[Federal Register Volume 59, Number 4 (Thursday, January 6, 1994)]
[Notices]
[Pages 760-762]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-61]


[[Page Unknown]]

[Federal Register: January 6, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
[BPD-796-NC]

 

Medicare Program; Elimination of Additional Payments for 
Administrative and General Costs of Hospital-Based Home Health Agencies

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

ACTION: Final notice with comment period.

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SUMMARY: In accordance with section 13564(b)(1) of the Omnibus Budget 
Reconciliation Act of 1993, this final notice with comment period 
provides that the payment add-on for the administrative and general 
costs of hospital-based home health agencies (HHAs) is eliminated. This 
notice also explains the effects of this provision on the methodology 
used in calculating the HHA cost limits.

DATES: Effective date: The notice is effective for cost reporting 
periods beginning on or after October 1, 1993.
    Comment date: Written comments will be considered if we receive 
them at the appropriate address, as provided below, and must be 
received by 5 p.m. on March 7, 1994.

ADDRESSES: Mail comments (an original and three copies) to the 
following address:

Health Care Financing Administration, Department of Health and Human 
Services, Attention: BPD-796-NC, P.O. Box 7517, Baltimore, MD 21207-
0517.

    If you prefer, you may deliver your comments (an original and three 
copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Ave. SW., 
Washington, DC 20201, or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, 
MD 21207.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-796-NC. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in room 309-G of 
the Department's offices at 200 Independence Avenue SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(Phone: 202-690-7890).
    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 783-3238 or by faxing to (202) 275-
6802. The cost for each copy is $4.50. As an alternative, you may view 
and photocopy the Federal Register document at most libraries 
designated as U.S. Government Depository Libraries and at many other 
public and academic libraries throughout the country that receive the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Michael Bussacca (410) 966-4602.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1861(v)(1)(A) of the Social Security Act (the Act) 
authorizes the Secretary to establish limits on allowable costs 
incurred by a provider of services that may be paid under the Medicare 
program. These limits are based on estimates of the costs necessary in 
the efficient delivery of needed health services. Under this authority, 
we have maintained limits on HHA per-visit costs since 1979. The limits 
may be applied to direct or indirect overall costs or to the costs 
incurred for specific items or services furnished by the provider. This 
statutory provision is implemented in the regulations at 42 CFR 413.30. 
Additional statutory provisions governing the limits are contained at 
section 1861(v)(1)(L) of the Act. Section 1861(v)(1)(L)(i) specifies 
that for cost reporting periods beginning after July 1, 1987, the cost 
limits are not to exceed 112 percent of the mean of the labor-related 
and nonlabor per-visit costs for freestanding HHAs. In addition, 
section 1861(v)(1)(L)(ii) of the Act has required that an adjustment be 
made to the cost limits for the administrative and general (A&G) costs 
of hospital-based agencies. The A&G per-visit add-on for hospital-based 
HHAs has been applied since 1980.
    We published a notice with comment period that appeared in the July 
8, 1993 issue of the Federal Register (58 FR 36748) that set forth a 
revised schedule of limits on HHA costs for cost reporting periods 
beginning on or after July 1, 1993. The limits were computed using 
actual cost per-visit data from cost reporting periods ending on or 
after June 30, 1989 and before May 31, 1991, and were adjusted by the 
latest estimates in the ``market basket'' index to reflect changes in 
the price of goods and services furnished by HHAs.

II. Provisions of This Final Notice With Comment Period

A. Elimination of the A&G Add-on

    On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 
(OBRA '93), Public Law 103-66, was enacted. Section 13564(b) of OBRA 
'93 amended section 1861(v)(1)(L)(ii) of the Act to require that, 
effective for cost reporting periods beginning on or after October 1, 
1993, we no longer include a payment adjustment for the administrative 
and general costs of hospital-based HHAs in computing the HHA limits. 
Under this provision, hospital-based HHAs and freestanding HHAs will be 
treated identically for payment purposes. Thus, in computing a 
hospital-based HHA's cost limits for cost reporting periods beginning 
on or after October 1, 1993, the A&G add-on amounts that were to apply, 
as set forth in Table II of the July 8, 1993 notice (58 FR 36753), will 
not be used. Other components of the July 8, 1993 notice, specifically 
the per-visit limits in Table I, the wage indexes in Tables IIIa and 
IIIb, and the cost reporting year adjustment factors in Table IV, will 
continue to be used to compute the limits.
    We note that section 13564(a) of OBRA '93 amended section 
1861(v)(1)(L)(iii) of the Act to provide that there be no changes in 
the per-visit cost limits for home health services for cost reporting 
periods beginning on or after July 1, 1994, and before July 1, 1996. 
Since the effective date of that provision is different from that of 
the elimination of the A&G add-on, we intend to publish a separate 
notice in a future Federal Register to explain the effects of the delay 
in the update. Again, the only change in the methodology for computing 
the HHA cost limits that is effective for cost reporting periods 
beginning on or after October 1, 1993 is the elimination of the A&G 
add-on for hospital-based HHAs.

B. Computing the Cost Limit for a Hospital-Based HHA

    The example below illustrates how an adjusted occupational therapy 
per-visit cost limit is calculated for a hospital-based HHA in Dallas, 
Texas, with a 12-month cost reporting period beginning October 1, 1993. 
Because the A&G add-on has been eliminated, this example is identical 
to the example contained in our July 8, 1993 notice (58 FR 36752) of 
the calculation of a limit for a free-standing HHA, with the exception 
of the application of a different cost reporting period adjustment 
factor, as set forth in Table IV of that notice. These factors are 
based on the month and year in which an HHA's cost reporting period 
begins, and are used to account for inflation in costs that occurs 
after the effective date of the latest schedule of HHA limits. Thus, in 
the example below, the adjustment factor from Table IV of the July 8, 
1993 notice for an HHA with a cost reporting period beginning October 
1, 1993 is applied.
    To arrive at the adjusted limit, the HHA's intermediary first 
determines the adjusted labor-related component by multiplying the 
labor-related component of the limit by the appropriate wage index 
value, and then adjusts for budget neutrality. The adjusted limit is 
the sum of the adjusted labor-related component, plus the nonlabor 
component, plus other adjustments (if applicable), multiplied by the 
applicable cost reporting period adjustment factor.
    Example: Calculation of an Adjusted Occupational Therapy Limit for 
a Hospital-Based HHA in Dallas, Texas for a Cost Reporting Period 
Beginning October 1, 1993 (using the appropriate tables from the July 
8, 1993 schedule of limits) 

Labor Component (Table I)..................................       $76.27
Wage Index Value (Table III)...............................    x 0.9599 
                                                            ------------
Labor Portion..............................................       $73.21
Special Labor Adjustment for Budget Neutrality.............     x 1.027 
                                                            ------------
Adjusted Labor Portion.....................................       $75.19
Nonlabor Component (Table I)...............................       +16.68
OSHA Adjustment............................................       +0.18 
                                                            ------------
                                                                  $92.05
Cost Reporting Period. Adjustment Factor (Table IV)........   x  1.0126 
                                                            ------------
Adjusted Occupational Therapy Limit........................      $93.21 
                                                                        


    If an HHA uses a cost reporting period that is not 12 months in 
duration, a special adjustment factor is calculated. This is necessary 
because inflation projections are computed to the midpoint of the cost 
reporting period, and the adjustment factors in Table IV are based on 
12-month cost reporting periods. For cost reporting periods other than 
12 months, the calculation must be made for the midpoint of the 
specific cost reporting period. In these cases, the intermediary for 
the HHA obtains this adjustment factor from HCFA.
    In the July 8, 1993 notice, we also set forth an example of a cost-
limit calculation with A&G add-on for a hospital-based HHA in State 
College, Pennsylvania (58 FR 36754). That example, as well as any other 
references in that document to the A&G add-on, are no longer applicable 
for cost reporting periods beginning on or after October 1, 1993.

III. Impact Statement

    Executive Order 12866 (E.O. 12866) requires us to prepare an 
analysis for any rule that meets one of the E.O. 12866 criteria for a 
``significant regulatory action''; that is, that may--
      Have an annual effect on the economy of $100 million or 
more; or adversely affect, in a material way, the economy, a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
     Create a serious inconsistency or otherwise interfere with 
an action taken or planned by another agency;
     Materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or
     Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
E.O. 12866.
    In addition, for final notices such as this, we generally prepare a 
regulatory flexibility analysis that is consistent with the Regulatory 
Flexibility Act (RFA) (5 U.S.C. 601 through 612) unless the Secretary 
certifies that this notice would not have a significant economic impact 
on a substantial number of small entities. For purposes of the RFA, all 
HHAs are treated as small entities.
    This final notice with comment period announces the provisions of 
section 13564(b) of OBRA '93, which provides for the elimination of the 
A&G add-on for hospital-based HHAs, effective for cost reporting 
periods beginning on or after October 1, 1993. None of the provisions 
of this notice interprets or extends requirements beyond those set 
forth in OBRA '93.
    Section 13564(b) of OBRA '93 will result in significant Federal 
cost savings. The impact of this provision is discussed further below. 
This notice explains how the provision affects the methodology for 
calculating the HHA limits. We do not believe that merely explaining 
the results of this provision in this notice produces any effect that 
will meet any of the criteria of E.O. 12866 for a significant 
regulatory action or will have a significant effect on a substantial 
number of small entities. Therefore, we have determined and the 
Secretary certifies that neither an impact statement under E.O. 12866 
nor a regulatory flexibility analysis under the RFA are required.
    To the extent that a legislative provision being announced by a 
notice such as this may have a significant effect on beneficiaries or 
providers or may be viewed as controversial, we believe that we should 
address any potential concerns. In this instance, we believe it is 
desirable to inform the public of our estimate of the substantial 
budgetary effect of this statutory change. We estimate that the 
elimination of the add-on for hospital-based HHAs will result in the 
following savings to the Medicare program: 

     Table 1.--Impact of the Elimination of Hospital-Based Add-On*      
------------------------------------------------------------------------
                        Fiscal year                            Savings  
------------------------------------------------------------------------
1994........................................................         $70
1995........................................................        120 
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*All figures are rounded to the nearest $10 million.                    


    We have attempted to examine the overall effects of this provision 
on hospital-based HHAs. As illustrated in Table 2 below, we estimate 
that the elimination of the A&G add-on for hospital-based HHAs will 
result in substantial increases in the number of hospital-based HHAs 
that meet or exceed the cost limits.

        Table 2.--Hospital-Based HHAs At or Over the Cost Limits        
------------------------------------------------------------------------
                                        HHAs in                 October 
                                         Model     July 1993     1993   
------------------------------------------------------------------------
Hospital-Based......................        1599         774        1144
    Urban...........................         780         397         596
    Rural...........................         819         377         548
------------------------------------------------------------------------

    The model used for our analysis is based on data from 1,599 
hospital-based HHAs. In our July 8, 1993 notice, which used the same 
model, we estimated that 774 hospital-based HHA in the model would meet 
or exceed the HHA cost limits. Thus, we believe that the proportion of 
hospital-based HHAs that will meet or exceed the cost limits is likely 
to increase from approximately 48 percent (774/1599) to 72 percent 
(1144/1599) as a result of the elimination of the A&G add-on.
    We are unable to identify the effects of this provision on 
individual hospital-based home health agencies. However, we anticipate 
that overall FY 1994 Medicare payments for hospital-based HHAs will be 
approximately 6 percent less than they would have been if the A&G add-
on had not been eliminated. The effects of this reduction on the total 
revenues of individual hospital-based HHAs will depend on the HHA's 
ability to operate within the cost limits and on the proportion of the 
HHA's revenues that come from the Medicare program.
    Section 1102(b) of the Act requires the Secretary to prepare a 
regulatory impact analysis if a final notice such as this may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. Such an analysis must conform to the provisions of 
section 604 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital with fewer than 100 beds 
located outside of a Metropolitan Statistical Area.
    We have not prepared a rural impact statement since we have 
determined and the Secretary certifies that this final notice will not 
have a significant economic impact on the operations of a substantial 
number of small rural hospitals.

IV. Other Required Information

A. Waiver of Proposed Notice and 30-Day Delay in the Effective Date

    In adopting notices such as this, we ordinarily publish a proposed 
notice in the Federal Register with a 60-day period for public comment 
as required under section 1871(b)(1) of the Act. We also normally 
provide a delay of 30 days in the effective date for documents such as 
this. However, we may waive these procedures if we find good cause that 
prior notice and comment or a delay in the effective date are 
impracticable, unnecessary, or contrary to the public interest.
    Section 13564(b)(1) of OBRA '93 amended section 1861(v)(1))(L)(ii) 
of the Act to eliminate, effective for cost reporting periods beginning 
on or after October 1, 1993, the adjustment to the HHA cost limits to 
recognize the administrative and general costs of hospital-based HHAs. 
In conformance with the clear direction of section 13564(b)(1) of OBRA 
'93, this notice announces the elimination of the adjustment to the HHA 
cost limits to recognize the administrative and general costs of 
hospital-based HHAs and explains the effect that this action will have 
on methodology for calculating the cost limits of hospital-based HHAs. 
We have made no changes in this methodology beyond those directly 
required by section 13564(b)(1) of OBRA '93, nor are there any other 
discretionary aspects to this notice. Moreover, section 13564(b)(2) of 
OBRA '93 mandates that these provisions are effective beginning with 
cost reporting periods beginning on or after October 1, 1993. Thus, we 
have concluded that in this instance, it would be impracticable, 
unnecessary, and contrary to the public interest to publish a proposed 
notice or to provide for a 30-day delay in the effective date of this 
notice. Therefore, we find good cause to waive publication of a 
proposed notice and the 30-day delay in effective date. However, we are 
providing a 60-day period for public comment, as indicated at the 
beginning of this notice.

B. Paperwork Reduction Act

    This final notice does not impose information collection 
requirements. Consequently, it does not need to be reviewed by the 
Office of Management and Budget under the authority of the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3507).

C. Public Comments

    Because of the large number of items of correspondence we normally 
receive on a notice with comment period, we are not able to acknowledge 
or respond to them individually. However, we will consider all comments 
concerning the provisions of this notice that we receive by the date 
and time specified in the ``DATES'' section of this notice, and, if 
changes are made in another notice, we will respond to these comments 
in that notice.

    Authority: (Section 1861(v)(1)(L) of the Social Security Act (42 
U.S.C. 1395x(v)(1)(L)); section 4207(d) of Pub. L. 101-508 (42 
U.S.C. 1395x (note)); section 13564(b) of Pub. L. 103-66 (42 U.S.C. 
1395x (note)).

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance)

    Dated: November 19, 1993.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: December 5, 1993.
Donna E. Shalala,
Secretary.
[FR Doc. 94-61 Filed 1-5-94; 8:45 am]
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