reducing the rate of device-related complications
    - decreasing subsequent diagnostic or therapeutic interventions
    - decreasing the number of future hospitalizations or physician visits
    - producing more rapid beneficial resolution of the disease process
    - decreasing pain, bleeding or other quantifiable systems
    - reducing recovery time

Second, the estimated cost to hospitals of the devices in a new category must be "not insignificant" relative to the payment rate for the applicable procedure. To determine whether a device cost is "not insignificant," CMS will consider whether:

  • The estimated reasonable cost of the device exceeds 25 percent of the applicable APC payment for the service associated with the category of devices.

  • The estimated reasonable cost of the device exceeds the device-related portion of the APC payment amount for the service associated with the category of devices by at least 25 percent.

  • The estimated total cost of the devices in the category, less the portion of the APC payment allocated to the devices, exceeds 10 percent of the total payment for the associated APC.

The AHA believes that CMS has developed reasonable criteria and parameters for establishing new categories. We support CMS' decision to raise the threshold of a device's expected cost from 10 percent to 25 percent of the applicable APC payment associated with the device, as set forth in the first cost criterion. The AHA concurs that setting this higher cost threshold will focus pass-through payments on those devices that truly represent a substantial loss to hospitals. In addition, the narrower cost criteria will help control the demand on transitional pass-through payments, thus assuring that such a significant pro-rata reduction will not be necessary in future years.

The latter two cost criteria remain unchanged from those set forth in the August 3, 2000 interim final rule. These criteria, however, have been delayed in taking effect so that CMS could have time to collect and analyze the data necessary to determine the current portion of the APC payment associated with the device. The AHA would accept the use of these criteria in determining new categories of devices prior to the scheduled date of January 1, 2003, when, and only when, CMS has enough accurate and reliable data to make such estimates. This data needs to be made available to the public, and should include the methodology and assumptions used to determine the portion of the APC payment associated with the device.

While some have suggested expanding the current number of categories available, the AHA continues to believe that the existing categories are appropriate and that they do not hinder the development of new categories to accommodate new devices. We would strongly oppose any significant expansion of the current list of categories.

In response to the application process for creating a new device category, the AHA urges CMS to make this information public so that interested parties have the opportunity to review and provide input on any proposed new category prior to it being published in final form in a Program Memorandum. It is important for hospitals to have access to this material as they may have clinical, financial, or market related data that may assist CMS in making a final determination.

Given that BIPA requires CMS to provide transitional pass-through payments and to create categories for pass-through devices, we acknowledge that CMS has attempted to strike an appropriate balance between making new technology available while protecting core low-technology services. While the AHA continues to favor the incorporation of payments for new technologies into the APC weights, rather than making special add-on payments for certain drugs and devices, this is not allowable by statute. The AHA thus supports CMS' development of narrow criteria and high thresholds for new categories to help assure that future Medicare funds will be targeted to those technologies that are the most costly while offering the most clinical benefit.

The AHA appreciates the opportunity to submit these comments on CMS' interim final rule. If you have any questions about our comments, please feel free to contact me or Ashley Shrader, the AHA's senior associate director for policy, at (202) 626-2340.


Rick Pollack
Executive Vice President


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