Federal Register, Volume 72 Issue 167 (Wednesday, August 29, 2007)

[Federal Register Volume 72, Number 167 (Wednesday, August 29, 2007)]
[Rules and Regulations]
[Pages 49762-49945]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-4184]

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Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Part 484

Medicare Program; Home Health Prospective Payment System Refinement and
Rate Update for Calendar Year 2008; Final Rule

Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 /
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 484

[CMS-1541-FC]
RIN 0938-AO32

Medicare Program; Home Health Prospective Payment System
Refinement and Rate Update for Calendar Year 2008

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period sets forth an update to
the 60-day national episode rates and the national per-visit amounts
under the Medicare prospective payment system for home health services,
effective on January 1, 2008. As part of this final rule with comment
period, we are also rebasing and revising the home health market basket
to ensure it continues to adequately reflect the price changes of
efficiently providing home health services. This final rule with
comment period also sets forth the refinements to the payment system.
In addition, this final rule with comment period establishes new
quality of care data collection requirements.
Finally, this final rule with comment period allows for further
public comment on the 2.71 percent reduction to the home health
prospective payment system payment rates that are scheduled to occur in
2011, to account for changes in coding that were not related to an
underlying change in patient health status (section III.B.6).

DATES: Effective date: These regulations are effective on January 1,
2008.
Comment date: We will consider public comments on the provisions in
section III.B.6 that deal with the 2.71 percent reduction to payment
rates in 2011. To be assured consideration, comments must be received
at one of the addresses provided below, no later than 5 p.m. on October
29, 2007.

ADDRESSES: In commenting, please refer to file code CMS-1541-FC.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click
on the link ``Submit electronic comments on CMS regulations with an
open comment period.'' (Attachments should be in Microsoft Word,
WordPerfect, or Excel; however, we prefer Microsoft Word.)
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1541-FC, P.O. Box 8012, Baltimore, MD 21244-8012.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1541-FC, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7195 in advance to schedule your arrival
with one of our staff members.

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-
1850.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Randy Throndset, (410) 786-0131.
Sharon Ventura, (410) 786-1985 and Katie Lucas, (410) 786-7723 (for
general issues). Kathy Walch, (410) 786-7970 (for clinical OASIS
issues). Doug Brown, (410) 786-0028 (for quality issues). Mollie
Knight, (410) 786-7948; and Heidi Oumarou, (410) 786-7942 (for market
basket issues).

SUPPLEMENTARY INFORMATION:
Submitting Comments: We welcome comments from the public on the
2.71 percent reduction to the Home Health Prospective Payment System
(HH PPS) rates for 2011, as set forth in this final rule with comment
period, to assist us in fully considering this issue and developing
policies.
Inspection of Public Comments: All comments received before the
close of the comment period will be available for viewing by the
public, including any personally identifiable or confidential business
information that is included in the comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://
www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on
CMS Regulations'' on that Web site to view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare and Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Table of Contents

I. Background
A. Requirements of the Balanced Budget Act of 1997 for
Establishing the Prospective Payment System for Home Health Services
B. Deficit Reduction Act of 2005
C. Updates to the HH PPS
D. System for Payment of Home Health Services
II. Summary of the Provisions of the CY 2008 Proposed Rule
III. Analysis of and Response to Public Comments on the CY 2008
Proposed Rule
A. General Comments on the CY 2008 HH PPS Proposed Rule
1. Operational Issues
2. The Schedule for Implementation of the CY 2008 Refinements
3. Complexity of the System
B. Case-Mix Model Refinements
1. General Comments
2. Later Episodes
3. Addition of Variables
4. Addition of Therapy Thresholds

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5. Determination of Case-Mix Weights
6. Case-Mix Change Under the HH PPS
7. Case-Mix Groups
8. OASIS Reporting and Coding Practices
C. Payment Adjustments
1. The Partial Episode Payment (PEP) Adjustment
2. The Low Utilization Payment Adjustment (LUPA)
3. The Significant Change in Condition (SCIC) Adjustment
4. Non-Routine Medical Supplies (NRS)
D. The Outlier Policy
E. The Update of the HH PPS Rates
1. The Home Health Market Basket Update
2. The Rebasing and Revising of the Home Health Market Basket
3. Wage Index
4. Home Health Care Quality Improvement
5. CY 2008 Payment Updates
IV. Provisions of the Final Rule With Comment Period
V. Collection of Information Requirements
VI. Regulatory Impact Analysis
A. Overall Impact
B. Anticipated Effects
C. Accounting Statement
Addendum A. CY 2008 Wage Index for Rural Areas by CBSA; Applicable
Pre-floor and Pre-reclassified Hospital Wage Index
Addendum B. CY 2008 Wage Index for Urban Areas by CBSA; Applicable
Pre-floor and Pre-reclassified Hospital Wage Index
Addendum C. Comparison of the CY 2007 HH PPS Wage Index and the CY
2008 HH PPS Wage Index

I. Background

A. Requirements of the Balanced Budget Act of 1997 for Establishing the
Prospective Payment System for Home Health Services

The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) enacted on
August 5, 1997, significantly changed the way Medicare pays for
Medicare home health services. Section 4603 of the BBA governed the
development of the home health prospective payment system (HH PPS).
Until the implementation of a HH PPS on October 1, 2000, home health
agencies (HHAs) received payment under a cost-based reimbursement
system.
Section 4603(a) of the BBA provides the authority for the
development of a HH PPS for all Medicare-covered home health services
provided under a plan of care that were paid on a reasonable cost basis
by adding section 1895 of the Social Security Act (the Act), entitled
``Prospective Payment For Home Health Services,'' to the Act.
Section 1895(b)(1) of the Act requires the Secretary to establish a
HH PPS for all costs of home health services paid under Medicare.
Section 1895(b)(3)(A) of the Act requires that (1) the computation
of a standard prospective payment amount include all costs for home
health services covered and paid for on a reasonable cost basis and be
initially based on the most recent audited cost report data available
to the Secretary, and (2) the prospective payment amounts be
standardized to eliminate the effects of case-mix and wage levels among
HHAs.
Section 1895(b)(3)(B) of the Act addresses the annual update to the
standard prospective payment amounts by the home health applicable
increase percentage as specified in the statute.
Section 1895(b)(4) of the Act governs the payment computation.
Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act require the
standard prospective payment amount be adjusted for case-mix and
geographic differences in wage levels. Section 1895(b)(4)(B) of the Act
requires the establishment of an appropriate case-mix adjustment factor
that adjusts for significant variation in costs among different units
of services. Similarly, section 1895(b)(4)(C) of the Act requires the
establishment of wage adjustment factors that reflect the relative
level of wages, and wage-related costs applicable to home health
services furnished in a geographic area compared to the applicable
national average level. These wage-adjustment factors may be used by
the Secretary for the different geographic wage levels for purposes of
section 1886(d)(3)(E) of the Act.
Section 1895(b)(5) of the Act gives the Secretary the option to
make additions or adjustments to the payment amount otherwise made in
the case of outliers because of unusual variations in the type or
amount of medically necessary care. Total outlier payments in a given
fiscal year (FY) may not exceed 5 percent of total payments projected
or estimated.
In accordance with the statute, we published a final rule (65 FR
41128) in the Federal Register on July 3, 2000 to implement the HH PPS
legislation. The July 2000 final rule established requirements for the
new HH PPS for home health services as required by section 4603 of the
BBA, as subsequently amended by section 5101 of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act (OCESAA) for
Fiscal Year 1999, (Pub. L. 105-277), enacted on October 21, 1998; and
by sections 302, 305, and 306 of the Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act (BBRA) of 1999, (Pub. L. 106-113),
enacted on November 29, 1999. The requirements include the
implementation of a HH PPS for home health services, consolidated
billing requirements, and a number of other related changes. The HH PPS
described in that rule replaced the retrospective reasonable cost-based
system that was used by Medicare for the payment of home health
services under Part A and Part B.
For a complete and full description of the HH PPS as required by
the BBA, see the July 2000 HH PPS final rule.

B. Deficit Reduction Act of 2005

On February 8, 2006, the Deficit Reduction Act (DRA) of 2005 (Pub.
L. 109-171) was enacted. This legislation affected updates to HH
payment rates for calendar year (CY) 2006. The DRA also required HHAs
to submit home health care quality data and created a linkage between
that data and payment beginning in CY 2007.
Specifically, section 5201 of the DRA changed the CY 2006 update
from the applicable home health market basket percentage increase minus
0.8 percentage points to a 0 percent update. In addition, section 5201
of the DRA amends section 421(a) of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173,
enacted on December 8, 2003). The amended section 421(a) of the MMA
requires that for home health services furnished in a rural area (as
defined in section 1886(d)(2)(D) of the Act) on or after January 1,
2006 and before January 1, 2007, that the Secretary increase the
payment amount otherwise made under section 1895 of the Act for home
health services by 5 percent. The statute waives budget neutrality for
purposes of this increase since it specifically states that the
Secretary must not reduce the standard prospective payment amount (or
amounts) under section 1895 of the Act applicable to home health
services furnished during a period to offset the increase in payments
resulting in the application of this section of the statute.
The 0 percent update to the payment rates and the rural add-on
provisions of the DRA were implemented through Pub. 100-20, One Time
Notification, Transmittal 211 issued on February 10, 2006.
In addition, section 5201 of the DRA requires HHAs to submit data
for purposes of measuring health care quality, and links the quality
data submission to payment. This requirement is applicable for CY 2007
and each subsequent year. If an HHA does not submit quality data, the
home health market basket percentage increase will be reduced 2
percentage points.

C. Updates to the HH PPS

As required by section 1895(b)(3)(B) of the Act, we have
historically updated the HH PPS rates annually in a separate

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Federal Register document. In those documents, we also incorporated the
legislative changes to the system required by the statute after the
BBA, specifically the MMA. On November 9, 2006, we published a final
rule titled ``Medicare Program; Home Health Prospective Payment System
Rate Update for Calendar Year 2007 and Deficit Reduction Act of 2005
Changes to Medicare Payment for Oxygen Equipment and Capped Rental
Durable Medical Equipment; Final Rule'' (CMS-1304-F) (71 FR 65884) in
the Federal Register that updated the 60-day national episode rates and
the national per-visit amounts under the Medicare HH PPS for home
health services for CY 2007. In addition, the November 2006 final rule
ended the 1-year transition period that consisted of a blend of 50
percent of the new area labor market designations' wage index and 50
percent of the previous area labor market designations' wage index. We
also revised the fixed dollar loss ratio, which is used in the
calculation of outlier payments. According to section 5201(c)(2) of the
DRA, this final rule also reduced, by 2 percentage points, the home
health market basket percentage increase to HHAs that did not submit
required quality data, as determined by the Secretary.

D. System for Payment of Home Health Services

Generally, Medicare makes payment under the HH PPS on the basis of
a national standardized 60-day episode payment rate that is adjusted
for case-mix and wage index. The national standardized 60-day episode
payment rate includes the six home health disciplines (skilled nursing,
home health aide, physical therapy, speech-language pathology,
occupational therapy, and medical social services) and medical
supplies. Durable medical equipment covered under home health is paid
for outside the HH PPS payment. To adjust for case-mix, the HH PPS uses
an 80-category case-mix classification to assign patients to a home
health resource group (HHRG). Clinical needs, functional status, and
service utilization are computed from responses to selected data
elements in the OASIS assessment instrument.
For episodes with four or fewer visits, Medicare pays on the basis
of a national per-visit amount by discipline, referred to as a low
utilization payment adjustment (LUPA). Medicare also adjusts the
national standardized 60-day episode payment rate for certain
intervening events that are subject to a partial episode payment
adjustment (PEP adjustment) or a significant change in condition
adjustment (SCIC adjustment). For certain cases that exceed a specific
cost threshold, an outlier adjustment may also be available.

II. Summary of the Provisions of the CY 2008 Proposed Rule

We published a proposed rule in the Federal Register on May 4, 2007
(72 FR 25356) that set forth a proposed update to the 60-day national
episode rates and the national per-visit amounts under the Medicare
prospective payment system for home health services. In accordance with
section 1895(b)(3)(B) of the Act, the standard prospective payment
amounts are to be increased by a factor equal to the applicable home
health market basket update for those HHAs that submit quality data as
required by the Secretary. The proposed home health market basket
update for CY 2008 was 2.9 percent. For HHAs that fail to submit the
required quality data, the home health market basket update would be
reduced by 2 percentage points.
Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the
Secretary to establish area wage adjustment factors that reflect the
relative level of wages and wage-related costs applicable to the
furnishing of home health services and to provide appropriate
adjustments to the episode payment amounts under the HH PPS to account
for area wage differences. As set forth in the July 3, 2000 final rule
(65 FR 41128), the statute provides that the wage adjustment factors
may be the factors used by the Secretary for the purposes of section
1886(d)(3)(E) of the Act for hospital wage adjustment factors. In the
CY 2008 proposed rule (72 FR 25449), we proposed to use the 2008 pre-
floor and pre-reclassified hospital wage index (not including any
reclassification under section 1886(d)(8)(B) of the Act) to adjust
rates for CY 2008 and would publish those final wage index values in
the final rule.
As part of the CY 2008 proposed rule (72 FR 25435), we also
proposed to rebase and revise the home health market basket to reflect
FY 2003 Medicare cost report data, the latest available and most
complete data on the structure of HHA costs. In the proposed rebased
and revised home health market basket, the labor-related share was
77.082 (an increase from the current labor-related share of 76.775).
The proposed non-labor-related share was 22.918 (a decrease from the
current non-labor-related share of 23.225). The increase in the
proposed labor-related share using the FY 2003 home health market
basket was primarily due to the increase in the benefit cost weight.
The CY 2008 proposed rule (72 FR 25358) also proposed refinements
to the payment system. Extensive research was conducted to investigate
ways to improve the performance of the case-mix model. This research
was the basis for our proposals to refine the case-mix model. We
proposed to refine the case-mix model to reflect different resource
costs for early home health episodes versus later home health episodes
and to expand the case-mix variables included in the payment model. For
2008, we proposed a 4-equation case-mix model that recognizes and
differentiates payment for episodes of care based on whether a patient
is in what is considered to be an early (1st or 2nd episode in a
sequence of adjacent episodes) or later (the 3rd episode and beyond in
a sequence of adjacent episodes) episode of care as well as recognizing
whether a patient was a high therapy (14 or more therapy visits) or low
therapy (13 or fewer therapy visits) case. We defined episodes as
adjacent if they were separated by no more than a 60-day period between
claims. Analysis of the performance of the case-mix model for later
episodes revealed two important differences for episodes occurring
later in the home health treatment compared to earlier episodes: higher
resource use per episode and a different relationship between clinical
conditions and resource use. We also proposed that additional variables
include scores for certain wound and skin conditions; more diagnosis
groups such as pulmonary, cardiac, and cancer diagnoses; and certain
secondary diagnoses. The proposed 4-equation model resulted in 153
case-mix groups.
In addition, we proposed to replace the current single therapy
threshold of 10 visits with three therapy thresholds at 6, 14, and 20
visits. We proposed that payment for additional therapy visits between
the three thresholds would increase gradually, incorporating a
declining, rather than a constant, amount per added therapy visit. The
proposed approach would not reduce total payments to home health
providers because the payment model would still predict total resource
cost. We noted that the combined effect of the new therapy thresholds
and payment gradations was expected to reduce the undesirable emphasis
in treatment planning on a single therapy visit threshold, and to
restore the primacy of clinical considerations in treatment planning
for rehabilitation patients.
In the May 4, 2007 proposed rule (72 FR 25395), we further proposed
to make

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an adjustment for case-mix that was not due to a change in the
underlying health status of the home health users. Section
1895(b)(3)(B) of the Act requires that in compensating for case-mix
change, a payment reduction must be applied to the standardized payment
amount. At the time of publication of the proposed rule, the most
recent available data, from which to compute an average case-mix
weight, or case-mix index, under the HH PPS rule, was from 2003. Using
the 2003 data, the average case-mix weight per episode for initial
episodes was 1.233. Analysis of a 1-percent sample of initial episodes
from the 1999-2000 data under the HH IPS revealed an average case-mix
weight of 1.125. Standardized to the distribution of agency type
(freestanding proprietary, freestanding not-for-profit, hospital-based,
government, and skilled nursing facility (SNF)-based) that existed in
2003 under the HH PPS, the average weight was 1.134. We noted this time
period is likely not free from anticipatory response to the HH PPS,
because we published our initial HH PPS proposal on October 28, 1999.
The increase in the average case-mix using this time period as the
baseline resulted in an 8.7 percent increase (from 1.134 to 1.233;
1.233-1.134=0.099; 0.099/1.134=0.087; 0.087x100=8.7 percent). We
proposed that the 8.7 percent of case-mix change that occurred between
the 12 months ending September 30, 2000 and the most recent available
data at the time from 2003 be considered case-mix change unrelated to
change in health status, also referred to as ``nominal case-mix
change.'' We proposed to apply this reduction over 3 years at 2.75
percent per year. Our analysis on the average case-mix under the HH PPS
using an Abt Associates' case-mix study sample from October 1997 to
April of 1998 as the baseline revealed an increase in the average case-
mix of 23.3 percent (from 1.0 during October 1997 to April 1998 to
1.233 in 2003). Because we believed the HHAs response to BBA
provisions, such as the home health interim payment system (HH IPS)
during this period, could have produced data from this sample that
reflected a case-mix in flux, we were not confident that the trend in
the case-mix index (CMI) between the time of the Abt Associates case-
mix study sample and 2003 data, used in the analysis for the proposed
rule, reflected only changes in nominal coding practices. Conversely,
the average case-mix for a sample data set for 12 months ending
September 30, 2000 (HH IPS baseline) was found to be 1.125,
standardized to 1.134. Using this time period as the base-line from
which to measure nominal change in case-mix under the HH PPS, we
identified an 8.7 percent change (increase) in the average CMI that
would not be due to a change in the patient health status (1.233, 2003
rate -1.134, September 2000 baseline = 0.099; 0.099/1.134 = 0.087).
Consequently, we proposed to account for that 8.7 percent in case-mix
change, that we considered to be nominal by reducing the national 60-
day episode rate by 2.75 percent, per year, for 3 years (subject to
change upon analysis of newer, 2005 data for the final rule), beginning
in CY 2008.
Additionally, we proposed to modify a number of existing HH PPS
payment adjustments. Specifically, we proposed modifying the LUPA by
increasing the payment, by $92.63, for LUPA episodes that occur as the
only episode or the initial episode during a sequence of adjacent
episodes. It has been suggested, by the industry, that LUPA payment
rates do not adequately account for the front-loading of costs in an
episode. Our analysis showed that these types of LUPAs require longer
visits, on average, than non-LUPA episodes, and that the longer average
visit length is due to the start of care visit, when the case is opened
and the initial assessment takes place. Consequently, these analyses
indicate that payments for such episodes may not offset the full cost
of initial visits. We also proposed eliminating the significant change
in condition (SCIC) payment adjustment. The current SCIC policy allows
an HHA to adjust payment when a beneficiary experiences a SCIC during
the 60-day episode that was not envisioned in the original plan of
care. Because of the apparent difficulty HHAs have in interpreting the
SCIC policy, their negative margins, the decline in the occurrence of
SCICs, and the estimated little impact on outlays in eliminating the
SCIC policy, we proposed to eliminate the SCIC policy.
In the development of the HH PPS, non-routine medical supplies
(NRS) were accounted for by attributing $49.62 to the standardized
episode payment. In the CY 2008 proposed rule (72 FR 25427), we
proposed to apply a severity adjustment to the NRS portion of the HH
PPS standardized episode payment. Specifically, we proposed a five-
severity group level approach that we believe would account for NRS
costs based on measurable conditions, would be feasible to administer,
and offered HHAs some protection against episodes with extremely high
NRS costs. Finally, we did not propose to modify the existing Partial
Episode Payment (PEP) Adjustment. At the time of the proposed rule, our
analysis did not suggest a more appropriate alternative payment policy.
However, we solicited the public for suggestions and comments on this
aspect of the HH PPS for ways to improve the PEP adjustment policy.
Section 1895(b)(5) of the Act also allows for the provision of an
addition or adjustment to account for outlier episodes, which are those
episodes that incur unusually large costs due to patient care needs.
Under the HH PPS, outlier payments are made for episodes for which the
estimated cost exceeds a threshold amount. The wage adjusted fixed
dollar loss (FDL) amount represents the amount of loss that an agency
must bear before an episode becomes eligible for outlier payments.
Section 1895(b)(5) of the Act requires that the estimated total outlier
payments may not exceed 5 percent of total estimated HH PPS payments.
With outlier payments having increased in recent years, and given the
unknown effects that the proposed refinements may have on outliers, we
proposed to maintain the FDL ratio of 0.67. We stated, in the proposed
rule (72 FR 25434), that we believed this would continue to meet the
statutory requirement of having an outlier payment outlay that does not
exceed 5 percent of total HH PPS payments, while still providing for an
adequate number of episodes to qualify for outlier payments. We further
stated in the proposed rule (72 FR 25434) that we would rely on the
latest data and best analysis available at the time to estimate outlier
payments and update the FDL ratio in the final rule if appropriate.
Finally for CY 2007, we specified 10 OASIS quality measures as
appropriate for measurements of health care quality. These measures
were to be submitted by HHAs to meet their statutory requirements to
submit data for a full increase in their home health market basket
percentage increase amount. For CY 2008, we proposed to expand the set
of 10 measures by adding up to 2 National Quality Forum (NQF)-endorsed
measures. The proposed additional measures for 2008 were as follows:

Emergent Care for Wound Infection, Deteriorating Wound Status
Improvement in the Status of Surgical Wounds

Accordingly, for CY 2008, we proposed to consider the 12 OASIS
quality measures submitted by HHAs to CMS for episodes beginning on or
after July 1, 2006 and before July 1, 2007 as meeting the reporting
requirement for CY 2008.

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III. Analysis of and Responses to Public Comments on the CY 2008
Proposed Rule

In response to the publication of the CY 2008 HH PPS proposed rule,
we received approximately 150 items of correspondence from the public.
We received numerous comments from various trade associations and major
organizations. Comments also originated from HHAs, hospitals, other
providers, suppliers, practitioners, advocacy groups, consulting firms,
and private citizens. The following discussion, arranged by subject
area, includes our responses to the comments and, where appropriate, a
brief summary as to whether or not we are implementing the proposed
provision or some variation thereof.

A. General Comments on the CY 2008 HH PPS Proposed Rule

1. Operational Issues
Overall, commenters were pleased with the proposed changes to the
HH PPS. However, commenters did express concerns over the burden they
perceived that would be placed on HHAs to accomplish a number of the
proposed changes.
Comment: Commenters generally appreciated CMS's plan to
automatically adjust claims to reflect the actual amount of therapy
provided versus that initially reported in OASIS item M0826, Therapy
Need, but two commenters noted that for payment adjustments to be made
accurately, Medicare's Common Working File (CWF) system must contain
timely, accurate information. Numerous commenters were concerned that
the creation of M0110 (Episode Timing) would be burdensome, as agencies
do not have the information to complete them. The commenters did not
want to be penalized if M0110 was answered incorrectly, and wanted to
avoid administrative burden from having to cancel and resubmit final
claims and Request for Anticipated Payments (RAPs).
Response: CMS has made efforts over the last several years to
reduce internal processing delays and ensure that the CWF is updated
with claim receipts more quickly overall. While new errors may arise
that delay processing, we will seek to correct them as swiftly as
possible in light of all the competing demands on our systems.
The factor that most affects the timeliness and accuracy of the CWF
is how promptly within the 15 to 27 month timely filing period each
provider submits its claims. Medicare systems can only process to the
greatest degree of accuracy based on the information received to date.
In all instances where we foresee submission or processing lags
affecting the accuracy of claim payments under the refined system, we
are designing processes to retrospectively adjust paid claims at the
point when the delayed information is received. For example, the CWF
will automatically adjust claims up or down to correct for episode
timing (early or later, from M0110) and for therapy need (M0826) when
submitted information is found to be incorrect.
No cancelling and resubmission on the part of HHAs will be required
in these instances. Additionally, as the proposed rule noted, providers
have the option of using a default answer reflecting an early episode
in M0110 in cases where information about episode sequence is not
readily available.
Comment: Most commenters supported the elimination of OASIS item
M0175 from the case-mix model, as they sometimes found it difficult to
code accurately. Some commenters thought that we were eliminating M0175
from the OASIS entirely, and supported that. Several recommended that
we also stop retrospective M0175 audits. One asked that we keep M0175
as a case-mix variable, and apply the points to patients who have been
admitted directly from a hospital.
Response: We appreciate the support of our decision to eliminate
M0175 as a case-mix variable. We are not eliminating M0175 from the
OASIS, as is explained in section III.E.4, but only removing it from
the case-mix model. The M0175 item's results across the four equations
were difficult to interpret, and the item's explanatory power (with
respect to contribution to the R-squared statistic) was small.
Therefore, M0175 was not included as a case-mix variable in our final
case-mix model.
The M0175 item is part of the original HH PPS case-mix model and
was reflected in the determination of payments under that system. The
retrospective M0175 audits are still necessary to correct payments that
were made inappropriately under the original HH PPS. These payment
corrections have been repeatedly recommended to CMS by HHS's Office of
Inspector General.
Comment: One commenter proposed that the timeliness of information
on Medicare systems would be increased by the removal of the option to
submit no-RAP LUPA claims. The commenter believes that requiring RAPs
for all episodes will speed submission of episodes to Medicare.
Response: The no-RAP LUPA billing mechanism was created as part of
the original implementation of the HH PPS in response to concerns from
the home health industry that requiring RAPs for brief LUPA episodes
presented an administrative burden. Absent consistent feedback
throughout the home health industry that the benefits of removing this
billing mechanism would outweigh the costs, we plan to retain the no-
RAP LUPA process. However, we note this billing mechanism is an
operational issue and we have not received many comments on this issue.
It should be further noted that requiring the submission of RAPs for
all episodes will not necessarily speed the submission of those RAPs in
all cases. RAPs, like no-RAP LUPAs, can also be submitted at any point
in the timely filing period.
Comment: One commenter asked whether home health services received
when a beneficiary is enrolled in a Medicare Advantage (MA) Plan will
be considered in determining the sequence of adjacent episodes in cases
where the beneficiary has disenrolled from the MA Plan and resumes his
or her coverage under the Medicare fee-for-service program.
Response: Medicare does not typically receive claim-by-claim or
individual service data on beneficiaries enrolled in MA Plans. As a
result, the information is not available to determine whether a
beneficiary has been receiving home health services under the plan or
for how long. Medicare systems will determine sequences of adjacent
episodes based on the fee-for-service episode information currently
housed in the CWF and accessible to Medicare providers through
eligibility inquiry transactions.
Comment: A commenter believed that the addition of multiple payment
tiers based on therapy usage would create a problem concerning
beneficiary notification of their financial obligation to pay for home
health services. Many beneficiaries are now enrolled in Medicare
replacement plans that require a co-pay on the episodic rate. The
Medicare Conditions of Participation (CoPs) at 42 CFR 484.10 require
that the HHA notify the patient in advance of his or her liability for
payment. The commenter believed some consideration needs to be made
about the obligations of HHAs to meet this requirement as it is
virtually impossible to calculate the rate and provide notices of the
changing rate prior to providing service.
Response: The provisions of this rule apply to Medicare's fee-for-
service HH PPS and do not apply to Medicare Advantage/Medicare Choice
plans where co-pays for home health services provided under the plan
may exist. As

[[Page 49767]]

long as the patient meets the Medicare fee-for-service eligibility
requirements, and the HHA provides covered services that are reasonable
and necessary based on the patient's plan of care, there would be no
financial obligation on the part of the patient. However, if the
patient asks the HHA for services outside the scope of the Medicare
home health benefit, or the HHA provides non-covered services, the HHA
would be required to provide the patient with financial liability
information via the Advanced Beneficiary Notification (ABN). The
multiple payment tiers (that is, multiple therapy thresholds) would not
affect the determination of the patient's financial liability. That
liability would be outside the scope of the Medicare home health
benefit, and would be determined between the HHA and the patient. This
comment is beyond the scope of this final rule with comment period,
which deals with payment under HH PPS to fee-for-service HHAs.
Comment: Several commenters wrote that smaller, rural agencies are
particularly disadvantaged by the changes in the proposed rule. They
were concerned that the proposed changes will limit the ability of
agencies to survive or compete, which could limit access for patients.
This may impact rural patients more than urban patients.
Another commenter noted that CMS derives resource costs by
weighting each minute reported on the claim by the national average
labor market hourly rate for the discipline, and summing the total. The
commenter believed that it is not realistic to attribute the same
resource cost to rural beneficiaries as to urban beneficiaries, who
have more social programs available to them. Additionally, this method
does not account for the significant travel costs associated with rural
beneficiaries. The commenter added that this is why there has
periodically been a rural add-on.
Response: Our impact tables show that rural agencies, on average,
will experience a modest reduction in total payments between 2007 and
2008--less than 2 percent. Factors in the reduction are discussed in
section VI.B. These include the small reduction in the average case-mix
weight in 2008 among rural agencies, the impact of the wage index, and
several other factors discussed in that section. The offsetting
positive effect of the annual payment update offsets most of the total
negative effect of the changes.
Medicare prices are adjusted for the cost differences among
different locations. Although we use standardized national average
resource cost estimates for developing the relative case-mix weights,
the pricing procedure applied after accounting for standardized
resource costs adjusts for geographic differences in cost levels. We
have no data to effectively evaluate the comments on the disadvantages
attributed to rurally residing beneficiaries.
Comment: A commenter suggested raising the RAP to 75 percent of the
base rate. Another commenter noted that the proposed rule is silent on
the need to increase the RAP, even though program abuse of the RAP has
not materialized. This commenter proposed that the RAP be increased to
80/20 for all providers who have participated in the HH PPS since its
inception, and noted that CMS would retain the right to reduce this
level for abuse of the RAP. The commenter further proposed that less
established providers could operate under current RAP rules until they
had a 5 year record of responsible Medicare performance.
Response: Before HH PPS implementation, HHAs were accustomed to
billing Medicare on a 30-day cycle or receiving periodic interim
payments. The change to a 60-day episode of care under HH PPS, combined
with concerns over delays due to claims processing times, documentation
requirements, and medical review, led us to address agency cash flow
concerns in our 1999 HH PPS proposed rule. At that time, we proposed a
split percentage payment to ensure that agencies have adequate cash
flow to maintain quality services to beneficiaries. In 2000, we
implemented the RAP which paid 60 percent up front for an initial
episode, as we recognized that some administrative costs were front-
loaded; the remaining 40 percent would be paid after submission of the
final claim. We allowed a RAP of 50 percent for a subsequent episode,
with the remaining 50 percent paid upon receipt of the final claim.
We expect agencies to follow normal business practices with regard
to financing their operations. The current RAP percentage splits are
reasonable given the RAP's purpose, therefore, we do not see a need to
increase them. Moreover, we believe our current process protects
against abuse, as an agency's RAP may be reduced or withheld when
protecting Medicare program integrity warrants this action.
Comment: Two commenters wrote that they are unable to make
meaningful public comment because CMS has not released the impact file
that would enable modeling of the proposed changes. Agencies are unable
to plan operationally and financially for these changes.
Response: We do not agree that agencies are unable to plan
operationally and financially for these changes. We worked with a
large, 20-percent sample of 2005 claims, which would not permit us to
produce accurate summaries at the agency level for many agencies, which
would be required for a file of the type mentioned by the commenter.
Our proposed rule impact table provided average case-mix weights for
agencies to use as estimates, according to the detailed subgroup to
which they belong. Consistent with resources available, we opted to
provide a simple preliminary grouper to assist agencies in
understanding the impacts. We also provided preliminary grouper logic
(``pseudocode'') for software developers assisting some agencies to
evaluate the impacts.
Comment: A number of commenters noted that home health agencies
provide quality care that saves Medicare money in hospital or other
inpatient facility benefits. Several commenters expressed concern that
the proposed changes do not consider today's health picture, with an
aging population, a wave of baby boomers entering retirement, a
shortage of nurses, high fuel costs, and the cost of technological
advances such as telehealth and physician's portal.
Response: The goal of the refinements in this regulation is to pay
as accurately as possible given the case-mix of patients in home health
agencies today. We appreciate the broad context referenced in this
comment, and will continue to work with the home health industry and
the public to understand and anticipate changes that affect proper
pricing of home health services.
Comment: A commenter suggested that we revise the regulation
requiring that orders and plans of care for home health patients be
signed by a physician. Another commenter asked that the CoPs be changed
to allow therapists, in addition to nurses, to open a case, as it could
improve the ability to accurately project therapy requirements for
patients.
Response: We appreciate these comments, but note that this
regulation updates the HH PPS payment rates and does not change any of
the CoPs. Sections 1814(a)(2)(c) and 1835(a)(2)(A)(ii) of the Act
require that orders and plans of care be established and periodically
reviewed by a physician. The CoP dictating the physician signature
requirements on the plan of care is detailed in 42 CFR 484.18(b) and
(c).
Moreover, in 42 CFR 484.55(a)(1), agencies are required to have a
registered nurse conduct an initial assessment. We note, however in 42

[[Page 49768]]

CFR 484.55(a)(2), the home health CoP regulations state that ``when
rehabilitation therapy service * * * is the only service ordered by the
physician, and if the need for that service establishes program
eligibility, the initial assessment visit may be made by the
appropriate rehabilitation skilled professional.''
Comment: A commenter noted that CMS currently uses salary
information to estimate the costs of a visit, and does not include
overhead costs. This method assumes indirect costs are proportional to
direct costs. The commenter believes this assumption may be incorrect,
and suggested examining cost report data to see if further review
provides better data on overhead costs. This information could be
combined with claims information about home health charges to better
assess labor costs. These two sources of information could be used to
compute the per-visit discipline costs for different types of episodes.
Response: CMS' methodology does assume that overhead costs are
proportional to direct labor costs. We will continue to consider the
appropriate role of cost reports in understanding potential
improvements to our methodology. At this time, we believe the role is
limited, as demonstrated by the limitations on cost report reliability
pertaining to the derivation of cost-to-charge ratios for the analysis
of NRS payments. We urge agencies to put more resources into accurately
completing the cost reports for future use in payment refinements.
Comment: A commenter suggested that the recommendations from the
two Technical Expert Panel (TEP) meetings be shared with the industry,
and that the industry be allowed to provide feedback, as these affected
the development of the proposed rule.
Response: The TEP was administered by Abt Associates. The panel was
not asked for, nor did it produce, consensus recommendations. Abt
Associates used TEP participants as a sounding board about differing
aspects of the research approach and the refinements emerging from it
at the time of the TEP meeting.
Comment: A commenter asked that we provide detailed technical
specifications and grouper software with issuance of the final rule.
Response: We intend to issue detailed specifications and a grouper
software package as soon as possible after the issuance of this rule.
Comment: A commenter noted that there was an error in Table 5
posted to CMS' Web Site.
Response: Table 5 was originally posted with an error, but was
replaced with a corrected version. The correct version was promptly
posted on the CMS Web site.
Comment: Regarding dual eligibles, a commenter suggested that CMS
improve the alignment of HHRGs and Medicare coverage guidelines for
homebound status and medical necessity, particularly for cases that
receive coverage under ``Assessment and Observation'' or ``Management
and Evaluation of the Care Plan'' guidelines. Improved alignment of the
payment system and coverage rules is critical to addressing ongoing
disputes between state Medicaid agencies and the Medicare program
regarding Third Party Liability.
Response: These comments are outside the scope of this regulation;
however, we will take them under consideration when evaluating the need
for additional guidance on Medicare coverage guidelines.
Comment: A commenter is concerned that the proposed HH PPS
refinements place emphasis on therapy and would support a system that
provides for the utilization of restorative nursing as a substitution
for therapist visits. The expansion of this type of service utilization
will ultimately provide better patient outcomes and address the growing
demand for restorative services.
Response: The proposed refinements were developed within the
disciplines covered by the home health benefit. A specialty of
restorative nursing is not recognized within those disciplines.
Moreover, we do not have evidence about effects on patient outcomes
from implementing the commenter's proposal.
Comment: A commenter believed it is important for CMS to align
regulatory and reimbursement decisions so that they reflect the needs
of patients as outlined by the Institute of Medicine. The commenter
stated that the proposed regulation signals a change in which the home
health industry would be asked to move from its current focus on acute
and rehabilitative services to the provisions of more long-term care
services of the type offered prior to HH PPS implementation. The
commenter asked CMS to clarify whether it prefers Medicare home health
services to emphasize more sophisticated treatments or whether it
expects home health services to be used solely for long-term care and/
or custodial services, which have traditionally been the purview of
Medicaid.
Response: We disagree that the proposals signal a shift away from
acute and rehabilitative services. The proposals recognize that a
minority of patients have an extended period of incapacitation and need
for medically necessary nursing or rehabilitative or assistive
services, while they continue to meet the homebound requirement.
Agencies are expected to apply the statutory eligibility and coverage
criteria.
Comment: A commenter questioned whether the increase seen in costs
of late episodes is due to end-of-life care given to patients who did
not want hospice care.
Response: We appreciate the comment. We note, however, our analysis
did not focus on whether or not the patient had a terminal illness.
2. The Schedule for Implementation of the CY 2008 Refinements
In the May 4, 2007 proposed rule, we proposed to implement the
finalized updates and refinements on January 1, 2008. However, we did
recognize that there may be operational considerations, affecting CMS
or the industry, which could necessitate an implementation schedule
that results in certain refinements becoming effective on different
dates (a split-implementation). We solicited the public for suggestions
and comments on this matter.
Comment: Several commenters expressed concern about the amount of
time available for providers to make any necessary changes to their
billing systems and administrative processes between the publication of
this rule and the implementation date of episodes beginning on January
1, 2008. They were concerned about the administrative burden, and that
CMS does not have a contingency plan to facilitate interim payments to
HHAs that are unable to bill Medicare under the revised HH PPS. A
contingency payment arrangement would ensure that no provider is
presented with a significant cash flow problem because of the tight
timeframe involved. Several commenters suggested we convene an ongoing
series of implementation meetings including Medicare contractors, the
home health community, and the vendors who support the home health
industry to reduce the likelihood of delays and errors. One commenter
asks for additional resources to help providers cope with this major
change. Another asked that we not follow a split-implementation plan.
Response: While the changes described by this rule are significant,
their overall impact on provider billing practices are far less
extensive than those required for the initial implementation of HH PPS.
We also anticipate the time period between the issuance of this final
rule with comment

[[Page 49769]]

period and the implementation date will be longer than the period that
was available between publication of the final rule on July 3, 2000,
and initial implementation of the HH PPS on October 1, 2000. CMS
expects to issue final implementing instructions and educational
materials about the case-mix refinement changes as soon as it is
feasible after finalization of the proposals contained in this final
rule with comment period. We also plan to conduct outreach through
industry associations and representatives of software companies that
serve home health agencies to facilitate this transition.
CMS plans to conduct calls with vendors, hold OASIS training, and
continue the use of the home health Open Door Forums (ODFs) as
mechanisms to provide information to HHAs regarding implementation.
Regarding cash flow issues and contingency plans, CMS is taking steps,
internally, to test systems changes before implementation. We do not
feel that the vulnerabilities that existed when we moved from a cost-
based system to a prospective payment system exist today in moving to a
refined HH PPS system. Consequently, we do not feel it is necessary to
create an elaborate contingency plan as was needed for the
implementation of the HH PPS.
Comment: Several commenters expressed that an implementation date
of January 1, 2008 be delayed because the HH PPS reform changes are
significant, and providers will have to educate all of their employees
on the changes in addition to working closely with the vendors to
initiate complex IT changes. Because as providers, they must also
implement the changes throughout the organization, to both clinical and
financial staff, the commenters suggested that CMS delay the
implementation date to October 1, 2008 to allow ample time for
providers to make all the necessary adjustments. The commenters also
requested that CMS release of the home health CoPs coincide with the
implementation of HH PPS refinement requirements to ease the burden of
staff training. It was also suggested that the implementation be linked
to future ICD-9-CM coding manuals.
Response: We recognize that the changes described in this rule are
significant. However, the overall impact on provider billing practices
is far less significant than the impact resulting from the initial
implementation of the HH PPS when we were moving from a reasonable
cost-based system to that of a prospective payment system. And as
mentioned previously, there is more time between the issuance of this
rule and the effective date (January 1, 2008) than there was for the
initial implementation of the HH PPS. Consequently, we believe that
there will be sufficient time for agencies and their vendors to make
the changes necessary to implement the system on January 1, 2008.
Regarding the home health CoPs, these are on a separate track from our
home health payment regulations, and will be implemented through a
separate rule-making process.
While we recognize that implementing the updates and refinements of
this rule is an ambitious task, we believe that it is in the best
interest of the industry, CMS, and home health recipients to implement
a finalized set of refinements without further delay and without a
split-implementation. The refinements will work together to improve the
accuracy and appropriateness of the HH PPS, which has not undergone
major refinements since its inception in October of 2000. Updates to
the HH PPS are not linked, specifically, to coding manuals, and thus
there would be no advantage to delaying implementation to any future
coding manual update. CMS will make every effort to communicate the
instructions necessary for HHAs to implement all of the changes to the
HH PPS, in a timely manner so that implementation of these changes
occurs as smoothly as possible.
Comment: Several commenters expressed that the comment period was
too brief to afford providers enough time to understand the proposed
changes and assess the impact that the changes will have on their
businesses.
Response: We provided the 60-day comment period from the date of
display, with the 60-day period for comments ending on June 26, 2007.
We acknowledge that in the publication of the May 4, 2007 proposed
rule, the comment period was incorrectly listed as closing on July 3,
2007. The correct date for the close of the comment period was June 26,
2007. Recognizing the implication of this incorrect date, CMS alerted
the public to the correct date through listserves, open door forums,
and the publication of a correction notice on May 11, 2007 (72 FR
26867). We believe the comment period, as corrected, provided adequate
time for commenters to review the proposals and assess their options.
Comment: Several commenters questioned the listing of an earlier
deadline on the internet for submission of public comments, June 26,
2007, rather than the deadline published in the Federal Register, July
3, 2007.
Response: We recognize that there was an inadvertent technical
error in the May 4, 2007 proposed rule in that July 3, 2007 was
incorrectly noted as the close of the comment period. Subsequent to
that publication, a correction notice was published on May 11, 2007 (72
FR 26867), noting that error and correctly stating that the end of the
comment period for the HH PPS proposed rule was June 26, 2007 and not
July 3, 2007.
We believe we made reasonable efforts to quickly alert the public
to the error such that adequate time to comment on the proposed rule
was provided.
3. Complexity of the System
In general, our goal for the proposed refinements was to ensure
that the home health payment system continues to produce appropriate
compensation for providers while creating opportunities for home health
agencies to manage home health care efficiently. We also believe it is
important in any refinement to maintain an appropriate degree of
operational efficiency.
Comment: Several commenters stated that the goal of ``operational
simplicity'' is not achieved by the proposed refinements. One commenter
stated that the proposed system is twice as complex as the current
system, thus making it more difficult for providers to understand how
it works. Moreover, the commenter stated it will make it more difficult
for providers to manage the level of services provided for each HHRG
with the payment for that HHRG.
Response: We acknowledge the proposed refined system is more
complex than the current system. The proposed refinements to the
current system represent an attempt to pay more accurately for the
range and intensity of home health services that are provided to our
beneficiaries.
The proposed refinements are derived from the concepts that form
the basis of the current payment approach. We agree that any
refinements to the system will take time and training to learn. CMS has
conducted extensive outreach regarding the proposed refinements. We
have posted a Fact Sheet which summarizes the proposed changes on our
home health Web site to assist agencies in understanding the
differences between the current system and the proposed refinements. We
have developed and posted an Excel toy grouper, which allows agencies
to see the effect of the new proposal on their payments (see ``Toy
Grouper'' on the CMS Home Health Web site at: http://www.cms.hhs.gov/
center/hha.asp). We have posted the draft pseudocode for

[[Page 49770]]

the HHRG grouper software at the same Web site address. We also
continue to plan for additional training and outreach.
We have also developed claims processing procedures to reduce the
amount of administrative burden associated with using a more complex
case-mix model. For example, providers do not have to determine whether
an episode is early (the initial episode in a sequence of adjacent
episodes or the next adjacent episode, if any) or later (all adjacent
episodes beyond the second episode) if they choose not to. Information
from Medicare systems will be used during claims processing to
automatically address this issue. We will also relieve providers of the
responsibility for resubmitting a claim if the number of therapy visits
delivered during an episode is more than or less than the number
originally forecasted on the OASIS.
Comment: A commenter stated that the Excel toy grouper did not
allow for enough digits in the ICD-9 codes to effectively capture the
degree of change needed. The commenter also noted that each case had to
be added individually, which resulted in increased entering time; the
results were confusing to the commenter.
Response: We believe that the requirement that the ICD-9 codes be
entered exactly as they appear in the proposed rule and the current
grouper documentation does not negate the usefulness of the Excel toy
grouper. The instructions imbedded in the Excel toy grouper specify the
requirements for entering the ICD-9 codes. We provided the Excel toy
grouper as a courtesy to allow users to more easily calculate the
proposed new CY 2008 HHRGs and resulting payments rather than having
only the grouper pseudocode for analysis. Moreover, the majority of
feedback from commenters regarding the Excel toy grouper indicated that
the tool is helpful and easy to use.

B. Case-Mix Model Refinements

In the proposed rule, we proposed to refine the case-mix model to
reflect different resource costs for early home health episodes versus
later home health episodes and to expand the case-mix variables
included in the payment model. We proposed additional variables
including scores for certain wound and skin conditions; more diagnosis
groups such as pulmonary, cardiac, and cancer diagnoses; and certain
secondary diagnoses. We also proposed to replace the current single
therapy threshold of 10 visits with three therapy thresholds (6, 14,
and 20 visits). In addition, we proposed that payment for therapy
episodes would increase gradually between the first and third therapy
thresholds. For a complete description of the proposed case-mix
refinements model and the underlying research, we refer readers to the
CY 2008 HH PPS proposed rule (72 FR 25358-25420) published on May 4,
2007.
1. General Comments
Comment: A commenter wrote that an industry analysis of 2006 HH PPS
data using the proposed case-mix model showed a decline in
reimbursement for specific populations with congestive heart failure
(CHF), chronic obstructive pulmonary disease (COPD), ulcers, diabetes,
orthopedic diagnoses, and neurological diagnoses. Given these findings,
the commenter asked how the proposed case-mix refinement could improve
reimbursement. The commenter suggested that CMS use more current
diagnosis data so as not to skew the results, and score secondary
diagnoses. Other commenters echoed the concern that the refinement was
based on ``old'' data. A couple of commenters noted that there has been
a philosophical change to front-load visits in home health which has
not been captured by the data.
Response: We are unable to specifically address the industry
analysis mentioned above without more detailed information on their
analysis. We note the proposed case-mix model pays for more diagnoses
than under the current HH PPS model, including recognition of point-
bearing diagnoses for heart disease and COPD. Agencies will continue to
receive points to the extent that patients have certain conditions or
diagnoses (for example, ulcers, diabetes, orthopedic diagnoses, and
neurological diagnoses). Agencies can also receive points for secondary
diagnoses, thereby accounting for multiple co-morbidities. Also, the
proposed case-mix model allows points for some resource intensive
interactions. Furthermore, agencies will be receiving improved
reimbursement for supplies, particularly those related to ulcers or
wounds. We believed the model as proposed would better align agency
costs with payments.
We further note that the proposed refinement research was based
upon data files created from a 20-percent sample of claims data
collected between 2001 and 2004. OASIS data was further linked to
claims and cost reports. However for this final rule with comment
period, we used more recent data, claims processed from 2005, with the
associated OASIS data. Therefore, this final rule with comment period
is based upon the most recent data available, and reflects any
philosophical or diagnosis changes that the industry has experienced.
Comment: A commenter suggested that the case-mix refinement model
was too complex, and suggested that we simplify it so that the
assessment can drive clinical and functional dimension scores that are
the same regardless of the number of therapy visits or timing of the
episode. Subsequent factors could be added into the case-mix for the
sequential number of the episode and for the number of visits.
Response: Based on our data analysis, implementing the commenter's
suggestion would ignore patterns in the data that we think reflect
differences between patients and would thereby reduce accuracy. We have
tried to strike a balance between simplicity and complexity. The new
system is more complex than the old system but this is a natural
outgrowth of our attempt to pay more accurately for the range and
intensity of home health services that can be provided to our
beneficiaries.
As noted in the discussion of complexity in section III.A.3, a
system may seem initially overly complex when it is new. We believe the
proposed refinements are clearly focused, and are a logical outgrowth
of the original payment system. We detail our attempts to make the
proposed refinements easier to understand and implement in a previous
comment in section III.A.3.
Comment: One commenter noted that the proposed diagnosis changes
may negatively impact providers who are currently providing care to
those in early episodes with less than 14 therapy visits. Those
providers have worked hard to help patients become independent and
rehabilitated as soon as possible.
Response: Our proposal was intended to refine and to better fit
costs incurred by agencies for patients with differing characteristics
and needs under the prospective payment system. The resource cost
estimates are derived from minutes spent on visits in the home during a
60-day period. The source of the minutes data is a very large,
representative sample of Medicare claims. Therefore, we expect that the
proposal does reflect agencies' average costs for patients with
characteristics measured on the OASIS and used in defining payment
groups.
Comment: While supporting the concept behind the new case-mix
system, a commenter is concerned about any payment system that ties
payments explicitly to the level of services provided. Under the
proposed system, HHAs could seek higher payments by

[[Page 49771]]

providing more therapy or providing later episodes of home care. The
commenter notes that HHA margins will increase with the number of
therapy visits.
Response: We are attuned to concerns about payment incentives that
could drive up therapy visits unnecessarily. We implemented a gradual
increase in payments between the proposed first and third therapy
thresholds to achieve two goals: (1) To better match costs to payments;
and (2) to avoid incentives for providers to distort patterns of good
care created by the increase in payment that would occur at each
proposed therapy threshold. As a disincentive for agencies to deliver
more than the appropriate, clinically determined number of therapy
visits, we also proposed that any per-visit increase incorporate a
declining, rather than a constant, amount per added therapy visit. We
will monitor the impact of the changes implemented, including on home
health agency margins, and will propose further refinements to the
therapy threshold, as well as other aspects of the HH PPS, if
warranted.
Comment: Several commenters were concerned that paying more for
later episodes would lead to gaming, with patients on service longer
than is appropriate. One commenter noted the growth in HHAs in her area
had led to more competition for patients; providers may not be
discharging patients when they should. Additionally, this commenter
felt the fiscal intermediaries (FIs) concentrate review activities on
larger agencies where there is the greatest potential for risk of harm
to beneficiaries or where the dollars recovered are greater. The
commenter encouraged discussion and investigation of these issues.
Another commenter was concerned that the proposed case-mix refinements
created incentives for less efficient and less effective care if
agencies provided unneeded care just to extend the length of stay. A
third commenter felt that the proposal would lead to unwarranted
recertification of episodes.
Response: We appreciate the concerns and will monitor the use of
home health visits. Additionally, we will share these concerns with the
Regional Home Health Intermediaries (RHHIs).
Comment: A commenter's analysis of the proposed changes to the
case-mix system found that it would result in a more even distribution
of payments relative to costs. The commenter's analysis resulted in a
more uniform payment to cost ratio. The commenter noted the proposed
refinement would reduce the differences in financial returns among
different types of patients, and reduce the provider's preference for
some patients.
Response: We appreciate the commenter's assessment of the proposed
changes to the case-mix system, and agree that the proposed refinements
improve the performance and payment accuracy of the HH PPS. We agree
that these changes will reduce incentives to select patients based upon
perceived financial advantages.
Comment: A commenter noted that an analysis of the coefficient of
variation (CV) of the proposed HHRGs found it to be more internally
homogeneous. The average CV has dropped from 0.81 in the current system
to 0.75 for the proposed HHRGs. The reduction in variation means that
the new resource groups are better at identifying episodes with similar
resource use than under the current system. Further, the reduction in
within-group variation reduces the potential for providers to select
the least costly patients in a resource group and makes a modest
improvement in the accuracy of the system.
Response: We agree with the commenter, and believe that the
proposed payment system better matches payments to costs. We also
believe that the payments will be more accurate, and will benefit
patients as well as agencies.
Comment: Since this is the first time the case-mix index has been
updated since the inception of HH PPS, and considering the rapid pace
of change that can occur in health care delivery, a commenter suggested
CMS update the case-mix index with greater frequency to ensure that
payments reflect agency costs.
Response: We will continue to monitor the performance of any
finalized case-mix model, and will make changes to it as necessary.
Future refinements may occur at more frequent intervals, depending on
the research outcomes. We recognize that changes in health care
delivery may also affect the model, and will monitor those as well.
Comment: A commenter asked CMS to accept all pertinent diagnoses.
The commenter believed that without a complete clinical picture, the
ability to accurately assess patient severity, evaluate outcomes, and
make policy decisions is seriously jeopardized.
Response: We agree that a complete clinical picture of the patient
is necessary to accurately assess patient severity and evaluate
outcomes. To qualify for Medicare coverage of home health services, a
beneficiary must be under the care of a physician who establishes the
plan of care (POC). The POC must contain all pertinent diagnoses as
stipulated in 42 CFR 484.18(a). All diagnoses listed in OASIS M0230/240
and M0246 should be pertinent and are expected to be listed in the
patient's POC.
2. Later Episodes
In the proposed rule, for 2008 we proposed a 4-equation case-mix
model that recognizes and differentiates payment for episodes of care
based on whether a patient is in what is considered to be an early (1st
or 2nd episode in a sequence of adjacent episodes) or later (the 3rd
episode and beyond in a sequence of adjacent episodes) episode of care
as well as recognizing whether a patient was a high therapy (14 or more
therapy visits) or low therapy (13 or fewer therapy visits) case. Early
episodes are defined as to include not only the initial episode in a
sequence of adjacent episodes, but also the next adjacent episode, if
any, that followed the initial episode. Later episodes are defined as
all adjacent episodes beyond the second episode. Episodes are
considered to be adjacent if they are separated by no more than a 60-
day period between claims. The analysis of the performance of the case-
mix model for later episodes revealed two important differences for
episodes occurring later in the home health treatment compared to
earlier episodes: (1) Higher resource use per episode and (2) a
different relationship between clinical conditions and resource use.
Comment: We received a question about the case-mix weights for
early versus later episodes when the service utilization is for 16 to
17 therapy visits (S2; see table 3, III.B.5). In all other gradients
except this one, the case-mix weight is greater for later episodes than
for early episodes. The commenter asked why in this case the later
episodes were not associated with a higher case-mix weight.
Response: The model results in Table 4 of the proposed rule (72 FR
25388) indicated that the higher cost for later episodes was associated
with clinical and functional severity levels above the base levels C1
and F1, and not at or below the base levels C1 and F1. The amount
isolated in the payment regression associated with 16 to 17 therapy
visits was simply not higher for later episodes.
Comment: Several commenters asked for clarification of the
definition of early and later episodes and adjacent episodes.
Response: Early episodes are defined as the initial episode or the
next episode in a sequence of adjacent episodes. Therefore an early
episode can be the first or second episode in a series of adjacent
episodes, or even the first and

[[Page 49772]]

only episode that a patient has. Later episodes are defined as all
subsequent adjacent episodes beyond the second episode. Episodes are
considered to be adjacent if they are contiguous, meaning that they are
separated by no more than a 60-day period between episodes. This means
any gaps are less than or equal to 60 days in length. In determining a
gap, we only consider whether the beneficiary was receiving home health
care from traditional fee-for-service Medicare. If the beneficiary
transfers from a managed care plan, that time under managed care is
considered part of the gap.
For example, if the beneficiary has not received home health care
through traditional Medicare for at least 60 days, and then receives
home health care from agency A, that is an early episode. If that
episode receives a PEP adjustment and agency B recertifies the
beneficiary for a second episode, that second episode is also an early
episode. However, the beneficiary could have received home health care
from other traditional Medicare providers within 60 days before coming
to agency A. The designation of early or later would depend upon how
many adjacent episodes of care were received prior to coming to agency
A. The CWF will examine claims upon receipt in comparison to all
previously processed episodes to make sure the episode is correctly
designated as early or later.
The 60-day period to determine a gap that will begin a new sequence
of episodes will be counted in most instances from the calculated 60-
day end date of the episode. That is, in most cases CWF will count from
``day 60'' of an episode without regard to an earlier discharge date in
the episode. The exception to this is for episodes that were subject to
PEP adjustment. In PEP cases, CWF will count 60 days from the date of
the last billable home health visit provided in the PEP episode.
Regarding PEP adjustments, consider the following example: An episode
is opened on January 1, 2008 which would normally span until February
29, 2008. If this episode were not subject to a PEP adjustment, any
episode within 60 days following February 29, 2008 would be considered
an adjacent episode. In the case of a PEP adjustment, the determination
of an adjacent episode would no longer be based on day 60, but would
instead be based on the latest billable visit in the episode. Assume in
the example, the patient is transferred to another HHA (triggering the
PEP adjustment) on February 15, 2008 but the last billable visit is
provided on February 13, 2008. In this case, any episode within 60 days
following the February 13, 2008 visit would be considered an adjacent
episode.
Intervening stays in inpatient facilities will not create any
special considerations in counting the 60-day gap. If an inpatient stay
occurred within an episode, it would not be a part of the gap, as
counting would begin at ``day 60'' which in this case would be later
than the inpatient discharge date. If an inpatient stay occurred within
the period after the end of HH episode and before the beginning of the
next one, those days would be counted as part of the gap just as any
other days would.
If episodes are received after a particular claim is paid that
change the sequence initially assigned to the paid episode (for
example, by service dates falling earlier than those of the paid
episode, or by falling within a gap between paid episodes), Medicare
systems will initiate automatic adjustments to correct the payment of
any necessary episodes.
Upon receipt of a HH episode coded to represent the early episode
in a sequence, Medicare systems will search the episode history records
that are maintained for each beneficiary. If two or more adjacent
episodes are found on that history, the claim for the new episode will
be recoded to represent its sequence correctly and paid according to
the changed code. In addition, when any new episode is added to those
history records for each beneficiary, the coding representing episode
sequence on previously paid episodes will be checked to see if the
presence of the newly added episode causes the need for changes to
those episodes. If the need for changes is found, Medicare systems will
initiate automatic adjustments to those previously paid episodes.
For example, a given episode is initially determined to be, and
paid as the second episode (early) in a sequence of episodes. After
some period of time, a claim is submitted by another HHA that occurs
before the previously designated first episode in the sequence of
adjacent episodes and is less than 60 days before the beginning of that
previously designated first episode. In such a case, the episode
corresponding to the newly submitted claim becomes the first episode of
this sequence of adjacent episodes and thus is considered to be an
early episode. The episode previously designated as the first episode
in the sequence of episodes now becomes the second episode in the
sequence of adjacent episodes and is thus still considered to be an
early episode. The real change occurs with the episode previously
described as the second episode in the sequence of adjacent episodes.
Under this scenario, that original second episode is now considered to
be the third episode in the sequence of adjacent episodes, thus
changing its status from that of an early episode to that of a later
episode.
Comment: A commenter noted that CMS determined its four equation
model based on information collected from the OASIS data set. The data
collection is required for both Medicare and Medicaid patients. The
commenter stated that the analysis by CMS included a period of time
when instructions dictated collection of all information from payer
sources. The data is inclusive of the Medicaid patients, who under
Medicare regulations, would not be eligible for the third or additional
episodes of care. The commenter questioned the type of patients served
in third or later episodes, noting that the CMS data suggest that few
patients fall into the new equations. The commenter believed that one
group of patients includes those with severely infected wounds,
Parkinson's disease, Amyotrophic Lateral Sclerosis (ALS), stroke, or
similar conditions, while another group includes those receiving B-12
injections and catheter care, or Medicaid patients.
Response: We used data from Medicare episodes only, linked to the
OASIS assessment that generated the HHRG. Medicare episodes include
episodes of some patients who are dually eligible for Medicare and
Medicaid. Later episodes include both Medicare-only and dually eligible
patients with a variety of conditions and needs.
To summarize, we are implementing the proposed aspect of the case-
mix model that recognizes and differentiates payment for episodes of
care based on whether a patient is in what is considered to be an early
or later episode of care as we believe that it better accounts for the
higher resource use per episode and the different relationship between
clinical conditions and resource use that exists in later episodes.
3. Addition of Variables
In the proposed rule, for 2008 we proposed to expand the case-mix
variables to include scores for conditions such as infected surgical
wounds, abscesses, chronic ulcers, and gangrene; more diagnosis groups
such as pulmonary, cardiac, and cancer diagnoses; and certain secondary
diagnoses.
Comment: Several commenters were concerned that we had not included
a variable for informal caregivers. One commented that higher costs for
these

[[Page 49773]]

patients are not captured because of the unmeasured effects of multiple
co-morbidities, patient non-compliance, and the tendency to live alone.
Several commenters felt that CMS' policy position on caregivers placed
the fear of negative incentives above the needs of the beneficiary.
Commenters were concerned that payment incentives might limit access
for patients without caregivers or result in institutional care. Others
suggested that we refine OASIS items related to caregiver access to
produce more reliable information about the actual roles caregivers
play in meeting the day-to-day needs of home health patients, and the
time they are available. Some commenters expressed concern that these
patients would have difficulty accessing care due to their high costs.
We were asked to conduct further research into the role of caregivers
and their affect on costs.
Response: OASIS item M0350 asks whether there are assisting persons
in the home, other than the home care agency staff. We recognize that
the data collected by this item is limited in the information it
collects regarding caregivers. However, in the absence of other data,
we used this item in our analysis. We found that on average, episodes
without caregivers would be underpaid. However the score to be gained
by adding this variable was not large, and the overall ability of the
four-equation model to explain resource costs is minimally improved by
adding this variable. As we noted in the proposed rule, we believe this
variable raises significant policy concerns. We maintain that a case-
mix adjustment should not discourage assistance from family members of
home care patients, nor should it make patients feel that there is some
financial stake in how they report their familial supports during
convalescence. We believe that adjusting payment in response to the
absence of a caregiver would introduce negative incentives with adverse
affects on home health Medicare beneficiaries. We will continue to
study the effects of caregivers on the case-mix model.
Using our final analytic data set, we rechecked the contribution of
this variable to explain home health resource use. We found no change
from what was described for this variable in the proposed rule.
Consistent with our original policy on this item, we did not include
this variable in the final four-equation model of this rule. We will
continue to explore additional refinements to the OASIS instrument to
gather more information regarding the roles caregivers play in home
health care and to better quantify any unmeasured effects of multiple
co-morbidities, patient non-compliance, or living alone.
Comment: Several commenters were concerned that a variable for
Medicare/Medicaid dual eligibles was not included in the payment model.
One commenter noted that the increased costs associated with dual
eligibles have been confirmed by MedPAC in hospital DSH studies, and it
is unlikely that these costs disappear once the patient is in home
health. Another noted that these patients have longer lengths of stay
and multiple co-morbidities. Several commenters noted that Medicaid
numbers are not consistently reported in OASIS because Medicaid is not
the primary payer. Others suggested that CMS compare the impact of
Medicaid eligibility by studying resource use of a sample of home
health patients enrolled in a Medicaid program from Medicaid files
against home health patients without Medicaid.
Response: HHAs are required to complete OASIS item M0065, which
asks for the patient's Medicaid number, whether or not Medicaid is the
reimbursement source for the home care episode. CMS has sought to
improve the accuracy of the OASIS data through extensive training and
guidance on proper use of OASIS. Additionally, the OASIS guidelines
provide clear instructions to complete M0065. Therefore we believe it
is appropriate to use M0065 in an analysis of resource use in patients
with Medicaid. After accounting for a broad range of clinical and
functional factors which predict resource use, M0065 was found to have
a low score, suggesting that having Medicaid is not a strong predictor
of resource use. Accordingly, we did not propose to include a Medicaid
variable in the case-mix model. Using our final analytic data set, we
rechecked the contribution of this variable to explain home health
resource use. We found no change from what was described for this
variable in the proposed rule. Consistent with our original policy on
this item, we did not include this variable in the final four-equation
model of this rule. We will continue to study the effect of dual
eligibles on the case-mix model, and we encourage HHAs to complete
M0065 as required.
Comment: A commenter asked that we evaluate the impact of adding a
case-mix variable for patients aged 85 or older, who have greater care
needs, and for diabetics. The commenter also expressed concern that
providers in Southern states would be more affected by proposed
policies noted in the proposed rule, as these parts of the country
serve larger populations of two groups at high risk for diabetes.
Response: In considering variables for inclusion in the model, we
analyzed the relationship between resource use and patient
characteristics. We were able to measure resource use directly from the
claims sample and patient characteristics from the OASIS assessments.
Variables were assessed for statistical performance and for policy
appropriateness. Diabetes is taken into account as a point-bearing
case-mix diagnosis under the current HH PPS, and under this final rule
with comment period continues to receive points as either a primary or
a secondary diagnosis (see Table 2A for the points given).
Our research did not find the proportion of home health
beneficiaries 85 or older to be increasing. The literature reports that
those 85 or older were actually less likely to be admitted to home
health agencies (McCall et al., 2003). Additionally, we tested an age
variable and found it was not associated with greater resource use
after controlling for other factors. As such, we did not include it in
our case-mix model. Accordingly, we did not propose to include a
variable for those 85 and older in the refinements.
Comment: A commenter stated that the proposed rule refers to
unnamed variables which while correlated with higher home health cost,
were not considered in the case-mix because of negative treatment
incentives they could create. The commenter believed CMS should specify
these alternatives which were not adopted along with the reason for
dismissing them.
Response: As in our original HH PPS proposal, we avoided including
a score for catheter-using patients in the case-mix system, out of
concern that this would work against catheter removal at the
appropriate time. However, for the proposed refinement approach, we did
include a score in the non-routine supplies model out of concern that
agencies would fail to admit patients with supplies costs.
Comment: A commenter objected to the proposal to eliminate M0610
(behavioral problems) as a case-mix variable. The commenter noted that
patients with behavioral problems, including those without formal
psychiatric diagnoses, consume large amounts of resources. The
commenter asked for further data to support removal of M0610.
Response: We have added case-mix scores to the system for
psychiatric conditions, as they are better markers for increased
resource use related to behavioral problems than M0610. When the
psychiatric conditions were included in the model, M0610 does not

[[Page 49774]]

add further predictive power (that is, it was not statistically
significant).
Comment: Several commenters asked that V-codes be included in the
case-mix diagnosis list as they are appropriately prevalent in home
care due to ICD-9 coding guidelines. One commenter suggested V-codes be
added as interactions. A number of commenters also asked for more
guidance regarding coding, especially in the use of V-codes. Several
commenters noted that they have had to hire certified coders.
Response: We have included selected codes from the V44 and V55 code
categories in Tables 2B and 10B. The major use of V-codes in the home
health setting occurs when a person with a current or resolving disease
or injury encounters the health care system for specific aftercare of
that disease or injury. V-codes are less specific to the clinical
condition of the patient than are numeric diagnosis codes. A single V-
code could substitute for various numeric codes each of which describes
a specific different clinical condition.
For more guidance regarding coding especially in the use of V-codes
please see the CDC Web site noted below to obtain a copy of the ICD-9-
CM Official Coding Guidelines effective November 15, 2005. (http://
www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/ftpicd9.htm.)
Comment: CMS currently allows points for bowel ostomies, but
reimbursement points should be allocated to all ostomies. A commenter
suggested we add V55.0-V55.9 to the non-routine supply list to capture
patients needing supplies for non-bowel ostomies.
Response: It is important to note that all ostomies were not
included in the original HH PPS payment because the OASIS instrument
does not capture all ostomies, for example, the tracheostomy is not
included in the OASIS instrument. Therefore, we do not have data for
all ostomies. However, we have tested the non-routine supplies for
stoma conditions for which we have added appropriate ``status (V44) V-
codes'' and ``attention (V55) V-codes'' to the model.
Comment: A commenter asked that we include fracture aftercare codes
and orthopedic correction codes (V54.01-V54.9) as point bearing codes.
Response: The HH PPS does not rely on V-codes, except as mentioned
above. Therefore we are continuing to require agencies to list the
underlying problem that led to the V-codes in M0246 of the OASIS
assessment. The numeric fracture codes are listed in Table 2B and are
expected to be assigned when indicated to our optional payment item
M0246. When a fracture code is assigned to M0246 it will be expected
that the appropriate aftercare V-code from V54.1 through V54.8 will be
assigned to M0230. We note, however, that assigning of V54.01, V54.02
and V54.09 is considered generally inappropriate in the post-acute care
setting.
Comment: The proposed rule designates the dementia codes 290.0
series as manifestation codes in the Psych 2 diagnosis group. A
commenter stated those codes can only be placed as secondary diagnoses,
but the proposed rule only offers points when Psych 2 conditions are
primary diagnoses. Patients with these diagnoses require considerable
resources even when the primary focus of the plan of care is another
diagnosis. Commenters suggested allowing case-mix points when Psych 2
diagnoses are in the secondary position.
Response: The ICD-9-CM code category 290, Dementia, codes are
listed in the ``Psych 2--Degenerative and other organic psychiatric
disorders''. The ICD-9-CM code category 290 codes are point bearing
regardless of whether the codes are primary or secondary diagnoses. We
have removed the manifestation designation for these codes.
Comment: Commenters noted that key surgical complication codes (996
and 997 series) have been omitted from the case-mix. These series
include joint prosthesis complications, amputation complications, skin
graft complications, transplanted organ complications, etc. They
believed these codes should be added to the case-mix diagnoses.
Response: We disagree. It is not appropriate to add these codes to
the case-mix because these codes represent complications that are
typically treated initially in the inpatient setting.
Comment: One commenter asked that we add 728.87 and 781.3 back to
the table of point-bearing diagnosis codes. This commenter also asked
that we add the 414 series of diagnosis codes.
Response: We disagree with the suggestion that 728.87, Muscle
weakness (generalized) and 781.3, Lack of Coordination, should be added
to Table 2B. The conditions assigned to the 781.3 and 728.87 diagnosis
codes are identified as nonspecific conditions that represent general
symptomatic complaints in the elderly population as such. We believe
inclusion of these codes would threaten to move the case-mix model away
from a foundation of reliable and meaningful diagnosis codes that are
appropriate for home care.
We agree with the addition of the diagnostic category 414, ``Other
forms of chronic ischemic heart disease'' codes to the case-mix model,
with one exception. We are not including code 414.9, ``Chronic ischemic
heart disease, unspecified'', because this is a nonspecific code and
there are numerous specific codes that we would expect to be used for
this condition. As noted previously, we believe the implementation of
the refined HH PPS will better reflect more accurate payments, and we
are taking steps to ensure the least amount of burden for HHAs.
Comment: Several commenters noted that the neuro 3 code list
included ICD-9 diagnosis 436, which is an outdated code. They asked
that it be replaced with 434.91.
Response: We are aware of the ICD-9-CM changes effective October 1,
2004 to the classification of unspecified cerebrovascular accident
(CVA). Before this change these conditions were indexed to 436, Acute
but ill-defined cerebrovascular disease. In order to comply with the
``ICD-9-CM Official Guidelines for Coding and Reporting'', effective
November 15, 2006, we have deleted codes in categories 430-437 listed
in the ``Neuro 3-Stroke'' diagnostic category of Table 2B of the
proposed rule. The conditions in categories 430-437 identify the cause
of the initial onset of an acute stroke and must not be assigned in the
home health setting.
Agencies should use ICD-9-CM code category 438, Late Effects of
Cerebrovascular disease, for conditions occurring at any time after the
onset of an acute stroke. The coding guidelines indicate that these
``late effects'' include neurologic deficits that persist after the
initial onset of conditions classifiable to 430 through 437. The
neurologic deficits caused by cerebrovascular disease may be present
from the onset or may arise at any time after the onset of the
condition classifiable to 430 through 437.
To summarize, we deleted diagnosis codes from Table 2B in the
following situations:
The code was assigned to a minor condition or mild symptom
that may be found in the elderly population;
The code was a non-specific code or
The code could not be assigned within the home health
setting.
We believe the deletion of these codes directly correlates with the
goals stipulated in the proposed rule. Specifically, the proposed rule
stipulated that the case-mix system avoid, to the fullest extent
possible, nonspecific or ambiguous ICD-9-CM codes, codes that represent
general symptomatic complaints in the elderly

[[Page 49775]]

population, and codes that lack consensus for clear diagnostic criteria
within the medical community. The diagnosis codes listed in Table 2C at
the end of section III.B.5 are identified as minor conditions or mild
symptoms that may be found in the elderly population or identified as
non-specific conditions and as noted above, have been deleted as point-
bearing diagnosis codes. The following discussion provides further
explanation of the specific changes to the diagnoses occurring in Table
2B (also found at the end of section III.B.5):
Deletion of constipation and mild, unspecified burns;
Deletion of acute stroke codes (categories 430-437);
Revision of code category 410, Acute Myocardial Infarction
and
Addition of code category 414, Other forms of chronic
ischemic heart disease.
Constipation
The clinical condition of constipation (ICD-9-CM codes 564.00,
564.01, 564.02, and 564.09) was originally included in the GI group.
Occurrences of constipation as a primary diagnosis were extremely rare.
Therefore, the analysis was conducted with constipation as a secondary
diagnosis separate from the rest of the diagnoses in the GI group. The
results of this analysis show 2, 5, 1, and 5 points from leg 1 to leg
4, respectively, of the four-equation model (please see Table 2A at the
end of section III.B.5). However, this likely reflects selective coding
by providers of only those patients with more severe forms of this
condition without inclusion of the many patients with mild constipation
symptoms. Constipation is both a clinical symptom and a medical
diagnosis (ICD-9-CM 564). It is relatively common in the elderly
population with a prevalence ranging from 15 to 20 percent in the
community setting. The clinical acuity of patients with constipation
can range from asymptomatic to extreme distress (including abdominal
pain and impending bowel obstruction). The ICD-9-CM codes, however, do
not distinguish the severity levels of these patients. Since there are
no specific diagnostic clinical criteria for constipation that are
widely accepted throughout the medical community, clinicians are free
to assign this diagnosis to all patients with even minimal symptoms of
constipation regardless of severity. If additional points were allowed
for constipation under the HH PPS, we would expect to find a large
increase in the number of patients with this diagnosis simply because
HHAs would be allowed to begin including all patients with constipation
symptoms, not just those who are more severely affected. Furthermore,
the ICD-9-CM category 564 (Functional Digestive Disorders Not Elsewhere
Classified) specifically excludes those clinical conditions that are
more accurately identified by other more specific ICD-9-CM diagnostic
codes. Therefore, codes 564.00, 564.01, 564.02 and 564.09 have been
deleted from the Gastrointestinal Disorders diagnostic category in
Table 2A (found at the end of section III.B.5). Most patients with
significant constipation symptoms can be captured with other ICD-9-CM
diagnostic codes that are more specific than the codes for
constipation.
First Degree Burns
A first degree burn is a minor self-limited condition that usually
requires no professional medical attention. The skin typically displays
mild redness without blisters. The most common example of a first
degree burn is mild sunburn. Neither bandages nor medical supplies are
required for first degree burns. This condition is often not coded as a
diagnosis for medical billing because it rarely requires any
professional medical treatment. Therefore the actual frequency of first
degree burns is underreported in medical claims databases. Because the
severity of this condition is so minimal, we do not think it is
appropriate to include it in the four-equation case-mix model. In
addition, no medical supplies are required for treatment of this
condition so it would be inappropriate to include it in Table 10B for
Non-Routine Supplies.
Late Effects of Cerebrovascular Disease
To comply with the ``ICD-9-CM Official Guidelines for Coding and
Reporting'', Effective November 15, 2006 we have deleted codes in
categories 430-437 listed in the ``Neuro 3-Stroke'' diagnostic category
from Table 2B of the proposed rule. The conditions in categories 430-
437 identify the cause of the initial onset of an acute stroke and must
not be assigned in the home health setting.
The ICD-9-CM coding guidelines stipulate the assignment of code
category 438, Late Effects of Cerebrovascular disease, for conditions
occurring at any time after the onset of an acute stroke. The coding
guidelines indicate that these ``late effects'' include neurologic
deficits that persist after the initial onset of conditions
classifiable to 430-437. The neurologic deficits caused by
cerebrovascular disease may be present from the onset or may arise at
any time after the onset of the condition classifiable to 430-437.
Table 2C includes these codes as deletions from Table 2B of the
proposed rule.
Acute Myocardial Infarction
We have also revised code category 410, Acute Myocardial
Infarction, in the ``Heart Disease'' category of Table 2B of the
proposed rule, to comply with ICD-9-CM coding instruction (see Table 2C
at the end of section III.B.5 for the list of the 410 codes to be
included). The code category 410 has been replaced in Table 2B with
specific codes from category 410, (410.x2 ). The specific codes
designate an episode of care following the initial episode of care. The
fifth-digit sub-classification of 2 is for use with code category 410
to designate an episode of care following the initial episode when the
patient is admitted for further observation, evaluation, or treatment
for a myocardial infarction that has received initial treatment but is
still less than 8 weeks old.
We have also revised code category 045, Acute Poliomyelitis, in the
Neuro 2-Peripheral Neurological disorders section of Table 2B to
correlate with ICD-9-CM coding instructions by replacing this code with
code 138, Late effects of acute poliomyelitis(see Table 2C at the end
of section III.B.5).

Chronic Ischemic Heart Disease

We also evaluated the appropriateness of code suggestions from
commenters, and we have inserted codes from ICD-9-CM code category 414,
other forms of chronic ischemic heart disease to Table 2B. The only
code from category 414 that was not included is 414.9, ``Chronic
ischemic heart disease, unspecified'' due to the non-specificity of the
code and the fact that we would expect that other codes from this
category would be used if appropriate.
Table 2C lists those codes noted above that have been deleted or
added to Table 2B in the proposed rule. Tables 2A, 2B, and 2C are found
at the end of section II.B.5. We recognize that some HHAs have used
ICD-9-CM coding in the past which will no longer meet future coding
standards, as discussed above. For example, some acute stroke codes
were recognized in the original case-mix system, and we included them
in the modeling of the refined system finalized in this rule to capture
the effects on the diagnosis group score. However, we assume that these
acute stroke codes will not be used in the future, and these changes
are reflected in the codes listed in Table 2B.

[[Page 49776]]

4. Addition of Therapy Thresholds
In the proposed rule, for 2008, we proposed to discontinue the use
of a single 10-therapy threshold, for the purpose of payment, and
proposed to implement three therapy thresholds at 6, 14, and 20 visits.
We proposed using graduated steps (groupings of 1 to 4 visits) between
these three thresholds to provide an equitable increase in payment that
would not otherwise occur between the three threshold levels. As a
disincentive for agencies to attempt to reach a therapy level higher
than the appropriate, clinically determined number of therapy visits,
we proposed to decelerate the increase in payment with each grouping of
additional therapy visits between the therapy thresholds.
For example, if the current proposed model produces an average
value for each additional grouping of therapy visits above 6 and below
14 visits, we would incrementally decrease the marginal payment for
each grouping of therapy visits as the number of therapy visits grow.
At this time, no study has been performed to study the clinically
appropriate number of visits primarily because of the resources
required to perform such a study. Under fee-for-service Medicare,
beneficiaries can select clinicians to treat and act on their behalf so
long as the clinicians meet the CoPs, such as licensing (qualified
nurses and therapists), and other forms of credentialing (CoPs). In the
research vacuum that exists, the Medicare program relies upon the
providers to determine the clinically appropriate number of visits.
However, we found that a payment system with an incentive such as the
10-visit-therapy threshold indicated that such reliance was perhaps
misplaced. Our revised system of multiple thresholds and smoothing
(that is, graduated per-visit payments between the thresholds) is an
attempt to reduce the financial incentive that we saw as distorting
clinically appropriate decision making. MedPAC has stated repeatedly
that the home health benefit would be enhanced by a better
understanding and definition of appropriate clinical standards (e.g.,
Report to the Congress: Medicare Payment Policy, MedPac, March 2006, p.
195). We believe it would take years of research to determine with
sufficient precision for payment purposes and claims processing what is
clinically appropriate. We will continue to rely on the RHHIs during
normal medical review operations to consider therapy treatment plan
appropriateness on a case-by-case basis. Of course, we also continue to
rely in good faith on the professional judgment of certified agencies
and their clinicians to select appropriate courses of treatment for
their patients.
Comment: Many commenters supported our proposal to have multiple
therapy thresholds. However, several questioned the point allocation
for functional variables in relation to therapy. One commenter was
concerned that this could lead to gaming, where agencies prescribe 14
visits instead of 10 visits, noting that almost all patients who need
10 physical therapy or rehab visits could benefit from 14 visits. The
commenter was concerned that the cost to agencies would be prohibitive,
and would force them to replace physical therapists with physical
therapy assistants, to drop therapy services altogether, or gaming to
receive reasonable reimbursement. Another commenter noted that the
dollar increments between 6 and 14 visits were so modest that they may
create payment deficits.
Response: We appreciate the comments supporting our multiple
therapy thresholds. We disagree with the commenter's concern that our
increased therapy thresholds will be cost prohibitive and will force
providers to replace physical therapists with physical therapy
assistants or to drop therapy services altogether. The goal of the
case-mix refinements is to better align payment with actual agency
costs. Changing to multiple therapy thresholds with a gradual increase
in payment better aligns costs and payments and avoids incentives for
providers to distort patterns of good care.
Specifically, because we used multiple regression to derive the
point values, with indicator variables for therapy visits (for example,
7 to 9 therapy visits) included in the regression model, the point
allocations for functional variables take into account the range of
visits into which the treatment plan falls. The point allocations
therefore serve to define more precisely the average resources used by
a patient given that a certain range of therapy visits is to be
delivered. We are aware that the new threshold of 14 therapy visits may
be misperceived as a new target for treatment. We do, however, intend
to monitor administrative data for indications of gaming, which could
include shorter lengths for prior therapy visits and increased
frequencies of episodes with 14 or more visits without evidence that an
increase in the number of therapy visits was appropriate for the
patients. We believe that the need to spend on therapy visits, in order
to get paid for high therapy treatment plans, will provide a natural
disincentive to game the system, and that imposing on the regression
model a mildly decelerating trend in the resources per added therapy
visit between 6 and 20 therapy visits will further mitigate against
gaming. We detail the resource cost values that impose a decelerating
trend in the four-equation model in Table 1. We have updated this table
using 2005 data. If a potential problem is detected through data
analysis processes with our RHHIs, then the RHHIs may conduct Medical
Review of claims identified as potential problems to determine if the
services rendered were reasonable and necessary.
Comment: While supporting the concept of a graduated therapy
threshold, several commenters were concerned that the reimbursement
decrease was so substantial. One commenter noted that his calculations
showed that it would require 17 therapy visits under the proposed
system to receive the same therapy adjustment as under the current
system, when the 10-therapy threshold is met. The commenter noted the
resource intensity of therapy services, and asked that we consider a
greater payment allocation for visits from 10 to 14. Another commenter
noted that the new therapy thresholds will minimize payment for
orthopedic cases. This commenter recommended that the therapy threshold
be changed to 6, 12, and 20 to allow adequate compensation for therapy
visits.
Response: The original 10-visit therapy threshold supported
treatment plans involving 10 therapy visits and higher, so one should
not expect that weights under the original system for 10 visits would
be comparable to weights under the new system for 10 therapy visits.
Compared to the original system, weights under the new system are more
precise with respect to the cost of a given range of therapy (for
example, a range of 16 to 17 therapy visits). It is important to
understand that the regression method modeled the addition to total
resource cost for treatment plans with each range of therapy visits in
Table 4 of the proposed rule--not just the addition to cost from
therapy visits. Therefore, the services utilization severity levels
cannot be noted strictly as direct costs for added ranges of therapy
visits, though the cost of added therapy visits is certainly very
important in producing the values noted in Table 4 of the proposed rule
and thus the proposed relative case-mix weights. The proposal was not
intended to propose minimized payment for orthopedic cases, but to
reflect to the best of our ability the treatment

[[Page 49777]]

practices extant in the data for different types of patients and costs
experienced by a wide range of patients in the data analyzed.
Comment: A commenter stated that the variations in payment
introduced by multiple therapy thresholds were not consistent with a
regression model. This commenter's initial analysis indicated that
agencies can obtain significant additional payments when they provide
14 therapy visits as opposed to 13 therapy visits when all other OASIS
answers remain constant, even though the scoring in the 3rd and 4th
equations is different from the scoring in the 1st and 3rd equations.
The commenter stated that the inconsistencies found in this review make
it difficult to understand how CMS arrived at the proposed increments
between HHRGs. The commenter asks for additional information on how CMS
arrived at the increments in payment between the various levels of
therapy services proposed.
Response: For an early episode, Table 4 in the proposed rule
indicated that agencies would receive an additional $2,191.76-
$1,771.84=$419.42 before wage adjustment for treatment plans involving
14 or 15 therapy visits. For later episodes, agencies would receive an
additional $2,198.69-$1,907.93=$290.76. In the final version of Table
4, which is based on CY2005 data, agencies would receive an additional
$366.03 for early episodes and $504.44 for later episodes. These values
result from using indicator variables in the regression for differing
ranges of therapy visits (ranges indicated in Tables 3 and 4 of the
proposed rule) and from reintroducing the decelerated payments per
added therapy visit at the stage of the payment regression. Our
technique for reintroducing the decelerated payments was to estimate a
variant of the four-equation model that did not incorporate
deceleration. From this, we were able to compare the added payments for
the proposed ranges of therapy visits with and without deceleration in
order to adjust the services utilization (S-level) marginal resource
cost estimates of the payment regression appropriately.
Comment: Several commenters questioned the $36 estimated marginal
cost of adding a seventh therapy visit to an episode with 6 therapy
visits and the deceleration of payments, as the source for this
information was not cited, and the dollars appear to be significantly
below agency costs. One commenter asks for additional information
regarding how CMS identified an incremental cost of $36 between the 6th
and 7th therapy visits. Another commenter noted that the Excel toy
grouper produced an increased payment of $402 for the seventh visit.
Response: We cited the source for the starting value of $36 in the
proposed rule (72 FR 25364). It was the addition to total resource cost
from comparing episodes with 7 therapy visits to episodes with 6
therapy visits, based on a variant of the four-equation model that
allowed for a separate marginal addition to cost associated with each
separate, individual number of therapy visits. Thus, this value was
entirely data driven, given the entire set of clinical, functional, and
therapy indicator variables used in the four-equation model. In the
final version, the updated analysis yielded a starting value of $42
instead of $36. The declining trend was modeled by decrements of 1.5
units instead of 1 unit. Please see Table 1 at the end of this section
for details. It should be understood that the resource cost measure is
not equivalent to the average cost of a therapy visit, as it is derived
from national Bureau of Labor Statistics survey data on the direct
hourly wage and benefit cost of therapy-related clinical disciplines in
home care. We convert minutes per episode reported on claims into
resource cost dollars using the national wage and benefit data. Table 4
of the proposed rule indicated that the therapy increment for services
utilization severity S3 encompasses treatment plans that include 7, 8,
or 9 therapy visits. We intend to monitor payments under the system in
the future for evidence that agencies are failing to provide the full
range of visits included in each S-level.
Comment: Several commenters questioned our assumption that most
patients would require 6 to 13 visits and that 14 or more therapy
visits would not be normal. They note that therapy services are
resource intensive. A commenter disagreed with our statement that
several common treatment plans only require about 6 visits, using the
example of falls.
Response: Abt Associates conducted TEP meetings on December 15,
2005 and March 14, 2006. These TEP meetings provided an opportunity for
experts, industry representatives, and practitioners in the field of
home health care to provide feedback on Abt's research examining the HH
PPS and exploration of payment policy alternatives. Abt received input
from TEP members as to what the appropriate levels for the therapy
threshold would be based on clinical conditions of home health
patients. Different sets of therapy thresholds were discussed at TEP
meetings. Abt considered this feedback when developing recommendations
for refinements to the HH PPS.
Comment: A commenter strongly disagreed that patients with a high
risk of falls should be used as an example of patients with a treatment
plan commonly requiring 6 therapy visits (72 FR 25363). The comment did
not include an alternate illustration or example of a common treatment
plan requiring 6 therapy visits, however, the commenter did agree with
us that there are therapy treatment plans within the 6 visit range.
The commenter stated that ``clinical experience with homebound
Medicare patients at high risk for falls indicates that these patients
typically have significant problems with balance and gait. They may
also be receiving treatments that elevate their risk, including the use
of diuretics.'' The commenter is concerned that payment contractors
will apply this example to the medical review process and deny needed
visits to patients at risk for falls who have extensive therapy needs.
Response: We used the example of patients with a risk of falls as
typically receiving six therapy visits based on input from Abt
Associates, using information from their TEP. According to the TEP,
physicians may deliberately order short term plans of care for patients
because they want the patient to proceed to outpatient therapy as soon
as possible. A short-term plan of care of six visits will typically
involve evaluation, safety/falls assessment and prevention
intervention, with the possibility of more than one therapy discipline
being involved.
We disagree with the commenter that the RHHIs will apply the
example of patients with a high risk of falls as a basis for their
decision on the determination of coverage. Section 20.1.2 in Chapter
Seven of the Medicare Benefit Policy Manual explains the following:
``The intermediary's decision on whether care is reasonable and
necessary is based on information reflected in the home health plan of
care, the OASIS as required by 42 CFR 484.55 or a medical record of the
individual patient. Medicare does not deny coverage solely on the basis
of the reviewer's general inferences about patients with similar
diagnoses or on data related to utilization generally, but bases it
upon objective clinical evidence regarding the patient's individual
need for care.'' It is at the discretion of the contractor to determine
the use of its resources. If a potential problem is detected through
their data analysis processes, then they may conduct Medical Review of
claims to determine

[[Page 49778]]

if the services rendered were reasonable and necessary.
Comment: A commenter was concerned that CMS planned to conduct
automatic medical reviews of every episode requiring 20 or more therapy
visits. While this commenter agreed that such cases are unusual, there
was concern that the threat of automatic medical review could provide
an incentive for providers to restrict the number of visits to
individuals who need a higher level of intervention.
Another commenter asked if HHAs should anticipate an increase in
therapy Additional Documentation Requests (ADRs) from the RHHIs, at
least initially, as we validate the appropriateness of the new therapy
thresholds and the accuracy of provider coding. The commenter noted
that increases in ADRs lead to unfunded increases in administrative
costs, even if they result in no adjustments.
Response: The intermediary's decision on whether care is reasonable
and necessary is based on information reflected in the home health plan
of care, the OASIS as required by 42 CFR 484.55 or a medical record of
the individual patient. Medicare does not deny coverage solely on the
basis of the reviewer's general inferences about patients with similar
diagnoses or on data related to utilization generally, but bases it
upon objective clinical evidence regarding the patient's individual
need for care. As mentioned above, it is at the discretion of the
contractor to determine the use of its resources. If a potential
problem is detected through their data analysis processes, then they
may conduct Medical Review of claims to determine if the services
rendered were reasonable and necessary.
Medical review targets problem areas which demonstrate significant
risk to the Medicare program as a result of inappropriate payments,
over-utilization, abusive billing and unnecessary services. Here, the
Medicare Contractors (RHHIs) use different parameters to target their
review of home health claims. The decision regarding which claim to
review depends on the information obtained from data analysis which
includes all providers submitting claims for payment. A provider's
claims may be subject to review if they do not meet the coverage,
coding, and billing guidelines contained in the statute, regulations,
coverage guidance, CMS manuals, and contractor policies.-
Comment: A commenter noted that providers are sensitive to
financial incentives associated with therapy visits, but that it is
difficult to anticipate how utilization may change under the proposed
system. The commenter asked that analysis of changes in therapy under
the new system be a key priority for future research. The commenter
also noted that higher payments for third and later episodes appear
reasonable, but suggested further research into the nature of third and
subsequent episodes.
Response: We agree that financial incentives can affect care
provided, and we will monitor the effects of the refined payment
system. We will be analyzing changes in therapy under the refined
system and will conduct further refinement research as appropriate.
Comment: A commenter noted that adding therapy thresholds in the
revised case-mix regression model improved the ability of the model to
predict resource use, with substantially increased R-squared for both
early and later episodes, as compared to the R-squared values for a
single therapy threshold model (72 FR 25365, May 4, 2007). The
commenter asked what the improved R-squared values were, and if they
were statistically significant. Further, the commenter asked if there
were concerns that the randomness being measured was truly not random,
which would raise questions about the appropriateness of a linear
regression model and its associated R-squared.
Response: Abt Associates estimated models without therapy
thresholds using the basic four-equation structure. The basic four-
equation structure incorporates a threshold at 14 therapy visits. After
adding thresholds to this model at 6 and 20 visits, and adding per-
visit therapy variables, the R-squared statistic increased by
approximately 0.10. We subsequently modified the approach to the per-
visit therapy variables, as described in the proposed rule. We believe
the linear model is appropriate based on results of experimentation
with nonlinear specifications during the research. This technical topic
is treated in the Abt Associates Final Technical Report.
Comment: A commenter noted that the four-equation model actually
contains a fifth equation for 20 or more therapy visits and asked for
clarification regarding how to code as early or later episodes in this
case.
Response: The OASIS item for early or later episodes (M0110) needs
to be completed for all episodes, regardless of the number of therapy
visits. The estimated number of therapy visits must also be entered
into OASIS (M0826). The episode will then be assigned an appropriate
HHRG by the grouper, and priced out correctly by the Pricer. The system
will automatically verify the accuracy of the early/later designation,
and correct the payment if necessary.
As explained in the proposed rule (72 FR 25388), we collapsed all
episodes with visits over 19 when we saw the results of the four-
equation model. These episodes are grouped in the payment regression,
and severity distinctions are made using the breakpoints described in
that last column (20+ therapy visits) of Table 3, Severity Group
Definitions: Four-equation model (72 FR 25387).
We note the labeling of Table 3 in the proposed rule left the
impression among some readers that there was a fifth equation. The
commenter may have been confused because Table 3 in the proposed rule
shows a separate column for all episodes with 20 or more visits, which
can give the appearance of a five-equation model rather than a four-
equation model. However, there are only four equations from which to
draw case-mix points. Table 2A of the proposed rule gives a description
of each diagnosis group, followed by four columns with the four
``legs'' of the four-equation model. If an episode has 20 or more
visits, the case-mix points would come from the second leg if it is an
early episode, and from the fourth leg if it is a later episode. The
table column headers indicate that these two legs are for 14 or more
therapy visits. As explained in the proposed rule, we found strong
similarities in the case-mix-adjusted costs for early and later
episodes with 20 or more therapy visits. In other words, the results of
the four-equation model indicated that predicted costs for the same
clinical and functional severity levels across the two equations
(equations 2 and 4) were highly similar. Therefore, to reduce the
number of groups and thereby simplify the system at the payment
regression stage, we treated episodes with 20 or more therapy visits
the same (that is, we used the same indicator variables for clinical
and functional severity, regardless of whether the episode was from the
early or later equation for 14 plus therapy visits).
In summary, upon examining the CY 2005 data on the resource cost
trends by number of therapy visits, we changed the starting value for
the marginal cost of going from six therapy visits to seven therapy
visits from $36 to $42, consistent with the observed value in the data.
The declining trend was modeled by decrements of 1.5 units, as shown in
Table 1, because the marginal value observed in the data was no higher
than $30 when going from 14 to 15 therapy visits. Had we used
decrements of 1.0 units, as in the proposed rule, the imposed values
would have descended to a value of $34, which is less consistent with
the

[[Page 49779]]

observation when going from 14 to 15 therapy visits. Using 1.5-unit
increments, the imposed values descended to a value of $29, which is
more consistent with the actual data.
We are implementing the three therapy thresholds of 6, 14, and 20.
The groups of visits in final Table 1, used to achieve graduated steps
of increased payment between the therapy thresholds, have not changed
as a result of modeling with the newer, most current 2005 data. The
deceleration of the increase in payment with each individual visit
between the therapy thresholds is being implemented as in the final
Table 1 (see below).

Table 1.--Resource Cost Values Imposing Deceleration Trend in Four-
Equation Model
------------------------------------------------------------------------
Number of Resource cost
Equation and services utilization therapy visits values imposed
severity level in severity in regression
level procedure
------------------------------------------------------------------------
1st and 2nd Episodes, 6-13--Therapy
Visits:
S3.............................. 7, 8, 9 42, 40.50, 39
S4.............................. 10 37.50
S5.............................. 11, 12,13 36, 34.50, 33
1st and 2nd Episodes, 14-19--Therapy
Visits:
S1*............................. 14*, 15 *, 29
S2.............................. 16, 17 27.50, 26
S3.............................. 18, 19 24.50, 23
3rd+ Episodes, 6-13--Therapy Visits:
S3.............................. 7, 8, 9 42, 40.50, 39
S4.............................. 10 37.50
S5.............................. 11, 12, 13 36, 34.50, 33
3rd+ Episodes, 14-19--Therapy
Visits:
S1*............................. 14*, 15 *, 29
S2.............................. 16, 17 27.50, 26
S3.............................. 18, 19 24.50, 23
------------------------------------------------------------------------
* No value was imposed in the regression procedure for a 14th therapy
visit (because the regression intercept estimate for the grouping step
automatically includes the resource cost impact of this visit).

5. Determination of Case-Mix Weights
In the proposed rule, we revised the case-mix weights, as noted in
the previous sections of this final rule with comment period,
describing the refinements. In this section, we describe the final
revisions to the case-mix model and the determination of the final
case-mix weights. For specifics, see the tables at the end of this
section.
Comment: A number of commenters supported the higher case-mix
weights for third and subsequent episodes of care. However, two
commenters were concerned that the analysis weighted third and
subsequent episodes more highly because Medicaid data is included in
the OASIS (M0150), and Medicaid patients account for 85 percent of all
third and subsequent episodes. They noted that most agencies have fewer
than two episodes per patient, and would be adversely affected by the
proposed weights. Another noted that patients new to home health often
have a high degree of anxiety, and therefore need more frequent
contact. Additionally, ``best practice'' guidelines recommend a higher
level of care during the first few weeks of a home health episode. This
commenter asked CMS to reconsider a payment adjustment based on early
rather than later episodes. Several commenters suggested eliminating
the early or later episode distinction and redistributing the weights
amongst all episodes. They claimed that this would simplify the model
and eliminate the difficulties of determining early or later status of
patients using the CWF. One commenter proposed that we use a two-
equation model that excludes reference to enhanced reimbursement for
the third and fourth episodes. The commenter suggested that not having
increased reimbursement for later episodes would more accurately
reflect the way the majority of patients are receiving care and reduce
the incentive to drive up costs and possibly reduce patient
independence.
Response: The later episodes reflect patients who tend on average
to have higher resource needs and extended stays in home health care.
The later episode distinction resulted from our attempts to
differentiate the resources needed by long-stay patients. Many
observers in the past indicated it would be appropriate for the case-
mix system to recognize that the Medicare home health benefit serves a
minority who are experiencing an extended period of illness and
incapacitation. It is not possible to always identify all these cases
upon admission, and an administratively feasible way to address this
situation is to create a provision specifically for these cases when
they reach a milestone indicative of an extended stay in home care. The
provision for separate groups for long-stay patients is not made at the
expense of shorter-stay patients, as our data analysis showed a modest
difference in resource cost over the 60-day certification period. That
some patients at the start of care need frequent visits is accounted
for in our data by the resource cost measure for the entire 60-day
period. We agree that agencies should follow best practice guidelines
that are intended to bring about early independence and avoid hospital
readmissions by front-loading visits when appropriate. Further, we do
not believe the payment incentives associated with the long-stay
equations are so strong as to that they distort the fundamental goals
of returning patients to health and independence as soon as possible.
Comment: A commenter asked if the M0230/240/246 case-mix scores can
now be combined or should only the highest case-mix score be considered
in evaluating the clinical dimension. The commenter asked that we
clarify Table 2A of the proposed rule, and asked how to handle episodes
with 20 or more visits. Another commenter asked if only those co-
morbidities that are actually being addressed in the care plan are to
be included.
Response: Case-mix scores from different diagnosis groups in Table
2A are additive; a diagnosis group is a line item in the table. Points
cannot be given more than once for diagnoses in the

[[Page 49780]]

same group. For example, a patient with both heart disease and
hypertension would not get points twice for item 11 in Table 2A.
However, a patient with a Neuro 3 diagnosis who meets criteria for
points for Items 16 and 17 in Table 2A would be eligible for points
from both items. A summary of the guidelines used in scoring is posted
at the CMS home health Web site and entitled ``Toy Grouper Logic
Guidelines'' (Web site address: http://www.cms.hhs.gov/center/hha.asp).
In the footnote to the final Table 2A, we have clarified that scores
are additive.
In addition, the commenter may have been confused because Table 3
shows a separate column for all episodes with 20 or more visits, which
can give the appearance of a five-equation model rather than a four-
equation model. However, there are only four equations from which to
draw case-mix points. Table 2A gives a description of each diagnosis
group, followed by four columns with the four ``legs'' of the four-
equation model. If an episode has 20 or more visits, the case-mix
points would come from the second leg if it is an early episode, and
from the fourth leg if it is a later episode. The table column headers
indicate that these two legs are for 14 or more therapy visits.
Comment: A number of commenters expressed concern about the impact
of changes made to the point allocation for OASIS functional variables
in relationship to therapy. The current case-mix system allocates 6 to
9 points for M0700 (ambulation) deficits. However, the proposed case-
mix refinement system allocates zero points for ambulation deficits in
two of the three equations, including both equations for 14 or more
therapy visits. Two commenters also noted that the point allocation for
M0690 (transfers) were affected unless the patient required 13 or more
therapy visits. They were concerned that the proposed new case-mix
methodology was not capturing the appropriate points to allow for
necessary resources for functionally impaired patients. The commenters
proposed that CMS study this further before imposing a negative
adjustment.
Response: The proposed four-equation model cannot be compared on a
point-by-point basis with the current case-mix model. The models are
based upon different data sets, and the model structures are different
(for example, a single equation model versus a four-equation model; a
single therapy threshold versus multiple therapy thresholds). Under the
current model, an episode receives a functional score severity level of
F0, F1, F2, F3, F4, or F5 based on having 0 to 30 or more points. Under
the proposed four-equation model, an episode receives a functional
score of severity level F1, F2, or F3 based on having 0 to 10 or more
points, and depending on the episode timing and number of therapy
visits. Because the models are not directly comparable, it cannot be
assumed that fewer points under the proposed model results in a
negative payment adjustment.
The points given in Table 2A of the proposed rule were derived from
modeling actual claims data, and represent prior experience in home
health care. The score is the value of the regression coefficient for
the variable, and measures the impact of the data element on total
resource cost of the episode. For this final rule with comment period,
we updated the dataset using 2005 data in the regression analysis, and
this resulted in some changes in the scores presented in Table 2A of
this rule. We will also continue to study the case-mix model, and will
make additional refinements as needed.
Comment: A commenter noted that it appears that some individual
items in Table 2A of the proposed rule have the potential to move the
clinical dimension from the lowest (C1) to the highest (C3).
Response: This is correct. We determined the points based on our
research. One example would be an early episode with a primary
diagnosis in the skin 1 group (item 25 in Table 2A); diagnoses in this
category are resource intensive.
Comment: Several commenters asked that we clarify the reason for
linking the case-mix adjustment for 781.2 (gait abnormality) with
pressure ulcers. Persons receiving therapy for gait training are not
typically bed or chair bound and therefore it is unlikely that they
would have pressure ulcers. Additionally, points are not allocated for
the gait disorder diagnosis in the 14 plus therapy visit equations.
Response: The regression model indicated that patients with
pressure ulcers are overall more clinically compromised if they also
have the diagnosis of 781.2 than pressure ulcer patients without the
diagnosis of 781.2. As to the points allocated for this type of
patient, because we are adopting a graduated payment for therapy in the
14 plus visit category, the gait disorder diagnosis does not add any
additional explanatory power to the model and is not statistically
significant.
In summary, in the proposed rule, we stated our intention to update
the data used for the four-equation model and validate the model. We
based our proposal on FY 2003 claims and linked OASIS assessments, a
period before V-codes were allowed on OASIS. For validation, we used a
random 20% sample of 2005 claims linked to OASIS assessments to create
an analytic file for modeling case-mix. We examined the diagnoses
fields on the OASIS assessments (M0230/M0240/M0245) for indications
that some diagnoses groups in the proposed model might be reported at
differing rates in 2005 than in 2003, and we did find some changes. For
example, we observed lower rates of reporting primary diagnoses for the
neurological diagnosis groups, orthopedic groups other than gait
abnormality, cardiac group, and some of the cancer diagnosis codes. We
observed somewhat higher primary diagnosis rates for the diabetes,
hypertension, and degenerative and other organic psychiatric groups.
Secondary diagnosis reporting typically decreased only by about 1
percentage point for each of the proposed diagnosis groups. Moreover, a
preliminary validation of the model on FY 2005 data indicated that the
results were substantially the same as the results of modeling
resources in the four-equation structure using FY 2003 data. We
concluded that the proposed four equation model in the proposed rule
was reliable notwithstanding reporting changes expected from the
introduction of V-codes on OASIS. We made a number of refinements based
on the validation model we estimated using the FY 2005 analytic file.
We subsequently updated the data to CY 2005 and made some further
refinements. The final results are shown in Tables 1, 2a, and 3. The R-
square statistic for the final case-mix model is 0.45.
Major differences in the 2005 data compared to the 2003 data
concerned a small number of the primary and secondary diagnosis groups
we identified for the case-mix model in the proposed rule: Cancer and
psychiatric conditions [affective and other psychoses, depression
(Psych 1 Group) and degenerative and other organic psychiatric
disorders (Psych 2 Group)]. When we examined the model's estimates of
cancer-related marginal resources and marginal resources of the Psych 1
group, we found that a distinction between primary and secondary
diagnoses was not needed, as scores were generally similar across the
equations. For Psych 2, only primary diagnoses contributed to this
group in the proposed rule model. However, the updated estimates
indicated secondary diagnoses should be recognized in the model, so we
combined secondary with primary diagnoses into a new group for

[[Page 49781]]

these psychiatric conditions. Because these changes eliminated
distinctions between primary and secondary diagnosis positioning on
OASIS M0230/M0240, we welcomed them as a simplification of the case-mix
model. We also believe there are advantages from moving away from
separate scores for primary and secondary diagnosis reporting.
Specifically, it reduces potential incentives to alter the placement of
codes based on financial considerations. The final model includes two
diagnosis groups with differing scores for primary and secondary
diagnoses: Diabetes and certain skin conditions [specifically,
traumatic wounds, burns, and post-operative complications (Skin 1)].
In addition, we added stroke (``Neuro 3'' diagnosis group) as a
primary diagnosis, irrespective of any interactions. The final result
in the updated data of using this re-defined stroke variable was an
added score in equation 2 of the model (early episodes, 14 or more
therapy visits). Along with this change, the data revealed some
differences in the cost-increasing interactions with stroke, which are
reflected in the final model. The final model indicates added points
when stroke is accompanied by dressing and/or ambulation functional
limitations, as well as dysphagia.
Interactions involving the other three neurological groups also
reflected some changes. For example, we found that separating the
interactions of functional limitations with multiple sclerosis (Neuro
4) into two line items in the proposed table 2A did not work well in
the new data, despite results obtained with the data used for the
proposed rule. However, combining all four functional limitation
interactions recognized in the proposed model produced useful results.
Based on estimates from the new data, we also modified the interaction
of toileting with the remaining neurological groups, brain disorders
and paralysis (Neuro 1) and peripheral neurological disorders (Neuro
2). The data revealed that peripheral neurological disorders (Neuro 2)
in this interaction were no longer statistically significant, so this
group was removed from the interaction.
In the 2005 data, a cost-increasing effect from incontinence was
not observed, so it was deleted from the four-equation model. An
interaction in the proposed model involving incontinence and certain
neurological conditions [brain disorders and paralysis (Neuro 1) was no
longer statistically significant, so this variable was removed as well.
Other differences in the four-equation model generally were small
point changes for specific scores. For example, a primary diagnosis of
diabetes incurred an increase of one point in three of the four
equations, while the interaction of stroke and dysphagia incurred a
loss of one point in the third equation and a gain of one point in the
first equation.
We tested a suggestion from a commenter to include V-codes from
ICD-9-CM for stoma. We defined variables using selected V-codes to
serve as markers for patients with stoma other than colostomies and
gastrostomies, which were already measured or proxied in our variable
set. This change resulted in the addition of two major types of stoma.
Specifically, we added appropriate variables in both the case-mix model
and the NRS model to capture patients with resource needs or supplies
cost needs due to tracheostomy and urostomy/cystostomy. We are
implementing as final the case-mix weights and scoring resulting from
the four-equation model with therapy thresholds at 6, 14, and 20
therapy visits and with an early or later episode distinction. We have
updated our modeling to use 2005 data, which resulted in some changes
in case-mix weights and item scoring. We are implementing as final the
versions of Tables 2A, 2B, 2C, 3, 4, and 5 that are shown below.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C
6. Case-Mix Change Under the HH PPS
Section 1895(b)(3)(B)(iv) of the Act specifically provides the
Secretary with the authority to adjust the standard payment amount (or
amounts) if the Secretary determines that the case-mix adjustments
resulted (or would likely result) in a change in aggregate payments
that is the result of changes in the coding or classification of
different units of services that do not reflect real changes in case-
mix. The Secretary may then adjust the payment amount to eliminate the
effect of the coding or classification changes that do not reflect real
changes in case-mix.
In the proposed rule, in order to identify whether the adjustment
factor was needed, we first determined the current average case-mix
weight per paid episode. The most recent available data from which to
compute an average case-mix weight, or case-mix index (CMI), under the
HH PPS was from 2003. Using the most current available data from 2003,
the average case-mix weight per episode for initial episodes is 1.233.
To proceed with the CMI adjustment, next we determined the baseline
year needed to evaluate the trend in the average case-mix per episode.
There were two different baseline years that were considered from
which to measure the increase in case-mix: 1) A cohort that used home
care from October 1997 to April 1998 (the Abt case-mix study sample
which was used to develop the current case-mix model) and 2) the cohort
that used home care during the 12 month period ending September 30,
2000 (HH IPS Baseline). The increase in the average case-mix using the
Abt Associates case-mix study sample as the baseline was 23.3 percent
(from 1.0 to 1.233). There were several advantages to using data from
Abt Associates case-mix study as the baseline from which we measured
the increase in case-mix. The time period was free from any
anticipatory response to the HH PPS, and data from this time period
were used to develop the original HH PPS model. Also, this is the only
nationally representative dataset from the 1997 to 1998 time period
that measured patient characteristics using an OASIS assessment form
comparable to the one currently adopted for the HH PPS. However,
agencies included in this sample were volunteers for the study and
could not be considered a perfectly representative, unbiased sample.
Furthermore, the response to Balanced Budget Act of 1997 provisions
such as the home health interim payment system (HH IPS) during this
period might produce data from this sample that reflect a case-mix in
flux; for example, venipuncture patients were suddenly no longer
eligible, and long-term care patients were less likely to be admitted.
Therefore, we were not confident the trend in the CMI between the time
of the Abt Associates study and 2003 reflected only changes in coding
practices due to real change in case-mix.
We then looked to the HH IPS baseline period, the 12 month period
ending 9/30/2000. Analysis of a 1-percent sample of initial episodes
from the 1999 through 2000 data under the HH IPS revealed an average
case-mix weight of 1.125. Standardized to the distribution of agency
type (freestanding proprietary, freestanding not-for-profit, hospital-
based, government, and SNF-based) that existed in 2003 under the HH
PPS, the average weight was 1.134. We noted this time period was likely
not free from anticipatory response to the HH PPS, because we published
our initial HH PPS proposal on October 28, 1999. The increase in the
average case-mix using this time period as the baseline was 8.7 percent
(from 1.134 to 1.233; 1.233-1.134=0.099; 0.099/1.134=0.087;
0.087*100=8.7 percent).
As a result of various studies, analysis of OASIS data, and changes
to the home health benefit as due to the BBA, we stated our belief that
change in case-mix of 13.4 percent between the time of the Abt
Associates case-mix study and the end of the HH IPS period reflected
substantial change in the real case-mix. In contrast to that 13.4
percent, we considered that the 8.7 percent increase in the national
case-mix index between the HH IPS baseline and the CY 2003 could not be
considered a real increase in case-mix. Trend data on visits from the
proposed rule (72 FR 25393), resource data presented in the proposed
rule (72 FR 25394), and our analysis of changes in rates of health
characteristics on OASIS assessments and changes in reporting practices
all led to our conclusion that the underlying case-mix of the
population of home health users was essentially stable between the HH
IPS baseline and CY 2003. Our research showed that HHAs have reduced
services while the CMI continued to rise. In addition to the trend
analysis, we conducted several additional kinds of analyses of data and
documentary materials related to home health case-mix coding change.
The results supported our view that the change in the CMI since the HH
IPS baseline mostly reflected provider responses to the changes that
accompanied the HH PPS, including particulars of the payment system
itself and changes to OASIS reporting requirements. Our analyses
indicated generally modest changes in overall OASIS health
characteristics between the two periods noted above, a specific pattern
of changes in scaled OASIS responses that was not indicative of
material worsening of presenting health status, various changes in the
OASIS reporting instructions that helped account for numerous coding
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[[Page 49833]]

patients with their traditionally lower case-mix index.
Therefore, based upon our trend analysis we believed the change in
the case-mix index between the Abt case-mix sample (a cohort admitted
between October 1997 and April 1998) and the HH IPS period (the 12
month period ending September 30, 2000) is due to real case-mix change.
We took this view, even though we understood that there could be some
issue as to whether this period was affected by case-mix change due to
providers anticipating, in the last year of HH IPS, the forthcoming
case-mix system, with its incentives to intensify rehabilitation
services. The change from these two periods is from 1.00 to 1.134, an
increase of 13.4 percent. However, we did not propose to adjust for
case-mix change based on this change in values, as some of that change
reflected real change in case-mix. However, we did propose that the 8.7
percent of case-mix change that occurred between the 12 months ending
September 30, 2000 (HH IPS baseline, CMI=1.134), and the most recent
available data from 2003 (CMI=1.233), be considered a change in the CMI
that does not reflect a ``real'' change in case-mix, but rather is a
``nominal'' change in case-mix. We proposed a reduction in HH PPS
national standardized 60-Day episode payment rate to offset the change
in coding practice that has resulted in significant growth in the
national case-mix index since the inception of the HH PPS that is not
related to ``real'' change in case-mix.
Our past experience establishing other prospective payment systems
also led us to believe a proposal to make this adjustment for nominal
change in case-mix was warranted. In other systems, Medicare payments
were almost invariably found to be affected by nominal case-mix change.
We considered several options for implementing this case-mix change
adjustment. Those options included accounting for the entire -8.7
percent increase in case-mix with an 8.0% adjustment in CY 2008,
incorporating an adjustment of -5.0 percent in CY 2008 and an
adjustment of -2.7 percent in CY 2009, or incorporating an adjustment
of -4.35 percent in CY 2008 and an adjustment of -4.35 percent in CY
2009. However, because of the potential impact our proposed adjustment
might have on providers, we proposed and requested comment on whether
to adjust for the nominal increase in national average CMI by gradually
reducing the national standardized 60-day episode payment rate over 3
years. During that period we stated that we would continue to update
our estimate of nominal case-mix change and adjust the national
standardized 60-day episode payment rate accordingly for any nominal
change in case-mix that might occur. We proposed to implement a 3-year
phase-in of the total downward adjustment for nominal changes in case-
mix by reducing the national standardized 60-day episode payment rate
by 2.75 percent each year up to and including CY 2010. That annual
reduction percent was based on the new current estimate of the nominal
change in case-mix that occurred between the HH IPS baseline (+0.099)
and 2003. However, we also stated that, if, at the time of publication
of the final CY 2008 HH PPS rule, updates of the national claims data
to 2005 indicated that the nominal change in case-mix between the HH
IPS baseline and 2005 was not +0.099, we would revise the percentage
reduction in the next year's update. The revision would be determined
by the ratio of the updated 3-year annual reduction factor to the
previous year's annual reduction factor. For example, the scheduled
annual reduction factor was estimated to be 0.9725 (equivalent to a
2.75 percent reduction); for CY 2008 we would multiply this reduction
factor by the ratio of the updated reduction factor to 0.9725.
Therefore, for the CY 2010 rule, which would govern the third and final
year of the proposed case-mix change adjustment transition period, we
would obtain the CY 2007 national average CMI to compute the updated
value for nominal case-mix change adjustment. Again, we would form the
ratio of the updated adjustment factor to the previous year's effective
adjustment factor. The annual updating procedure avoids a large
reduction for the final year of the phase-in, in the event that the CY
2007 national average case-mix index reflects continued growth since CY
2005.
We stated our plan to continue to monitor changes in the national
average CMI to determine if any adjustment for nominal change in case-
mix is warranted in the future.
Comment: A number of commenters asked that we eliminate the 2.75
percent case-mix change adjustment. They argued that the acuity of home
care patients is rising, citing earlier discharges from hospitals or
skilled nursing facilities. A number of commenters argued that patient
characteristics have changed, with more patients 85 and older receiving
home health care, along with more patients with resource intensive
diagnoses. Several commenters noted the increase in patients with knee
or hip replacements. Another noted that if providers were inflating the
case-mix, they would expect OASIS data shown in Table 10 of the
proposed rule to change accordingly.
Response: Our identification of case-mix change was based on a
number of factors that revealed coding changes to higher clinical,
functional, or utilization severity without an actual change in the
status of home health patients. These are described in detail in the HH
PPS proposed rule (72 FR 25392-25422).
Since publication of the proposed rule, we updated our analysis to
use 100 percent of the HH IPS file for our baseline and a 20-percent
sample of 2005 claims data. We used all episodes rather than just
initial episodes. This change in our sample selection approach does not
materially change the estimate of case-mix change, whether comparing
the baseline to HH PPS 2003 or HH PPS 2005. The 2005 data yielded an
average CMI of 1.2361, as compared to the average CMI of 1.0960 from
the 100 percent HH IPS sample. Therefore, the updated change
measurement is (1.2361 -1.0960)/ 1.0960 = 12.78 percent. As explained
in the summary at the end of this section, where we describe the
results of the Abt Associates model we used to identify real case-mix
change, we adjusted this result downward by 8.03 percent to get a final
case-mix change measure of 11.75 percent (0.1278 * (1-0.0803) =
0.1175). To account for the 11.75 percent increase in case-mix which is
not due to a change in the underlying health status of Medicare home
health patients, we are finalizing the proposed 2.75 percent reduction
of the national standardized 60-day episode payment rate for 3 years
beginning in 2008 and extending that adjustment period to a fourth year
via a 2.71 percent reduction for 2011. We are seeking comment on the
2.71 percent case-mix change adjustment for 2011.
We have conducted several analyses to determine if any portion of
the above case-mix change measurement could be considered real versus
nominal, i.e. not related to real change in the essential underlying
health status of the home health user population. First, Abt Associates
developed a model to predict the case-mix weights on large samples
which is described at the end of this section. The model accounted for
changes in the age structure of the home health user population, and
changes in the types of patients being admitted to home health. To
account for changes in the types of patients, we used four main classes
of variables: Variables describing (1) the utilization of Medicare Part
A services in the 120 days leading up to home health, (2) the type of
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[[Page 49834]]

patient last had such a stay, (3) variables describing living
situation, and (4) variables summarizing Part A expenditures in the 120
days leading to home health. The variables for changes in the type of
acute care stay classified stays into APR DRG case-mix groups, a
classification system that incorporates a severity classification for
each case-mix group, basic type of stay (procedure versus medical)
indicator, and risk of mortality indicators during the stay. We also
incorporated a set of variables describing agency ownership and
organizational form, to adjust for the large effect on measured case-
mix from the change in the types of agencies that occurred since the HH
IPS baseline. The model is described in detail at the end of this
section.
The results of the analysis indicated that a small amount of
measured case-mix change is real, but that most of it is unrelated to
the underlying health status of home health users.
Second, some commenters suggested that HHA patients have more
resource intensive diagnoses. We conducted analyses using FY 2000
through CY 2006 data for several conditions emblematic of home health
patients. The analyses indicated that admissions to home health
agencies were down slightly for persons with hip fractures, congestive
heart failure, and cerebrovascular accidents. These results are shown
in Table 8, ``Percent Share of Home Health Admissions and Mean Time
Prior to Entering a Home Health Episode, for Five Conditions, FY 2000-
CY 2005''. Estimates are based on a 10 percent random sample (n=388,684
to 522,973, depending on the calendar year; statistically these are
considered large samples). The data for CY2006 come from the first
quarter of the year only. We used total episodes, both initial and
recertification episodes, for this analysis. As our previous analysis
on the 1 percent HH IPS sample and the 20 percent CY 2003 sample
indicated no significant shift in the balance between initial and non-
initial episodes, we believe that the annual rates and means in the
table are appropriately measured, and account for the complete mix of
patients seen by agencies. For defining the type of acute discharge, we
used the same definitions that were used in a CMS study cited by one
commenter who noted that increases in knee replacement patients have
occurred (CMS, ``Medicare Beneficiary Access to Rehabilitation Care,''
June 8, 2007). According to Table 8, the share of total patients
admitted to HHAs with hip fracture acute discharges in the 14 days
leading up to home health declined over the period, from .82 percent to
.59 percent. The share of total patients admitted with CHF acute
discharges declined from 3.31 percent to 2.62 percent, a decline of 21
percent. The share of total patients admitted with CVA acute discharges
declined steadily, from 1.52 percent to .97 percent, a one-third
decrease. Admissions for hip replacements exhibited no clear trend; the
range of rates during the period is between 1.36 percent and 1.64
percent. For these conditions, the results are not clearly indicative
of more severe case-mix.
We note that admissions for knee replacements are rising, from 1.89
percent to 2.75 percent in the years from HH IPS to 2005. However, the
overall percent of knee replacement patients in the national home
health caseload is not large, at less than 3 percent at any given time.
We accounted for the change in the share of caseload due to knee
replacement patients in the Abt Associates case-mix model using the APR
DRG classifications, described above and at the end of this section.
The results from the model indicated that this change, in combination
with other changes that were offsetting, was not enough to move the
real case-mix index more than a small amount beyond the baseline.
Third, we examined the length of time between discharge and the
home health episode start, to develop evidence that, on average,
patients enter home care in a more sickly condition than was the case
in FY 2000. Table 8 shows the average number of days between acute care
discharge and the first day of the home health episode for patients
with acute discharges due to the same five conditions: Hip fracture,
congestive heart failure, cerebrovascular accident, hip replacement,
and knee replacement surgery. The results show no change in the mean
time prior to entering a home health episode for the first three
conditions. We believe this result partly reflects increased use of
institutional post-acute care among the home health population.
Specifically, there was an increased use of SNFs and LTCHs between the
HH IPS baseline and CY 2000. SNF stays grew by 2.8 percent, and SNF
days of stay grew by 8.5 percent. LTCH hospital days grew by 38
percent. IRF stays and days did not grow, but IRF use is only one-third
that of SNF use among home health patients.
As shown in Table 8, days prior to entering home health declined
for hip replacement and knee replacement patients. As commenters have
suggested, these statistics may reflect less use of post-acute
institutional care on average for these two groups. However, the
increasing share of the home health caseload due to these groups is not
large enough to drive the national case-mix nominal average to the CMI
levels reached in our follow-up year, 2005. Further, we have taken the
contribution of this effect into account in the Abt Associates case-mix
model described above and at the end of this section.
While we have seen an increase in the proportion of patients with
diabetes according to OASIS diagnosis coding information, our research
showed that HHAs have reduced services while the case-mix index
continued to rise. We identified a dramatic decline in the number of
home health visits per 60 day episode (Table 6). The average number of
visits per episode in 2005 was 20.53, compared to 26.88 during HH IPS.
After adjusting for wage and benefits growth (by holding wage and
benefit estimates constant at FY 2000 levels), we find that average
resource costs have declined slightly from 1999 to 2005, from $451.39
to $447.41 (see Table 7). For most of the calendar quarters displayed
in Table 7, average resource costs after adjusting for wage growth were
substantially below the HH IPS baseline. At the same time, the case-mix
indexes at admission and for total episodes have increased (see Table
7). Resource costs are based on visit time reported on claims, and thus
are labor-related. If the CMI is increasing, suggesting that patients
are more clinically severe, have more functional impairments, and
require more visits, we would have expected resource costs to increase
as well. However, by 2005 average resources per episode were still
below HH IPS levels, after adjusting for wage growth. Notably, it is
not until 2005 (when, according to Bureau of Labor Statistics wage
survey data, wages rose significantly), that unadjusted resources are
significantly higher than the HH IPS baseline level.
Comment: Several commenters noted that the growth in Medicare
Advantage (formerly known as Medicare + Choice) programs has shifted
low acuity patients out of traditional Medicare, leaving those patients
with higher needs in traditional Medicare. They felt this contributed
to an increase in the average case-mix index.
Response: Medicare Advantage programs provide managed care benefits
which are different from the traditional Medicare benefit. For further
information on these managed care benefits, please refer to the
Internet only manual 100-01, ``Medicare General Information,
Eligibility, and Entitlement'', chapter 5, subsection 80. This manual
is available on CMS' home health Web Site at http://

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www.cms.hhs.gov/center/hha.asp. These managed care programs were not
considered in our analysis of the case-mix change adjustment as they
are separate benefits from traditional Medicare. We cannot make
comparisons or draw conclusions based upon any benefit other than
traditional Medicare.
Comment: Many commenters felt that the 2.75 percent case-mix change
adjustment failed to account for OASIS training on accurate assessment
and on OASIS use. The commenters felt this led to OASIS scores which
reflect a more accurate picture of the home health patient rather than
case-mix up-coding. Two commenters noted that there was systematic
undercoding prior to training and guidance on OASIS and diagnosis
coding. Some commenters argued that CMS has benefited from agency
undercoding, resulting in agencies underpaying themselves.
Response: We agree that some of the changes seen in OASIS
characteristics are partly due to emphasis on proper application of
OASIS guidelines. We also believe that there were incentives driven by
payment and quality program changes that interacted with the subjective
aspects of the assessment process to cause nominal coding changes.
Diagnosis coding entails some discretion by the Agency: In some cases
more than one diagnosis could reasonably be called primary. Thus, we
believe the significant growth, for example, in orthopedic diagnoses
partly reflects the financial incentives that colored the diagnosis
selection process. Our examination of National Claims History data
revealed an increase in Medicare knee replacement patients. However,
these patients account for only about 2.75 percent of the national home
health caseload at any given time. With such a small share of the
caseload, they do not drive the case-mix index by themselves. Hip
replacement patients did not increase as a share of episodes by 2006,
although their share appeared to increase slightly between HH IPS and
CY 2003 (see Table 8). However, Medicare hip replacement patients also
are not a large factor in the overall home health caseload, accounting
for only between 1.36 percent and 1.64 percent of episodes in the years
2000 to 2006.
Further, ADL functioning can be difficult to assess due to
variability within patients and the multiple dimensions of functional
limitations. Quality measures and financial incentives may combine to
bias agencies towards assessing a patient with a more-severe rating at
the start of care. Incentives apparently led to high-therapy treatment
plans, aided by the 10-therapy threshold.
Our analyses in the proposed rule reviewed information pertaining
to changes in OASIS guidance and potential coding improvements that may
have resulted. In August 2000 official guidance on OASIS coding
affected a number of case-mix items. Functional items began to
emphasize the patient's ability to perform the item safely. This may
have caused several ADL statistics to shift away from the completely
independent level. Another August 2000 change in OASIS instructions
affected the pain item, M0420. Additional strategies for assessing pain
were offered, and guidance on whether the pain was well controlled took
into account patient adherence to pain medication. Many patients trade
off pain control for diminution of medication-related side-effects.
These changes likely increased the number of patients assessed with
pain. The OASIS instructions regarding assessment of urinary
incontinence were also expanded to consider mobility and cognition,
which may have led to increased rates of reporting of this item.
Furthermore, in August 2000 there were two changes to the OASIS
manual that could have increased the number of patients with surgical
wounds. First, the definition of a surgical wound was expanded to
include medi-port sites and other implanted infusion devices or venous
access devices. Therefore more skin openings could be assessed as
wounds under M0488, a case-mix item, provided the site is the most
problematic. The second change allowed a muscle flap performed to
surgically replace a pressure ulcer to be considered a surgical wound,
and not a pressure ulcer. This again would have added to the number of
surgical wounds.
All the above we believe indicates that the increased reporting
rates seen in some OASIS items do not represent a change in underlying
health status of HH PPS patients. Numerous commenters noted that they
had changed OASIS coding as a result of training. This is consistent
with nominal versus real change in patient characteristics.
Comment: A commenter wrote that in future, it would be beneficial
to have a more systematic approach to measuring changes in OASIS coding
practices. For example, CMS should consider efforts such as the
collection of OASIS from independent entities for comparison to agency
assessments or on-site visits to check agency coding practices. The
commenter noted that the need for better data is particularly acute
because this rule will present another opportunity for case-mix
increases due to coding improvement, so there should be a prospective
adjustment as well. The commenter suggested CMS consider a combined
(retrospective and prospective) case-mix change adjustment for this
rule that would be taken over a longer period of time. Furthermore, the
commenter suggested CMS should also continue to evaluate coding changes
in future years to determine if additional coding improvement is
occurring.
Response: While we agree it would be beneficial to have a more
systematic approach to measuring changes in OASIS coding practices, to
do so in a manner suggested by the commenter would require significant
new resources, especially since the methods involve primary data
collection. We will explore methods to examine agency coding practices.
To make the best use of administrative data, rather than expensive-to-
collect primary data, we intend to analyze changes in relationships
among types of resources used in the episode, by case-mix group and
type of patient, controlling for the most reliable measures of patient
condition available. This may provide evidence to supplement our
monitoring of resources presented in the proposed rule and this
regulation. We will continue to monitor average minutes per visit
reported on claims. We will also monitor changes in the comorbidities
reported alongside primary diagnoses, to assess changes in
relationships among the diagnoses reported on OASIS. We will examine
diagnosis coding and OASIS item coding for coding improvements as well
as abuses.
We agree that the refinements will present another opportunity for
case-mix change due to coding improvements. We did not pursue a
prospective adjustment for nominal case-mix change because we believe
it is subject to error. We believe our proposal to phase in adjustments
based on retrospective analysis is an appropriate response. Phasing in
adjustments limits the demands for operational adjustments by agencies.
Our retrospective approach is consistent with this regulation's request
for further comment from the public on the fourth year of case-mix
change adjustment, which is based on results of our empirical analysis
since the proposed rule was issued.
Comment: A commenter noted that the proportional increase in
therapy services is due to both a decrease in other services and the
underutilization of therapy services in past episodes of care prior to
HH PPS. Additionally, the use of therapists in collaboration with
nurses has helped ensure more accurate

[[Page 49836]]

coding of the OASIS, particularly in the functional component area.
Response: We agree that there has been a shift toward
rehabilitative services, which increased the proportion of therapy
services relative to skilled nursing or home health aide services. This
suggests there may have been some substitution of therapy services for
nursing services and perhaps for home health aide services. We have not
identified any studies substantiating the idea that therapy was
underutilized, nor have we identified studies indicating that the
dramatic drop in aide services undoubtedly means that aides were
overutilized. One unpublished study of the service reductions during HH
IPS suggests that beneficiaries who were financially better off did
increase their use of privately paid care services as a result of the
reduction in services which came about during the HH IPS period.
Whether this indicates that services were previously overprovided is
unclear (McKnight, Robin, ``Home Care Reimbursement, Long-term Care
Utilization, and Health Outcomes,'' NBER Working Paper Series, Working
Paper 10414, National Bureau of Economic Research, Cambridge,
MA April 2004). Accordingly, review of the studies does not enable us
to draw a firm conclusion about which types of services could be
characterized as under- or overutilized before HH PPS. However, the
implications of the results of the Abt Associates model of case-mix
change (described at the end of this section) are that during HH PPS
agencies provided more therapy to patients than they did under HH IPS,
and that most of this increase cannot be explained by changes in
patient health status.
In response to this comment, we measured the growth in utilization
of any therapy services and therapy services above the 10 visit
threshold, among total episodes between HH IPS and HH PPS. We found
during HH IPS that 39.90 percent of episodes involved therapy services,
compared to 50.45 percent of episodes during CY 2005. However, the
proportion of episodes using therapy services at a level of 10 visits
or more changed from 17.0 percent to 26.4 percent. Thus, therapy
utilization at or above the 10 visit threshold grew twice as fast as
therapy utilization below the 10 visit threshold. These statistics show
that the great bulk of the growth in therapy utilization was at or
above the ten visit therapy threshold.
We believe the data indicate that agencies' therapy treatment plans
were strongly influenced by financial incentives. Implications of the
analysis of case-mix change performed by Abt Associates suggest the
shift to more intensive therapy plans cannot be explained by changes in
patient health status.
We recognize and appreciate the contribution of therapists in
collaboration with nurses in ensuring OASIS coding accuracy. As noted
previously, increases in coding accuracy contribute to nominal case-mix
change. Improvement in coding accuracy has also occurred with the
introduction of other prospective payment systems.
Comment: Several commenters felt the 2.75 percent case-mix change
adjustment was based upon a flawed analysis, with an insufficient
sample size. They cited the reduction in the model's R-squared along
with MedPAC's report that the coefficient of variation was greater than
1 for 60 of the 80 case-mix groups.
Response: Based on the updated analysis, the final case-mix change
measurement was based upon 100 percent of HH IPS claims and a 20-
percent sample of 2005 HH PPS claims, a greater number of HH IPS claims
than used in the proposed rule. Both absolute sample sizes are
considered quite large in statistical terms. Therefore sample size can
no longer be considered an issue in the case-mix change adjustment
calculation. We did not use the regression model cited by the commenter
to determine the amount of the case-mix change adjustment; however we
used regression analysis to model the case-mix index, relying on a set
of variables that were independent of agency coding incentives (see the
analysis description at the end of this section).
We also note that the commenter's reliance on the MedPAC comments
is misplaced as the MedPAC comments dealt with a review of the case-mix
refinements and not of the case-mix change adjustment. MedPAC's
comments, which are publicly available, state that MedPAC did not
independently assess the case-mix and patient data in our analysis of
case-mix change. However, MedPAC analyzed the refinements in the
proposed rule, including an analysis of the coefficient of variation
(CV). Their CV analysis found that the proposed system yields more
internally homogeneous HHRGs with less within-in group variation in the
number of visits provided. They reported that the average CV fell from
0.81 for the current system to 0.75 for the proposed system, and that
the drop in CV meant that the new resource groups can better identify
episodes with similar resource use than under the current system.
Comment: Several commenters wrote that the average annual per
patient expenditures for home health services dropped from 2001 to
2003, and therefore do not suggest that case-mix weights are
increasing.
Response: Data from the annual Medicare & Medicaid Statistical
Supplement indicate that annual payments per user of home health
services have actually increased from $2,936 in the year 2000 to $4,314
in 2005. Our analysis clearly shows that the average case-mix weights
have increased. Generally, payments per user are affected by increases
in the billed case-mix weights and by annual rate updates.
Comment: From 2000 to 2003, HHAs altered care practices to achieve
improved patient outcomes, shifting from dependency-oriented care to
care designed to achieve self-sufficiency and independence. The
increased use of therapy services and decreased use of home health
aides are indicative of this change. Changing to multiple therapy
thresholds to align payment incentives with care and the use of a case-
mix change adjustment that primarily reflects growth in therapy
utilization is an unnecessary adjustment that ``double-dips'' on rate
adjustments.
Response: One goal of the case-mix refinements is to better match
payments with agency costs. Changing to multiple therapy thresholds
with a gradual increase in payment better aligns costs and payments and
avoids incentives for providers to distort patterns of good care that
would occur at each proposed therapy threshold. As a disincentive for
agencies to provide more care than is appropriate, we proposed that any
per-visit increase incorporate a declining, rather than constant,
amount per added therapy visit. The final case-mix change adjustment
addresses nominal case-mix change that occurred between the HH IPS
baseline and 2005, and our adjusted calculation of that nominal case-
mix change allows for a real increase in case-mix that reduces the
nominal measurement by 8.03 percent. The multiple therapy thresholds
and the case-mix change adjustment are unrelated and do not doubly
adjust the rate as each adjustment is clearly warranted by the data.
Comment: Some commenters stated their belief that incentives in HH
PPS led many agencies to seek out higher case-mix cases and avoid lower
case-mix cases to maximize reimbursement following HH PPS
implementation. They agreed this would create real case-mix change
versus nominal change.

[[Page 49837]]

Response: In the Abt Associates analysis of changes in the case-mix
index, the model controlled for changes in health status of home health
patients, measured independently of the OASIS. From that analysis, we
identified a small amount of real case-mix change between the HH IPS
baseline and 2005. An analysis by MedPAC in 2005 (``Home Health Agency
Case-mix and Financial Performance,'' MedPAC, Washington, DC, December
2005) addressed the possibility that reductions in total visits per
episode along with shifts in resources among the case-mix groups after
HH PPS began gave agencies the ability to realize higher margins on
some case-mix groups (particularly high-therapy case-mix groups, with
their high weights) more than for others. However, while margins may
have become advantageous among some of the case-mix groups after HH PPS
began, we believe, based on the data, that the real case-mix of those
groups changed very little.
Comment: A commenter argued that the underlying premise of the HH
PPS system was to control Medicare home health utilization through an
episodic payment because CMS was unable to define appropriate and
efficient visit levels. Therefore, he believed it is inconsistent to
recognize the expected reduction of visits under HH PPS but argued that
real case-mix change did not occur during that period. He noted that
such a position demonstrates that the HH PPS did not increase the
efficiency of care delivery.
Response: Our initial analysis in the proposed rule indicated that
agency coding practices changed for a variety of reasons, including
improved coding, changes in OASIS instructions, specific issues (such
as confusion about healing status of surgical wounds and effects of
education in the proper use of trauma codes in the ICD-9-CM
classification system), as well as financial incentives. The subsequent
Abt Associates analysis of real case-mix change reinforced the
conclusion that very little of the coding change reflected real case-
mix change. The trend in resources diverged dramatically from the trend
in the average case-mix weight, particularly through 2004 (see Table
7), without any commensurate link to evidence concerning home health
cost of care.
Comment: A commenter felt that CMS assumes that all legitimate
change in case-mix ended with the implementation of HH PPS because the
HH IPS created sufficient incentives to maximize all real case-mix
change. This rationale fails to consider that 20 percent of HHAs had
such high cost limits under HH IPS that these agencies were not
incentivized to create real case-mix change until after HH PPS
implementation. The commenter believed that a review by CMS of its data
during the HH IPS period would allow it to document the subset of HHAs
whose case-mix was not responsive to HH IPS.
Response: CMS has done analysis that accounts for real case-mix
change after HH PPS implementation, and only a small amount of real
case-mix change occurred. The analysis takes the commenter's idea into
account (see the end of this section for details). That is, the case-
mix model we used to predict real change in case-mix measures the
national level of real case-mix by CY 2005, using CY 2005 data on home
health patients' characteristics. We compared these results to the
national average from the HH IPS baseline year, and found that a small
increase in real case-mix had occurred.
The commenter suggested that some agencies were not incentivized to
make case-mix change until the implementation of the HH PPS. We believe
that it is more appropriate to implement a nationwide approach to the
issue of case-mix change adjustment. As noted previously, an individual
agency approach would be administratively burdensome and difficult to
implement. Policies to address the identity of agencies in light of
changes to organizational structures and configurations would need to
be developed. Furthermore, smaller agencies might have difficulty in
providing accurate measures of real case-mix change because of their
small caseloads.
Comment: A commenter noted that CMS asserts that OASIS items not
used for payment were more stable than those used to increase HH PPS
payment. The commenter stated that if these items reflect patient
severity, then these items should be included in the HH PPS payment
formula.
Response: Our process of selecting the case-mix items was explained
in the HH PPS Final Rule, implementing the HH PPS (65 FR 41193).
Essentially, not all items on the OASIS were equally important in
explaining case-mix, and not all items on the OASIS were equally
appropriate to use in a payment system. That does not mean such items
are irrelevant in understanding the health status of the home health
user population.
Comment: Several commenters wrote that by using the average case-
mix weight, CMS is equally cutting payment to both high and low average
case-mix agencies. This across-the-board cut would punish those who did
not inflate the case-mix equally with those whose case-mix was
inflated. A more equitable approach would be to reduce proportionally
the proposed cut for those agencies whose individual case-mix weight
was below the mean in the study period. Several commenters noted that
their average case-mix remained stable or declined since HH IPS.
Another commenter asked for a ``hold harmless'' provision for the non-
profit or other efficient HHAs where the case-mix index is less than 1.
Response: We believe that it is more appropriate to implement a
nationwide approach to the issue of case-mix change adjustment. An
individual agency approach would be administratively burdensome and
difficult to implement. Policies to address the identity of agencies in
light of changes to organizational structures and configurations would
need to be developed. Furthermore, smaller agencies might have
difficulty in providing accurate measures of real case-mix change
because of their small caseloads.
Comment: A commenter wrote that CMS's findings of coding ``creep''
among other provider types (long term care hospitals, inpatient
rehabilitation facilities, and acute care hospitals) discredit the
agency's conclusion that HHA case-mix change is due to nominal change
rather than real change. Another commenter wrote that CMS' case-mix
change findings were consistent with the prior experience of other
prospective payment systems.
Response: We agree with the comment that our case-mix change
findings are similar to those seen in other prospective payment
systems. Our conclusion that case-mix change is almost completely due
to nominal change is based upon multiple analyses of health
characteristics, of resource costs, and consideration of other factors
such as the effects of the Balanced Budget Act of 1997. Regardless of
similar findings of nominal change among other provider types, the HH
specific analyses utilized here show that a case-mix change adjustment
in HH PPS is appropriate.
Comment: Several commenters noted that the proposed case-mix change
adjustment will cripple home health agencies' ability to survive and
compete at a time when home health is the only hope for an affordable
national health approach. They noted that the nursing shortage and
rising fuel costs have driven up agency costs and made it difficult for
agencies to attract and retain staff. One commenter believed these
costs more than compensate for

[[Page 49838]]

any coding ``creep'' that may have occurred.
Response: We share the commenters' concerns about the nursing
shortage and rising fuel costs. However, case-mix change is based upon
actual patient characteristics and is not to be used to compensate for
cost differentials.
Comment: Several commenters noted that the shift to high therapy
episodes (with 10 or more visits) accounts for over 70 percent of the
change in case-mix from 1999 to 2003. This occurred because those
patients requiring more therapy visits are in more clinically and
functionally severe conditions than those who do not. The commenters
recommended that this effect be excluded from the case-mix change
adjustment calculation and that the remaining case-mix change
adjustment be eliminated entirely to recognize the additional costs to
HHAs for training staff and making operational modifications as a
result of the refinements that are not reimbursed.
Response: Our analysis of OASIS items in Table 10 of the proposed
rule indicated basic stability in the health characteristics of HHA
patients. Our subsequent analysis of case-mix change found a small
amount of real change, and therefore, we modified the case-mix change
adjustment accordingly.
Given that more therapy sources were provided, the implication of
our analysis of real change in case-mix is that more therapy was
provided to substantially the same patient mix that agencies served in
the HH IPS period. We consider the refinements to be evolutionary, not
a paradigm shift in our payment methodology. For example, we have added
only one new item from the OASIS, the item on injectable medication
use. In addition, we dropped M0175 from the case-mix algorithm, in part
due to the challenges faced by agencies in accurately ascertaining the
information needed for M0175. Furthermore, we dropped other items
because they are no longer useful in explaining resource use (see
discussion of changes to the case-mix model scoring table, Table 2A, in
section III.B.5). Thus, we believe the commenter overstated the impact
on agencies of having to adjust to the refinements. While these case-
mix refinements will entail staff training and operational
modifications, we believe the refinements as implemented will result in
a better alignment of costs to payments, which should benefit the
agencies.
Comment: One commenter suggested that the case-mix change was due
to clinicians determining the ICD-9 coding under the HH PPS, and
suggested that more education and training would help bring about
better coding. He noted there are differences in FI implementation,
interpretation, or follow-up related to ICD-9 coding.
Response: We recognize that there have been improvements in coding
practices, and we encourage home health agencies to follow ICD-9-CM
guidelines in coding patient diagnoses. Home health coding guidance is
available on CMS' Home Health Web Site at http://www.cms.hhs.gov/
center/hha.asp, under ``Billing/Payment'' and then under ``Home Health
Coding and Billing''. ICD-9-CM official coding guidance is available
from the Centers for Disease Control Web Site at: http://www.cdc.gov/
nchs/datawh/ftpserv/ftpicd9/ftpicd9.htm. CMS staff continues to meet
regularly with FI representatives to resolve coding issues as they
arise.
Comment: A commenter noted that CMS assumed relative stability of
resource utilization that should have been already matched by a
corresponding stability in the case-mix index. Thus, the commenter
believed there is an assumption by CMS that agencies had perfect
understanding and application of OASIS at the time HH PPS was
implemented.
Response: CMS did not assume agencies possessed perfect
understanding of OASIS or lesser understanding of OASIS. We based our
case-mix change adjustment on the evidence that patient health status
did not change substantially even though improved understanding of and
application of OASIS occurred.
Comment: A commenter wrote that the 2.75 percent case-mix change
adjustment rate is really higher because our calculation is based upon
the 2007 base rate after adjusting it for the market basket increase
and for outliers.
Response: The case-mix change adjustment was correctly applied in
the process of determining the budget neutral expenditure target in our
payment simulation for the refined HH PPS system. The statute provides
that any case-mix change adjustment be applied to the national
standardized 60-day episode payment amount, which includes the market
basket update and adjustment for outliers.
Comment: Several commenters suggested that we evaluate the impact
of the coding changes before implementing any case-mix change
adjustment or that we use claims data to test the impact of the coding
changes, and make this available.
Response: The case-mix change adjustment is designed to address the
case-mix change which has already occurred. Implementation of a case-
mix change adjustment does not depend on the effect of the HH PPS
refinements proposed. We believe that the refinements will better match
payments to costs and have already tested this using claims data.
Comment: Several commenters suggested that the case-mix change
adjustment resulted from the FIs failing to do their jobs. One
suggested that the appropriate way to resolve upcoding issues is
through medical review. If medical review occurred and upcoded episodes
were then adjusted, the case-mix change adjustment is essentially
``double-dipping'', taking back dollars a second time. Another
commenter writes that there is no medical review data supporting an
industry wide pattern of case-mix upcoding. One commenter suggested we
focus on audits and recovery of inappropriate payments rather than
implement a case-mix change adjustment. Another argued that therapy
services increases in the case-mix weight change has the character of a
retroactive claim denial without a claim review.
Response: Medical review affects such a small proportion of paid
claims that we do not believe taking it into account would materially
affect the estimate of nominal coding change, nor did we rely upon it
in performing our case-mix change adjustment analysis. When we
initially reviewed the National Claims History files to check for
adjustments to HHRGs from medical review, we found error in the field
containing the information. We decided not to use this field in
correcting the HHRGs on paid claims in our research files. However, we
did correct errors in OASIS item M0175 (concerning the patient's
preadmission stay history) in our analyses. The statute provides
authority to take into account and adjust for changes in case-mix
coding not due to changes in the underlying health status of home
health patients.
Comment: One commenter noted that the venipuncture patients who
were no longer eligible for Medicare home health care due to BBA
changes had a very low case-mix. Their loss from the Medicare home
health patient population would cause the overall average case-mix to
increase. This could account for some portion of the increase in case-
mix seen. Another commenter asked if venipuncture patients were
included in the baseline HH IPS sample.
Response: We accounted for the loss of venipuncture patients by
using the last year of HH IPS as our baseline. At such time agencies
would have complied with the changes in patient

[[Page 49839]]

eligibility requirements, and this would have been reflected in our
claims data.
Comment: Several commenters noted that the cost reports do not
reflect all agency costs, which included those for telehealth, that
have improved care and outcomes. If all agency costs were included, CMS
would see an increase in resource costs which corresponds to the
increase in the case-mix index. Another commenter wrote that resource
costs actually decreased early in HH PPS and then increased.
Response: The statute does not provide payment for Medicare home
health services provided via a telecommunications system. Section
1895(e)(1) of the Act provides that telehealth services do not
substitute for in-person home health services and are not considered a
home health visit for the purposes of eligibility or payment under the
Medicare home health benefit. As stated in 42 CFR 409.48(c), a visit is
an episode of personal contact with the beneficiary by staff of the
HHA, or others under arrangements with the HHA for the purposes of
providing a covered HH service. The provision clarifies that there is
nothing to preclude an HHA from adopting telemedicine or other
technologies that they believe promote efficiency, but those
technologies will not be specifically recognized or reimbursed by
Medicare under the home health benefit.
Our measure of resource costs for home health is based upon total
minutes of time reported on the claim for each discipline's visits.
Resource costs result from weighting each minute by the national
average labor market hourly rate for the individual discipline that
provided the minutes of care. Bureau of Labor Statistics data are used
to derive this hourly rate. The sum of the weighted minutes is the
total resource cost estimate for the claim. This method standardizes
the resource cost for all episodes in the analysis file. This method
assumes that the non-labor costs per episode are proportional to the
labor costs. Our payment rates with an annual market basket updates
since the initial HH PPS final rule (July 3, 2000) are designed to
reflect the agency's costs. Telehealth costs are not part of the home
health market basket and thus do not contribute to the annual updates.
Market basket updates are also intended to account for the changes in
wages.
Table 7 indicates the trajectory of resource costs, with and
without adjustment for wage growth. The data do indicate that resource
costs did decrease at the beginning of HH PPS. Adjusted resources
remained flat until approximately the last six quarters of the time
period. Moreover, resources rose steadily throughout most of the time
period, and these increases are compensated through market basket
updates.
Comment: Several commenters were concerned about the absence of
Abt's Technical Report, which made analysis of the proposed case-mix
change adjustment and case-mix refinements difficult.
Response: We understand the commenter's desire for Abt's Technical
Report, but note that due to unanticipated difficulties in completing a
useful draft, we were unable to issue that report. We intend to issue
the final report when it is completed and that the final draft to be
useful to the lay reader. We expect that the results will be based on
highly technical analyses that necessitate careful attention from the
lay public. We will provide a link to Abt's report on our Web Site once
the report is available.
Comment: Another commenter asserted that therapy utilization is the
most important patient characteristic in the case-mix model, but that
therapy utilization is discounted in the case-mix change adjustment
analysis. The commenter contended that if therapy utilization were
considered a patient characteristic, it would explain most of the
increase in the average case-mix index, and thus the case-mix change
adjustment could be reduced or eliminated. The commenter suggested that
CMS withdraw its proposed case-mix change adjustment for 2008, 2009,
and 2010. Furthermore, CMS should design and implement an evaluation
method to analyze changes in case-mix weight that utilizes proper
standards related to the home health relevant factors in the analysis
such as changes in per patient annual expenditures, patient clinical,
functional, and service utilization data, and dynamic factors in the
Medicare system that impact the nature of patients served with home
health care.
Response: We believe that the Abt Associates case-mix model was
developed to measure real changes in case-mix addresses this critique.
In response to the suggestion in the comments from the National
Association for Home Care and Hospice, we used patient expenditures on
Part A services in the 4 months leading to the home health episode,
rather than the total of annual expenditures suggested in the comment.
Studies in the field are not consistent in defining a time period for
measuring this variable, which is used to serve as a proxy for health
status. For example, a study by Mathematica Policy Research of the
effects of the home health prospective payment demonstration used 6
months of data on expenditures to control for general health status
[``The Impact of Home Health Prospective Payment on Medicare Service
Use and Reimbursement'', Mathematica Policy Research, Princeton, N.J.,
December 2000]. We chose to use 4 months' of data on Part A
expenditures in part because there is no consensus, and our available
analysis files captured this measure. We decided to avoid using OASIS
measures in the model (except for reported living situation) in favor
of measurements external to the home health providers, namely
irrefutable demographic measures, National Claims History Part A
utilization measures, and hospitalization-related patient
characteristics. As previously noted, we also adjusted for the change
in types of Medicare agencies that followed the start of HH PPS. We
believe that there is little useful analysis that can be garnered from
separately measuring dynamic factors in the Medicare system that impact
the nature of patients served in home health care. The model we use
measures the actual characteristics of patients that are in the agency
caseload, and is the best reflection of the case-mix in the HHA.
Comment: A commenter was concerned that because LUPA episodes
retain their original case-mix, they may be contributing to the
increase in the average case-mix index.
Response: LUPA episodes were not used in the measurement of case-
mix change in either our analysis or in the Abt Associates model of
real case-mix change.
Comment: A commenter wrote that if 1.233 actually represented
average Medicare case-mix in 2003, then the average payment, per 60-day
episode, would have been $2,856. The commenter asked that CMS disclose
their average 2003 payment amounts for all paid episodes, inclusive of
full term and those experiencing downcode adjustments.
Response: It is not clear how the commenter got the figure of
$2,856. The standardized national rate per 60-day episode for CY 2003
was $2,159.39. If the commenter multiplies this figure by the average
case-mix weight for 2003 of 1.233, the result is $2,663 before any wage
adjustment. The $2,663 also does not include any adjustments for LUPAs,
PEPs, or SCICs. The average case-mix weight, of 1.233 from the proposed
rule, for 2003 is calculated after taking downcoding adjustments but is
only calculated from initial episodes. Downcoding adjustments are taken
when the Request for Anticipated

[[Page 49840]]

Payment (RAP) reports a high-therapy case-mix group, but the final
claim does not. Using a 10 percent sample of 2003 paid claims data, the
average payment per initial episode is estimated to be $2,614. This
figure includes the effects of the wage adjustment, as well as the
downward effect of adjustments for SCICs, PEPs, and outliers.
Comment: A commenter suggested that CMS re-evaluate the coding of
M0488, surgical wounds, as the increased incidence of the early/partial
granulation response is not an example of up-coding only. Rather, it is
due to an increased understanding of how to appropriately code items
per OASIS guidelines.
Response: This is an example of nominal coding change due to
improved coding practices. As noted in the proposed rule, we recognized
the contribution of such sources of change in determining and assessing
the case-mix change adjustment.
Comment: A commenter disputed that the average case-mix weight of
Abt model was 1.0, and argued that the timeframe includes a period in
which real case-mix change occurred. Therefore, the commenter asserted
that the statute does not allow an adjustment.
Response: By construction, the average case-mix weight of the
original Abt model was equal to 1.0. This means that we used the case-
mix group assignments in the original Abt case-mix study's sample of
episodes, and divided each group's average resources by the overall
sample average. Using this approach, the average case-mix weight from
this procedure must then be 1.0. The sample was selected to be
representative of home health agencies nationally, but we were reliant
on volunteers for the study. According to statistical theory, it is
highly likely that another sample of volunteer agencies selected to be
nationally representative using the same selection procedure would have
produced similar estimates of resource cost. It is impossible to know
how different the 1998 to 2003 trajectory of the average case-mix
weight might be had other agencies' data been available. That is, one
reason why we selected a baseline other than the Abt Associates study
sample. Choosing the HH IPS baseline allowed us to use a consistent
sample of agencies and one that is nationally representative,
irrespective of whether any agencies would be prepared to volunteer for
a study.
Comment: A number of commenters felt that HH patient
characteristics were not stable. One commenter noted that the baseline
1999 to 2000 HH IPS population excluded costly long-term patients who
were embraced by HH PPS from 2000 to 2003. The commenter noted that the
problem with the proposed refinements is the case-mix adjuster's
inability to cope with therapy utilization by long term users, not the
absence of these patients from the system. The commenter cited an April
2000 GAO report which contends that it has been difficult to develop a
case-mix adjustment method that adequately described resource use,
particularly for long term users.
The commenter noted that by statutory directive, HH PPS was crafted
to ensure quality access to all eligible beneficiaries; by regulatory
design, case-mix adjustment was engineered to remove incentives for
providers to ostracize expensive patients. The commenter asserted that
CMS' conclusion that patient characteristics remained essentially
stable is in direct conflict with the goal of HH PPS to create a
payment system which would allow equitable treatment of HH IPS-excluded
patients and thus create a population that was fundamentally different
than that which existed in the HH IPS baseline year.
Response: First, we noted that after the BBA, venipuncture-only
patients, who were often the long-term users, were no longer eligible
for the home health benefit. The exclusion of these patients helped
stabilize the characteristics of the home health patient population.
Second, we are unclear as to the commenter's statement that the intent
of the HH PPS was to create a different population group. High-therapy
patients were not absent from the national caseload during the final
year of the HH IPS period. We note here again, as we did in the
proposed rule, that the utilization of therapy was climbing rapidly
during the last year of the HH IPS. Therapy utilization continued to
climb after HH PPS began. Even if we were to agree that the goal of the
HH PPS was to redress the possible exclusion of certain high-cost
patients during the HH IPS, we also note that our model predicting
change in the real case-mix accounts for a possible return of HH IPS-
excluded patients to the system.
Comment: A commenter believed that errors built into the original
case-mix adjuster are so large that it is impossible to reasonably
carve out an 8.7 percent case-mix change adjustment. The commenter
noted that service utilization accounted for 62.5 percent of the
estimated predictive power of the original model, the actual R-squared
factor for all episodes was 21.9, and several significant weighting
factors were known to be unreliable (M0230, M0460). Additionally, the
commenter noted that the OASIS instrument was a source of error because
it was designed to measure outcomes by asking nurses to assess the
ability of a patient to do a task, as compared to a performance-based
measure.
Response: As we have noted, we refined the case-mix model to better
address some of the concerns expressed by the commenter. In the
proposed rule, we summarized the case-mix model's ability to predict
resource use with the measure of model fit known as the R-squared
statistic. We explained that the original HH PPS regulation's model was
based on initial episodes only. We used initial episodes because of
sample size limitations of the original Abt study sample of 90
agencies. When we began refinement research using claims from the
National Claims History, we added later episodes to the analysis
samples. We found that the overall R-squared statistic of the original
HH PPS case-mix model after adding the later episodes to the HH PPS-
period analysis samples was 0.21. Our data analyses indicate that the
R-squared before adding later episodes to the sample is higher than
0.21; we reported in the proposed rule that the R-squared statistic on
initial episodes was reduced to 0.29 by 2003. The R-squared statistic
was originally 0.34 in the Abt study sample, as noted in the July 3,
2000 Final Rule (65 FR 41193). It should be understood that the later
episodes are a minority of episodes (29 percent). Therefore, the model
still adequately fits approximately 71 percent of all episodes.
Furthermore, we disagree with the suggestion that the OASIS
instrument was a source of large error. The case-mix measure is based
on OASIS items, and the scientific reliability of OASIS items has been
studied. OASIS items used in the case-mix model generally have good
reliability. Item M0460, Stage of most problematic pressure ulcer, and
item M0230/M0240, Diagnoses and severity index, have ``substantial''
reliability, according to a report prepared for CMS by the Center for
Health Services Research in Denver, Colorado (Volume 4, OASIS Chronicle
and Recommendations, OASIS and Outcome-based Quality Improvement in
Home Health Care, Feb. 2002). In this report, a rating system commonly
used in reliability research was used. A ``substantial'' reliability
rating was assigned if the weighted Kappa reliability statistic or
percent agreement was at least 0.61. For these two items, the
reliability values were at least 0.70.
In summary, the performance of the original case-mix model is
strong

[[Page 49841]]

enough to define a case-mix change adjustment. The measure of model fit
comparable to the original one from the Abt case-mix study has declined
somewhat, as might be expected over time. Yet the model fit has
remained adequate for a strong majority of episodes. The OASIS
assessment items have acceptable reliability. So we disagree with the
comment that errors built into the case-mix adjuster are too large to
be the basis for a case-mix change adjustment.
Comment: The proposed rule stated that HHAs had no incentive to
bring about nominal changes in case-mix pre-HH HH PPS. A commenter
disputed this, noting that HHAs could have affected the case-mix weight
in a manner not anticipated or not responded to by CMS.
Response: We based our proposal for adjusting payments for nominal
case-mix change on the observed average weight from a statistically
valid sample representing the last four quarters before HH PPS began.
We believe it is the appropriate baseline from which to start measuring
coding changes that Medicare did not intend to pay for under HH PPS. We
explained the other reasons for using this as the baseline in the
proposed rule (72 FR 25392-25393).
Comment: A commenter questioned the decision not to use the October
1997 through April 1998 study sample data as the baseline. CMS had
noted that the agencies in the sample were volunteers, and the
commenter noted that volunteer agencies represented less than 1 percent
of the agencies in existence. The commenter also noted that the
decrease in visits does not necessarily result in a decrease in
resource costs. He stated that if the reduction in visits was weighted
toward lower cost visits (such as home health aides), then that would
imply that a greater portion of the visits done in subsequent years
were higher cost visits (nursing, therapy, social worker). The average
cost per visit would then be higher in those subsequent years, and
therefore the total resource cost would be higher. The commenter gave
the elimination of venipuncture as a qualifying skill as an example.
Response: The commenter may have confused an agency which
volunteers to participate in a study with a voluntary, or non-profit,
agency. The agencies used in the study sample included a mix of
organizational types.
We accounted for the use of visits as a measure of resource costs
by weighting the visit minutes according to the labor costs of the
discipline involved. Thus, the resource cost measure summarizes the
effects of both a shift to higher-cost visits and a general reduction
in visits.
Comment: The proposed rule stated that CMS expected the growth in
the case-mix index to be accompanied by more consumption of services,
but that instead CMS measured slightly lower resource consumption. A
commenter noted that this conclusion does not consider that payments to
home health agencies during this period were not being fully adjusted
for inflation, and therefore the natural reaction of agencies would be
to improve efficiency and lower resource consumption when possible in
order to survive.
Response: Margin analysis by MedPAC, CMS, and the Government
Accountability Office has indicated that Medicare margins under HH PPS
have generally exceeded 10 percent. Therefore, we find the commenter's
conclusion that agencies responded to ensure survival counterintuitive,
because it would appear that in general, the payments made under HH PPS
covered their Medicare costs. We have not studied efficiency outcomes
among Medicare home health agencies, but economic theory would suggest
that entities become more efficient under bundled payment. We also note
that experts who study health services have suggested there may be an
incentive to stint on services under prospective payment.
To summarize our case-mix analysis, Abt Associates developed a
case-mix prediction model designed to measure real change in case-mix.
We used two data sets in applying this model. First, we estimated the
model on an HH IPS sample. The HH IPS sample consisted of 394,479 non-
LUPA episodes representative of total episodes during the last 12
months of HH IPS. The episodes were simulated from claims using the
same methodology that we used to define episodes and link them to OASIS
assessments for our case-mix change analysis noted in the proposed
rule. We used the model coefficient estimates to predict case-mix on a
HH PPS sample. The HH PPS sample consisted of 876,199 non-LUPA episodes
representative of total episodes during CY 2005. Both samples were
restricted to non-LUPA episodes with a matched OASIS assessment from
the national OASIS repository.
The purpose of this case-mix model is to predict the average case-
mix weight in the 2005 HH PPS year, based on a regression model
estimated from the HH IPS baseline year. Then, only the home health
population changes (as represented by the independent variables for the
HH PPS year) affect the average case-mix weight predicted from the
model. In effect, the model assumes that the population's real case-mix
would have evolved to the predicted levels if HH IPS had continued
beyond October 2000, or had HH PPS not been implemented. The
independent variables (noted below) used to make the predictions
purposely do not come from OASIS (with one exception, family situation
variables) so that the model is not based on potentially up-coded
variables from home health agency coding on OASIS. We use demographic
and non-home health Part A claims history variables as the predictors.
We also include agency type and organizational form variables which
help explain the level of case-mix. The predictive ability of the full
model, as indicated by the R-squared statistic, is 0.17.
With each successive stage of model development, new sets of
variables were added to measure the effect on the average prediction in
the sample representing the 2005 time period. The first phase of the
model is based on demographic variables, consisting of a large set of
age-by-race and age-by-sex groups. The predicted average case-mix
weight did not change appreciably when using these variables alone to
make predictions, although we noted that those beneficiaries in the 85-
and-older age group grew in prevalence and contributed positively to
the case-mix index. This effect was offset by changes in the prevalence
of other demographic groups, to produce only minor change in the
average case-mix weight during this model stage.
The second phase of the model added 12 variables representing
inpatient utilization for acute hospitals, long-term care hospitals,
IRF, and SNF, as identified in the National Claims History. Three
variables captured the presence of any hospital, SNF, or IRF stays in
the 14 days leading up to the beginning of the episode. A fourth
variable represented episodes where there was no acute, IRF, or SNF
stay in the 14 days before the home health episode. An additional 8
variables captured the number of inpatient days of stay by type of stay
during the 14 days leading up to the beginning of the episode, and,
before that, the number of inpatient days in the period 15 to 120 days
leading up to the beginning of the episode. The days of stay categories
were: Acute hospital, long-term care hospital, IRF, and SNF.
The results from adding these variables to the demographic
variables were an increase in the average prediction of 0.6 percent
beyond the average during the HH IPS baseline. The proportion of
episodes preceded by

[[Page 49842]]

hospital stays in the 14 days leading up to the episode declined
between HH IPS and HH PPS, 2005, from 38.5 percent to 33.4 percent.
Since this variable was associated in the model with a 0.09 unit
decline in case-mix weight, the lower prevalence of acute hospital use
was an important factor in the increase in the average prediction.
Another important contributor to these results was the growth in SNF
days, including growth during the 14 day pre-episode period and the 15-
to 120-day pre-episode period. These variables were associated with an
increase in case-mix weight. The average number of IRF days declined
during the 15- to 120-day pre-episode period, from 0.68 during HH IPS
to 0.52 during HH PPS 2005. (We again included recertification episodes
in the total episodes in this sample.) While the number of IRF days is
associated in the model with higher case-mix, the decline in total IRF
days between HH IPS and CY 2000 meant that this factor helped offset
the case-mix increasing effect of the hospital and SNF days variables
on the predictions.
The third phase of the model added family situation variables,
including whether the patient during the episode lived alone, with a
spouse, with other family members, with paid help or with others. The
results from adding these variables moved the predicted average higher
than the baseline by only 0.1 percent.
The fourth phase of the model added scores of variables
representing the hospital case-mix group assignment for the last acute
hospital stay for the patient in the National Claims History. We used
the All-Patient-DRGs (APR DRG) classification algorithm to assign the
case-mix group. We specified variables for all the APR DRG groups that
met our sample size standards (minimum of 25 cases). Typically, the
stays generating the APR DRG assignments occurred within six weeks, and
overall three-quarters of the stays occurred within the previous 8.6
months. The purpose of using these variables was to incorporate more
information about the patient's condition, especially some measure of
case severity into the model. The APR DRG algorithm uses comorbidity
data on the hospital claim to generate severity levels for each case-
mix group. As an example, the model included four differing severity
levels for knee replacement stays, which are included in APR DRG group
302. A general indicator that the stay was procedure-related was also
included. This indicator had a large effect in the model, suggesting an
increase in the HH case-mix weight of about 0.34 if the last acute stay
was for a procedure. At the same time, the proportion of episodes
associated with an acute procedure increased from HH IPS to HH PPS 2005
by only one percent, from 19 percent to 20 percent. This meant that the
procedure effect would not be strong in moving the average prediction
between the HH IPS sample and the HH PPS sample.
The net effect on the predictions from the model at this stage was
to increase the level of the case-mix average relative to the HH IPS
baseline, but the effect was very small. It is notable that the
predictive power of the model increased by more than three percentage
points. In addition, the model indicated various effects as expected,
including substantially higher HH PPS case-mix weight associated with
conditions such as intracranial hemorrhage; cerebrovascular accidents;
other disorders of the nervous system; respiratory system diagnosis
with ventilator support; respiratory infections and inflammations;
pneumothorax and pleural effusion; respiratory system signs, symptoms,
and other diagnoses; major esophageal disorders; hip fractures;
electrolyte disorders except hypovolemia related; septicemia;
pneumonia; and complications of treatment. The model did not indicate
higher case-mix weights associated with many other hospital case-mix
groups, such as hip and knee replacements, major and nonmajor
respiratory procedures, cardiac defibrillator implant, cardiac valve
procedures with cardiac catheterization, and coronary artery bypass
graft. It should be noted again that these effects are estimated after
controlling for whether the stay was procedure-related. Thus, the
negative coefficient for knee replacements indicates that the effect of
having had a knee replacement before home health reduces the size of
the general positive effect from having had a procedure. One of the
strongest impacts on the predictions came from the APR DRG for
nonspecific cerebrovascular accident and precerebral occlusion without
infarction; in the HH IPS sample, about 1.2 percent of the episodes
were preceded by a stay of this type, but in the HH PPS 2005 sample the
episode percentage was down to about 0.4 percent. The loss of this type
of case was one of the important contributors that offset the case-mix
increasing effects of some of the other changes.
The fifth phase of the model adjusted for the change in the types
of home health agencies between HH IPS and CY 2005. This adjustment is
analogous to the adjustment we made in the proposed rule estimate of
the HH IPS baseline average case-mix weight. The adjustment in the
proposed rule standardized the HH IPS baseline for the decline in
episodes delivered by hospital-based agencies. At this stage, given the
contribution of all variables added to this point, the increase in the
predicted average case-mix weight compared to the HH IPS baseline was
0.7 percent.
Finally, we added expenditure variables for Part A utilization in
the 120 days leading up to the home health episode. These variables,
which were adjusted for price increases, subdivided the expenditures by
type of stay. The expenditures related to long-term care hospital
stays, SNF stays, and inpatient rehabilitation stays were associated
with higher case-mix weights. Because the model controlled for stay
events and days of stay, we believe these variables may proxy the
intensity of care during the inpatient periods. The model estimates
using all variables included by this final stage increased the average
case-mix weight compared to the HH IPS baseline by 0.95 percent.
The unadjusted total measure of case-mix change was calculated by
taking the difference between the 2005 actual average case-mix and the
HH IPS actual average case-mix (our baseline). This unadjusted measure
(12.78 percent) included both real and nominal change.
We used our full 6-phase model to derive the proportion of case-mix
change which was real; the full model result yielded a predicted
average case-mix for 2005. When we took the difference between this
model result and the HH IPS actual average case-mix (our baseline), the
result was the real case-mix change.
The resulting real case-mix change was then divided by the total
measure of case-mix change (real plus nominal) to determine the
proportion by which the total measure of case-mix change would need to
be reduced in order to account for real case-mix change. That
proportion was 8.03 percent. Therefore, we reduced the 12.78 percent
measure of total case-mix change by 8.03 percent (real case-mix change)
to derive the nominal case-mix change adjustment of 11.75 percent
(0.1278 * (1 - 0.0803) = 0.1175). This 11.75 percent change in case-mix
is 1.03 percentage points lower than the unadjusted total change in
case-mix, which is 12.78 percent.
While the total measure of case-mix increase is 11.75 percent, it
could be misinterpreted that the total of the adjustments to be made in
each of the next four years equals 10.96 percent (2.75 + 2.75 + 2.75 +
2.71 = 10.96), if the adjustment were taken in one year.

[[Page 49843]]

This would be an incorrect method of solving for the total adjustment
if taken in one year. If we accounted for the full 11.75 percent
increase in case-mix in a single year, that percentage reduction to the
rates would be 10.51 percent (1/(1 + .1175) = 0.894855; 1 - 0.894855 =
.1051). Over the 4-year period, we are taking the same 10.51 percent
adjustment ((1 - 0.0275) * (1 - 0.0275) * (1 - 0.0275)*(1 - 0.0271) =
0.894823; 1 - 0.894823 = 0.105177 = 10.52 percent; a difference of 0.01
percent from the single-year total adjustment of 10.51 percent is due
to rounding). Note that the percentage reduction is less than the
percentage increase; because the new baseline is higher, in percentage
terms the reduction necessary to get back to the original baseline will
be less than the percentage increase. In determining the yearly
percentage reductions, we first opted to keep the 2.75 percent per year
reduction which we had proposed. Accounting for the compounding effect
of a 2.75 percent reduction in each of the first 3 years, the 4th year
reduction necessary to bring about a total reduction of 10.51 percent
is 2.71 percent. Note that the sum of the 4-year nominal reduction of
10.95 percent is only an approximation of the 10.51 percent since it
does not account for the compounding effect of the annual reductions.
For this final rule with comment period, we are finalizing the proposed
2.75 percent reduction of the national standardized 60-day episode
payment rate for 3 years beginning in 2008 and extending that
adjustment period to a fourth year via a 2.71 percent reduction for
2011, in order to fully address the 11.75 percent change in case-mix
unrelated to real case-mix change. We are seeking comment on the 2.71
percent case-mix change adjustment for 2011. We will continue to
monitor and measure the nominal change in case-mix. As we discussed in
the proposed rule, if updates of the national claims data indicate that
the nominal change in case-mix between the HH IPS baseline and the
latest available national claims data show a change, we will revise the
percentage reduction in future year's update of the annual reduction
factor. Similar to how it was described in the proposed rule, the
revision would be determined by the ratio of the updated 4-year annual
reduction factor to the previous year's annual reduction factor. For
the CY 2011 rule, which governs the fourth and final year of the case-
mix change adjustment transition period, we would obtain the CY 2008
national average CMI to compute the updated value for the nominal case-
mix change adjustment. Again, we would form the ratio of the updated
adjustment factor to the previous year's effective adjustment factor.
Depending on the growth of the nominal change in case-mix, measured in
any given subsequent year, in future rulemaking, CMS may adjust the
percentage reduction in the second and/or third year, elect to adjust
the percentage reduction in only the fourth year, or adjust the
percentage reduction in any combination of years. The annual updating
procedure avoids a large reduction for the final year of the phase-in,
in the event that the CY 2008 national average CMI reflects continued
growth in the nominal change in case-mix since CY 2005. The calculation
of the adjusted national prospective 60-day episode payment rate for
case-mix and area wage levels is set forth in 42 CFR 484.220. We are
revising 42 CFR 484.220 to address the annual percentage reductions due
to changes in case-mix that are not a real change in case-mix. For this
final rule with comment period, we are specifically soliciting comment
on the 2.71 percent adjustment to the HH PPS 60-day episode payment
rate in the fourth year to account for the change in case-mix that is
not considered real, i.e., that is not related to an underlying change
in patient health status.
The final versions of tables 6, 7, and 8, which are discussed in
this section on case-mix change adjustment, are shown below.

Table 6.--Average Number of Home Health Visits per Episode
------------------------------------------------------------------------
Total home
health visits
Year (excluding
LUPAs)
------------------------------------------------------------------------
1997.................................................... 36.04
1998.................................................... 31.56
HH IPS.................................................. 26.88
2001.................................................... 21.67
2002.................................................... 21.49
2003.................................................... 21.01
2004.................................................... 20.66
2005.................................................... 20.53
------------------------------------------------------------------------
Note: Excludes LUPAs, RAPs, episodes with data problems and no matched
OASIS. The HH IPS data is from the 100 percent file for FY 2000.

Table 7.--Average Resource Cost and CMI
----------------------------------------------------------------------------------------------------------------
Resources CMI
----------------------------------------------------
Period Average Standardized
resource to CY 2000 Admissions All
cost labor rates
----------------------------------------------------------------------------------------------------------------
HH IPS
----------------------------------------------------------------------------------------------------------------
1999Q4..................................................... $451.11 $451.39 1.1165 1.0796
2000Q1..................................................... 468.27 468.27 1.1040 1.0822
2000Q2..................................................... 475.34 475.34 1.1277 1.1026
2000Q3..................................................... 471.64 471.64 1.1448 1.1186
----------------------------------------------------------------------------------------------------------------
HH PPS
----------------------------------------------------------------------------------------------------------------
2000Q4..................................................... N/A N/A N/A N/A
2001Q1..................................................... $432.14 $419.60 1.1855 1.1651
2001Q2..................................................... 440.98 428.18 1.1930 1.1801
2001Q3..................................................... 445.96 433.02 1.1980 1.1756
2001Q4..................................................... 446.80 433.84 1.2025 1.1853
2002Q1..................................................... 453.76 426.42 1.2086 1.1843
2002Q2..................................................... 454.65 427.25 1.2027 1.1874
2002Q3..................................................... 457.49 429.92 1.2127 1.1871
2002Q4..................................................... 460.96 433.17 1.2243 1.1996
2003Q1..................................................... 454.77 422.58 1.2182 1.1931
2003Q2..................................................... 461.18 428.53 1.2326 1.2060

[[Page 49844]]

2003Q3..................................................... 460.15 427.58 1.2333 1.2044
2003Q4..................................................... 464.71 431.81 1.2497 1.2178
2004Q1..................................................... 462.26 427.31 1.2434 1.2117
2004Q2..................................................... 473.42 437.63 1.2572 1.2239
2004Q3..................................................... 476.77 440.72 1.2634 1.2252
2004Q4..................................................... 479.90 443.61 1.2709 1.2314
2005Q1..................................................... 487.19 417.40 1.2680 1.2298
2005Q2..................................................... 509.91 436.87 1.2697 1.2341
2005Q3..................................................... 518.92 444.58 1.2810 1.2358
2005Q4..................................................... 522.22 447.41 1.2882 1.2443
----------------------------------------------------------------------------------------------------------------
Note: HH IPS data based on 100% National Claims History File. The averages reported in the proposed rule may
differ slightly from averages reported here because of slight changes in methodology and further data
cleaning.

Table 8.--Percent Share of Home Health Episodes and Mean Time Prior to Entering a Home Health Episode, for Five
Conditions, FY 2000-CY 2006
----------------------------------------------------------------------------------------------------------------
CY 2006
Condition FY 2000 CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 \*\
----------------------------------------------------------------------------------------------------------------
Hip fracture:
percent share.................. 0.82 0.83 0.75 0.72 0.70 0.62 0.59
days prior to entering......... 7.19 7.12 7.18 7.21 7.30 7.09 7.12
Congestive heart failure:
percent share.................. 3.31 3.05 2.95 2.87 2.71 2.43 2.62
days prior to entering......... 3.38 3.28 3.35 3.33 3.36 3.40 3.37
Cerebrovascular accident:
percent share.................. 1.52 1.45 1.40 1.29 1.14 1.03 0.97
days prior to entering......... 4.32 4.23 4.21 4.29 4.20 4.33 4.31
Hip replacement:
percent share.................. 1.47 1.64 1.63 1.59 1.64 1.45 1.36
days prior to entering......... 6.45 6.32 6.26 6.28 5.91 5.58 5.40
Knee replacement:
percent share.................. 1.89 2.20 2.30 2.43 2.58 2.70 2.75
days prior to entering......... 5.40 5.30 5.41 5.18 4.92 4.60 4.15
----------------------------------------------------------------------------------------------------------------
Note: Time prior to entering is number of days between hospital discharge and beginning of home health episode,
for discharges occurring within 14 days of the start of the home health episode.
For beneficiaries with more than 1 hospital discharge in the 14 day period leading up to the home health
episode, time prior to entering is from the last hospital discharge immediately preceding the home health
episode.
\*\ CY 2006 data for first quarter of the year only.

7. Case-Mix Groups
Comment: Two commenters were concerned that the proposed case-mix
model results in loss of all identifiable meaning from a case-mix group
or HHRG. The commenters asked for a mechanism to produce a unique HHRG,
Health Insurance Prospective Payment System (HIHH PPS) code, or other
designation for each of the 153 case-mix groups and five NRS severity
levels. They believed providers need a unique identifier for each case-
mix group to facilitate communication, analysis, and financial
comparison.
Response: While it is true that the HHRG code represents the
severity levels in the clinical, functional and service domains, it no
longer represents a one-to-one match with a case-mix weight under the
proposed refined payment case-mix system. However, a code with this
one-to-one relationship to a payment weight will exist in the form of
the HIHH PPS code produced by the Grouper software. We plan that the
first position of the five position HIHH PPS code will represent the
payment grouping step that applies to the episode. The second, third
and fourth positions will represent the clinical, functional and
service domains arrived at under the payment equation that applies for
that grouping step. The fifth position will represent the NRS severity
level. The final code structure for these HIHH PPS codes and the
complete list of codes will be published in Medicare instructions and
on our Web site, shortly after the issuance of this final rule.
Comment: Several commenters remarked that the increase from 80 to
153 HHRGs was complex and would create an administrative burden.
Additionally, it will require extensive training of staff. They asked
that the implementation be postponed or be phased-in.
Response: As we noted previously, we have tried to strike a balance
between simplicity and complexity. The refined system is more complex
than the old system but this is a natural outgrowth of our attempt to
pay more accurately for the range and intensity of home health services
that can be provided to our beneficiaries.
A refined system may seem overly complex just because it is new.
However, we believe the proposed refinements are clearly focused, and
logically stem from the original case-mix payment system. We agree that
any refined system will take time and training to learn. As explained
in the response to a comment in section III.A.3, we have taken several
measures to make the proposed refinements easier

[[Page 49845]]

to understand, and we trust that these measures will assist HHAs in
implementing this refined system.
8. OASIS Reporting and Coding Practices
Comment: Several commenters expressed concern that some pressure
ulcers are not stageable due to eschar. They noted that proper care
includes debridement, which is costly due to supplies and clinician
time. Once debridement occurs, the ulcer would be stageable, but the
HHA would have no way to note the change in condition since the SCIC
adjustment has been eliminated. The commenters recommended allowing
staging of these ulcers in accordance with National Pressure Ulcer
Advisory Panel guidelines.
Response: We are aware of recent revisions issued by the National
Pressure Ulcer Advisory Panel (NPUAP). The NPUAP guidance is
essentially permitting the assessment of a wound for staging when the
wound bed is not completely covered with eschar or slough. If the bed
of the ulcer is completely covered with eschar/slough, NPUAP guidance
stipulates that the wound cannot be staged until some of the necrotic
tissue is removed. After reviewing the NPUAP guidance we have revised
the instructions accompanying the OASIS item to allow a wound to be
staged if the bed of the wound is partially covered by necrotic tissue
and if the presence of eschar does not obscure the depth of the tissue
loss.
Comment: We received a number of comments supporting our decision
to allow additional case-mix diagnoses for certain conditions and for
allowing points for some comorbidities. One supported the scoring of
secondary diagnoses to account for the cost-increasing effects of
comorbidities. A few commenters suggested more rows for entering
diagnoses in M0240 (``other'' diagnoses). They note that to follow ICD-
9-CM coding guidance based on severity ranking, there will be many
instances where the case-mix diagnoses that impact the plan of care and
resource utilization will not be captured for patients with multiple
co-morbidities, leading to underpayment for the sickest patients if
coding rules are followed. It would also address OASIS diagnosis spaces
fields in preparation for ICD-10, which will significantly increase the
number of required diagnosis codes.
Response: We appreciate the comments supporting our decision to
allow additional case-mix diagnoses and for allowing points for
comorbidities/secondary diagnoses.
As we noted in the proposed rule (72 FR 25361, and 25362), scores
were assigned to certain secondary diagnoses and used to account for
the cost-increasing effects of comorbidities. However, with most
diagnosis groups, we did not make a distinction in the final case-mix
model between primary placement and secondary placement of a condition
in the reported list of diagnoses. We made case-by-case decisions on
this question based on differences in the impact on resource cost
between the primary diagnosis and secondary diagnosis. If differences
were small, we combined cases reporting the conditions, regardless of
whether the listed position of the diagnosis was primary or secondary.
We believe this is an important protection against unintended and
undesirable incentive effects that could arise if agencies perceive
opportunities to change the placement of the diagnosis due to non-
clinical reasons.
Concerning the comment suggesting we add more lines for entering
diagnoses in M0240, we disagree that more lines are needed for M0240.
However, as noted in the proposed rule, we did make changes to the
OASIS to enable agencies to report secondary case-mix diagnosis codes
(see 72 FR 25362). Specifically, the addition of secondary diagnoses to
the proposed case-mix system (see Table 2A of the proposed rule, case-
mix adjustment variables and scores) requires that the OASIS allow for
reporting of instances in which a V-code is coded in place of a case-
mix diagnosis other than the primary diagnosis. A case-mix diagnosis is
a diagnosis that determines the HH PPS case-mix group. Currently, the
OASIS allows for reporting of instances of displacement involving
primary diagnosis only for M0245. Consequently, because of the nature
and significance of the changes needed, as noted in the proposed rule,
we deleted the OASIS item M0245 and replaced it with a new OASIS item
M0246.
We disagree with the comments suggesting that if ICD-9-CM coding
guidance is based on severity ranking in the OASIS, there will be many
instances where the case-mix diagnoses that impact the plan of care and
resource utilization will not be captured for patients with multiple
co-morbidities, leading to underpayment for the sickest patients. It is
significant to note that the logic for determining both the primary and
secondary diagnoses remains unchanged (see the OASIS Implementation
Manual, Definition Section of M0230/240 as well as Attachment D to
Chapter 8). The primary diagnosis is determined based on the condition
most related to the current plan of care. This diagnosis may or may not
be related to a patient's recent hospital stay but must relate to the
services rendered by the HHA.
Comment: A commenter asked that we adopt ICD-10 guidelines, and
study the impact of coding changes on HH PPS.
Response: We agree that it is important to have an accurate and
precise coding system. The Department will continue to study whether or
not to propose ICD-10-CM and ICD-10-PCS as the new HIPAA standard to
replace ICD-9-CM.
Comment: A commenter suggests that M0826 be asked only if the
patient is expected to be a higher need case.
Response: We disagree. Home health providers are expected to assess
and document each patient's need for therapy. M0826 is required to be
coded by providers regardless of the patient's expected case-mix
assignment. The coding of M0826 should be in compliance with Medicare
home health CoPs 42 CFR 484.55, 42 CFR 484.18, and 42 CFR 484.32.
Provider instructions for coding M0826 are provided in Chapter 8 of
the OASIS Implementation Manual. Those instructions allow providers to
answer ``000'' if no therapy services are needed, or answer with the
total number of therapy visits indicated or planned for the Medicare
payment episode for which this assessment will determine the case-mix
group. Providers may also answer ``not applicable'' when this
assessment will not be used to determine a Medicare case-mix group.
Comment: A commenter asked that we expand the wound section of the
OASIS to include all wounds, especially diabetic ulcers and arterial
ulcers.
Response: The diagnosis codes for diabetic and arterial ulcers were
in the proposed rule for both the case-mix diagnosis and non-routine
supply diagnosis tables. As a result of further research, we are also
adding two additional arterial ulcer codes to final tables 2B and 10B
(see ICD-9-CM codes 447.2 and 447.8).
However, such review and expansion of OASIS is beyond the scope of
this rule. OASIS will continue to capture diabetic and arterial ulcers
in both the diagnosis section and the basic wound-related section
(M0440). OASIS item M0440 measures the presence of a skin lesion or
open wound.
OASIS items are only part of a comprehensive assessment and include
only those items that have proven useful for outcome measurement and
risk factor adjustment. Therefore only the types of wounds that are
relevant to

[[Page 49846]]

these OASIS purposes or outcome measurement or risk factor adjustment
have been included in OASIS, though other types of wounds such as
diabetic and arterial ulcers are extremely important to assess and
document in the patient's clinical record.
Comment: A commenter wrote that changes to the OASIS items M0230/
240/246 are complex, and the instructions need to be clearer for column
4. The commenter suggested that the instructions read, ``Complete ONLY
IF the V-code in Column 2 is reported in place of a case-mix diagnosis
that is a multiple coding situation.''
Response: The commenter has literally repeated the precise
instructions we have issued in Column 4 of the OASIS, M0230/240/246 as
a suggestion for clearer instructions. It is significant to note that
Column 4 does stipulate the following: ``Complete ONLY if the V-code in
Column 2 is reported in place of a case-mix diagnosis that is a
multiple coding situation.''
In reference to assigning V-codes on the OASIS, a case-mix
diagnosis is a diagnosis that gives a patient a score for Medicare Home
health HH PPS case-mix group assignment. A case-mix diagnosis may be
the primary diagnosis, ``other'' diagnosis, or a manifestation
associated with a primary or other diagnosis. Diagnoses listed under
columns 3 and 4 of OASIS, M0230/240/246 should be documented on the
patient's Plan of Care in compliance with 42 CFR 484.18(a). V-code
reporting on the OASIS became effective in October 2003 in compliance
with HIPAA. Providers assigning V-codes on the OASIS are expected to
comply with all of the following long-standing home health diagnosis
coding requirements, which can be found in the document entitled
``Medicare Home Health Diagnosis Coding'' on the CMS Home Health Web
site at: http://www.cms.hhs.gov/HomeHealthPPS/03_coding&billing.asp.
Comment: Another commenter suggested that we revise the
instructions for M0080 and M0090 to recognize the new complexities of
completing M0230/240/246 correctly.
Response: Chapter 8 of the OASIS Implementation Manual will be
updated to accommodate changes to the OASIS items.

C. Payment Adjustments

1. The Partial Episode Payment (PEP) Adjustment
Currently, HH PPS provides for an adjusted proportional payment for
60-day episodes interrupted by a beneficiary elected transfer or a
discharge and return to the same HHA within the 60-day period. The PEP
adjusted episode is paid based on the span of days including start of
care date or first billable service date and including the last
billable service date under the original plan of care before the
intervening event. As noted in the proposed rule, descriptive analysis
was conducted to better understand the patient characteristics
associated with PEP-adjusted episodes and the circumstances under which
PEP-adjusted episodes occurred. Analysis of patient characteristics
revealed no appreciable differences between patients in normal episodes
(that is, no HH PPS payment adjustments, such as LUPA, PEPs, or SCICs)
and patients in PEP episodes with regard to conditions or clinical
characteristics. The mix of visits in PEP episodes was found to be
similar to that of normal episodes.
The descriptive analyses conducted by Abt Associates also looked at
the different components that make up PEP episodes. The analysis showed
that PEP episodes have significantly shorter service periods on average
than all episodes other than LUPA and SCIC episodes. The number of
visits in a PEP episode, on average, represented 75 percent of the
average number of visits for normal episodes. We have used the span of
billable visits in the PEP payment adjustment because of the HHA's
involvement in decisions influencing the intervening events for a
beneficiary who elected to transfer or discharge and returned to the
same HHA during the same 60-day episode period. Agencies have some
flexibility in discharge decisions that affect the likelihood of
incurring a partial episode, whether or not a hospital stay intervenes.
They also have indirect influence on a beneficiary's decision to
transfer to another home care provider through the quality of care they
provide. Data suggested that PEP episodes are rare and, therefore, the
current PEP policy may be serving as a deterrent to premature
discharge. Consequently, we did not propose to change the PEP policy.
Comment: Several commenters raised concerns about a specific
situation that can arise under the existing PEP policy. In the specific
situation mentioned, the second provider in the PEP can admit a
beneficiary whose plan of care goals were already met by the first
provider. The commenter suggests that the FIs) review those admissions
to determine if the care provided by second agency was medically
necessary. A PEP can occur because of transfer to another agency.
Response: We will share this concern with our fiscal intermediaries
and suggest that they direct medical review activities for PEP episodes
as appropriate.
Comment: A commenter noted that when a PEP occurs due to a transfer
to another agency, the first agency is often surprised. The commenter
asks CMS to automatically check for proper protocol by the second
agency to ensure that the first agency is not caught off guard.
Response: We appreciate this comment. Our analysis of a 20-percent
sample of 2003 episodes showed that approximately 3 percent of all
episodes were PEP adjusted. Of those PEP episodes, approximately 55
percent of PEP-adjusted episodes involved a discharge and return to the
same HHA, about 42 percent involved a transfer to another agency, and
approximately 3 percent involved a move to managed care.
Chapter 10 (Section 10.1.13) of the Medicare claims processing
manual does provide a process for the initial HHA and the receiving
(new) HHA to follow in when a transfer to another HHA results in a PEP
situation. In order for a receiving (new) HHA to accept a beneficiary
elected transfer, the receiving HHA must document that the beneficiary
has been informed that the initial HHA will no longer receive Medicare
payment on behalf of the patient and will no longer provide Medicare
covered services to the patient after the date of the patient's elected
transfer in accordance with current patient rights requirements at 42
CFR 484.10(e). The receiving HHA must also document in its records that
it accessed the RHHI inquiry system to determine whether or not the
patient was under an established home health plan of care and contacted
the initial HHA on the effective date of transfer. In such cases, the
previously open episode will be automatically closed in the Medicare
claims processing systems as of the date services began at the HHA the
beneficiary transferred to, as reported in the RAP; and the new episode
for the ``transfer to'' agency will begin on that same date.
Comment: Several commenters noted that PEP episodes are underpaid.
Two commenters said that agencies are especially concerned with PEP
situations where patients are discharged when the plan of care goals
are met but return to the same agency within the 60-day period, often
for a condition that was not related to the first plan of care. In
those cases, agencies can receive a significant reduction in payment
for the first episode despite provision of all visits authorized under
a plan of care.

[[Page 49847]]

Similarly, two commenters recommended that CMS not apply PEP to cases
where the patient is discharged with the plan of care goals met yet
returns to the same HHA with a new medical issue. The commenters
believed maintenance of the PEP policy in its current form also raises
questions regarding how ``early'' and ``later'' episodes will be
defined in the proposed payment system.
Response: As discussed in the proposed rule, the PEP adjustment
provides a simplified approach to the episode definition and accounts
for key intervening events in a patient's care defined as a beneficiary
elected transfer, or a discharge and return to the same HHA that
warrants a new start of care for payment purposes, OASIS, and physician
certification of the new plan of care (72 FR 25422, 25423). The
discharge and return to the same HHA during the 60-day episode period
is only recognized when a beneficiary reached the treatment goals in
the original plan of care. The original plan of care must be terminated
with no anticipated need for additional home health services for the
balance of the 60-day period. This policy ensures that we do not
provide full payment for two episodes at any time during a given
certified 60-day episode. Results from our refinement research provided
evidence that there is some front-loading of visits compared to normal
episodes, causing PEP episodes to have a faster average rate of visits
during the span of days used to prorate the episode payment.
Early episodes are defined to include not only the initial episode
in a sequence of adjacent episodes, but also the next adjacent episode,
if any, that followed the initial episode as the first two episodes in
a sequence of adjacent episodes. Later episodes are defined as all
adjacent episodes beyond the second episode. Episodes are considered to
be ``adjacent'' if they are separated by no more than a 60-day period
between episodes. This holds true regardless of the type of episode.
The end of a PEP episode is denoted as the last billable visit date.
The gap in days between an episode with a PEP adjustment and the next
episode would be calculated using the last billable visit of the PEP
and the from-date of the subsequent episode.
Comment: A commenter asked that PEPs be considered from the
beginning of the episode rather than the first visit due to care
coordination activities. The commenter asserted that agencies should
receive at least the LUPA rate if the episodic payment under PEP would
be lower than the LUPA. Moreover, the commenter noted that since the
inception of HH PPS, the PEP has been implemented in such a way that an
initial home health agency does not receive appropriate recognition
from the beginning of the episode, recognizing that currently the PEP
begins at the first visit rather than the beginning of the episode.
Response: We do not believe that it is appropriate to generate
another episode type based upon a per-visit basis. At the inception of
the HH PPS, we decided that paying for LUPA episodes on a per-visit
basis was appropriate due to the extremely low number of visits
provided in such an episode. One of the goals of a PPS for home heath
was to move away from a system that pays on a per-visit basis.
Comment: A commenter suggested that CMS eliminate the PEP due to
its adverse clinical, administrative, and financial impact. The
commenter stated PEP adjustments require significant resource
utilization for agencies with minimal reimbursement as HHAs front-load
costs. Additionally, the commenter further noted while HHAs have
developed strategies to minimize hospitalizations and SNF admissions,
the HHAs often cannot affect the patient's level of acuity or social
situation, which can result in a PEP episode.
Response: We disagree with the commenter. We believe the PEP
adjustment is provided in a manner that maintains the opportunity for
Medicare patients to choose the provider with which they feel most
comfortable while ensuring that the Medicare Trust Funds are protected
by a policy that ensures adequate payment levels that reflect the care
provided by each HHA to a beneficiary in a transfer situation.
Comment: A commenter was disappointed that CMS did not make changes
in the PEP adjustment to more accurately allocate costs, believing that
the current methodology often underpays in the case of PEP transfers.
Specifically, the commenter felt it is particularly troubling when the
PEP occurs without the first agency's knowledge as often the patient
has had an intervening hospital stay and is advised by the hospital
that it is preferable or required that the patient use a hospital-based
HHA upon discharge, thus generating the PEP. There are cases where the
patient or family is confused and seeks care from a second agency,
believing that using two HHAs is allowable and is better than having
just one. The commenter again noted that these visits tend to be front-
loaded, and prorating from first to last billable visit systematically
underpays the initiating agency and penalizes agencies who follow QIO
advice on front-loading visits to avoid re-hospitalization. The
commenter suggested that CMS prorate the initial PEP episode based on
the ratio of days between the first billable visit and discharge to the
subsequent agency.
Response: As stated in the proposed rule, we believe that HHAs have
some flexibility in discharge decisions that affect the likelihood of
incurring a partial episode (72 FR 25423), whether or not a hospital
stay intervenes (72 FR 25423). HHAs also have indirect influence on a
beneficiary's decision to transfer to another HHA through the quality
of care they provide. Additionally, current data suggest that PEP
episodes are rare, and therefore, the current PEP policy may be serving
as a deterrent to premature discharge. We believe that the PEP
adjustment is provided in a manner that maintains the opportunity for
Medicare patients to choose the provider with which they feel most
comfortable. We also note that, as we did in the proposed rule, in many
cases an HHA received payment for an additional full episode which it
might not have received had the first episode not been subject to a PEP
adjustment (72 FR 25423). We do recognize that PEP episodes provide, on
average, 75 percent of the average number of visits for normal
episodes, which parallels the QIO's advice to HHAs to provide more
visits early in an episode of care to prevent re-hospitalizations.
Comment: A commenter asked that we reopen the episode if a patient
returns to the HHA within 60 days, and only pay for the time services
were given.
Response: HHAs have some flexibility in discharge decisions that
affect the likelihood of incurring a partial episode, whether or not a
hospital stay intervenes. They also have indirect influence on a
beneficiary's decision to transfer to another home care provider
through the quality of care they provide. Whether or not a given
episode remains open is subject to whether or not the goals of the plan
of care have been met and a particular HHAs's discharge policy. We
believe that it would be inappropriate for CMS to dictate whether or
not or when an HHA should discharge a patient, as we believe those
sorts of decisions are best left up to the HHA. Consequently we do not
believe that a policy to reopen an episode if the patient returns to
the HHA within the 60 days would be an appropriate policy. In addition,
we believe that prorating an episode, as the commenter suggests, would
unnecessarily further complicate the PEP payment policy.
In summary, there are several methods that could be used to refine
the

[[Page 49848]]

PEP adjustment methodology, as recommended by commenters. Another
possible approach could involve weighting the payment to reflect the
front-loading of visits, but it is not clear at this time what an
appropriate approach to refinement of the PEP policy would be. We
intend to study the comments provided, continue public discussion on
this issue, and look towards the possible refinement of this adjustment
in future rulemaking.
2. The Low-Utilization Payment Adjustment (LUPA)
The low utilization payment adjustment (LUPA) reduces the 60-day
episode payment when minimal services are provided during a 60-day
episode. LUPAs are episodes with four or fewer visits and receive a
wage-adjusted average per visit amount per home health discipline,
instead of a full 60-day episode payment. The home health industry
suggests that the LUPA payment rates do not adequately account for the
front-loading of costs in an episode. In performing our refinement
research, we found that the average visit lengths in these initial
LUPAs are 16 to 18 percent higher than the average visit lengths in
initial non-LUPA episodes. For a complete description of the LUPA
review, analysis, and research performed, we refer to the CY 2008 HH
PPS proposed rule (72 FR 25423-27). In the proposed rule, we proposed
to increase payment by $92.63 for LUPA episodes that occur as the first
or only episode in a sequence of adjacent episodes.
Comment: Several commenters asked that NRS supplies, particularly
catheters and ostomy supplies, be reimbursed as part of the LUPA
payment. One suggested that we develop a NRS add-on using diagnostic
categories. Others noted that some LUPAs require wound care supplies or
chest drains. Several commenters believed that we proposed to remove
the NRS payment from LUPAs and asked that we reconsider this proposal.
One suggested we reimburse HHAs 200 percent of the supply cost to cover
overhead or establish a fee schedule that lists out reimbursement rates
for medical supplies.
Response: LUPA episodes are paid on a per-visit basis. Currently
LUPA payments include NRS paid under a home health plan of care, NRS
possibly unbundled to Part B, and a per-visit ongoing OASIS reporting
adjustment. Moreover, contrary to the commenters' statements, the
original 2000 NRS amount of $1.94 included in the LUPA per visit rates
has been updated annually and has not been removed. Furthermore, our
analysis of NRS showed that NRS charges for non-LUPA episodes are
almost 3 times higher than for LUPA episodes. In the proposed rule, we
expressed concerns that adding an additional amount to LUPA payments
for NRS could promote increases in medically unnecessary home health
episodes, and therefore did not propose any additional payments for NRS
costs for LUPA episodes (72 FR 25430.)
An analysis of a 20-percent sample of home health episodes covering
more than 3 years of experience with HH PPS revealed that there were
approximately 179,845 LUPA episodes. While some LUPA patients were in
high severity groups, overall LUPA patients had somewhat lower clinical
and functional severity. These data indicated that LUPAs are serving as
a low-end outlier payment for certain episodes that incur unexpectedly
low costs. Other LUPA episodes result from expected care patterns for
patients with particular conditions (for example, neurogenic bladder).
Section 1861(m)(5) of the Act, specifically, includes catheters,
catheter supplies, and ostomy bags and supplies as a covered home
health supply. They are considered to be non-routine in nature, and are
bundled into the HH PPS payment rates. Catheters and catheter supplies
are on our list of NRS codes subject to consolidated billing which is
posted on CMS's home health Web Site at http://www.cms.hhs.gov/center/
hha.asp (go to ``Billing/Payment'', and then ``Home Health Coding and
Billing'').
Comment: While there was widespread support for the revised LUPA
payment, many commenters asked that the additional $92.63 apply to all
LUPAs and not just to the first and only LUPA or the initial LUPA in a
series of adjacent episodes. A number of commenters noted that the
reimbursement still does not cover the costs of LUPA episodes and
suggested increasing the payments further.
Response: The proposed additional payment of $92.63 was intended to
cover the front-loading of costs which occurs in an initial assessment
in a LUPA episode. We analyzed LUPA episodes and found that the average
visit length for nursing for an initial assessment averaged twice as
long as the length of other visits. Similarly, the initial assessment
visit made by a physical therapist was 25 percent longer than other
physical therapy visits. We did not find that all visits in LUPA
episodes were longer than average, and as such, we proposed to provide
the additional $92.63 only for those LUPAs that are the first in a
series of adjacent episodes or the only episode. After updating the
payment model using 2005 data and re-analyzing the characteristics of
all LUPAs, the results continue to support providing a revised payment
for LUPA episodes, but only for those that occur as the first episode
in a sequence of adjacent episodes or the only episode. Using the
updated 2005 data, the additional revised payment for first episode
LUPAs or the only episode is $87.93.
Comment: We received universal support for the revised LUPA
payment, but several commenters noted that due to treatment timing, HHA
clinicians often must make an additional, non-chargeable visit for the
sole purpose of completing an OASIS follow-up assessment in the
required 5-day window or for a recertification visit. These can occur
with catheter and vitamin B-12 patients. The commenters claimed the
costs for these visits are not captured in claims data as HHAs are
prohibited from billing for assessment-only visits. Again, this claim
often occurs with catheter patients. Another commenter noted that CMS
only included an estimate of additional minutes of direct service cost
for assessment in its LUPA cost calculation, rather than the entire
administrative cost the agency bears. Another noted that our analysis
may have been influenced by data issues in industry cost reports. One
commenter asked for higher reimbursement for acute patients who cannot
remain at home and become a LUPA patient through no fault of the HHA.
Response: We derived a revised final value for the increase to LUPA
episodes that occur as the only episode or the initial episode during a
sequence of adjacent episodes from a new data base consisting of visit
line items from a large, representative sample of claims in 2005. This
method enabled us to measure the entire excess of minutes due to both
OASIS and administrative activities of the type cited in the comment.
This database showed that the average excess of minutes for the first
visit in episodes that were single LUPAs or initial LUPAs in a sequence
of episodes was 38.5 for the first visit if skilled nursing, 25.1 for
the first visit if physical therapy, and 22.6 for the first visit if
speech therapy. We then expressed these excess values as a proportion
of the average number of minutes for all nonfirst visits in non-LUPA
episodes (42.5, 45.6, and 48.6 for skilled nursing, physical therapy,
and speech therapy, respectively). We then proportionately inflated the
per-visit payment, using LUPA per-visit payment

[[Page 49849]]

rates, in accordance with these excess values. Finally, using an
appropriate set of weights representing the share of LUPA first visits
for skilled nursing (77.8 percent), physical therapy (21.7 percent),
and speech therapy (0.5 percent), respectively, we calculated the
revised increase of $87.93 for LUPA episodes that occur as the only
episode or the initial episode during a sequence of adjacent episodes.
We did not use cost reports in computing the LUPA revised payment
amount. We also do not take into account the underlying reasons leading
to a LUPA.
Comment: Several commenters were unclear about how we propose to
identify the timing of a LUPA episode as an only episode or initial
episode in a series of adjacent episodes. Another noted commenter
believed that the LUPA continuing episode will be determined from
claims data where the start-of-care date is the same as the ``from''
date.
Response: A LUPA episode is 60 days long. An initial episode is an
episode in which a gap of greater than 60 days exists before the from-
date of that LUPA episode. A LUPA episode that exists as an only
episode is an episode with a gap of greater than 60 days both before
the beginning and after the end of the LUPA episode. LUPAs, other than
only episodes, would be considered as adjacent episodes to other
episodes if no more than 60 days occur between the end of one episode
and the beginning of the next, except for those episodes that have been
PEP-adjusted.
Comment: A commenter noted that the LUPA payments cover about half
the costs of rural agencies, and asked that we increase LUPA payment
rates, particularly for rural agencies.
Response: The per-visit rates used for payment of LUPA episodes and
used in the outlier calculation are based on visit cost data from
audited cost reports. We believe this to be the most appropriate and
accurate data on which to base these rates. Currently, there exists no
rural add-on for home health services provided in a rural area.
However, LUPA payments are wage adjusted to account for geographic
differences.
Comment: Several commenters noted that the home health industry had
not billed for supplies or kept good records of supplies used, and that
this contributed to the difficulty in analyzing NRS use in general and
in LUPA episodes. One commenter suggested that billing for non-routine
medical supplies, specifying the type of supply and quantity, should be
made mandatory for all episodes and LUPAs to gather data for future
evaluation of diagnosis and rates of payment. The commenter also wanted
it made mandatory for all episodes and LUPAs to support any request for
payment based upon severity scores and severity levels, or such payment
will be negated. Another commenter suggested we require that supplies
be charged on claims in order to receive NRS payment.
Response: We will continue to study supply use, and will make
improvements to our method of accounting for NRS costs as the data
warrant. We encourage HHAs to develop in-house mechanisms to improve
their supply tracking, and to report supplies used on their claims. In
section III.C.4, we address the mandatory reporting of supplies.
Comment: A commenter noted that CMS has determined that later
episodes cost 7 percent more, but has chosen not to differentiate early
and later LUPA episodes. The commenter questioned data that increases
payment for one payment type and does not do the same for another
payment type.
Response: Providing for an additional payment for initial and only
LUPA episodes is actually similar to the concept of early and later
episodes proposed for the full 60-day episode payment. The results of
data analysis done on LUPA episodes did not support providing a revised
payment for LUPA episodes that exist as the second or subsequent LUPA
episode in a sequence of adjacent episodes, as the case-mix model does
for all other types of episodes. Instead, data do support a revised
payment for initial and only LUPA episodes.
Comment: While we received widespread support for the revised LUPA
payment, a commenter noted that the analysis focused principally on
nursing and physical therapy visits for LUPAs. The commenter encouraged
CMS to examine the presence of other home health service visits (social
service, occupational or speech therapy) to ensure that the proposed
payment amount recognizes all service costs incurred with these initial
visits.
Response: LUPA episodes average approximately 2.5 visits. In an
initial or only LUPA episode, the first billable visit for the episode
must be a skilled visit. Consequently, the first visits of an initial
or only LUPA episode would be either nursing or physical or speech
therapy visits. It is these start of care nursing and physical or
speech therapy visits that occur when the case is opened and the
initial assessment takes place, that are longer than the average visit
length. Consequently, we believe it appropriate to base the revised
payment for initial and only LUPA episodes on nursing and physical or
speech therapy visit rates.
To summarize, additional analysis did not support that all LUPA
episodes are negatively impacted by the front-loading of assessment
costs and administrative costs. Consequently, for this final rule, we
are implementing the proposed provision of paying a revised payment
amount to LUPA episodes that occur as the only episode or the first
episode in a sequence of adjacent episodes. That additional amount has
been calculated to be $87.93, for CY 2008. To account for the
additional payment to LUPA episodes that occur as the first episode in
a sequence of adjacent episodes or as the only episode, and maintain
budget neutrality, we reduce the national standardized 60-day episode
payment rate.
3. The Significant Change in Condition (SCIC) Adjustment
In the proposed rule, for 2008, we proposed to eliminate our SCIC
policy, which allowed an HHA to adjust payment when a beneficiary
experiences a SCIC during the 60-day episode that was not envisioned in
the original plan of care. The SCIC policy was designed and implemented
primarily to protect HHAs from receiving a lower, inadequate payment
for a beneficiary who unexpectedly got worse and became more expensive
to the agency during the course of a 60-day episode. Our margin
analysis suggested that, on average, SCIC episodes had negative
margins. We proposed to eliminate the SCIC policy based on the findings
of our analysis and the apparent difficulty the industry had in
interpreting when to apply the SCIC adjustment policy. For a full
description of the SCIC review and analysis, see CY 2008 HH PPS
proposed rule (72 FR 25425-25426).
Comment: Several commenters were concerned that with the
elimination of the SCIC, there would be no avenue for reimbursement of
supplies that were needed as a result of a change in condition. Some
commenters used the example of a home health patient admitted with an
unobservable pressure ulcer or surgical wound. The ulcer or wound
cannot be staged if it is unobservable, leaving the HHA with a minimum
HHRG and large supply expenses; the care needs greatly increase when
stageable. One commenter asked for a simplified supply SCIC to cover
unanticipated supply costs that occur when a patient's condition
changes.
Response: As noted in a response to a comment in section III.B.8,
currently, the OASIS guidelines for M0460 do not

[[Page 49850]]

allow a pressure ulcer with any eschar to be staged. We are aware of
recent revisions issued by the National Pressure Ulcer Advisory Panel,
(NPUAP). Essentially, the NPUAP guidance permits the assessment of a
wound for staging when the wound bed is not completely covered with
eschar or slough. If the bed of the ulcer is completely covered with
eschar/slough, NPUAP guidance stipulates that the wound cannot be
staged until some of the necrotic tissue is removed. After reviewing
the NPUAP guidance, we have revised the instructions accompanying this
OASIS item to allow a wound to be staged if the bed of the wound is
partially covered by necrotic tissue and if the presence of eschar does
not obscure the depth of the tissue loss. We hope this encourages HHAs
to properly treat pressure ulcers and promote their healing. We believe
this will allow for accurate payment for home health patients with
wounds that are partially covered with eschar/slough.
Comment: A majority of commenters appreciated the concept behind
the SCIC, but supported our decision to eliminate the SCIC, citing
complexity and administrative burden.
Response: We appreciate the support for our proposal to eliminate
the SCIC adjustment.
Comment: Several commenters noted that if the SCIC is eliminated,
completion of an ``Other Follow-up'' OASIS will not be necessary for
payment purposes. However, the Medicare home health CoPs requires
completion of the ``Other Follow-up'' OASIS when there is a SCIC. The
commenters stated that completion of these assessments has been
problematic, inconsistent, and burdensome for HHAs, partly because of
limited guidance from CMS regarding the kinds of clinical changes that
require a new comprehensive assessment. Specifically, when a patient
does have a change in condition, the plan of care is updated by
contacting the physician and recording verbal/phone orders. This action
by HHAs is not dependent on completion of the OASIS. Additionally,
collection and submission of OASIS data at this time point often masks
improvement made in the patient's condition before the SCIC. Outcomes
measures based on the follow-up comprehensive assessment are likely to
show less improvement than a comparison of the patient at start of care
and discharge. The commenters recommended that this Condition of
Participation be eliminated.
Response: We appreciate the comments regarding the significant
change in condition (SCIC) assessment. We note our proposal was limited
to eliminating the SCIC payment adjustment from the HH PPS. Currently,
the assessment used in SCIC situations is used in the quality
monitoring aspect of the OASIS. This assessment is a requirement
integrated into the CoPs, found at Sec. 484.18(b), and therefore any
change to the CoP requirement is beyond the scope of this payment rule.
Comment: A commenter suggested that the adjustment to the national
standardized 60-day episode payment of $15.71 for the elimination of
the SCIC was incorrect. The commenter suggested that since SCICs have
little impact on outlays (0.5 percent of total payments regardless of
urban/rural status, ownership, or size) the calculation should have
been $2,521.17 x 0.5 percent = $12.64 rather than the $15.71 quoted in
the proposed rule and asked that the national standardized 60-day
episode payment be adjusted.
Response: The adjustments to the national standardized amount
reflect our best estimates of the amount of the budget-neutral target
that is allocated in order to account for elimination of the SCIC, the
LUPA add-on, and other refinements that are taken as offsets to the
national standardized amount. The estimates of the cost of these
adjustments also reflect the interaction of the outlier payments with
other payment elements during the simulation.
Comment: A commenter suggested that the SCIC adjustment not be
eliminated. Another asked that we withdraw our proposal to remove the
SCIC until there had been time to review the other changes resulting
from the refinement.
Response: The SCIC policy was designed and implemented primarily to
protect HHAs from receiving a lower, inadequate payment for a
beneficiary that unexpectedly got worse and became more expensive to
the agency during the course of a 60-day episode. Our examination of
the SCIC adjustment confirmed industry comments that HHAs have had
difficulty applying the SCIC policy, and that margin analysis, on
average, shows that SCIC episodes have negative margins. We believe
that it is now appropriate to remove the SCIC payment adjustment from
HH PPS and that the proposed refinement changes would not have had a
significant impact on the SCIC payment policy.
In summary, based in part, upon comments received, as well as our
continued analysis of this issue, we are finalizing our proposal to
eliminate the SCIC adjustment policy. To account for the elimination of
the SCIC adjustment, and to maintain budget neutrality, we reduce the
national standardized 60-day episode payment rate. As such, we are
revising 42 CFR 484.205, 484.237, and 484.240 to remove all references
to the SCIC adjustment.
4. Non-Routine Medical Supplies (NRS)
To ensure that the variation in non-routine supplies is more
appropriately reflected in HH PPS, we proposed to replace the original
portion ($43.54) of the HH PPS base rate that accounted for NRS, with a
system that pays for non-routine supplies based on 5 severity groups.
The classification algorithm is based on selected OASIS assessment
items, similar to the way the clinical model was developed. We noted we
believed the original amount of $43.54 (updated through 2008) per
episode that accounts for NRS does not accurately reflect the large
variation in non-routine medical supplies use across patient type. In
general, use of non-routine medical supplies is unevenly distributed
across episodes of care in home health. Specifically, we found that
patients with certain conditions, many of them related to skin
conditions, were more likely to require high non-routine medical supply
utilization. For a complete description of our analysis and research,
we refer readers to the CY 2008 HH PPS proposed rule (72 FR 25426-
25434).
Comment: Several commenters noted that conditions that generate
high NRS costs are not accounted for in the NRS weights. They asked
that NRS diagnoses include catheters, enteral nutrition, chest drains,
gastrointestinal tubes, and an expanded list of ostomy supplies. Some
commenters noted that wound supply payments are still inadequate.
Commenters asked that the proposed case-mix model be changed to allow
scoring for these items, and that payment for these items be increased
beyond what is proposed in the rule.
Response: Section 1861(m)(5) of the Act defines home health
services and specifically lists catheters, catheter supplies, ostomy
bags and ostomy supplies as medical supplies. Accordingly, catheters
and catheter supplies and bowel ostomy supplies are already included as
covered NRS in the proposed rule. We also expanded the NRS listing of
ostomy supplies to include those for cystostomy, tracheostomy, and
urostomy.
The proposed rule notes that enteral and parenteral nutrition are
Part B services not covered by the home health benefit and not defined
as non-routine supplies. The Medicare coverage guidelines for enteral
nutrition are

[[Page 49851]]

included in the proposed rule, along with a table of ``Enteral Items
and Services'' which includes the HCPCS codes needed for billing. The
table includes codes for tubing and other supplies needed for
administering enteral nutrition. If a home health patient needs enteral
nutrition and meets the criteria for coverage, providers may claim
reimbursement by using the UB-92 claim form. Payment is then made by
the RHHI under the Part B Medicare Fee Schedule, rather than through
the home health benefit.
Comment: Most commenters believed that NRS supplies are
underreported; the industry is grappling with an efficient mechanism to
consistently capture the supplies used. While most commenters
appreciated our proposed increase in our approach to better account for
NRS payments, many noted that the analysis was based on incomplete
information that inadequately reflects the providers' true costs. One
commenter suggested that CMS consider requiring agencies to report
supply costs if they wish to receive reimbursement above the first
severity level. Without such a requirement, agencies that fail to make
the effort to identify and report these costs will receive the same
advantages as those that do, and would have an unfair result.
CMS was also encouraged to continue studying the NRS issue as the
compensation can fall far short of what agencies expend for their most
supply-intensive patients.
Response: We appreciate the commenter's concern that without a
requirement for HHAs to report NRS on the claim, those agencies that
fail to make the effort to identify and report NRS costs will receive
the same considerations for payment as those that do report NRS. We
believe that it is imperative that HHAs report these supplies on their
claims so that we can improve the accuracy of our system and better
reflect costs when paying for NRS.
We have consistently encouraged home health agencies to develop in-
house mechanisms to improve their supply tracking, and to report
supplies used on their claims. Our data for 2003 indicate that the
percentages of agencies not reporting supplies on claims to be similar
to percentages that existed during the HH IPS baseline. We are
concerned with the commenter's assertion that NRS supplies are
underreported, and the limitations this underreporting puts on any
future work towards refining payment to HHAs for providing NRS. To
adequately account for and pay for NRS costs, we expect that HHAs will
report NRS costs on their claims. To ensure that NRS costs are being
reported, claims that do not report NRS costs, unless explicitly noted
by the HHA that NRS was not provided, will be returned to the provider
(RTP). For episodes in which NRS was provided, the provider will need
to resubmit the claim with NRS reported. For episodes in which NRS was
not provided, the HHA will need to explicitly note that fact on the
claim. We will allow a grace period, which will be determined and
communicated in instructions from CMS. This will provide stronger
incentives to HHAs to report NRS, resulting in more accurate NRS data
for possible future refinements to this aspect of the HH PPS. We will
continue to study supply use, and will make improvements to how we
account for and pay for NRS as the data warrant.
Comment: A commenter is concerned that the bundling of NRS in a
budget-neutral system will continue to create a growing payment
disparity as new and more expensive technologies are applied to home
care. Each year, new supplies are added to the HH PPS bundle that did
not exist when the baseline was established for HH PPS. The commenter
urged CMS to freeze NRS codes that are currently bundled and unbundle
new NRS technology from HH PPS as it emerges. Another commenter asked
that NRS be reimbursed through the DME fee schedule.
Response: We appreciate the concern about supply costs and
particularly about the cost of new technologies. If agencies will
report these supplies on their claims, the costs of supplies, including
new technologies, will be captured in future data analyses. Section
1895 of the Act, as added by section 4603(a) of the Balanced Budget Act
of 1997, provided the authority for the development of a HH PPS for all
Medicare-covered home health services paid on a reasonable cost basis.
Section 1895(b)(1) of the Act requires the Secretary to establish a HH
PPS for all costs of home health services, including medical supplies.
Therefore, medical supplies are bundled into the HH PPS payment, as
required by the statute, and are subject to consolidated billing. DME,
on the other hand, was explicitly statutorily excluded from
consolidated billing.
Comment: Several commenters were concerned that the proposed model
for reimbursing NRS has poor performance and a low R-squared of 13.7
percent. The commenter cited industry difficulties in reporting supply
costs, and high supply costs for particular diagnoses. One commenter
noted that their RHHI could not process supply lines on claims for an
unspecified period of time. Several commenters mentioned high supply
costs for particular items, such as chest drains, which can cost $500
to $600 per month. Commenters asked that CMS abandon the NRS supply
model as proposed as it would underpay HHAs for supplies used.
Response: In general, we acknowledge NRS use is unevenly
distributed across episodes of care in home health. While most patients
do not use NRS, many use a small amount, and a small number of patients
use a large amount. It is important to note that while Durable Medical
Equipment (DME) is covered under the home health benefit, such items
are not included in the HH PPS payment and thus can be billed for
separately either by the HHA or a DME supplier and are not subject to
home health consolidated billing. In developing the proposed approach
for NRS payment, we sought to more accurately match Medicare payments
for NRS to agency costs. The proposed and final regression models were
developed after creating additional variables from OASIS items and
targeting certain conditions expected to be predictors of NRS use based
on clinical considerations. The sample only included HHAs whose total
charges on claims matched their total charges on their cost reports for
that same year, and thus, any issues with RHHI processing did not
impede the analysis.
Since the proposed rule, we updated our data base for the NRS
analysis to be representative of episodes from 2004 and 2005. This
analysis relies on cost reports to derive cost-to-charge ratios for
estimating NRS costs on claims, and the latest data available
incorporated 2004 cost reports. The results of modeling the NRS costs
are shown in the scoring table, Table 10A. Since updating the data
base, we have added several new variables, such as diabetic ulcers, and
re-specified the treatment of certain wound variables (for example,
counts and stages of pressure ulcers) in the final model.
We explored the concern that the proposed 5th severity group level
did not provide adequate reimbursement for episodes with a high-
utilization of NRS. In response to those comments, and as a result of
further analysis, we are implementing a system that pays for non-
routine supplies based on 6 severity groups. The 6th group is a subset
of the previously proposed 5th group. Our analysis revealed that a
small percentage of cases in the proposed 5th severity group may not
have adequately reflected the resources required for

[[Page 49852]]

providing care in this group. Consequently, in recognizing that a small
percentage of episodes incur higher costs than the majority of episodes
in the 5th severity group, we split the small percentage of high cost
NRS cases from the 5th severity group to form a 6th severity group.
Under the final 6 severity NRS approach, the 6th severity level is
associated with a higher score and higher payment than any of the
severity levels in the proposed rule.
The R-squared for this final model is 16.6 percent. The sample was
trimmed to eliminate outliers, where outliers were defined to be
episodes with NRS costs estimated to be $3,500 or higher. The trimming
procedure resulted in a small loss from the total sample size. A total
of 2,653 episodes were excluded (less than 0.09 percent) out of a total
sample of 2,974,678 episodes. Our sample for the NRS analysis consisted
of all agencies whose total charges reported on claims matched their
total charges reported in the cost reports, but as these trimming
requirements show, the resulting sample included a relative few
questionable sample data points. We believe the final regression model
represents the relationships between case-mix and NRS cost among a
highly representative sample of episodes and agencies nationally.
While we have not yet developed a statistical model that has
performed with a high degree of predictive accuracy, we believe this
may due to the limited data available to model NRS costs, and the
likelihood that OASIS does not have any measures available for some
kinds of NRS. Notwithstanding these concerns, we are changing the
payment system because the majority of episodes do not incur any NRS
costs, and the current payment system overcompensates these episodes.
The final NRS approach better matches NRS payments with NRS costs
incurred in the episode. We will continue to look for ways to improve
our approach to account for NRS.
Comment: Several commenters noted that the NRS analysis was based
on 1997 costs rather than more recent data; one suggested using 2005
data. Another suggested that we tie annual increases in supply costs to
a medical supply inflation index.
Response: The analysis file used to develop the proposed NRS case-
mix model for the proposed rule was based on 2001 cost reports. The
cost reports were then linked to claims to determine the cost-to-charge
ratios, which were used to estimate NRS costs for the episodes in the
sample. For this final rule, we updated the database upon which our
payment proposal for NRS was based to use 2004 and 2005 data. Again, to
refine payments for NRS will depend on the quality of the data
available in claims and costs reports for succeeding years. We note we
are revising our NRS policy to require HHAs to specifically note on
submitted claims NRS in any episode in which a NRS is provided.
Comment: A commenter asked that HHAs only be responsible for
providing NRS for those conditions that are included in the plan of
care.
Response: The plan of care is to be established and periodically
reviewed by the patient's physician. The CoPs for HHAs in 42 CFR 484.18
state that ``the plan of care developed in consultation with the agency
staff covers all pertinent diagnoses, including mental status, types of
services and equipment required, frequency of visits, prognosis,
rehabilitation potential, functional limitations, activities permitted,
nutritional requirements, medications and treatments, any safety
measures to protect against injury, instructions for timely discharge
or referral, and any other appropriate items.'' Accordingly, because
the CoPs require that all pertinent diagnoses are included on the plan
of care, the plan of care should include any conditions for which NRS
is necessary for the treatment of those diagnoses, and NRS should be
provided and reported being supplied.
Comment: Several commenters asked for additional diagnoses codes to
be included in the NRS supply list. A few asked for V44.0-V.44.9
specifically. While they appreciate the attempt to improve NRS payment,
several commenters noted that the payments are still inadequate.
Response: We tested selected stoma V-codes mentioned by the
commenter. We selected codes for testing that were not already
represented by other variables in the model. The final NRS model
reflects additional conditions for scoring, when reported using the
selected V-codes. We also believe under our final 6 severity group
methodology, HH PPS will better reflect the NRS costs and usage.
In summary, we are implementing a 6 severity group methodology for
the paying of NRS in the HH PPS, as shown in Table 9 below. We believe
that adding a 6th severity group better recognizes episodes with higher
NRS costs. To account for paying of NRS through the implementation of a
6-severity group methodology, and to maintain budget neutrality, we
reduce the national standardized 60-day episode payment rate.

Table 9. Relative Weights for Non-routine Medical Supplies--Six-Group Approach
----------------------------------------------------------------------------------------------------------------
Percentage of Relative Payment
Severity level episodes Points (scoring) weight amount
----------------------------------------------------------------------------------------------------------------
1..................................... 63.7 0....................... 0.2698 $14.12
2..................................... 20.6 1 to 14................. 0.9742 51.00
3..................................... 6.7 15 to 27................ 2.6712 139.84
4..................................... 5.4 28 to 48................ 3.9686 207.76
5..................................... 3.2 49 to 98................ 6.1198 320.37
6..................................... 0.3 99+..................... 10.5254 551.00
----------------------------------------------------------------------------------------------------------------

Note: NRS conversion factor = $52.35. The NRS conversion factor
is the market-basket-updated amount CMS originally included in the
HH PPS episode base rate ($49.62), after adjustment for nominal
change in case-mix.

We have also included the final versions of Table 10A and Table 10B
below.

[[Page 49853]]

Table 10A.--NRS Case-Mix Adjustment Variables and Scores
------------------------------------------------------------------------
Item Description Score
------------------------------------------------------------------------
SELECTED SKIN CONDITIONS
------------------------------------------------------------------------
1............................... Primary diagnosis = Anal 15
fissure, fistula and
abscess.
2............................... Other diagnosis = Anal 13
fissure, fistula and
abscess.
3............................... Primary diagnosis = 14
Cellulitis and abscess.
4............................... Other diagnosis = 8
Cellulitis and abscess.
5............................... Primary or other diagnosis 20
= Diabetic ulcers.
6............................... Primary diagnosis = 11
Gangrene.
7............................... Other diagnosis = Gangrene. 8
8............................... Primary diagnosis = 15
Malignant neoplasms of
skin.
9............................... Other diagnosis = Malignant 4
neoplasms of skin.
10.............................. Primary or Other diagnosis 13
= Non-pressure and non-
stasis ulcers.
11.............................. Primary diagnosis = Other 16
infections of skin and
subcutaneous tissue.
12.............................. Other diagnosis = Other 7
infections of skin and
subcutaneous tissue.
13.............................. Primary diagnosis = Post- 23
operative Complications.
14.............................. Other diagnosis = Post- 15
operative Complications.
15.............................. Primary diagnosis = 19
Traumatic Wounds and Burns.
16.............................. Other diagnosis = Traumatic 8
Wounds and Burns.
17.............................. Primary or other diagnosis 16
= V code, Cystostomy care.
18.............................. Primary or other diagnosis 23
= V code, Tracheostomy
care.
19.............................. Primary or other diagnosis 24
= V code, Urostomy care.
20.............................. OASIS M0450 = 1 or 2 4
pressure ulcers, stage 1.
21.............................. OASIS M0450 = 3+ pressure 6
ulcers, stage 1.
22.............................. OASIS M0450 = 1 pressure 14
ulcer, stage 2.
23.............................. OASIS M0450 = 2 pressure 22
ulcers, stage 2.
24.............................. OASIS M0450 = 3 pressure 29
ulcers, stage 2.
25.............................. OASIS M0450 = 4+ pressure 35
ulcers, stage 2.
26.............................. OASIS M0450 = 1 pressure 29
ulcer, stage 3.
27.............................. OASIS M0450 = 2 pressure 41
ulcers, stage 3.
28.............................. OASIS M0450 = 3 pressure 46
ulcers, stage 3.
29.............................. OASIS M0450 = 4+ pressure 58
ulcers, stage 3.
30.............................. OASIS M0450 = 1 pressure 48
ulcer, stage 4.
31.............................. OASIS M0450 = 2 pressure 67
ulcers, stage 4.
32.............................. OASIS M0450 = 3+ pressure 75
ulcers, stage 4.
33.............................. OASIS M0450e = 1 17
(unobserved pressure
ulcer(s)).
34.............................. OASIS M0470 = 2 (2 stasis 6
ulcers).
35.............................. OASIS M0470 = 3 (3 stasis 12
ulcers).
36.............................. OASIS M0470 = 4 (4+ stasis 21
ulcers).
37.............................. OASIS M0474 = 1 9
(unobservable stasis
ulcers).
38.............................. OASIS M0476 = 1 (status of 6
most problematic stasis
ulcer: fully granulating).
39.............................. OASIS M0476 = 2 (status of 25
most problematic stasis
ulcer: early/partial
granulation).
40.............................. OASIS M0476 = 3 (status of 36
most problematic stasis
ulcer: not healing).
41.............................. OASIS M0488 = 2 (status of 4
most problematic surgical
wound: early/partial
granulation).
42.............................. OASIS M0488 = 3 (status of 14
most problematic surgical
wound: not healing).
------------------------------------------------------------------------
OTHER CLINICAL FACTORS
------------------------------------------------------------------------
43.............................. OASIS M0550 = 1 (ostomy not 27
related to inpt stay/no
regimen change).
44.............................. OASIS M0550 = 2 (ostomy 45
related to inpt stay/
regimen change).
45.............................. Any `Selected Skin 14
Conditions' (rows 1-42
above) AND M0550 = 1
(ostomy not related to
inpt stay/no regimen
change).
46.............................. Any `Selected Skin 11
Conditions' (rows 1-42
above) AND M0550 = 2
(ostomy related to inpt
stay/ regimen change).
47.............................. OASIS M0250 (Therapy at 5
home) =1 (IV/Infusion).
48.............................. OASIS M0520 = 2 (patient 9
requires urinary catheter).
49.............................. OASIS M0540 = 4 or 5 (bowel 10
incontinence, daily or
>daily).
------------------------------------------------------------------------

Note: Points are additive, however points may not be given for
the same line item in the table more than once. Points are not
assigned for a secondary diagnosis if points are already assigned
for a primary diagnosis from the same diagnosis/condition group. See
Table 12b for definitions of diagnosis/condition groups.
Please see Medicare Home Health Diagnosis Coding guidance at
http://www.cms.hhs.gov/HomeHealthPPS/03_coding&billing.asp for
definitions of primary and secondary diagnoses.

Table 10B.--ICD-9-CM Diagnoses Included in the Diagnostic Categories for the Nonroutine Supplies (NRS) Case-Mix
Adjustment Model
----------------------------------------------------------------------------------------------------------------
Short Description of ICD-
Diagnostic Category ICD-9-CM Code* Manifestation 9-CM Code
----------------------------------------------------------------------------------------------------------------
Anal fissure, fistula and abscess. 565.................. .......................... ANAL FISSURE AND FISTULA.

[[Page 49854]]

566.................. .......................... ABSCESS OF ANAL AND
RECTAL REGIONS.
Cellulitis and abscess............ 681.00............... .......................... FINGER--CELLULITIS AND
ABSCESS, UNSPECIFIED.
681.01............... .......................... FELON.
681.10............... .......................... TOE--CELLULITIS AND
ABSCESS, UNSPECIFIED.
681.9................ .......................... CELLULITIS AND ABSCESS OF
UNSPECIFIED DIGIT.
682.................. .......................... OTHER CELLULITIS AND
ABSCESS.
Diabetic Ulcers................... 250.8x & 707.10-707.9 .......................... (PRIMARY OR FIRST OTHER
DIAGNOSIS = 250.8x AND
PRIMARY OR FIRST OTHER
DIAGNOSIS = 707.10-
707.9).
Gangrene.......................... 440.24............... .......................... ATHERSCLER-ART EXTREM W/
GANGRENE.
785.4................ M......................... GANGRENE.
Malignant neoplasms of skin....... 172.................. .......................... MALIGNANT MELANOMA OF
SKIN.
173.................. .......................... OTHER MALIGNANT NEOPLASM
OF SKIN.
Non-pressure and non-stasis ulcers 440.23............... .......................... ATHEROSCLER-ART EXTREM W/
(other than diabetic). ULCERATION.
447.2................ .......................... RUPTURE OF ARTERY.
447.8................ .......................... OTHER SPECIFIED DISORDERS
OF ARTERIES AND
ARTERIOLES.
707.10............... .......................... ULCER OF LOWER LIMB,
UNSPECIFIED.
707.11............... .......................... ULCER OF THIGH.
707.12............... .......................... ULCER OF CALF.
707.13............... .......................... ULCER OF ANKLE.
707.14............... .......................... ULCER OF HEEL AND
MIDFOOT.
707.15............... .......................... ULCER OF OTHER PART OF
FOOT.
707.19............... .......................... ULCER OF OTHER PART OF
LOWER LIMB.
707.8................ .......................... CHRONIC ULCER OTHER
SPECIFIED SITE.
707.9................ .......................... CHRONIC ULCER OF
UNSPECIFIED SITE.
Other infections of skin and 680.................. .......................... CARBUNCLE AND FURUNCLE.
subcutaneous tissue.
683.................. .......................... ACUTE LYMPHADENITIS.
685.................. .......................... PILONIDAL CYST.
686.................. .......................... OTH LOCAL INF SKIN&SUBCUT
TISSUE.
Post-operative Complications...... 998.11............... .......................... HEMORRHAGE COMPLICATING A
PROCEDURE.
998.12............... .......................... HEMATOMA COMPLICATING A
PROCEDURE.
998.13............... .......................... SEROMA COMPLICATING A
PROCEDURE.
998.2................ .......................... ACC PUNCT/LACERATION
DURING PROC NEC.
998.4................ .......................... FB ACC LEFT DURING PROC
NEC.
998.6................ .......................... PERSISTENT POSTOPERATIVE
FIST NEC.
998.83............... .......................... NON-HEALING SURGICAL
WOUND NEC.
Traumatic wounds, burns and post- 870.................. .......................... OPEN WOUND OF OCULAR
operative complications. ADNEXA.
872.................. .......................... OPEN WOUND OF EAR.
873.................. .......................... OTHER OPEN WOUND OF HEAD.
874.................. .......................... OPEN WOUND OF NECK.
875.................. .......................... OPEN WOUND OF CHEST.
876.................. .......................... OPEN WOUND OF BACK.
877.................. .......................... OPEN WOUND OF BUTTOCK.
878.................. .......................... OPEN WND GNT ORGN INCL
TRAUMAT AMP.
879.................. .......................... OPEN WOUND OTH&UNSPEC
SITE NO LIMBS.
880.................. .......................... OPEN WOUND OF
SHOULDER&UPPER ARM.
881.................. .......................... OPEN WOUND OF ELBOW,
FOREARM&WRIST.
882.................. .......................... OPEN WOUND HAND EXCEPT
FINGER ALONE.
883.................. .......................... OPEN WOUND OF FINGER.
884.................. .......................... MX&UNSPEC OPEN WOUND
UPPER LIMB.
885.................. .......................... TRAUMATIC AMPUTATION OF
THUMB.
886.................. .......................... TRAUMATIC AMPUTATION
OTHER FINGER.
887.................. .......................... TRAUMATIC AMPUTATION OF
ARM&HAND.
890.................. .......................... OPEN WOUND OF HIP AND
THIGH.
891.................. .......................... OPEN WOUND OF KNEE, LEG,
AND ANKLE.
892.................. .......................... OPEN WOUND OF FOOT EXCEPT
TOE ALONE.
893.................. .......................... OPEN WOUND OF TOE.
894.................. .......................... MX&UNSPEC OPEN WOUND
LOWER LIMB.
895.................. .......................... TRAUMATIC AMPUTATION OF
TOE.
896.................. .......................... TRAUMATIC AMPUTATION OF
FOOT.
897.................. .......................... TRAUMATIC AMPUTATION OF
LEG.
941 except 941.0x and .......................... BURN OF FACE, HEAD, AND
941.1x. NECK.
942 except 942.0x and .......................... BURN OF TRUNK.
942.1x.

[[Page 49855]]

943 except 943.0x and .......................... BURN OF UPPER LIMB,
943.1x. EXCEPT WRIST AND HAND.
944 except 944.0x and .......................... BURN OF WRIST(S) AND
944.1x. HAND(S).
945 except 945.0x and .......................... BURN OF LOWER LIMB(S).
945.1x.
946.2................ .......................... BURNS OF MULTIPLE
SPECIFIED SITES,
BLISTERS, EPIDERMAL LOSS
[SECOND DEGREE].
946.3................ .......................... BURNS OF MULTIPLE
SPECIFIED SITES, FULL-
THICKNESS SKIN LOSS
[THIRD DEGREE NOS].
946.4................ .......................... BURNS OF MULTIPLE
SPECIFIED SITES, DEEP
NECROSIS OF UNDERLYING
TISSUES [DEEP THIRD
DEGREE] WITHOUT MENTION
OF LOSS OF A BODY PART.
946.5................ .......................... BURNS OF MULTIPLE
SPECIFIED SITES, DEEP
NECROSIS OF UNDERLYING
TISSUES [DEEP THIRD
DEGREE] WITH LOSS OF A
BODY PART.
998.31............... .......................... DISRUPTION OF INTERNAL
OPERATION WOUND.
998.32............... .......................... DISRUPTION OF EXTERNAL
OPERATION WOUND.
998.51............... .......................... INFECTED POSTOPERATIVE
SEROMA.
998.59............... .......................... OTHER POSTOPERATIVE
INFECTION.
V-code, Cystostomy Care........... V55.5................ .......................... CYSTOSTOMY--CARE.
V-code, Tracheostomy Care......... V55.0................ .......................... TRACHEOSTOMY--CARE.
V-code, Urostomy Care............. V55.6................ .......................... OTHER ARTIFICIAL OPENING
OF URINARY TRACT-
NEPHROSTOMY,
URETEROSTOMY,
URETHROSTOMY.
----------------------------------------------------------------------------------------------------------------

To ensure that NRS costs are being reported, claims that do not
report NRS costs, unless explicitly noted by the HHA that NRS was not
provided, will be returned to the provider (RTP). For episodes in which
NRS was provided, the provider will need to resubmit the claim with NRS
reported. For episodes in which NRS was not provided, the HHA will need
to explicitly note that fact on the claim. We will allow a grace
period, which will be determined and communicated in instructions from
CMS. This will improve data on NRS, in the home health setting,
providing us with better data with which to analyze and evaluate
payment to HHAs for NRS in the future. We will monitor the accuracy of
the 6-severity group methodology for payment of NRS. We will continue
to monitor the accuracy and completeness of the reporting of NRS costs.
Finally, we will explore alternative methods for accounting for NRS
costs and payments in the future.

D. The Outlier Policy

As noted in section II, of this final rule with comment period,
outlier payments are made for episodes for which the estimated cost
exceeds a threshold amount and are intended to address home health
episodes that incur unusually high costs due to patient health care
needs. Section 1895(b)(5) of the Act requires that the estimated total
outlier payments are no more than 5 percent of total estimated HH PPS
payments. For a full description of our outlier policy, we refer to the
CY 2008 HH PPS proposed rule (72 FR 25434-25435).
The wage adjusted fixed dollar loss (FDL) amount represents the
amount of loss that an agency must bear before an episode becomes
eligible for outlier payments. The loss sharing ratio is 0.80. As noted
in the proposed rule, when the HH PPS system was implemented, we chose
a value of 0.80 for the loss-sharing ratio and an FDL ratio of 1.13. In
the October 2004 final rule, we revised the FDL ratio to 0.70, based on
analysis of CY 2003 HH PPS data. We believed this updated FDL ratio of
0.70 preserved a reasonable degree of cost sharing, allowed a greater
number of episodes to qualify for outlier payments, and yet did not
result in a projected target percentage of estimated outlier payments
of more than 5 percent.
Our CY 2006 update to the HH PPS rates, which was based upon CY
2004 HH claims data, again revised the FDL ratio from 0.70 to 0.65 to
allow even more home health episodes to qualify for outlier payments
and to better meet the estimated 5 percent target of outlier payments
as a percentage of total HH PPS payments. In our CY 2007 update, we
again changed the FDL ratio from 0.65 to 0.67 to better meet the 5
percent target of outlier payments to total HH PPS payments, and based
the change on analysis of CY 2005 HH claims.
In the proposed rule (72 FR 25434), we stated that preliminary
analysis showed that outlier payments, as a percentage of total HH PPS
payments, have increased on a yearly basis. With outlier payments
having increased in recent years, and given the unknown effects that
the proposed refinements may have on outliers, we proposed to maintain
the FDL ratio at 0.67. We believed that this would continue to meet the
statutory requirement of having an outlier payment outlay that does not
exceed 5 percent of total HH PPS payments, while still providing for an
adequate number of episodes to qualify for outlier payments. We stated
in the proposed rule that we would rely on the latest data and best
analysis available at the time to estimate outlier payments and update
the FDL ratio in the final rule if appropriate.
Comment: A commenter supported our proposed outlier policy but does
not understand why it needs to be capped at 5 percent.
Response: The statute, at section 1895(b)(5) of the Act, limits
estimated outlier payments to no more than 5 percent of the total
estimated HH PPS payments during a given year.
Comment: Commenters stated that the fixed dollar loss (FDL) ratio
should be

[[Page 49856]]

reduced since the 0.67 FDL ratio will not result in CMS spending the
targeted 5 percent for outlier payments as a percentage of total
estimated HH PPS payments. CMS should adjust its technique for
calculating the FDL ratio by using its historical data on actual
outlays.
Response: Given that outlier payments as a percentage of total HH
PPS payments have increased in recent years and given the unknown
effects of the proposed refinements, we proposed to maintain the FDL
ratio at 0.67. At the time of the proposed rule, data indicated that by
maintaining the FDL ratio at 0.67 we would continue to meet the
statutory requirement that estimated outlier payments be no more than 5
percent of total estimated HH PPS payments, yet an adequate number of
episodes would qualify for outlier payments. In the proposed rule, we
indicated that preliminary analysis, which was based on 2003 data,
showed the FDL ratio could be as low as 0.42.
The 2003 data used in Abt's modeling of the refined HH PPS for the
proposed rule was somewhat limited in that it was not able to take into
account more recent trends in actual outlier expenditures. Similarly,
Abt's modeling of the refined HH PPS for this final rule is still
somewhat limited in that it is not able to take into account the latest
available data on actual outlier expenditures. Consequently, as we
stated in the proposed rule, in the interest of using the latest data
and best analysis available, we have performed supplemental analysis on
more recent data in order to best estimate the FDL ratio.
When we revised the FDL from 1.13 to .70 in CY 2005, we expected to
observe an increase in outlier payments as a percent of total payments
to better meet our projected target percentage of not more than 5
percent. In addition, for CY 2006 and CY 2007 (with relatively stable
FDLs of .65 and .67), we would have anticipated that outlier payments
would have remained relatively stable and not exceed 5 percent of
estimated HH PPS payments for each given year. Instead, experience has
shown that outlier payments have been increasing as a percent of total
payments from 4.1 percent in CY 2005 to 4.97 percent in CY 2006 and, we
estimate, 5.33 percent in CY 2007. These increasing percents imply that
the cost distribution of episodes is changing and that our estimates of
the FDL need to account for these changes in order to better match
experience and to not exceed the statutory limit of not more than 5
percent as a percentage of total estimated HH PPS payments.
The current model's estimate of the FDL ratio, using CY 2005 data,
is 0.47. This is higher than the estimate from the FY 2003 data, which
was 0.42, reflecting growth in the outlier percentage, as noted
earlier. Given current trends, we estimate that we would exceed the 5
percent statutory limit on outlier payments using either the model's
FDL ratio of 0.47, or the proposed FDL ratio of 0.67. In order to
capture the most recent trends in the increase of outlier payments, and
to appropriately account for seasonal differences that may exist in
outlier episodes, we compared the percentage of outlier payments as a
percentage of total HH PPS payments from the first quarter of CY 2006
(4.52 percent) and the first quarter of CY 2007 (4.85 percent). That
estimated annual percentage increase in outlier payments is calculated
to be 7.3 percent. We estimate the percentage of outlier payments for
CY 2007 by multiplying 4.97 percent (the percentage of outlier payments
for CY 2006) by 1.073 (the estimated annual percentage increase in
outlier payments noted above) for an estimated percentage of outlier
payments as a percent of total estimated HH PPS payments for CY 2007 of
5.33 percent. We multiply the 5.33 percent by 1.073, to estimate the
percentage of outlier payments as a percent of total estimated HH PPS
payments for CY 2008. That calculation results in an estimated
percentage of outlier payments as a percent of total estimated HH PPS
payments for CY 2008 of 5.7 percent.
We then analyzed the sensitivity of the percent of outlier payments
to total payments to variations in the FDL ratio. Using simulations of
the values of FDLs consistent with alternative outlier payment percents
based on CY 2005 data (the latest data available for such an analysis),
we used linear regression to estimate the change in the FDL ratio
associated with a 1 percentage point change in the percent of outlier
payments. That linear regression analysis shows that a one percentage
point change in the outlier payment percentage is associated with a
negative 0.31 change in the FDL ratio. That is, to reduce the percent
of outlier payments by one percentage point, it would be necessary to
increase the FDL ratio by 0.31.
Using this analysis we looked to see what adjustment, to the FDL
ratio, would be appropriate in estimating outlier payments of up to but
not more than 5 percent of total estimated HH PPS payments in CY 2008.
As also mentioned above, we have estimated that with an FDL ratio of
0.67, outlier payments as a percentage of total estimated HH PPS
payments are estimated to be approximately 5.7 percent. We take the 0.7
percent (the percentage amount in excess of the 5 percent target) and
multiply it by 0.31 (the estimated amount of change in the FDL ratio
for every one percentage point change in the outlier payment
percentage), (0.7 * 0.31), resulting in a change in the FDL ratio of
0.22. We add that 0.22 change in the FDL ratio to the FDL ratio in
effect in 2007 (0.67), arriving at a final FDL ratio of 0.89.
Based on this analysis, we believe that setting the FDL ratio at
0.89 would be the most prudent course given these trends and the
unknown effects of the refinements on outliers. As previously stated,
we further believe that a FDL ratio of 0.89 will continue to meet the
statutory requirement of having an estimated outlier payment outlay
that does not exceed the 5 percent of total estimated HH PPS payments,
while still providing for an adequate number of episodes to qualify for
outlier payments. As our best estimate is that an FDL of 0.89 is
consistent with outlier payments of no more than 5.0 percent of total
estimated HH PPS payments, we will account for the estimated 5 percent
outlier payments in our updating of the HH PPS rates. We will continue
to monitor the trends in outlier payments and the effects of the
refinements, and will adjust the FDL ratio as needed.
Comment: Several commenters supported eliminating the outlier
policy and redistributing the 5 percent outlier allocation, which has
never been fully distributed anyway, in order to increase the
standardized payment rates. The commenters believed that the outlier
policy is disadvantageous to efficient and effective HHAs. Despite
caring for very sick, resource intensive patients, some HHAs have never
received any benefit from the outlier policy. The commenters suggested
that redistributing the outlier allocation to the standardized payment
rates would ensure a more effective use of the budgeted Medicare home
health funds.
Another commenter suggested we reduce the maximum outlier payments
as a percentage of total HH PPS payment from 5 percent to 1 percent.
Response: We appreciate the comment. However, we continue to
believe that maintaining an outlier policy is beneficial to the home
health community. We have set the loss sharing ratio and the fixed
dollar loss amount in such a way to preserve a reasonable degree of
cost sharing while allowing an appropriate number of episodes to
qualify for outlier payments.
We disagree with the suggestion that we reduce the maximum outlier

[[Page 49857]]

percentage from 5 percent of total HH PPS payments to 1 percent. We
believe that the current policy is more equitable, and that reducing
the percentage could result in reducing access to home health care by
high needs patients.
Comment: A commenter stated that the outlier policy is fiscally
punitive to the HH industry and that it appears to be a back door
mechanism to reduce payments to the industry. The commenter suggested
eliminating the outlier policy and revising the standardized rates to
include the 5 percent outlier allocation.
Response: Section 1895(b)(5) of the Act allows the Secretary to
provide an adjustment to the case-mix and wage adjusted national 60-day
episode payment amount when episodes incur unusually large costs due to
patient home care needs. Section 1895(b)(5) of the Act further
stipulates that the total outlier payments in a given year may not
exceed 5 percent of total projected estimated HH PPS payments. Again,
as stated above, we continue to believe that the benefit to the home
health community of maintaining an outlier policy is consistent with
the statute and outweighs not having an outlier policy.
Comment: One commenter asked that standards for the outlier
provision be changed to allow agencies to recover their costs for those
most expensive, high needs patients. This would encourage agencies to
accept these cases and provide appropriate care.
Response: We appreciate the comment. Again, we believe we have set
the loss sharing ratio and the fixed dollar loss amount in such a way
as to preserve a reasonable degree of cost sharing while allowing an
appropriate number of episodes to qualify for outlier payments. We also
believe the FDL ratio will allow us to better meet the statutory
percentage imposed on outlier payments.
Comment: A commenter wrote that it was unwise to dismiss the need
to adjust the outlier threshold at the same time that an increase in HH
PPS predictive power was being implemented via the refinements.
Response: Our proposal to keep the FDL at 0.67 for CY 2007 was
based upon the most recent data analysis at that time, and the unknown
effects of the HH PPS refinements on outlier payments. As noted above,
further analysis and use of more recent and updated data has led us to
revise the outlier FDL ratio.
In summary, since the publication of the CY 2008 HH PPS proposed
rule, we have updated our analysis file, on which the Abt model is
based, to include 2005 data. Using the best analysis and data
available, including trend analysis and linear regression analysis
described above, we have adjusted the current FDL ratio of 0.67 to
0.89. We believe that we have accounted for the latest observed trends
in outlier payments, and incorporated the best analysis available to
determine that an increase in the FDL ratio is necessary in order to
continue to meet the statutory requirement of having an outlier payment
outlay that does not exceed 5 percent of total HH PPS payments, while
still providing for an adequate number of episodes to qualify for
outlier payments.
Therefore, in this final rule we are implementing a FDL ratio of
0.89 for FY 2008. To account for an outlier policy that estimates
outlier payments to be no more than 5 percent of total HH PPS payments,
and to maintain budget neutrality, we reduce the national standardized
60-day episode payment rate. We are revising 42 CFR 484.240(b)
(``Methodology used for the calculation of the outlier payment'') to
remove references to the SCIC adjustment. We will continue to monitor
trends in the data, along with the effects of the refinements, on
outlier payments, and will update the FDL as needed. We will also
continue to review the outlier payments using the administrative data
we monitor yearly. Future reviews will consider the appropriateness of
outlier payments in the entire context of the refinements being
finalized in this regulation.

E. The Update of the HH PPS Rates

1. The Home Health Market Basket Update
Section 1895(b)(3)(B) of the Act, as amended by section 5201 of the
DRA, requires for CY 2008 that the standard prospective payment amounts
be increased by a factor equal to the applicable home health market
basket percentage increase. The proposed rule contained a home health
market basket percentage increase of 2.9 percent. Using revised updated
data, we now estimate a home health market basket percentage increase
of 3.0 percent for CY 2008.
2. The Rebasing and Revising of the Home Health Market Basket
In the proposed rule, we proposed to rebase and revise the home
health market basket to ensure it continues to adequately reflect the
price changes of efficiently providing home health services.
Specifically, we proposed to update the home health market basket base
year from 2000 to 2003. We also proposed to revise the home health
market basket. For full description of our proposal to revise and
rebase the home health market basket, we refer to the CY 2008 HH PPS
proposed rule (72 FR 25435-25442). In the proposed revised and rebased
home health market basket, the labor-related share would be 77.082
percent. The labor-related share includes wages and salaries and
employee benefits. The proposed non labor-related share would be 22.918
percent. The increase in the labor-related share using the 2003-based
home health market basket is primarily due to the increase in the
benefit cost weight.
Comment: Several commenters objected to our proposal to change the
labor-related share to 77.082 percent and requested that CMS maintain a
labor-related share of 76.775 percent. One commenter noted that the
higher labor-related share would have an adverse impact on
reimbursement particularly for rural home health care providers who
have wage indices of less than 1.0. The commenter proposed that CMS
should withdraw its proposal to increase the labor-related share of the
HH PPS rate.
Response: Since the inception of HH PPS, the home health labor-
related share has been based on the sum of the weights for wages and
salaries and fringe benefits of the home health market basket index. We
also note the wage index is estimated independently from the labor-
related share. The labor-related share is calculated based on data
submitted on the home health Medicare cost reports for both rural and
urban freestanding home health care facilities. The proposed change in
the labor-related share is primarily attributable to the rebasing of
the market basket from base year 2000 to 2003. The 2003 data, the most
recent and comprehensive data available at the time of this rebasing,
reflect that labor-related costs are increasing faster than aggregate
non labor-related costs. Based on the submitted cost report data from
2001 to 2003, the weight for wages and salaries has been declining
while the weight for fringe benefits has been increasing, thus driving
the labor-related share higher overall. We believe the proposed 77.082
percent to be the most technically accurate measure of labor-related
costs. We will continue to analyze HH cost report data on a regular
basis to ensure it accurately reflects the cost structures facing HH
providers serving Medicare beneficiaries.
Comment: Several commenters disagreed with the proposed market
basket update for home health providers of 2.9 percent for CY 2008,
which is lower than the proposed FY inpatient hospital and skilled
nursing facility

[[Page 49858]]

(SNF) market basket updates. One commenter noted that the lower market
basket update relative to other providers will have an adverse impact
on the industry's ability to attract health care workers.
Response: The final HH market basket update for CY 2008 is 3.0
percent, which is based on Global Insight Inc.'s (GII) 2007 2nd quarter
forecast, the most current forecast available at the time of
publication of the final rule. The update in the proposed rule was
based on GII's 2006 3rd quarter forecast. GII is a nationally
recognized economic and financial forecasting firm that contracts with
CMS to forecast the components of the market baskets. CMS calculates
each market basket (both weight composition and price proxy selection)
specific to the respective industry and independent of the other market
baskets.
The HH PPS market basket measures the change in prices for an
exhaustive list of categories that represent the inputs required to
provide services to Medicare beneficiaries. The HH index weights are
based on data reported on the Medicare cost report forms which provide
actual cost share data specific to home health agencies. Likewise, the
hospital and SNF market baskets are based on actual cost shares
reported on their respective cost reports. Each cost category in all
market baskets is matched to a price proxy that is determined to be the
most technically appropriate price proxy for that category. For
example, the HH wage price proxy measures price pressures specific to
the occupational skill mix within the HH industry while the SNF wage
price proxy measures price pressures specific to the skilled nursing
facility industry.
We believe that HH compensation costs are accurately captured
within the HH market basket. The associated weight is derived directly
from the Medicare cost report data, which indicates that compensation
in the HH industry is higher relative to that of other market
industries. We believe this reflects the labor-intensive nature of the
home health industry. Moreover, the indices used to proxy changes in
the price of labor reflect the occupational mix of the laborers in the
HH industry and are thus also technically appropriate.
Comment: Several commenters stated that HH providers face higher
transportation costs than other types of providers which should be
reflected in a higher market basket update.
Response: We believe HH transportation costs are accurately
captured within the HH market basket. The transportation base year cost
weight is derived from the data reported on the 2003 HHA Medicare cost
reports. In determining the market basket percentage increase, these
costs are proxied using the CPI for private transportation. Forecasts
of this price proxy reflect the price changes of fuel, as well as other
transportation costs such as vehicle purchase/lease, maintenance,
repair, and insurance. We believe this is the most appropriate price
proxy to use for transportation as home health providers face all
aspects of vehicle expenses and as such, these costs are appropriately
captured in the rebased and revised home health market basket.
Comment: Several commenters stated that the present wage structure
does not provide adequate reimbursement for increased nursing and
therapist wages. Additionally, one commenter suggested CMS should use
data from the Bureau of Labor Statistics (BLS) for clinician costs.
Response: The current price proxy used for the compensation portion
of the home health market basket was designed based on the occupational
skill mix specific to the home health industry. The proxy accounts for
all related compensation expenditures for an exhaustive list of
occupations within the home health industry, including but not limited
to, nurses, therapists, and clinicians. These three occupations fall
into the cost category for skilled nursing, therapists, and other
professional/technical workers, a cost category accounting for 50.506
percent of the total home health wage proxy (72 FR 25440). These wages
are proxied by a 50/50 blend of the employment cost index (ECI) for
professional & technical (P&T) workers and the ECI for hospital
workers. Accordingly, we believe that the home health occupational wage
and salary index is the most representative measure of home health wage
pressures.
We are implementing the revised and rebased HH market basket as
proposed.
3. Wage Index
The statute at sections 1895(b)(4)(A)(ii) and 1895(b)(4) of the Act
requires the Secretary to establish wage adjustment factors that
reflect the relevant level of wages and wage-related costs applicable
to the furnishing of home health services and to provide appropriate
adjustment to the episode payment amount under the HH PPS to account
for area wage differences. Section 1895(b)(4)(C) of the Act further
provides that the wage adjustment factors may be the factors used by
the Secretary for purposes of section 1886(d)(3)(E) of the Act for
hospital wage adjustment factors. We apply the appropriate wage index
value to the proposed labor portion (77.082 percent; see Table 22 of
the proposed rule) of the HH PPS rates based on the geographic area
where the beneficiary received the home health services. As implemented
under the HH PPS in the July 3, 2000 HH PPS final rule, each HHA's
labor market area is based on definitions of Metropolitan Statistical
Areas (MSAs) issued by the OMB. We have consistently used and proposed
again in the CY 2008 HH PPS proposed rule to use the pre-floor and pre-
reclassified hospital wage index data to adjust the labor portion of
the HH PPS rates based on the geographic area where the beneficiary
receives home health services (72 FR 25448). We believe the use of the
pre-floor and pre-reclassified hospital wage index data results in the
appropriate adjustment to the labor portion of the costs as required by
statute.
In the August 11, 2004 IPPS final rule [69 FR 49206], revised labor
market area definitions were adopted at Sec. 412.64(b), which were
effective October 1, 2004 for acute care hospitals. The new standards,
Core Based Statistical Areas (CBSAs), were announced by OMB in late
2000 and were also discussed in greater detail in the July 14, 2005 HH
PPS proposed rule. For the purposes of the HH PPS, the term ``MSA-
based'' refers to wage index values and designations based on the
previous MSA designations. Conversely, the term ``CBSA-based'' refers
to wage index values and designations based on the new OMB revised MSA
designations which now include CBSAs. In the November 9, 2005 HH PPS
final rule (70 FR 68132), we implemented a 1-year transition policy
using a 50/50 blend of the CBSA-based wage index values and the
Metropolitan Statistical Area (MSA)-based wage index values for CY
2006. The 1-year transition policy ended in CY 2006. Currently, wage
index values for CY 2007 are based on CBSA designations. For CY 2008,
we will continue to use a wage index based on the CBSA designations.
As implemented under the HH PPS in the July 3, 2000 HH PPS final
rule, each HHA's labor market is determined based on definitions of
MSAs issued by OMB. In general, an urban area is defined as an MSA or
New England County Metropolitan Area (NECMA) as defined by OMB. Under
Sec. 412.64(b)(1)(ii)(C), a rural area is defined as any area outside
of the urban area. The urban and rural area geographic classifications
are defined in Sec. 412.64(b)(1)(ii)(A) and Sec. 412.64(b)(1)(II)(C)
respectively, and have been used under the HH PPS since implementation.

[[Page 49859]]

Under the HH PPS, the wage index value used is based upon the
location of the beneficiary's home. As has been our longstanding
practice, any area not included in an MSA (urban area) is considered to
be non-urban Sec. 412.64(b)(1)(ii)(C) and receives the statewide rural
wage index value (see, for example, 65 FR 41173).
As discussed previously and set forth in the July 3, 2000 final
rule, the statute provides that the wage adjustment factors may be the
factors used by the Secretary for purposes of section 1886(d)(3)(E) of
the Act for hospital wage adjustment factors. As discussed in the July
3, 2000 final rule, we proposed to again use the pre-floor and pre-
reclassified hospital wage index data to adjust the labor portion of
the HH PPS rates based on the geographic area where the beneficiary
receives home health services. We believe the use of the pre-floor and
pre-reclassified hospital wage index data results in the appropriate
adjustment to the labor portion of the costs as required by statute.
For the CY 2008 update to home health payment rates, we would continue
to use the most recent pre-floor and pre-reclassified hospital wage
index available at the time of publication.
In adopting the CBSA designations, we identified some geographic
areas where there are no hospitals, and thus no hospital wage data on
which to base the calculation of the home health wage index. Beginning
in CY 2006, we adopted a policy that, for urban labor markets without
an urban hospital from which a hospital wage index can be derived, all
of the urban CBSA-wage index values within the State would be used to
calculate a statewide urban average wage index to use as a reasonable
proxy for these areas. Currently, the only CBSA that would be affected
by this policy is CBSA 25980, Hinesville, Georgia. We proposed to
continue this policy for CY 2008.
Currently, the only rural areas where there are no hospitals from
which to calculate a hospital wage index are Massachusetts and Puerto
Rico. For CY 2006, we adopted a policy in the HH PPS November 9, 2005
final rule (70 FR 68138) of using the CY 2005 pre-floor, pre-
reclassified hospital wage index value. In the August 3, 2006 proposed
rule, we again proposed to apply the CY 2005 pre-floor/pre-reclassified
hospital wage index to rural areas where no hospital wage data is
available. In response to commenters' concerns and in recognition that,
in the future, there may be additional rural areas impacted by a lack
of hospital wage data from which to derive a wage index, we adopted, in
the November 9, 2006 final rule (71 FR 65905), the following
methodology for imputing a rural wage index for areas where no hospital
wage data are available as an acceptable proxy. The methodology that we
implemented for CY 2007 imputed an average wage index value by
averaging the wage index values from contiguous CBSAs as a reasonable
proxy for rural areas with no hospital wage data from which to
calculate a wage index. We believe this methodology best met our
criteria for imputing a rural wage index as well as representing an
appropriate wage index proxy for rural areas without hospital wage
data. Specifically, such a methodology uses pre-floor, pre-reclassified
hospital wage data, is easy to evaluate, is updateable from year to
year, and uses the most local data available. In determining an imputed
rural wage index, we define ``contiguous'' as sharing a border. For
Massachusetts, rural Massachusetts currently consists of Dukes and
Nantucket Counties. We determined that the borders of Dukes and
Nantucket counties are ``contiguous'' with Barnstable and Bristol
counties. We again proposed to apply this methodology for imputing a
rural wage index for those rural areas without rural hospital wage
data.
However, as we noted in the HH PPS final rule for CY 2007, we did
not believe that this policy was appropriate for Puerto Rico. As noted
in the August 3, 2006 proposed rule, there are sufficient economic
differences between the hospitals in the United States and those in
Puerto Rico, including the fact that hospitals in Puerto Rico are paid
on blended Federal/Commonwealth-specific rates, that a separate,
distinct policy for Puerto Rico is necessary. Consequently, any
alternative methodology for imputing a wage index for rural Puerto Rico
would need to take into account those differences. Our policy of
imputing a rural wage index by using an averaged wage index of CBSAs
contiguous to that rural area does not recognize the unique
circumstances of Puerto Rico. For CY 2008, we again proposed to
continue to use the most recent wage index previously available for
Puerto Rico which is 0.4047.
Comment: A commenter supported ensuring that the hospital cost
reports that are used to calculate the wage index are accurate. The
commenter stated that CMS should not accept or utilize faulty cost
report data.
Response: We appreciate the comment and note CMS utilizes efficient
means to ensure and review the accuracy of the cost report data and
resulting wage index. The home health wage index is derived from the
pre-floor, pre-reclassified hospital wage index which is calculated
based on cost report data from hospitals paid under the hospital
inpatient prospective payment system (IPPS). All IPPS hospitals must
complete the wage index survey (Worksheet S-3, Parts II and III) as
part of their Medicare cost reports. Cost reports will be rejected if
Worksheet S-3 is not completed. In addition, our intermediaries perform
desk reviews on all hospitals' Worksheet S-3 wage data, and we run
edits on the wage data to further ensure the accuracy and validity of
the wage data. Furthermore, HHAs have the opportunity to submit
comments on the hospital wage index data during the annual IPPS
rulemaking period. Therefore, we believe our review processes result in
an accurate reflection of the applicable wages for the areas given.
Comment: Several commenters expressed concerns about using the pre-
floor, pre-reclassified hospital wage index for the home health wage
index. These commenters believe that CMS has the regulatory authority
to replace the current wage index with one that achieves parity with
hospitals in order to compete in the same geographic labor markets.
Further, these commenters support stabilizing the wage index through
limits on year-to-year changes. Specific recommendations include
applying a rural floor in addition to allowing HHAs to apply for the
type of geographic reclassification that IPPS hospitals are provided.
Response: The commenters are referring to rural floor and
geographic reclassification provisions in the IPPS which are only
applicable to hospital payments. The rural floor provision is provided
at section 4410 of Public Law 105-33 and is specific to hospitals. The
reclassification provision provided at section 1886(d)(10) of the Act
is also specific to hospitals. Because these floors and
reclassifications apply only to hospitals, and not to HHAs, we believe
the use of the most recent available pre-floor and pre-reclassified
hospital wage index data results in the most appropriate adjustment to
the labor portion of home health costs as required at 1895(b)(4)(C). We
also note that the HH PPS wage adjustment is based on the geographic
area where the beneficiary is located, not where the HHA is located.
Comment: One commenter recommended that CMS adopt a ``rural floor''
policy for the home health wage index, comparable to the policy that
exists for hospitals. The commenter believed that CMS has the authority
to

[[Page 49860]]

make the change in the regulation. The commenter expressed that its
proposal would be the simplest, fairest, and most cost effective
solution to the ``wage index problems'' and would serve as an important
bridge to any legislative revision to the wage index provisions, which
is likely to take years to enact.
Response: Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act
require the Secretary to establish area wage adjustment factors that
reflect the relative level of wages and wage-related costs applicable
to the furnishing of home health services and to provide appropriate
adjustments to the episode payment amounts under the HH PPS to account
for area wage differences. The wage adjustment factors may be the
factors used by the Secretary for purposes of section 1886(d)(3)(E) of
the Act. We believe the use of the hospital wage data, without
application of a rural floor, results in appropriate adjustment to the
labor portion of costs based on an appropriate wage index as required
under section 1895(b)(3)(A)(i), (b)(4)(A)(ii), and (b)(4)(C) of the
Act. Additionally, as stated above, the rural floor provision provided
at section 4410 of Pub. L. 105-33 is specific to hospital payments.
Comment: Several commenters expressed concern that in FY 2004, we
dropped Critical Access Hospitals (CAHs) from our calculation of the
hospital wage index. Commenters stated that wage cost data from over
1,000 CAHs are no longer included in the calculation of the hospital
wage index. These hospitals are located in rural areas and therefore
impact the calculation of the rural wage indexes. The commenters
believed not including CAH cost report data in the wage index
calculation has had a significant impact on HHAs that serve
beneficiaries in rural areas.
Response: As noted previously, we adopted the pre-floor, pre-
classified hospital wage index data as we believe they most
appropriately reflect the relative level of wages and wage-related
costs applicable to the furnishing of home health services and provide
appropriate adjustments to the episode payment amounts under the HH PPS
to account for area wage differences. Therefore, for this final rule,
we are adopting the pre-floor, pre-reclassified hospital wage index.
Comments as to how the IPPS should construct that wage index are beyond
the scope of this rule.
Comment: One commenter stated that we should use the HHA wage data
that we collected and analyzed to rebase the labor share of the home
health market basket in order to develop a home health specific wage
index. Similarly, other commenters recommended that CMS develop a home
health specific wage index to reflect the true costs of HHAs.
Response: While we appreciate the commenters' desire to use a home
health specific wage index, we note that our previous attempts at
either proposing or developing a home health specific wage index were
not well received by commenters or the industry. Generally, the
volatility of the home health wage data and the resources needed to
audit and verify that data, make it difficult to ensure that such a
wage index accurately reflects the wages and wage-related costs
applicable to the furnishing of services. Thus, we are not adopting a
home health specific wage index at this time. We believe it is
important that a home health specific wage index be more reflective of
the wages and salaries paid in a specific area, be based upon a stable
data source, and significantly improve our ability to determine home
health payments without being overly burdensome. We continue to believe
that using the most recent available pre-floor, pre-reclassified
hospital wage index results in the appropriate adjustment to the labor
portion of the costs as required by the statute.
Comment: Several commenters proposed that CMS adopt MedPAC's
proposed method for calculating the hospital wage index and apply it to
the HH PPS. Chapter 6 of MedPAC's June 2007 Report to Congress,
entitled ``Promoting Greater Efficiency in Medicare'' discusses
MedPAC's proposed methodology. Under MedPAC's system, HHAs and
hospitals in the same market would have the same wage index. The new
methodology would be available for all labor areas, eliminating the
need for imputing an index for agencies in areas with no hospital wage
data. One commenter urged CMS to begin implementing MedPAC's proposed
wage index methodology for home health in CY 2009.
Response: Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432)
requires MedPAC to submit to Congress, not later than June 30, 2007, a
report on the Medicare wage index classification system applied under
the Medicare Prospective Payment System. Section 106(b) of MIEA-TRHCA
requires the report to include any alternatives that MedPAC recommends
to the method used to compute the wage index under section
1886(d)(3)(E) of the Act.
We thank the commenters for their ideas and suggestions on the wage
index in response to the statutory requirements under Pub. L. 109-432.
We are reviewing MedPAC's Report to Congress and the wage index
methodology recommended therein. We will carefully consider MedPAC's
recommendations as they apply to the HH PPS. Finally, we note that
MedPAC released its June 2007 report to Congress on June 15, 2007. As
the statute requires, the report includes MedPAC's analysis and
recommendations on alternatives to the method to compute the wage
index. The full report can be downloaded from MedPAC's Web Site at
http://www.medpac.gov/documents/Jun07_EntireReport.pdf.
Comment: A commenter expressed concern because the wage index for
CBSA 25180, Berkeley County, WV is lower than other nearby CBSAs in the
Washington, DC area. In addition, the commenter stated that CBSA 25180
is one of the fastest growing areas in the nation, thereby increasing
property values and hence labor costs.
Response: CBSA 25180 ``Hagerstown-Martinsburg, MD-WV'' includes not
only Berkeley County, WV but also Morgan County, WV and Washington
County, MD. Prior to our adoption of OMB's revised geographic area
designations in CY 2006, Morgan County was classified as rural. Prior
to CY 2006, Berkeley County was grouped with 24 other geographic areas
(23 counties and the District of Columbia) in order to calculate a wage
index for this area, which was classified as MSA 8840 ``Washington, DC-
MD-VA-WV.'' After adopting OMB's revised geographic area designations,
Morgan, Berkeley, and Washington counties' hospital wage data are now
added together to calculate the wage index for CBSA 25180. We were
aware that changes to wage index values might result from adopting the
revised OMB designations. Therefore, we provided a one-year transition
period in CY 2006 as a means to phase in the changes and to mitigate
the resulting adverse impact of a CBSA-based wage index on certain
HHAs. As to the appropriateness of what CBSA a particular area has been
designated into, CBSA designations are determined by the Office of
Management and Budget (OMB). This information is available at the
following Web site address: http://www.whitehouse.gov/omb/bulletins/
b03-04.html. We continue to believe that OMB's CBSA designations
reflect the most recent available geographic classifications and are a
reasonable and appropriate way to define geographic areas for purposes
of determining wage index values.
Comment: A commenter pointed out that the CY 2007 wage index for
rural

[[Page 49861]]

Massachusetts is listed as 1.0661 in the proposed rule but that it
should be 1.1661.
Response: This was an inadvertent typographical error in the
proposed rule. The HH PPS Pricer for CY 2007 contains the correct value
of 1.1661. Accordingly, payments made to HHAs who serve patients
residing in rural areas of Massachusetts are being paid based upon the
correct wage index value of 1.1661.
For the CY 2008 update to home health payment rates, we are
finalizing the wage index and associated policies in that we will
continue to use the most recent pre-floor and pre-reclassified hospital
wage index. In addition, we note that we plan to evaluate any policies
adopted in the FY 2008 IPPS final rule that affect the wage index,
including how we treat certain New England hospitals under Sec. 601(g)
of the Social Security Amendments of 1983 (Pub. L. 98-21). We continue
to believe that the use of the pre-floor and pre-reclassified hospital
wage index data for HH PPS results in the appropriate adjustment to the
labor portion of the costs as required by statute.
4. Home Health Care Quality Improvement
Section 5201(c)(2) of the DRA added section 1895(b)(3)(B)(v)(II) to
the Act, requiring that ``each home health agency shall submit to the
Secretary such data that the Secretary determines are appropriate for
the measurement of health care quality. Such data shall be submitted in
a form and manner, and at a time, specified by the Secretary for
purposes of this clause.'' In addition, section 1895(b)(3)(B)(v)(I) of
the Act, as also added by section 5201(c)(2) of the DRA, dictates that
``for 2007 and each subsequent year, in the case of a home health
agency that does not submit data to the Secretary in accordance with
subclause (II) with respect to such a year, the home health market
basket percentage increase applicable under such clause for such year
shall be reduced by 2 percentage points.''
The OASIS data currently provide consumers and HHAs with 10
publicly-reported home health quality measures which have been endorsed
by the National Quality Forum (NQF). Reporting these quality data has
also required the development of several supporting mechanisms such as
the HAVEN software used to encode and transmit data using a CMS
standard electronic record layout, edit specifications, and data
dictionary. The HAVEN software includes the required OASIS data set
that has become a standard part of HHA operations. These early
investments in data infrastructure and supporting software that CMS and
HHAs have made over the past several years in order to create this
quality reporting structure have been successful in making quality
reporting and measurement an integral component of the HHA industry.
For CY 2007, we specified 10 OASIS quality measures as appropriate for
measurements of health care quality. These measures were to be
submitted by HHAs to meet their statutory requirement to submit quality
data for a full increase in their market basket percentage increase
amount. The 10 measures are:

(1) Improvement in ambulation/locomotion
(2) Improvement in bathing
(3) Improvement in transferring
(4) Improvement in management of oral medications
(5) Improvement in pain interfering with activity
(6) Acute care hospitalization
(7) Emergent care
(8) Improvement in dyspnea
(9) Improvement in urinary incontinence
(10) Discharge to community
For CY 2007, we specified 10 OASIS quality measures as appropriate
for measurements of health care quality. These measures were to be
submitted by HHAs to meet their statutory requirement to submit quality
data for a full increase in their market basket percentage increase
amount. For CY 2008, we proposed to expand the existing set of 10
quality measures by adding up to 2 NQF-endorsed measures. The proposed
additional measures for 2008 were:
Emergent Care for Wound Infections, Deteriorating Wound
Status
Improvement in the Status of Surgical Wounds (For a
complete list and description of the quality measure requirements see
the proposed rule (72 FR 25449-25452)).
Comment: Several commenters suggested that CMS continue to refine
and enhance the OASIS assessment instrument and associated Quality
Measures, and suggested item-specific or quality measure-specific items
in use in the home health quality reporting requirement.
Response: CMS is constantly working to improve the OASIS instrument
and the quality measures that are built upon it. We will continue to
pursue improving the assessment instrument's accuracy in reflecting
both the health status and improvements in condition of our
beneficiaries. On July 27, 2007, a notice was published in the Federal
Register (CMS-10238) which seeks public comment on a version of the
OASIS that we plan to begin testing in early 2008 (72 FR 41328).
Comment: A number of commenters requested that we eliminate OASIS
item M0175. Commenters also requested numerous item-specific revisions
to the OASIS.
Response: We are presently unable to accommodate the request to
delete OASIS item M0175. OASIS item M0175 has a critical role in risk
adjusting many quality measures as it is used to determine the type of
facility the patient was discharged from in the previous 14 days before
HH admission. However, we will continue to look for ways to reduce the
overall burden to providers and determine if this information can be
obtained in a more simplified or automated manner as we re-examine the
OASIS instrument.
The remainder of the item-specific comments received relate to data
items that will be addressed in an upcoming notice concerning revisions
of the OASIS mentioned above. These revisions are currently planned for
an OASIS update in calendar year 2009. These changes are responsive to
the comments we have received, and reflect months of development and
analysis, as well as industry input and concerns.
On July 27, 2007, a notice was published in the Federal Register
(CMS-10238) which seeks public comment on a version of the OASIS that
we plan to begin testing in early 2008. Based on the finding from the
testing, we may pursue adopting the commenter's suggested changes in
future payment rule notices.
Comment: Some commenters were concerned about the proposed quality
measure regarding emergent care for wound infections.
Response: We note that the title and description of the quality
measure do not fully reflect the breadth of the issue being measured.
Specifically, the quality measure entitled ``Emergent Care for Wound
Infections, Deteriorating Wound Status'' is calculated using a data
item that includes new pressure ulcers and lesions, and therefore the
title of the measure may cause some confusion. Nonetheless, we feel
that the quality measure is an important indicator and we intend to
conform the title of the measure to more accurately reflect the
concepts being measured.
Comment: Several commenters suggested that we delete two quality
items to compensate for the two new quality items added. Some also
suggested that we reduce the total number of OASIS items. Another
suggested we develop quality measures for fall prevention.

[[Page 49862]]

Response: CMS is not adding new OASIS quality items to be reported
in this rule. CMS is adding two quality measures to expand the number
of measures currently being reported for quality reporting purposes by
using existing OASIS data. The data elements used to calculate these
measures are already captured by the OASIS instrument and do not
require additional reporting or burden to HHAs. We believe that through
this expansion of measures for the HH PPS quality reporting segment, we
are providing the public with a wider array of comparable and
consensus-based (endorsed by the National Quality Forum in 2005)
information on health care quality.
CMS will continue to review the OASIS items collected for the
purposes of quality to determine if any changes, additions, or
deletions are appropriate, and the public will have the opportunity to
comment on proposed changes to the OASIS items.
CMS agrees with the commenter that the domain of falls prevention
is a critical aspect of health care quality. On July 27, 2007, a notice
was published in the Federal Register (CMS-10238) which seeks public
comment on a version of the OASIS that we plan to begin testing in
early 2008. This version of OASIS incorporates several process
measures, one of which is geared specifically toward fall prevention
outcome measures in future updates of the OASIS instrument for the
purpose of pay for reporting.
Comment: A commenter was in favor of adding Improvement of Status
of Surgical Wound to the home health compare quality measures, but he
felt adding an adverse event (Emergent Care for Wound Status) was not
appropriate. Outcome Based Quality Management (OBQM) instructs the
agency to audit the record to determine if an adverse event occurred.
With the definition of emergent care being an unplanned physician visit
within 24 hours, this reporting could be detrimental. In the
commenter's area there is physician office availability that encourages
appointments to be made within 24 hours. It is seen as good practice
rather than an adverse event. The commenter recommended removing
``Emergent Care for Wound Infections, Deteriorating Wound Status'' from
the home health quality measures. Another commenter suggested we revise
the instructions so only visits to an emergency room or outpatient
emergency clinic constitute emergent care. Two commenters noted that it
is not appropriate to present outcomes that are not risk adjusted or
Adverse Event Outcomes. One commenter asked that we clarify the intent
of M0830, Emergent Care for Wound Infections, before publicly reporting
data. If the focus is only on infections or deteriorating status, then
the commenter suggested we revise the wording of the data element.
Response: This measure addresses high-risk, high-volume, high-cost
conditions. These conditions are identifiable, preventable and serious
in their consequences and they can cause serious harm to beneficiaries.
Public reporting of the measure will continue to enable providers to
investigate and take corrective actions to improve safety and quality
of care delivered. In addition, it is responsive to the NQF proposed
priority for measures associated with the frail elderly population. CMS
continues to believe that the additional measures selected for the
reporting of quality are appropriate.
On July 27, 2007, a notice was published in the Federal Register
(72 FR 41328) which seeks public comment on a version of the OASIS that
we plan to begin testing in early 2008. This new version of the OASIS
addresses many of the item-specific and quality measure specific
comments that we have received, including those of the commenters. A
critical element of this testing will be the gathering of data
necessary to make a more accurate estimate of the provider burden that
the OASIS and the anticipated revisions would require.
Comment: Numerous commenters noted that data submitted for Home
Health Compare reporting include both Medicare and Medicaid patients.
They noted that inclusion of Medicaid data can skew the data as
Medicaid and Medicare admission criteria are not the same. One
commenter stated that many Medicaid patients are seen in lieu of more
costly nursing home placement; therefore at discharge, their outcomes
(especially those related to activities of daily living) have
deteriorated.
Several commenters felt that HHAs with high Medicaid caseloads will
most likely be damaged in the public reporting process because these
patients are less likely to show marked improvement due to their
chronic conditions. The public reporting does not give an accurate
picture of the agency's performance or outcomes. When pay for
performance begins, this negative impact could create issues of access
to care for Medicaid patients. These commenters suggested only
including Medicare patients in the publicly reported data and Home
Health Compare.
Another commenter suggested that we stratify CMS Compare
information into at least three categories: traditional Medicare,
Medicare Advantage, and Medicaid. This commenter suggested we use the
information to monitor outcomes from Medicare Advantage plans compared
to traditional Medicare, or require Medicare Advantage plans to pay
agencies according to the HH PPS rule, thereby putting the physician
and agency back in control of managing the patient. This commenter also
suggested removing ``private duty'' Medicaid patients, such as
ventilator dependent patients, from the CMS Compare data.
Response: We appreciate the comment and we will consider this with
regard to future changes to the Home Health Compare site. However, it
is beyond the scope of this rule to address specific issues concerning
Home Health Compare.
Comment: Numerous commenters wrote that many of the Medicaid waiver
programs authorize ``skilled nursing services'' based on their payment
terminology, when in reality, the services are not ``skilled'' by
Medicare's definition. Clients on waiver programs tend to be
chronically ill and show no improvement in outcomes, but rather show
stabilization in their condition. Under current regulations, these
waiver clients are required to have OASIS collection performed. With
the inclusion of these waiver clients, the data skews provider outcomes
as well as aggregate state outcomes. The commenters suggested
eliminating the requirement to complete OASIS assessments on non-
Medicare clients. OASIS should be for traditional Medicare only.
Response: The request to change the regulation in Sec. 484.55
concerning OASIS collection requirements is beyond the scope of this
rule and will not be addressed here.
Comment: One commenter wrote that in New York, there is a 1915
waiver program called the Long Term Home Health Care Program (LTHHCP),
which provides an intensive array of Medicaid home and community-based
services to nursing home eligible patients. The majority of patients in
LTHHCP are dually eligible, but Medicaid is the appropriate payer of
services approximately 90 percent of the time. Patients must also meet
the requirements of a mandatory state assessment every 120 days, which
is separate from the federal OASIS requirements. The commenter is
concerned that CMS does not differentiate between LTHHP and traditional
Medicare providers regarding submitted OASIS data. The commenter urges
CMS to exclude LTHHCPs and any Special Needs Certified Home Health
Agencies from the OASIS

[[Page 49863]]

Quality Reporting and Pay for Reporting Initiative.
Response: For the purposes of the Home Health quality reporting
requirements, HHAs are required to submit quality measures to CMS
through the OASIS instrument. CMS has also specified the circumstances
under which home health agencies would be excluded from the HH PPS
quality reporting requirement (72 FR 25449). The existing LTHHCP does
not fall under any of those exclusions.
Comment: A commenter is concerned that the OASIS was designed to
measure outcomes by asking nurses to assess the ability of the patient
to perform a task, rather than by using performance based measures. The
commenter gave the example of activities of daily living (ADL)
measures.
Response: The instrument was designed to collect the information
needed to measure changes in health status over several designated time
points. The OASIS data set was designed for the purpose of enabling
rigorous and systematic measurement of patient home health outcomes. We
believe that the quality measures selected from the OASIS accurately
reflect measures of quality, and that those measures meet the statutory
requirement to report quality data.
Comment: A commenter wrote that pay for performance would have a
negative effect on whether high acuity patients would be able to find
agencies willing to help them.
Response: Currently, CMS only requires reporting of the specified
quality measures for the HH PPS quality report for reporting. At this
time, there is no ``Pay for Performance'' requirement in HH PPS.
However, we believe the current reporting requirements and any future
work on ``Pay for Performance'' initiatives will help ensure that
Medicare beneficiaries continue to have access to the highest quality
care possible.
Comment: A few commenters were concerned that the estimates of
burden on reporting the reporting burden have been underestimated.
Response: We believe our determination of the collection burden is
based upon our best estimates given the information and data available
to us at this time. CMS published a notice in the Federal Register that
begins the process of testing a new version of the OASIS instrument
which addresses many of the item-specific and quality measure specific
comments that we have received. A critical element of this testing will
be the gathering of data necessary to make a more accurate estimate of
the provider burden that the OASIS and the anticipated revisions would
require.
We are adopting, as final, the two quality measures and note that a
total of 12 quality measures are necessary to meet the statutory
submission of quality data to maintain the full home health market
basket percentage increase.
Additionally, section 1895(b)(3)(B)(v)(II) of the Act provides the
Secretary with the discretion to submit the required data in a form,
manner, and time specified by him/her. We proposed, for CY 2008, to
consider OASIS data submitted by HHAs to CMS for episodes beginning on
or after July 1, 2006 and before July 1, 2007 as meeting the reporting
requirement for calendar year 2008. This reporting time period will
allow 12 full months of data and will provide CMS the time necessary to
analyze and make any necessary payment adjustments to the CY 2008
payment rates. HHAs that meet the reporting requirement shall be
eligible for the full home health market basket percentage increase. We
received no comments and are adopting this proposal as final.
As noted in the proposed rule (72 FR 25449), the home health CoPs
(part 484) that require OASIS submission also provide for exclusions
from this requirement. Generally, agencies excluded from the OASIS
submission requirement do not receive Medicare payments as they either
do not provide services to Medicare beneficiaries or the patients are
not receiving Medicare-covered home health services. Under the CoP,
agencies are excluded from the OASIS reporting requirement on
individual patients if:
Those patients are receiving only non-skilled services,
Neither Medicare nor Medicaid is paying for home health
care (patients receiving care under a Medicare or Medicaid Managed Care
Plan are not excluded from the OASIS reporting requirement),
Those patients are receiving pre-or post-partum services,
and
Those patients are under the age of 18 years.
We believe that the rationale behind the exclusion of these
agencies from submission of OASIS on patients which are excluded from
OASIS submission as a CoP is equally applicable to HHAs for quality
purposes. Therefore, we again proposed for CY 2008 that if an agency is
not submitting OASIS for patients excluded from OASIS submission for
purposes of a CoP, that the submission of OASIS for quality measures
for Medicare purposes is likewise not necessary.
We received no comments on this proposal. Accordingly, we are
adopting, as final, that those agencies do not need to submit quality
measures for reporting purposes for those patients who are excluded
from OASIS submission as a CoP.
We also proposed that agencies newly certified (on or after May 31,
2007 for payments to be made in CY 2008) be excluded from the quality
reporting requirement as data submission and analysis will not be
possible for an agency certified this late in the reporting time
period. In future years, agencies that certify on or after May 31 of
the preceding year involved would be excluded from any payment penalty
for quality reporting purposes for the following CY. We note, these
exclusions only affect quality reporting requirements and do not affect
the agency's OASIS reporting responsibilities under the CoP (72 FR
25449). We received no comments on this proposal, and are adopting it
as final.
We note that all HHAs, unless covered by these specific exclusions,
must meet the reporting requirement, or be subject to a 2 percent
reduction in the home health market basket percentage increase in
accordance with section 1895(b)(3)(B)(v)(I) of the Act.
Section 1895(b)(3)(B)(v)(III) of the Act further requires that the
``Secretary shall establish procedures for making data submitted under
subclause (II) available to the public.'' Additionally, the statute
requires that ``such procedures shall ensure that a home health agency
has the opportunity to review the data that is to be made public with
respect to the agency prior to such data being made public.'' To meet
the requirement for making such data public, we proposed, to continue
for CY 2008 to use the Home Health Compare Web site whereby HHAs are
listed geographically. Currently the 10 quality measures are posted on
the Home Health Compare Web site, and this site would be updated to
reflect the performance level of the proposed 2 additional quality
measures. Consumers can search for all Medicare-approved home health
providers that serve their city or zip code and then find the agencies
offering the types of services they need as well as the proposed
quality measures. See http://www.medicare.gov/HHCompare/Home.asp. HHAs
currently have access (through the Home Health Compare contractor) to
their own agency's quality data (updated periodically), thus enabling
each agency to know how it is performing before public posting of data
on Home Health Compare (72 FR 25452). We received no comments on

[[Page 49864]]

the proposed process and are adopting it in the final rule with comment
period for CY 2008.
5. CY 2008 Payment Updates
The Medicare HH PPS has been effective since October 1, 2000. As
set forth in the final rule published July 3, 2000 in the Federal
Register (65 FR 41128), the unit of payment under the Medicare HH PPS
is a national standardized 60-day episode payment rate. As set forth in
Sec. 484.220, we adjust the national standardized 60-day episode
payment rate by a case-mix grouping and a wage index value based on the
site of service for the beneficiary. The CY 2008 HH PPS rates use the
case-mix methodology discussed in the proposed rule (72 FR 25395),
incorporating the changes discussed in III.B of this rule and
application of the wage index adjustment to the labor portion of the HH
PPS rates as set forth in the July 3, 2000 final rule. As stated in
section III.E.2. of this rule, we are rebasing and revising the home
health market basket, resulting in a revised and rebased labor related
share of 77.082 percent and a non-labor portion of 22.918 percent. We
multiply the national standardized 60-day episode payment rate by the
patient's applicable case-mix weight. We divide the case-mix adjusted
amount into a labor and non-labor portion. We multiply the labor
portion by the applicable wage index based on the site of service of
the beneficiary. For CY 2008, we are basing the wage index adjustment
to the labor portion of the HH PPS rates on the most recent pre-floor
and pre-reclassified hospital wage index as discussed in section
III.E.3. of this rule (not including any reclassifications under
section 1886(d)(8)(B) of the Act).
As discussed in the July 3, 2000 HH PPS final rule, for episodes
with four or fewer visits, Medicare pays the national per-visit amount
by discipline, referred to as a LUPA. We update the national per-visit
amounts by discipline annually by the applicable home health market
basket percentage. We adjust the national per-visit amount by the
appropriate wage index based on the site of service for the beneficiary
as set forth in Sec. 484.230. We adjust the labor portion of the
updated national per-visit amounts by discipline used to calculate the
LUPA by the most recent pre-floor and pre-reclassified hospital wage
index, as discussed in section III.E.3. of this rule.
Medicare pays the 60-day case-mix and wage-adjusted episode payment
on a split percentage payment approach. The split percentage payment
approach includes an initial percentage payment and a final percentage
payment as set forth in Sec. 484.205(b)(1) and (b)(2). We may base the
initial percentage payment on the submission of a request for
anticipated payment and the final percentage payment on the submission
of the claim for the episode, as discussed in Sec. 409.43. The claim
for the episode that the HHA submits for the final percentage payment
determines the total payment amount for the episode and whether we make
an applicable adjustment to the 60-day case-mix and wage-adjusted
episode payment. The end date of the 60-day episode as reported on the
claim determines which CY rates Medicare will use to pay the claim.
We may also adjust the 60-day case-mix and wage-adjusted episode
payment based on the information submitted on the claim to reflect the
following:
A LUPA provided on a per-visit basis as set forth in Sec.
484.205(c) and Sec. 484.230.
A PEP adjustment as set forth in Sec. 484.205(d) and
Sec. 484.235.
An outlier payment as set forth in Sec. 484.205(f) and
Sec. 484.240.
As discussed in section III.C.3 of this final rule with comment
period, we are implementing the removal of the SCIC adjustment from the
HH PPS.
This rule reflects the updated CY 2008 rates that will become
effective January 1, 2008.
Section 1895(b)(3)(B) of the Act, as amended by section 5201 of the
DRA, requires for CY 2008 that the standard prospective payment amounts
be increased by a factor equal to the applicable home health market
basket update for those HHAs that submit quality data as required by
the Secretary. The applicable home health market basket update will be
reduced by 2 percentage points for those HHAs that fail to submit the
required quality data.
CY 2008 Adjustments.
In calculating the annual update for the CY 2008 national
standardized 60-day episode payment rates, we first look at the CY 2007
rates as a starting point. The CY 2007 national standardized 60-day
episode payment rate is $2,339.00.
In order to calculate the CY 2008 national standardized 60-day
episode payment rate, we first increase the CY 2007 national
standardized 60-day episode payment rate ($2,339.00) by the rebased and
revised home health market basket update of 3.0 percent for CY 2008.
Given this updated rate, we would then take a reduction of 2.75
percent to account for change in case-mix not related to actual change
in case-mix. We would multiply the resulting value by 1.05 and 0.95 to
account for the estimated percentage of outlier payments for CY 2008
(that is, $2,339.00 * 1.030 * 0.9725 * 1.05 * 0.95), to yield a CY 2008
national standardized 60-day episode payment rate of $2,337.06 for
episodes that begin in CY 2007 and end in CY 2008 (see Table 11A
below). For episodes that begin in CY 2007 and end in CY 2008, the new
153 HHRG case-mix model (and associated Grouper) would not yet be in
effect. For that reason, episodes that begin in CY 2007 and end in CY
2008 will be paid at the rate of $2,337.06, and be further adjusted for
wage differences and for case-mix, based on the current 80 HHRG case-
mix model. We recognize that the annual update for CY 2008 is for all
episodes that end on or after January 1, 2008 and before January 1,
2009. By paying this rate ($2,337.06) for episodes that begin in CY
2007 and end in CY 2008, we will have appropriately recognized that
these episodes are entitled to receive the CY 2008 home health market,
even though the new case-mix model will not yet be in effect.

[[Page 49865]]

Table 11A.--National 60-Day Episode Amounts Updated by the Home Health Market Basket Update for CY 2008, Before Case-Mix Adjustment, Wage Index
Adjustment Based on the Site of Service for the Beneficiary or Applicable Payment Adjustment for Episodes Beginning in CY 2007 and Ending in CY 2008
--------------------------------------------------------------------------------------------------------------------------------------------------------
National standardized 60-
Total CY 2007 national Multiply by the home health day episode payment rate
standardized 60-day episode market basket update (3.0 Reduce by 2.75 percent for Adjusted to account for the for episodes beginning in
payment rate percent) \1\ nominal change in case-mix 5 percent outlier policy CY 2007 and ending in CY
2008
--------------------------------------------------------------------------------------------------------------------------------------------------------
$2,339.00........................ x 1.030..................... x 0.9725.................... x 1.05 x 0.95 $2,337.06
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast with historical
data through 1st Qtr, 2007.

Next, in order to establish new rates based on a new case-mix
system, we again start with the CY 2007 national standardized 60-day
episode payment rate and increase that rate by the rebased and revised
home health market basket update (3.0 percent) ($2,339.00 * 1.030 =
$2,409.17). We next have to put dollars associated with the outlier
targeted estimates back into the base rate. In the 2000 HH PPS final
rule (65 FR 41184), we divided the base rate by 1.05 to account for the
outlier target policy. Therefore, we proposed to multiply the $2,409.17
by 1.05, resulting in $2,529.63. Next, we need to reduce this amount to
pay for each of our final policies. As noted previously, based upon our
change to the LUPA payment, the NRS redistribution, and the elimination
of the SCIC policy, the amounts needed to account for outlier payments,
and the reduction to account for the 2.75 percent case-mix change
adjustment, we reduce the national standardized 60-day episode payment
rate by $5.70, $45.87, $10.96, $127.22, and $69.56, respectively. This
results in a CY 2008 updated national standardized 60-day episode
payment rate, for episodes beginning and ending in CY 2008, of
$2,270.32 (see Table 11B). These episodes would be further adjusted for
case-mix based on the 153 HHRG case-mix model for episodes beginning
and ending in CY 2008. As we noted in section II.A.2.d. of the proposed
rule, we increased the case-mix weights by a budget neutrality factor
of 1.194227193. In this final rule, the case-mix weights were increased
by a budget neutrality factor of 1.238848031.

Table 11B.--National 60-Day Episode Amounts Updated by the Home Health Market Basket Update for CY 2008, Before Case-Mix Adjustment, Wage Index Adjustment Based on the Site of Service for the
Beneficiary or Applicable Payment Adjustment for Episodes Beginning and Ending in CY 2008
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Changes to account for LUPA
adjustment ($5.70), NRS payment
Adjusted to return the outlier ($45.87), elimination of SCIC CY 2008 national standardized
Total CY 2007 national Multiply by the home health funds to the national Updated and outlier adjusted policy ($10.96), outlier policy 60-day episode payment rate for
standardized 60-day market basket update (3.00 standardized 60-day episode national standardized 60-day ($127.22), and 2.75 percent episodes beginning and ending
episode payment rate percent) \1\ payment rate episode payment reduction for nominal change in in CY 2008
case-mix (69.56) for episodes
beginning and ending in CY 2008
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
$2,339.00................. X 1.030......................... X 1.05......................... $2,529.63...................... -$259.31....................... $2,270.32
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast with historical data through 1st Qtr, 2007.

Under the HH PPS, NRS payment, which was $49.62 at the onset of the
HH PPS, has been updated yearly as part of the national standardized
60-day episode payment rate. As discussed previously in section
III.C.4., we are removing the current NRS payment amount portion from
the national standardized 60-day episode payment rate and adding a
severity-adjusted NRS payment amount subject to case-mix and wage
adjustment to the national standardized 60-day episode payment rate. To
calculate an episode's prospective payment amount, take the non-
adjusted national standardized 60-day episode payment rate and multiply
it by the appropriate case-mix weight from Table 5 of this rule. Next,
multiply the case-mix adjusted national standardized 60-day episode
payment by the labor portion (77.082 percent); multiply this result by
the appropriate wage index factor listed in Addendum A or B to wage-
adjust the 60-day episode payment. Next multiply the case-mix adjusted
national standardized 60-day episode payment by 22.918 percent to
compute the non-labor portion. Add this result to the wage-adjusted
labor portion to get the case-mix and wage adjusted national 60-day
episode payment without NRS.
To calculate the NRS amount, multiply the episode's NRS weight
(taken from Table 9 of this rule) by the NRS conversion factor
($52.35). This adjusted NRS payment is added to the case-mix and wage-
adjusted national standardized 60-day episode payment. The resulting
amount is the case-mix and wage-adjusted national standardized 60-day
episode payment rate including NRS for that particular episode.

[[Page 49866]]

The following example illustrates the computation described above:
Example 1. An HHA is providing services to a Medicare
beneficiary in Grand Forks, ND; the episode begins and ends in 2008.
The national standardized payment rate is $2,270.32 (see Table 11B).
The HHA determines that the beneficiary is in his or her 3rd episode
and thus falls under the C1F3S3 HHRG for 3rd+ episodes with 0 to 13
therapy visits (Case-Mix Weight = 1.4674). It is also determined
that the beneficiary falls under NRS severity level 4. The
NRS Severity Level 4 weight = 3.9686 and the NRS Conversion
Factor = $52.35 (see Table 9).
BILLING CODE 4120-01-P

[[Page 49867]]

[GRAPHIC] [TIFF OMITTED] TR29AU07.051

BILLING CODE 4120-01-C

[[Page 49868]]

National Per-Visit Amounts Used To Pay LUPAs and Compute Imputed Costs
Used in Outlier Calculations
As discussed previously in the CY 2008 HH PPS proposed rule, the
policies governing LUPAs and the outlier calculations set forth in the
July 3, 2000 HH PPS final rule will continue (65 FR 41128) with an
increase of $87.93 for initial and only episode LUPAs during CY 2008.
In calculating the CY 2008 national per-visit amounts used to calculate
payments for LUPA episodes and to compute the imputed costs in outlier
calculations, we start with the CY 2007 per-visit amounts. We increase
the CY 2007 per-visit amounts for each home health discipline for CY
2008 by the rebased and revised home health market basket update (3.0
percent), then multiply by 1.05 and 0.95 to account for the estimated
percentage of outlier payments (see Table 12 below). LUPA rates are not
being reduced due to the increase in case-mix since they are per-visit
rates and hence are not subject to changes in case-mix.

Table 12.--National Per-Visit Amounts for LUPAs (Not Including the Increase in Payment for a Beneficiary's Only
Episode or the Initial Episode in a Sequence of Adjacent Episodes) and Outlier Calculations Updated by the Home
Health Market Basket Update for CY 2008, Before Wage Index Adjustment Based on the Site of Service for the
Beneficiary
----------------------------------------------------------------------------------------------------------------
Final CY 2007
per-visit Multiply by the home Adjusted to account CY 2008 per-
Home health discipline type amounts per 60- health market basket for the 5 percent visit payment
day episode (3.0 percent) \1\ outlier policy amount per
for LUPAs discipline
----------------------------------------------------------------------------------------------------------------
Home Health Aide.................. $46.24 x 1.030.............. x 1.05............... $47.51
x 0.95...............
Medical Social Services........... 163.68 x 1.030.............. x 1.05............... 168.17
x 0.95...............
Occupational Therapy.............. 112.40 x 1.030.............. x 1.05............... 115.48
x 0.95...............
Physical Therapy.................. 111.65 x 1.030.............. x 1.05............... 114.71
x 0.95...............
Skilled Nursing................... 102.11 x 1.030.............. x 1.05............... 104.91
x 0.95...............
Speech-Language Pathology......... 121.22 x 1.030.............. x 1.05............... 124.54
x 0.95...............
----------------------------------------------------------------------------------------------------------------
\1\ The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc,
2nd Qtr, 2007 forecast with historical data through 2nd Qtr, 2007.

Payment for LUPA episodes is changed in that for LUPAs that occur
as initial episodes in a sequence of adjacent episodes or as the only
episode, a revised payment amount (see our proposal in section II.A.5.
of the CY 2008 HH PPS proposed rule and final amount in section
III.C.2. of this rule) is to be added to the LUPA payment. Table 12
rates below are before that adjustment and are the rates paid to all
other LUPA episodes. LUPA episodes that occur as the only episode or
initial episode in a sequence of adjacent episodes are adjusted by
adding $87.93 to the LUPA payment before adjusting for wage index.

[[Page 49869]]

[GRAPHIC] [TIFF OMITTED] TR29AU07.052

[[Page 49870]]

[GRAPHIC] [TIFF OMITTED] TR29AU07.053

BILLING CODE 4120-01-C
Outlier payments are determined and calculated using the same
methodology that has been used since the implementation of the HH PPS.
Example 3 details the calculation of an outlier payment.

Example 3. Calculation of an Outlier Payment

The outlier payment amount is the product of the imputed amount
in excess of the outlier threshold absorbed by the HHA and the loss
sharing ratio. The outlier payment is added to the sum of the wage
and case-mix adjusted 60-day episode amount. The steps to calculate
the total episode payment, including an outlier payment, are given
below.
For this example, assume that a beneficiary lives in Greenville,
SC and that the episode in question began and ended in CY 2008. The
episode has a case-mix severity = C3F3S5, and is a second episode
with 63 visits (30 skilled nursing, 20 home health aide visits, and
13 physical therapy visits). The beneficiary had 105 NRS points, for
an NRS severity level = 6. Therefore,

from Table 9, the NRS payment amount = $551.00
from Table 5, the case-mix weight = 1.9413
from Addendum B, the wage index = 0.9860

1. Calculate case-mix and wage-adjusted 60-day episode payment,
including NRS.
National standardized 60-day episode payment amount for episodes
beginning and ending in CY 2008:

= $2,270.32

Calculate the case-mix adjusted episode payment:

[[Page 49871]]

Multiply the national standardized 60-day episode payment by the
applicable case-mix weight:

$2,270.32 x 1.9413 = $4,407.37

Divide the case-mix adjusted episode payment into the labor and
non-labor portions:

Labor portion: 0.77082 x $4,407.37 = $3,397.29
Non-labor portion: 0.22918 x $4,407.37 = $1,010.08

Wage-adjust the labor portion by multiplying it by the wage
index factor for Greenville, SC:

0.9860 x $3,397.29 = $3,349.73

Add wage-adjusted labor portion to the non-labor portion to
calculate the total case-mix and wage-adjusted 60-day episode
payment before NRS added:

$3,349.73 + $1,010.08 = $4,359.81

Add NRS amount to get the total case-mix and wage-adjusted 60-
day episode payment, including NRS:

$551.00 + $4,359.81 = $4,910.81

2. Calculate wage-adjusted outlier threshold.
Fixed dollar loss amount = national standardized 60-day episode
payment multiplied by 0.89 FDL:

$2,270.32 x 0.89 = $2,020.58

Divide fixed dollar loss amount into labor and non-labor
portions:

Labor portion: 0.77082 x $2,020.58 = $1,557.50
Non-labor portion: 0.22918 x $2,020.58 = $463.08

Wage-adjust the labor portion by multiplying the labor portion
of the fixed dollar loss amount by the wage index:

$1,557.50 x 0.9860 = $1,535.70

Calculate the wage-adjusted fixed dollar loss amount without NRS
by adding the wage-adjusted portion of the fixed dollar loss amount
to the non-labor portion of the fixed dollar loss amount:

$1,535.70 + $463.08 = $1,998.78

Calculate the fixed dollar loss amount of NRS by multiplying the
NRS payment amount by the FDL ratio:

$551.00 x 0.89 = $490.39

Divide NRS fixed dollar loss amount into labor and non-labor
portions:

Labor portion: 0.77082 x $490.39 = $378.00
Non-labor portion: 0.22918 x $490.39 = $112.39

Wage-adjust the labor portion by multiplying the labor portion
of the NRS fixed dollar loss amount by the wage index:

$378.00 x 0.9860 = $372.71

Add the wage-adjusted labor portion to the non-labor portion for
the total NRS amount:

$372.71 + $112.39 = $485.10

Calculate the total wage-adjusted fixed dollar loss amount
including NRS by adding the wage-adjusted fixed dollar loss amount
of NRS to the wage-adjusted fixed dollar loss amount without NRS:

$485.10 + $1,998.78 = $2,483.88

Add the case-mix and wage-adjusted 60-day episode amount
including NRS and the wage-adjusted fixed dollar loss amount
including NRS to get the wage-adjusted outlier threshold:

$4,910.81 + $2,483.88 = $7,394.69

3. Calculate the wage-adjusted imputed cost of the episode.
Multiply the total number of visits by the national average per-
visit amounts listed in Table 12:

30 skilled nursing visits x $104.91 = $3,147.30
20 home health aide visits x $47.51 = $950.20
13 physical therapy visits x $114.71 = $1,491.23

Calculate the wage-adjusted labor and non-labor portions for the
imputed skilled nursing visit costs:

Labor portion: 0.77082 x $3,147.30 = $2,426.00
Non-labor portion: 0.22918 x $3,147.30 = $721.30

Adjust the labor portion of the skilled nursing visits by the
wage index:

0.9860 x $2,426.00 = $2,392.04

Add the wage-adjusted labor portion of the skilled nursing
visits to the non-labor portion for the total wage-adjusted imputed
costs for skilled nursing visits:

$2,392.04 + $721.30 = $3,113.34

Calculate the wage-adjusted labor and non-labor portions for the
imputed home health aide visits:

Labor portion: 0.77082 x $950.20 = $732.43
Non-labor portion: 0.22918 x $950.20 = $217.77

Adjust the labor portion of the home health aide visits by the
wage index:

0.9860 x $732.43 = $722.18

Add the wage-adjusted labor portion of the home health aide
visits to the non-labor portion for the total wage-adjusted imputed
costs for home health aide visits:

$722.18 + $217.77 = $939.95

Calculate the wage-adjusted labor and non-labor portions for the
imputed physical therapy visits:

Labor portion: 0.77082 x $1,491.23 = $1,149.47
Non-labor portion: 0.22918 x $1,491.23 = $341.76

Adjust the labor portion of the home health aide visits by the
wage index:

0.9860 x $1,149.47 = $1,133.38

Add the wage-adjusted labor portion of the home health aide
visits to the non-labor portion for the total wage-adjusted imputed
costs for home health aide visits:

$1,133.38 + $341.76 = $1,475.14

Total wage adjusted imputed per-visit costs for skilled nursing,
home health aide, and physical therapy visits during the 60-day
episode:

$3,113.34 + $939.95 + $1,475.14 = $5,528.43

4. Calculate the amount absorbed by the HHA in excess of the
outlier threshold.
Subtract the outlier threshold from (2) from the total wage-
adjusted imputed per-visit costs for the episode from (3).

$5,528.43 - $4,910.81 = $617.62

5. Calculate the outlier payment and total episode payment.
Multiply the imputed amount in excess of the outlier threshold
absorbed by the HHA from (4) by the loss sharing ratio of 0.80:

$617.62 x 0.80 = $494.10 = outlier payment

Add the outlier payment to the case-mix and wage-adjusted 60-day
episode payment, including NRS, calculated in (1):

$494.10 + $4,910.81 = $5,404.91

$5,404.91 equals the total payment for the episode, including
the outlier payment.

For episodes that begin in CY 2007 and end in CY 2008, the new 153
HHRG case-mix model (and associated Grouper) would not yet be in
effect. For that reason, for HHAs that do not submit required quality
data (for episodes that begin in CY 2007 and end in CY 2008), HH PPS
rates are calculated as follows (see section III.E.4., of this rule,
for an explanation of the DRA requirement for submission of quality
data and the minus 2 percentage points for failure to submit that
quality data): First, we update the CY 2007 rate of $2,339.00 by the
home health market basket percentage update (3.0 percent) minus 2
percent, reduced by 2.75 percent to account for the case-mix change
adjustment, and multiplied by 1.05 and 0.95 to account for the
estimated percentage of outlier payments ($2,339.00 * 1.010 * 0.9725 *
1.05 * 0.95), to yield an updated CY 2008 national standardized 60-day
episode payment rate of $2,291.68 for episodes that begin in CY 2007
and end in CY 2008 for HHAs that do not submit required quality data
(see Table 13A).
As stated in the CY 2008 HH PPS proposed rule, these episodes would
be further adjusted for case-mix based on the 80 HHRG case-mix model
for episodes beginning in CY 2007 and ending in CY 2008 (72 FR 25450).

[[Page 49872]]

Table 13A.--For HHAs That Do Not Submit the Required Quality Data--National 60-Day Episode Amounts Updated by
the Home Health Market Basket Update for CY 2008, Minus 2 Percentage Points, for Episodes That Begin in CY 2007
and End in CY 2008 Before Case-Mix Adjustment, Wage Index Adjustment Based on the Site of Service for the
Beneficiary or Applicable Payment Adjustment
----------------------------------------------------------------------------------------------------------------
National
standardized
60-day episode
payment rate
Multiply by the for episodes
Total CY 2007 national home health Reduce by 2.75 Adjusted to account for beginning in
standardized 60-day episode market basket percent for the 5 percent outlier CY 2007 and
payment rate update (3.0 nominal change in policy ending in CY
percent) \1\ case-mix 2008 for HHAs
minus 2 percent that do not
submit
required
quality data
----------------------------------------------------------------------------------------------------------------
$2,339.00..................... x 1.010......... x 0.9725........ x 1.05 x 0.95 $2,291.68
----------------------------------------------------------------------------------------------------------------
\1\ The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc,
2nd Qtr, 2007 forecast with historical data through 1st Qtr, 2007.

Next, in order to establish new rates based on a new case-mix
system, we again start with the CY 2007 national standardized 60-day
episode payment rate and increase that rate by the rebased and revised
home health market basket update (3.0 percent) minus 2 percent
($2,339.00 * 1.010 = $2,362.39). We next have to put dollars associated
with the outlier target estimate back into the base rate. In the 2000
HH PPS final rule (65 FR 41184), we divided the base rate by 1.05 to
account for outlier payments. Therefore, we proposed to multiply the
$2,362.39 by 1.05, resulting in $2,480.51. Next, we need to reduce this
amount to pay for each of our final policy changes. To do this, we take
the payment adjustment amount to pay for our policy changes of this
rule, determined in Table 11A of $259.31, multiply it by (1/1.030) to
take away the 3.0 percent increase, and multiply that number by 1.010
to impose the 1.0 percent update for episodes where HHAs have not
submitted the required quality data. This results in a payment
adjustment amount of $254.27. Finally, subtract the payment adjustment
amount of $254.27 from $2,480.51, for a final rate of $2,226.24 for
HHAs that do not submit quality data, for episodes that begin and end
in CY 2008 (see Table 13B).
These episodes would be further adjusted for case-mix based on the
153 HHRG case-mix model for episodes beginning and ending in CY 2008.
We increase the case-mix weights by a budget neutrality factor of
1.238848031.

Table 13B.--For HHAs That Do Not Submit the Required Quality Data--National 60-Day Episode Amounts Updated by the Home Health Market Basket Update for
CY 2008, Minus 2 Percentage Points, for Episodes That Begin and End in CY 2008, Before Case-Mix Adjustment, Wage Index Adjustment Based on the Site of
Service for the Beneficiary or Applicable Payment Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes to account for LUPA
adjustment ($5.70), NRS payment CY 2008 national
($45.87), elimination of SCIC standardized 60-
Adjusted to return Updated and policy ($10.96), outlier policy day for episode
Total CY 2007 national Multiply by the home the outlier funds to outlier adjusted ($127.22), and 2.75 percent payment rate for
standardized 60-day episode health market basket the national national reduction for nominal change in episodes
payment rate update (3.0 percent) standardized 60-day standardized 60- case-mix ($69.56) = $259.31; minus beginning and
\1\ minus 2.0 percent episode payment rate day episode 2 percentage points off of the ending in CY 2008
payment home health market basket update that do not
(3.0 percent) \1\ for episodes submit required
beginning and ending in CY 2008 quality data
--------------------------------------------------------------------------------------------------------------------------------------------------------
$2,339.00........................ x 1.010.............. x 1.05.............. $2,480.51 -$254.27 $2,226.24
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast with historical
data through 1st Qtr, 2007.

In calculating the CY 2008 national per-visit amounts used to
calculate payments for LUPA episodes for HHAs that do not submit
required quality data and to compute the imputed costs in outlier
calculations for those episodes, we start with the CY 2007 per-visit
rates. We multiply those amounts by the home health market basket
update (3.0 percent) minus 2 percentage points, then multiply by 1.05
and 0.95 to account for the estimated percentage of outlier payments,
to yield the updated per-visit amounts for each home health discipline
for CY 2008 for HHAs that do not submit required quality data (see
Table 14).

[[Page 49873]]

Table 14.--For HHAs That Do Not Submit the Required Quality Data--National Per-Visit Amounts for LUPAs (Not
Including the Increase in Payment for a Beneficiary's Only Episode or the Initial Episode in a Sequence of
Adjacent Episodes) and Outlier Calculations Updated by the Home Health Market Basket Update for CY 2008, Minus 2
Percentage Points, Before Wage Index Adjustment Based on the Site of Service for the Beneficiary
----------------------------------------------------------------------------------------------------------------
CY 2008 per-
visit payment
amount per
Final CY 2007 discipline for
per-visit Multiply by the home Adjusted to account a beneficiary
Home health discipline type amounts per 60- health market basket for the 5 percent who resides in
day episode (3.0 percent) \1\ outlier policy a non-MSA for
for LUPAs minus 2.0 percent HHAs that do
not submit
required
quality data
----------------------------------------------------------------------------------------------------------------
Home Health Aide.................. $46.24 x 1.010.............. x 1.05............... $46.59
x 0.95...............
Medical Social Services........... 163.68 x 1.010.............. x 1.05............... 164.90
x 0.95...............
Occupational Therapy.............. 112.40 x 1.010.............. x 1.05............... 113.24
x 0.95...............
Physical Therapy.................. 111.65 x 1.010.............. x 1.05............... 112.48
x 0.95...............
Skilled Nursing................... 102.11 x 1.010.............. x 1.05............... 102.87
x 0.95...............
Speech-Language Pathology......... 121.22 x 1.010.............. x 1.05............... 122.13
x 0.95...............
----------------------------------------------------------------------------------------------------------------
\1\ The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc,
2nd Qtr, 2007 forecast with historical data through 1st Qtr, 2007.

IV. Provisions of the Final Rule With Comment Period

In this final rule with comment period, we are adopting the
provisions as set forth in the CY 2008 HH PPS proposed rule, except as
noted in the specific response to comments in the applicable sections
of this rule (for example, case-mix refinements; payment adjustments to
include the LUPA, SCIC, and NRS; outlier policy; and the update of the
HH PPS rates to include the home health market basket and the wage
index). We are specifically soliciting comments on the 2.71 percent
reduction to the HH PPS payment rates schedule in 2011, to account for
changes in coding that were not related to an underlying change in
patient health status (see Section III.B.6.)

V. Collection of Information Requirements

Under the Paperwork Reduction Act (PRA) of 1995, we are required to
provide 30-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the PRA of 1995 requires that
we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We solicited public comments on each of aforementioned issues for
the information collection requirements discussed below. In this final
rule with comment period, we are restating the discussion of the
information collection requirements as it appeared in the HH PPS
proposed rule that published on May 4, 2007 (72 FR 25356).
To implement the OASIS changes discussed in sections II.A.(2)(a),
II.A.(2)(b), and II.A.(2)(c) of the proposed rule, and further
discussed and clarified in sections III.B.2, III.B.3, and III.B.4 of
this rule in the analysis of and public response to public comments on
the proposed rule, which are currently approved in Sec. 484.55, Sec.
484.205, and Sec. 484.250, a few items in the OASIS will need to be
modified, deleted, or added. The requirements and burden associated
with the OASIS are currently approved under OMB control number 0938-
0760 with an expiration date of August 31, 2007. We solicited public
comment on each of the proposed changes for the information collection
requirements (ICRs) as summarized and discussed below. For the purposes
of soliciting public review and comment, we also placed a draft of the
proposed changes to the OASIS on the CMS Web site at:
http://www.cms.hhs.gov/PaperworkReductionActof1995/PRAL/
list.asp#TopOfPage.
As discussed in section II.A.(2)(a) of the proposed rule, and
further clarified in section III.B.2 of this rule, in order for the
OASIS to have the information necessary to allow the grouper to price-
out the claim, we proposed to make the following changes to the OASIS
to capture whether an episode is an early or later episode.
The creation of a new OASIS item to capture whether a particular
assessment is for an episode considered to be an early episode or a
later episode in the patient's current sequence of adjacent Medicare
home health payment episodes. As defined in section II.A.1. of the
proposed rule, and further clarified in section III.B.2 of this rule,
we define a sequence of adjacent episodes for a beneficiary as a series
of claims with no more than 60 days without home care between the end
of one episode, which is the 60th day (except for episode that have
been PEP-adjusted), and the beginning of the next episode. This
definition holds true regardless of

[[Page 49874]]

whether or not the same HHA provided care for the entire sequence of
adjacent episodes. The HHA will chose from the options: ``Early'' for
single episodes or the first or second episode in a sequence of
adjacent episodes, ``Later'' for third or later episodes, ``UK'' for
unknown if the HHA is uncertain as to whether the episode is an early
or later episode (the payment grouper software will default to the
definition of an ``early'' episode), and ``NA'' for not applicable (no
Medicare case-mix group to be defined by this assessment).
As discussed in section II.A.(2)(b) of the proposed rule, we
proposed to make changes to the OASIS in order to enable agencies to
report secondary case-mix diagnosis codes. The proposed changes clarify
how to appropriately fill out OASIS items M0230 and M0240, using ICD-9-
CM sequencing requirements if multiple coding is indicated for any
diagnosis. Additionally, if a V-code is reported in place of a case-mix
diagnosis for OASIS item M0230 or M0240, then the new optional OASIS
item (which is replacing existing OASIS item M0245) may then be
completed. A case-mix diagnosis is a diagnosis that determines the HH
PPS case-mix group. Further discussion or clarification of these
proposed changes can be found in section III.B.3 of this rule.
As discussed in section II.A.(2)(c) of the proposed rule, we
proposed to make changes to the OASIS to capture the projected total
number of therapy visits for a given episode. With the projected total
number of therapy visits, the payment grouper would be able to group
that episode into the appropriate case-mix group for payment. The
existing OASIS item M0825 asks an HHA if the projected number of
therapy visits would meet the therapy threshold or not. As noted
previously, we proposed to delete OASIS item M0825 and replace it with
a new OASIS item. The OASIS item would ask the following: ``In the plan
of care for the Medicare payment episode for which this assessment will
define a case-mix group, what is the indicated need for therapy visits
(total of reasonable and necessary physical, occupational, and speech-
pathology visits combined)?'' The HHA would provide the total number of
projected therapy visits for that Medicare payment episode, unless not
applicable (that is, no case-mix group defined by this assessment). The
HHA would enter ``000'' if no therapy visits were projected for that
particular episode. Further discussion and clarification of these
proposed changes can be found in section III.B.4 of this rule.
The burden associated with the proposed changes discussed in
sections II.A.(2)(a), II.A.(2)(b), and II.A.(2)(c) of the proposed
rule, and further discussed and clarified in section III.B.2, III.B.3,
and III.B.4 of this rule, includes possible training of staff, the time
and effort associated with downloading a new form and replacing
previously pre-printed versions of the OASIS, and utilizing updated
vendor software. However, as stated above, CMS is removing or modifying
existing questions in the OASIS data set to accommodate the proposed
requirements referenced above. In addition, as a result of the proposed
changes, we expect that the claims processing system will automatically
adjust the therapy visits both upward and downward on the final claim,
according to the information on the final claim. Consequently, the HHA
would no longer have to withdraw and resubmit a revised claim when the
number of therapy visits delivered to the patient is higher than the
level report on the RAP. Therefore, CMS believes the burden increase
associated with these changes is negated by the removal or modification
of several current data items.
We have submitted a copy of this final rule to OMB for its review
of the information collection requirements described above. These
requirements are not effective until OMB has approved them.
If you comment on any of these information collection and record
keeping requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Strategic
Operations and Regulatory Affairs, Regulations Development Group,
Attn.: Melissa Musotto, CMS-1541-FC, Room C4-26-05, 7500 Security
Boulevard, Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Carolyn Lovett, CMS Desk Officer, (CMS-1541-FC), carolyn_
lovett@omb.eop.gov. Fax (202) 395-6974.

VI. Regulatory Impact Analysis

A. Overall Impact

We have examined the impacts of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibility of duties) 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 in any 1 year).
This final rule will be a major rule, as defined in Title 5, United
States Code, section 804(2), because we estimate the impact to the
Medicare program, and the annual effects to the overall economy, will
be more than $100 million. The update set forth in this proposed rule
would apply to Medicare payments under the HH PPS in CY 2008.
Accordingly, the following analysis describes the impact in CY 2008
only. We estimate that the net impact in this rule, including a 2.75
percent reduction to the payment rate to account for the case-mix
change adjustment in case-mix, is estimated to be approximately $20
million in CY 2008 expenditures. That estimate incorporates the 3.0
percent home health market basket increase (an estimated additional
$430 million in CY 2008 expenditures attributable only to the CY 2008
home health market basket update), and the 2.75 percent decrease (-$410
million for the first year of a 4-year phase-in) to the HH PPS national
standardized 60-day episode rate to account for the case-mix change
adjustment under the HH PPS. The $20 million is reflected in column 7
of Table 15 as a 0.2 percent increase in expenditures when comparing
the current CY 2007 system to the revised CY 2008 system. In the
proposed rule, the difference between the proposed 2.9 percent update
($410 million) and the 2.75 percent decrease ($400 million) was $10
million. The additional $130 million difference, in the proposed rule,
between estimated CY 2007 and CY 2008 total payments resulted from the
differential treatment of the outlier offsets to the payment rates and
the percent of outlier payments between the two simulations.
Specifically, the $130 million difference reflected the lower payments
estimated for CY 2007 resulting from the estimated outlier payments of
only 4.14 percent rather than 5 percent. Our analysis of more recent
data than the CY 2005 data available for both the CY 2007 and CY

[[Page 49875]]

2008 impact analysis simulations strongly suggests that outlier
payments in CY 2007 and CY 2008 are or will be greater than 5 percent
of total payments. Since the CY 2005 data show outlier payments of only
about 4.1 percent, the CY 2005 data are not informative about actual
outlier experience in CY 2007 and CY 2008. For the final rule impact
analysis, we have set the FDLs in the CY 2007 and CY 2008 simulations
to be consistent with outlier payments of 5 percent so that outlier
payments have similar effects in all of the impact simulations. We
believe that this approach comes as close as possible to estimating the
desired impacts in a comparable manner, given the recent changes in
outlier payments.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and small governmental
jurisdictions. Most hospitals and most other providers and suppliers
are small entities, either by nonprofit status or by having revenues of
$6 million to $29 million in any 1 year. For purposes of the RFA,
approximately 75 percent of HHAs are considered small businesses
according to the Small Business Administration's size standards with
total revenues of $11.5 million or less in any 1 year. Individuals and
States are not included in the definition of a small entity. As stated
above, this final rule will have an estimated positive effect upon
small entities that are HHAs.
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 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. We have determined that
this final rule will not have a significant economic impact on the
operations of a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in expenditure in any 1 year by State,
local, or tribal governments, in the aggregate, or by the private
sector, of $110 million. We believe this final rule will not mandate
expenditures in that amount.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. We have determined that this final rule will not have
substantial direct effects on the rights, roles, and responsibilities
of States.

B. Anticipated Effects

This final rule with comment period updates the HH PPS rates
contained in the CY 2007 final rule (71 FR 65884, November 9, 2006).
The impact analysis of this final rule presents the refinement related
policy changes in this rule. We use the latest data and best analysis
available, but we do not attempt to predict behavioral responses to
these changes, and we do not make adjustments for future changes in
such variables as days or case-mix.
This analysis incorporates the latest estimates of growth in
service use and payments under the Medicare home health benefit, based
on the latest available Medicare claims from 2005. We note that certain
events may combine to limit the scope or accuracy of our impact
analysis, because such an analysis is future-oriented and, thus,
susceptible to forecasting errors due to other changes in the
forecasted impact time period. Some examples of such possible events
are newly-legislated general Medicare program funding changes made by
the Congress, or changes specifically related to HHAs. In addition,
changes to the Medicare program may continue to be made as a result of
the BBA, the BBRA, the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000, the MMA, the DRA, or new
statutory provisions. Although these changes may not be specific to the
HH PPS, the nature of the Medicare program is such that the changes may
interact, and the complexity of the interaction of these changes could
make it difficult to predict accurately the full scope of the impact
upon HHAs.
Table 15 represents how home health agencies are likely to be
affected by the policy changes described in this rule. For each agency
type listed below, Table 15 displays the average case-mix index, both
under the current HH PPS case-mix system and the CY 2008 HH PPS case-
mix system. For this analysis, we used the most recent data available
that linked home health claims and OASIS assessments, a 20-percent
sample of episodes occurring in CY 2005. In Table 15, the average case-
mix is the same, in the aggregate, between the current HH PPS system
and the proposed revised HH PPS system, due to our application of a
budget neutrality factor for the case-mix weights. Column one of this
table classifies HHAs according to a number of characteristics
including provider type, geographic region, and urban versus rural
location. Column two displays the average case-mix weight for each type
of agency under the current payment system. Column three displays the
average case-mix weight for each type of agency incorporating all of
the changes/refinements discussed above. The average case-mix weight
for proprietary (for profit) agencies is estimated to decrease from
1.2821 to 1.2620. Comparatively, the average case-mix weight for
voluntary non-profit agencies is estimated to increase from 1.1875 to
1.2334. Rural agencies are estimated to experience a decrease in their
average case-mix from 1.2047 to 1.1798. It is estimated that urban
agencies would see a slight increase in their average case-mix weight
from 1.2520 to 1.2616. In particular, the New England, Mid-Atlantic,
South Atlantic, East North Central, West North Central, and Mountain
areas of the country are estimated to see their average case-mix
increase under the proposed refinements of this rule. Conversely, the
East South Central, West South Central, and Pacific areas of the
country are estimated to see their average case-mix decrease as a
result of refinements of this rule. Both small and large agencies are
estimated to see decreases in their average case-mix under the new
proposed case-mix system, the only exception being much larger agencies
(200+ first episodes), which are estimated to see an increase of their
average case-mix from 1.2376 to 1.2398.
For the purposes of analyzing impacts on payments, we performed
five simulations and compared them to each other.
Based on our estimate that outliers, as a percentage of total HH
PPS payments, will be at least 5 percent in CY 2007, the 2007 baseline,
for the purposes of these simulations, we assumed that the full 5
percent outlay for outliers will be paid. The first simulation
estimates 2008 payments under the current system (to include the 2007
wage index and labor share). The second simulation estimates 2008
payments under the current system, but with the 2008 wage index and the
new 2008 labor share. The second simulation produces an estimate of
what total payments using the sample data will be in 2008 without
making any of the refinement-related changes described in this final
rule. The third simulation estimates 2008 payment with the old, 2007
labor share and a 2008 wage index. The fourth simulation

[[Page 49876]]

estimates 2008 payments with a new 2008 labor share and a 2007 wage
index.
These first four simulations allow us to demonstrate the effects of
a new 2008 wage index and a new 2008 labor share as a percentage change
in estimated expenditures. Specifically, the fourth column of Table 15
shows the percent change due to the combined effects of the new 2008
labor share and the 2008 wage index. Column five shows the percent
change due to the effects of the new labor share. And finally, column 6
shows us the percent change due to the effects of updated wage data
(2008 wage index).
The fifth, and final, simulation estimates what total payments
would be in 2008, using the final case-mix model, the additional
payment for initial and only episode LUPA episodes, the removal of SCIC
adjustments, and the revised approach to making NRS payments. The fifth
simulation also assumes payments will incorporate the rebased and
revised home health market basket increase of 3.0 percent, the new
outlier threshold determined by an updated FDL ratio of 0.89, and the
2.75 percent reduction in the national standardized 60-day episode
payment rate to account for the case-mix change adjustment. All five
simulations use a CBSA-based wage index (we used a crosswalk from the
MSA reported on the 2005 claims to the CBSA to determine the
appropriate wage index).
Column seven shows the percentage change in estimated total
payments in moving from the current CY 2007 to the revised CY 2008
system outlined in this final rule. As a result of changes in our
approach to the impact analysis simulations between the proposed rule
and this rule, our estimate of the change in total payments between CY
2007 and CY 2008 is substantially less than what we presented in the
proposed rule. The percentage change in estimated total payments from
CY 2007 to the revised CY 2008 system is now the difference between the
3.0 percent update and the 2.75 percent reduction in the rates for an
increase of $20 million, or approximately 0.2 percent).
In the proposed rule, we stated that the estimated additional $130
million yielding the $140 million in estimated spending for CY 2008 is
due to the fixed dollar loss ratio at 0.67 (72 FR 25454). What that
means is that the CY 2008 simulation compensated for fixing the FDL at
0.67 by raising all the payment rates to meet the target expenditure
total. In the CY 2008 simulation, this compensatory adjustment raised
total payments by an amount that would have been equivalent to spending
the entire outlier target of 5% of total expenditures. However, the CY
2007 payment simulation in our proposed rule predicted outlier payments
of only 4.14 percent with the CY 2007 FDL of 0.67. Since in the CY 2007
simulation we made no upward adjustment to the rates similar to the
offsetting adjustment we made in the CY 2008 simulation, estimated CY
2007 total payments with the .67 FDL were lower than they would have
been had outlier payments been 5 percent of total payments. This
asymmetrical approach to the comparative simulations for CY 2007 and CY
2008 yielded an estimated $130 million in additional payments from
moving to the new system.
We have revised the final rule's impact analysis by simulating CY
2007 and CY 2008 payments in a consistent manner with respect to
outlier policy. We made no adjustment to the rates in either simulation
of the kind we made to the proposed regulation's CY 2008 simulation. In
other words, both sets of rates and the FDL ratios assume outlier
payments reach the 5 percent target. The basis for taking this approach
is that our supplementary analysis of more recent data than the CY 2005
data available for both the CY 2007 and CY 2008 simulations strongly
suggests that outlier payments in CY 2007 and CY 2008 are or will be
greater than 5 percent of total payments. Since the CY 2005 data show
outlier payments of only about 4.1 percent, the CY 2005 data are not
informative about actual outlier experience in CY 2007 and CY 2008. For
the final rule impact analysis, we have set the FDLs in the CY 2007 and
CY 2008 simulations to be consistent with outlier payments of 5 percent
so that outlier payments have similar effects in all of the impact
simulations. We believe that this approach comes as close as possible
to estimating the desired impacts in a comparable manner, given the
recent changes in outlier payments. As a result of these changes in
approach, our estimate of the change in total payments between CY 2007
and CY 2008 is an increase of $20 million or approximately 0.1 to 0.2
percent.
In general, voluntary non-profit HHAs (3.60 percent), facility-
based HHAs (3.66 percent), and government owned HHAs (3.04 percent) are
estimated to see an increase in the percentage change in estimated
total payments from CY 2007 to the revised CY 2008 system. Proprietary
and freestanding HHAs, on the other hand, are estimated to see
decreases of 2.37 percent and 0.64 percent, respectively, in estimated
total payments from CY 2007 to the proposed revised CY 2008 system. As
it was in the proposed rule, the major contributor to the decrease 2.37
percent for proprietary HHAs is the free-standing proprietary HHAs,
which are estimated to see a decrease of 2.49 percent in the percentage
change in estimated total payment from CY 2007 to the revised CY 2008
system.
We note that some of these impacts are partly explained by practice
patterns associated with certain types of agencies. For example, LUPA
episodes are relatively common among nonprofit agencies and
freestanding government-owned agencies. Our implementing an additional
payment for certain LUPA episodes would tend to increase payments for
such classes of agencies with higher-than-average LUPA rates, while
tending to decrease payments for agencies with comparatively low LUPA
rates. Similarly, the elimination of the SCIC policy would tend to
favorably affect total payments for agencies with relatively high rates
of SCIC episodes, such as facility-based proprietary agencies and
facility-based government agencies.
The percentage change in estimated total payments from CY 2007 to a
CY 2008 system that incorporates all of the refinements to the HH PPS
for rural HHAs is a decrease of 1.77 percent, while for urban HHAs an
increase of 0.80 percent is expected. Urban agencies have somewhat
higher LUPA rates than rural agencies, so urban agencies would be
expected to benefit, relative to rural agencies, from the proposal to
make an additional payment for certain LUPA episodes. Urban agencies
are also more likely to benefit from elimination of the SCIC policy.
Urban agencies are less likely to bill a SCIC episode than rural
agencies. However, when urban agencies do bill a SCIC episode the
payment is reduced more, on average, than when rural agencies bill a
SCIC. The net effect of these two components (relative frequency and
payment impact per SCIC episode) is a larger expected reduction for
urban agencies under the SCIC adjustment policy. Therefore, while both
urban and rural agencies benefit from eliminating the SCIC policy,
urban agencies benefit more.
HHAs in the North are expected to experience a percentage change
increase of 4.57 percent in estimated total payments from CY 2007 to
the revised CY 2008 system. One region, the South, is estimated to
experience a decrease in the percentage change in estimated total
payments from CY 2007 to the revised CY 2008 system. That percentage
change is an estimated decrease of 2.91 percent.
It is estimated that New England and Mid Atlantic area HHAs will
experience percentage change increases

[[Page 49877]]

approaching 4 or 5 percent, respectively (New England, 3.83 percent and
the Mid-Atlantic, 4.96 percent) in estimated total payments from CY
2007 to the revised CY 2008 system. Conversely, West South Central HHAs
are expected to experience a decrease (-6.32 percent) in the percentage
change in estimated total payments from CY 2007 to the revised CY 2008
system. In general, HHAs with less than 200 Medicare home health
initial episodes per year are expected to experience a decrease
(ranging from -0.78 percent to 1.93 percent) for their percentage
change in estimated total payments from CY 2007 to the revised CY 2008
system. Conversely, the largest HHAs (those with 200 or more Medicare
home health initial episodes per year) are estimated to experience a
slight increase of 0.36 percent change in estimated total payments from
CY 2007 to the CY 2008 system.

Table 15.--Impact By Agency Type
--------------------------------------------------------------------------------------------------------------------------------------------------------
Case-Mix Comparisons
-----------------------------------------------------------------------------------------------
Percent Change
Due to the
Combined
Effects of the Percent Change Percent Change Percent Change
Group Case-Mix Index Case-Mix New Labor Due to the Due to the from the
Current 80 Index, Revised Share Effects of the Effects of the Current CY
HHRGs 153 HHRGs (0.77082) and New Labor Updated Wage 2007 System to
the Updated Share Data (2008 the Revised CY
Wage Data (0.77082) Wage Index) 2008 System
(2008 Wage
Index)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of Facility
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unknown................................................. 1.5011 1.4848 0.10 0.02 0.07 -1.64
Free-Standing/Other Vol/NP.............................. 1.1982 1.2467 0.09 0.00 0.08 3.47
Free-Standing/Other Proprietary......................... 1.2841 1.2625 -0.06 -0.02 -0.04 -2.49
Free-Standing/Other Government.......................... 1.2038 1.2576 0.04 -0.05 0.09 2.84
Facility-Based Vol/NP................................... 1.1736 1.2162 0.04 -0.02 0.05 3.78
Facility-Based Proprietary.............................. 1.2145 1.2439 -0.03 -0.05 0.01 2.79
Facility-Based Government............................... 1.1513 1.1857 -0.10 -0.05 -0.05 3.28
Subtotal: Freestanding.............................. 1.2551 1.2576 -0.02 -0.02 0.00 -0.64
Subtotal: Facility-based............................ 1.1737 1.2146 0.02 -0.02 0.04 3.66
Subtotal: Vol/PNP................................... 1.1875 1.2334 0.07 -0.01 0.07 3.60
Subtotal: Proprietary............................... 1.2821 1.2620 -0.06 -0.02 -0.04 -2.37
Subtotal: Government................................ 1.1796 1.2244 -0.02 -0.05 0.03 3.04
TOTAL........................................... 1.2388 1.2388 -0.01 -0.02 0.00 0.20
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of Facility (Rural* Only)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unknown................................................. 0.8205 0.8221 0.05 0.05 0.00 -0.15
Free-Standing/Other Vol/NP.............................. 1.1746 1.1895 0.09 -0.05 0.14 1.14
Free-Standing/Other Proprietary......................... 1.2429 1.1936 -0.14 -0.08 -0.06 -5.57
Free-Standing/Other Government.......................... 1.1883 1.2490 0.08 -0.07 0.14 2.74
Facility-Based Vol/NP................................... 1.1588 1.1790 -0.04 -0.06 0.02 2.12
Facility-Based Proprietary.............................. 1.2073 1.2242 -0.09 -0.08 -0.01 1.98
Facility-Based Government............................... 1.1440 1.1701 -0.10 -0.07 -0.04 2.67
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of Facility (Urban* Only)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unknown................................................. 1.5025 1.4861 0.10 0.02 0.07 -1.64
Free-Standing/Other Vol/NP.............................. 1.2037 1.2598 0.09 0.01 0.07 3.92
Free-Standing/Other Proprietary......................... 1.2983 1.2836 -0.04 -0.01 -0.04 -1.67
Free-Standing/Other Government.......................... 1.2312 1.2749 -0.01 -0.02 0.00 2.99
Facility-Based Vol/NP................................... 1.1803 1.2332 0.07 0.00 0.06 4.41
Facility-Based Proprietary.............................. 1.2225 1.2655 0.02 -0.02 0.03 3.54
Facility-Based Government............................... 1.1737 1.2336 -0.09 -0.02 -0.08 4.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of Facility: Urban* or Rural*
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rural*.................................................. 1.2047 1.1798 -0.06 -0.07 0.00 -1.77
Urban*.................................................. 1.2520 1.2616 0.01 0.00 0.01 0.80
TOTAL............................................... 1.2388 1.2388 -0.01 -0.02 0.00 0.20
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of Facility: Region
--------------------------------------------------------------------------------------------------------------------------------------------------------
North................................................... 1.1499 1.2090 0.12 0.02 0.10 4.57
South................................................... 1.2761 1.2351 -0.19 -0.04 -0.15 -2.91
Midwest................................................. 1.2249 1.2645 0.16 -0.02 0.18 3.12
West.................................................... 1.2423 1.2382 0.18 0.02 0.15 0.03
Other................................................... 1.2716 1.2933 -0.04 -0.06 0.02 2.13
TOTAL............................................... 1.2388 1.2388 -0.01 -0.02 0.00 0.20
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 49878]]

Type of Facility: Area of the Country
--------------------------------------------------------------------------------------------------------------------------------------------------------
New England............................................. 1.1106 1.1611 0.10 0.02 0.07 3.83
Mid Atlantic............................................ 1.1706 1.2343 0.14 0.01 0.12 4.96
South Atlantic.......................................... 1.2862 1.2877 -0.09 -0.03 -0.07 0.44
East South Central...................................... 1.2897 1.2667 -0.22 -0.07 -0.16 -1.99
West South Central...................................... 1.2618 1.1781 -0.27 -0.05 -0.23 -6.32
East North Central...................................... 1.2409 1.2818 0.22 -0.01 0.23 3.14
West North Central...................................... 1.1705 1.2055 -0.04 -0.04 -0.01 3.04
Mountain................................................ 1.2660 1.3161 -0.06 -0.04 -0.03 3.22
Pacific................................................. 1.2305 1.1992 0.28 0.05 0.22 -1.21
Other................................................... 1.2716 1.2933 -0.04 -0.06 0.02 2.13
TOTAL............................................... 1.2388 1.2388 -0.01 -0.02 0.00 0.20
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of Facility: Size (Number of First Episodes/Year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unknown................................................. 1.0130 0.8895 -0.27 -0.03 -0.24 -7.85
1 to 5.................................................. 1.2056 1.1866 -0.02 -0.02 0.00 -1.05
6 to 9.................................................. 1.2145 1.1806 0.00 -0.03 0.02 -1.83
10 to 14................................................ 1.2297 1.2128 -0.07 -0.02 -0.05 -0.78
15 to 19................................................ 1.2335 1.2186 -0.05 -0.02 -0.03 -1.10
20 to 29................................................ 1.2412 1.2065 -0.05 -0.02 -0.03 -1.93
30 to 49................................................ 1.2463 1.2335 -0.05 -0.02 -0.03 -0.86
50 to 99................................................ 1.2505 1.2360 -0.04 -0.02 -0.02 -0.84
100 to 199.............................................. 1.2489 1.2334 -0.03 -0.02 -0.01 -0.92
200 or More............................................. 1.2376 1.2398 -0.01 -0.02 0.01 0.36
TOTAL............................................... 1.2388 1.2388 -0.01 -0.02 0.00 0.20
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Based on a 20 percent sample of CY 2005 claims linked to OASIS assessment. Due to sample differences, national average case-mix weight in this
table differs slightly from national average for CY 2005 reported in the text (1.2361).
*Urban/rural status, for the purposes of these simulations, is based on the wage index on which episode payment is based. The wage index is based on the
site of service of the beneficiary.

C. Accounting Statement

As Required by OMB Circular A-4 (available at http://
www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 16 below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this final rule. This
table provides our best estimate of the increase in Medicare payments
under the HH PPS as a result of the changes presented in this final
rule with comment period based on the data for 8,164 HHAs in our
database. All expenditures are classified as transfers to Medicare
providers (that is, HHAs).

Table 16.--Accounting Statement: Classification of Estimated
Expenditures, From CY 2007 to CY 2008
[In millions]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... $20.
From Whom to Whom...................... Federal Government to HHAs.
------------------------------------------------------------------------

In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 484

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

0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 484--HOME HEALTH SERVICES

0
1. The authority citation for part 484 continues to read as follows:

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

Subpart E--Prospective Payment System for Home Health Agencies

Sec. 484.205 [Amended]

0
2. Amend Sec. 484.205 by--
0
A. Removing paragraph (a)(3).

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0
B. Redesignating paragraph (a)(4) as paragraph (a)(3).
0
C. Revising paragraph (b) introductory text.
0
D. Removing paragraph (e).
0
E. Redesignating paragraph (f) as paragraph (e).
The revisions read as follows:

Sec. 484.205 Basis of payment.

* * * * *
(b) Episode payment. The national prospective 60-day episode
payment represents payment in full for all costs associated with
furnishing home health services previously paid on a reasonable cost
basis (except the osteoporosis drug listed in section 1861(m) of the
Act as defined in section 1861(kk) of the Act) as of August 5, 1997
unless the national 60-day episode payment is subject to a low-
utilization payment adjustment set forth in Sec. 484.230, a partial
episode payment adjustment set forth at Sec. 484.235, or an additional
outlier payment set forth in Sec. 484.240. All payments under this
system may be subject to a medical review adjustment reflecting
beneficiary eligibility, medical necessity determinations, and HHRG
assignment. DME provided as a home health service as defined in section
1861(m) of the Act continues to be paid the fee schedule amount.
* * * * *

0
3. Revise Sec. 484.220 to read as follows:

Sec. 484.220 Calculation of the adjusted national prospective 60-day
episode payment rate for case-mix and area wage levels.

CMS adjusts the national prospective 60-day episode payment rate to
account for the following:
(a) HHA case-mix using a case-mix index to explain the relative
resource utilization of different patients. To address changes to the
case-mix that are a result of changes in the coding or classification
of different units of service that do not reflect real changes in case-
mix, the national prospective 60-day episode payment rate will be
adjusted downward as follows:
(1) For CY 2008, the adjustment is 2.75 percent.
(2) For CY 2009 and CY 2010, the adjustment is 2.75 percent in each
year.
(3) For CY 2011, the adjustment is 2.71 percent.
(b) Geographic differences in wage levels using an appropriate wage
index based on the site of service of the beneficiary.

0
4. Amend Sec. 484.230 by adding a third, fourth, and fifth sentence
after the second sentence to read as follows:

Sec. 484.230 Methodology used for the calculation of the low-
utilization payment adjustment.

* * * For 2008 and subsequent calendar years, an amount will be
added to low-utilization payment adjustments for low-utilization
episodes that occur as the beneficiary's only episode or initial
episode in a sequence of adjacent episodes. For purposes of the home
health PPS, a sequence of adjacent episodes for a beneficiary is a
series of claims with no more than 60 days without home care between
the end of one episode, which is the 60th day (except for episodes that
have been PEP-adjusted), and the beginning of the next episode. This
additional amount will be updated annually after 2008 by a factor equal
to the applicable home health market basket percentage.

Sec. 484.237 [Removed]

0
5. Remove Sec. 484.237.

0
6. Amend Sec. 484.240 by revising paragraph (b) to read as follows:

Sec. 484.240 Methodology used for the calculation of the outlier
payment.

* * * * *
(b) The outlier threshold for each case-mix group is the episode
payment amount for that group, the PEP adjustment amount for the
episode plus a fixed dollar loss amount that is the same for all case-
mix groups.
* * * * *

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

Dated: August 17, 2007.
Herb. B. Kuhn,
Acting Deputy Administrator, Centers for Medicare & Medicaid Services.
Approved: August 20, 2007.
Michael O. Leavitt,
Secretary.

Note: The following addenda will not be published in the Code of
Federal Regulations.

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[FR Doc. 07-4184 Filed 8-22-07; 4:00 pm]
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