[Federal Register Volume 64, Number 208 (Thursday, October 28, 1999)]
[Proposed Rules]
[Pages 58134-58209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27864]



[[Page 58133]]

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Part II





Department of Health and Human Services





_______________________________________________________________________



Health Care Financing Administration



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42 CFR Parts 409, 410, 411, etc.



Medicare Program; Prospective Payment System for Home Health Agencies; 
Proposed Rule

  Federal Register / Vol. 64, No. 208 / Thursday, October 28, 1999 / 
Proposed Rules  

[[Page 58134]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 409, 410, 411, 413, 424, and 484

[HCFA-1059-P]
RIN 0938-AJ24


Medicare Program; Prospective Payment System for Home Health 
Agencies

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would establish requirements for the new 
prospective payment system for home health agencies as required by 
section 4603 of the Balanced Budget Act of 1997, as amended by section 
5101 of the Omnibus Consolidated and Emergency Supplemental 
Appropriations Act for Fiscal Year 1999. These include the 
implementation of a prospective payment system for home health 
agencies, consolidated billing requirements, and a number of other 
related changes. The prospective payment system described in this rule 
would replace the retrospective reasonable-cost-based system currently 
used by Medicare for the payment of home health services under Part A 
and Part B.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
December 27, 1999.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: HCFA-1059-P, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses: Room 443-G Hubert H. 
Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, 
or Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.

FOR FURTHER INFORMATION CONTACT:
Bob Wardwell (Project Manager), (410) 786-4607.
Susan Levy (Payment Policy), (410) 786-9364.
Debbie Chaney (Data), (410) 786-8164.
Randy Throndset (Data), (410) 786-0131.

SUPPLEMENTARY INFORMATION: Because of staffing and resource 
limitations, we cannot accept comments by facsimile (FAX) transmission. 
In commenting, please refer to file code HCFA-1059-P. 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 443-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) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8. As an alternative, you can view and 
photocopy the Federal Register document at most libraries designated as 
Federal Depository Libraries and at many other public and academic 
libraries throughout the country that receive the Federal Register.
    To assist readers in referencing sections contained in this 
document, we are providing the following table of contents.

Table of Contents

Preamble

I. Background
    A. Current System for Payment of Home Health Agencies
    B. Requirements of the Balanced Budget Act of 1997 and the 
Omnibus Consolidated and Emergency Supplemental Appropriations Act 
for Fiscal Year 1999 for the Development of a Prospective Payment 
System for Home Health Agencies
    C. Summary of the Research
    D. Home Health Agency Prospective Payment--Overview
    1. Payment Provisions--National Episode Payment Rate
    a. Episode Definition
    b. National Episode Payment Rate
    2. Payment Provisions--Split Payment
    3. Payment Provisions--Outlier Payments
    4. Payment Provisions--Transition Period
    5. Consolidated Billing for Home Health Agencies
    6. Medical Review Under the Prospective Payment System
    7. Continued Access to Quality Home Health Services Under the 
Prospective Payment System
    8. Implementation of the Prospective Payment System
II. Prospective Payment System for Home Health Agencies
    A. National 60-Day Episode Payment
    1. Costs and Services Covered by the 60-Day Episode Payment
    2. Data Sources Used for the Development of the 60-Day Episode 
Payment
    a. Audited Cost Report Data
    b. Home Health Agency Market Basket Index
    c. Claims Data
    d. Hospital Wage Index
    e. Abt Associates Case-Mix Research Project Data
    3. Methodology Used for the Calculation of the 60-Day Episode 
Payment Amount
    a. Cost Data--60-Day Episode Payment
    b. Utilization Data--60-Day Episode Payment
    c. Updating the Data
    d. Standardization Factor
    e. Budget-Neutrality Factor
    4. Methodology Used for Low-Utilization Payments
    5. Methodology Used for Outlier Payments
    B. Examples of National Standardized 60-Day Episode Payment 
Amounts and Low-Utilization Payment Adjustments
    C. Design and Methodology for Case-Mix Adjustment of 60-Day 
Episode Payments
    1. Background on Clinical Model Patient Classification System
    2. The Clinical Model--Home Health Resource Group Classification 
System
    3. Determining the Case-Mix Indices
    4. Application of the Clinical Model Patient Classification 
System
    5. Background on the Case-Mix Research Project for a National 
Home Health PPS
III. Audited Cost Report Data Sample Methodology
IV. HHA PPS Framework--How the System Works
    A. Start of Care
    B. End of Episode
    C. Recertification of 60-day Episode Period
    D. Determining Whether a Beneficiary Is Under an Established 
Plan of Care
    E. Medical Review
    F. Overpayments and Adjustments
    G. Implementation Effective Date for PPS
    H. Claims Processing Transition
    I. Quality System
    J. Illustrative Examples
    1. 60-day Episode--No Recertification
    2. 60-day Episode with Recertification
    3. Partial Episode Payment Adjustment Examples
    4. Significant Change in Condition Payment Adjustment Examples
    K. Required Schedule for Completing OASIS Supplemented by One 
Additional Case-Mix Item
    L. Relationship Between Payment and OASIS
    M. Transition of Assessment and Certification Dates for 
Beneficiaries Under an Established Home Health Plan of Care
    1. Use of Current OASIS Assessment for Purposes of Case-Mix 
Classification
    2. Physician Certification Dates for Beneficiaries Under an 
Established Home Health Plan of Care
V. Consolidated Billing
    A. Background
    B. HHA Consolidated Billing Legislation
    C. Types of Services That Are Subject to the Provision

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    D. Effects of This Provision
    E. Effective Date for Consolidated Billing
VI. Provisions of the Proposed Rule
VII. Response to Comments
VIII. Collection of Information Requirements
IX. Regulatory Impact Statement
    A. Background
    1. General
    2. 60-Day Episode Definition and Payment Rate
    3. Case Mix
    B. Alternatives Considered
    1. Unit of Payment
    a. 60-Day National Episode Payment
    b. Low-Utilization Payment Adjustment
    c. Partial Episode Payment Adjustment
    d. Significant Change in Condition Adjustment
    2. Outlier Payments
    3. Transition
    4. Operational Options
    5. Consolidated Billing
    C. Effects of this Proposed Rule
    D. Rural Hospital Impact Statement

Regulations Text

    In addition, because of the many terms to which we refer by 
abbreviation in this rule, we are listing these abbreviations and 
their corresponding terms in alphabetical order below:

ADL--Activities of Daily Living
BBA--Balanced Budget Act of 1997
COPs--Conditions of participation
DME--Durable medical equipment
FIs--Fiscal intermediaries
FFY--Federal fiscal year
FMR--Focused medical review
FY--Fiscal year
HHA--Home health agency
HIC--Health insurance claim
HHRGs--Home Health Resource Groups
IADL--Instrumental Activities of Daily Living
IPS--Interim payment system
LUPA--Low-utilization payment adjustment
MS--Medical social services
MSA--Metropolitan Statistical Area
NCSB--Neurological, cognitive, sensory, and behavioral variables
OASIS--Outcome and Assessment Information Set
OBQI--Outcome based quality improvement
OCESAA--Omnibus Consolidated and Emergency Supplemental 
Appropriations Act for Fiscal Year 1999
OES--[U.S. Bureau of Labor Statistics] Occupational Employment 
Survey
OSCAR--On-line Survey and Certification System
OT--Occupational therapy
PEP--Partial episode payment
PPS--Prospective payment system
PT--Physical therapy
RHHI--Regional Home Health Intermediary
RUGs--Resource Utilization Groups
SCIC--Significant Change in Condition
SN--Skilled nursing service
SP--Speech-language pathology

I. Background

A. Current System for Payment of Home Health Agencies

    The Balanced Budget Act of 1997 (Public Law 105-33) (BBA), enacted 
on August 5, 1997, significantly changed the way we pay for Medicare 
home health services. Until the implementation of a home health 
prospective payment system (PPS), home health agencies (HHAs) receive 
payment under a cost-based reimbursement system, referred to as the 
interim payment system and generally established by section 4602 of the 
BBA. The interim payment system imposes two sets of cost limits for 
HHAs. Section 4206(a) of the BBA reduced the home health per-visit cost 
limits from 112 percent of the mean labor-related and nonlabor per-
visit costs for freestanding agencies to 105 percent of the median. In 
addition, HHA costs are subjected to an aggregate per-beneficiary cost 
limitation. For those providers with a 12-month cost reporting period 
ending in Federal fiscal year (FFY) 1994, the per-beneficiary cost 
limitation is based on a blend of costs (75 percent on 98 percent of 
the agency-specific costs and 25 percent on 98 percent of the 
standardized regional average of the costs for the agency's census 
region). For new providers and those providers without a 12-month cost-
reporting period ending in FFY 1994, the per-beneficiary limitation is 
the national median of the per-beneficiary limits for HHAs. Under the 
interim payment system, HHAs are paid the lesser of (1) actual costs; 
(2) the per-visit limits; or (3) the per-beneficiary limits. Effective 
October 1, 1997, the interim payment system exists until prospective 
payment for HHAs is implemented.
    On October 21, 1998, the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act (OCESAA), 1999 (Public Law 105-277) was 
signed into law. Section 5101 of OCESAA amended section 1861(v)(1)(L) 
of the Social Security Act (the Act) by providing for adjustments to 
the per-beneficiary and per-visit limitations for cost-reporting 
periods beginning on or after October 1, 1998. We had published a 
notice with comment period establishing the cost limitations for cost 
reporting periods beginning on or after October 1, 1998 in the Federal 
Register that was entitled ``Medicare Program; Schedules of Per-Visit 
and Per-Beneficiary Limitations on Home Health Agency Costs for Cost 
Reporting Periods Beginning On or After October 1, 1998'' (HCFA-1035-
NC) on August 11, 1998 (63 FR 42912). OCESAA made the following 
adjustments to these limitations:
    Providers with a 12-month cost reporting period ending during FY 
1994, whose per-beneficiary limitations were less than the national 
median, which is to be set at 100 percent for comparison purposes, will 
get their current per-beneficiary limitation plus \1/3\ of the 
difference between their rate and the adjusted national median per-
beneficiary limitation. New providers and providers without a 12-month 
cost-reporting period ending in FFR 1994 whose first cost-reporting 
period begins before October 1, 1998 will receive 100 percent of the 
national median per-beneficiary limitation.
    New providers whose first cost-reporting periods begin during FFY 
1999 will receive 75 percent of the national median per-beneficiary 
limitation as published in the August 11, 1998 notice. In the case of a 
new provider or a provider that did not have a 12-month cost-reporting 
period beginning during FFY 1994 that filed an application for HHA 
provider status before October 15, 1998 or that was approved as a 
branch of its parent agency before that date and becomes a subunit of 
the parent agency or a separate freestanding agency on or after that 
date, the per-beneficiary limitation will be set at 100 percent of the 
median. The per-visit limitation effective for cost-reporting periods 
beginning on or after October 1, 1998 is set at 106 percent of the 
median instead of 105 percent of the median, as previously required in 
the BBA.
    There is contingency language for the home health PPS provided in 
the BBA that was also amended by section 5101 of OCESAA. If the 
Secretary for any reason does not establish and implement the PPS for 
home health services, the Secretary will provide for a reduction by 15 
percent to the per-visit cost limits and per-beneficiary limits, as 
those limits would otherwise be in effect on September 30, 2000.

B. Requirements of the Balanced Budget Act of 1997 and the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act for Fiscal 
Year 1999 for the Development of a Prospective Payment System for Home 
Health Agencies

    Section 4603(a) of the BBA provides the authority for the 
development of a PPS for all Medicare-covered home health services paid 
on a reasonable cost basis that will ultimately be based on units of 
payment by adding section 1895 to the Act entitled ``Prospective 
Payment For Home Health Services.''
    Section 5101(c) of OCESAA amends section 1895(a) of the Act by 
removing the transition into the PPS by cost-reporting periods and 
requiring all HHAs to be paid under PPS effective upon the 
implementation date of the system. Section 1895(a) of the Act now 
states ``Notwithstanding section 1861(v),

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the Secretary shall provide for portions of cost-reporting periods 
occurring on or after October 1, 2000, for payments for home health 
services in accordance with a prospective payment system established by 
the Secretary under this section.''
    Section 1895(b)(1) of the Act requires the Secretary to establish a 
PPS for all costs of home health services. Under this system all 
services covered and paid for on a reasonable-cost basis under the 
Medicare home health benefit as of the date of enactment of the BBA, 
including medical supplies, will be paid on the basis of a prospective 
payment amount. The Secretary may provide for a transition of not 
longer than 4 years during which a portion of the prospective payment 
may be agency-specific as long as the blend does not exceed budget-
neutrality targets.
    Section 1895(b)(2) of the Act requires the Secretary in defining a 
prospective payment amount to consider an appropriate unit of service 
and the number, type, and duration of visits furnished within that 
unit, potential changes in the mix of services provided within that 
unit and their cost, and a general system design that provides for 
continued access to quality services.
    Section 1895(b)(3)(A)(i) of the Act requires that (1) the 
computation of a standard prospective payment amount include all costs 
of 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 5101(c) of OCESAA modifies the effective date of the 
budget-neutrality targets for HHA PPS by amending section 
1895(b)(3)(A)(ii) of the Act. Section 1895(b)(3)(A)(ii) of the Act, as 
amended, requires that the standard prospective payment limitation 
amounts be budget neutral to what would be expended under the current 
interim payment system with the limits reduced by 15 percent at the 
inception of the PPS on October 1, 2000.
    Section 5101(d)(2) of OCESAA also modifies the statutory provisions 
dealing with the home health market basket percentage increase. For 
fiscal years 2002 or 2003, sections 1895(b)(3)(B)(i) and (b)(3)(B)(ii) 
of the Act, as so modified, require that the standard prospective 
payment amounts be increased by a factor equal to the home health 
market basket minus 1.1 percentage points. In addition, for any 
subsequent fiscal years, the statute requires the rates to be increased 
by the applicable home health market basket index change.
    Section 1895(b)(3)(C) of the Act requires the Secretary to reduce 
the prospective payment amounts if the Secretary accounts for an 
addition or adjustment to the payment amount made in the case of 
outlier payments. The reduction must be in a proportion such that the 
aggregate reduction in the prospective payment amounts for the given 
period equals the aggregate increase in payments resulting from the 
application of outlier payments.
    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 to 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 explains a significant amount of the variation in cost 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 the 
furnishing of home health services in a geographic area compared to the 
national average applicable level. These wage-adjustment factors may be 
the factors used by the Secretary for purposes of section 1886(d)(3)(E) 
of the Act.
    Section 1895(b)(5) of the Act gives the Secretary the option to 
grant 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 cannot exceed 5 percent of total payments projected or 
estimated.
    Section 1895(b)(6) of the Act provides for the proration of 
prospective payment amounts between the HHAs involved in the case of a 
patient electing to transfer or receive services from another HHA 
within the period covered by the prospective payment amount.
    Section 1895(d) of the Act limits review of certain aspects of the 
HHA PPS. Specifically, there is no administrative or judicial review 
under sections 1869 or 1878 of the Act, or otherwise, of the following: 
the establishment of the transition period under 1895(b)(1) of the Act, 
the definition and application of payment units under section 
1895(b)(2) of the Act, the computation of initial standard prospective 
amounts under 1895(b)(3)(A) of the Act (including the reduction 
described in section 1895(b)(3)(A)(ii) of the Act), the establishment 
of the adjustment for outliers under 1895(b)(3)(C) of the Act, the 
establishment of case-mix and area wage adjustments under 1895(b)(4) of 
the Act, and the establishment of any adjustments for outliers under 
1895(b)(5) of the Act.
    Section 4603(b) of the BBA amends section 1815(e)(2) of the Act by 
eliminating periodic interim payments for HHAs effective October 1, 
2000.
    Section 4603(c) of the BBA sets forth the following conforming 
amendments: Section 1814(b)(1) of the Act is amended to indicate that 
payments under Part A will also be made under section 1895 of the Act; 
section 1833(a)(2)(A) of the Act is amended to require that home health 
services, other than a covered osteoporosis drug, are paid under HHA 
PPS, and section 1833(a)(2) is amended by adding a new subparagraph (G) 
regarding payment of Part B services at section 1861(s)(10)(A) of the 
Act; and section 1842(b)(6)(F) is added to the Act and section 
1832(a)(1) of the Act is amended to include a reference to section 
1842(b)(6)(F), both governing the consolidated billing requirements.
    Section 4603(d) of the BBA was amended by section 5101(c)(2) of 
OCESAA by changing the effective date language for the HHA PPS and the 
other changes made by section 4603 of the BBA. Section 4603(d) provided 
that: ``Except as otherwise provided, the amendments made by this 
section shall apply to portions of cost reporting periods occurring on 
or after October 1, 2000.'' This change requires all HHAs to be paid 
under HHA PPS effective October 1, 2000 regardless of the current cost-
reporting period. This change is discussed in detail in section IV.H. 
of this regulation.
    Section 4603(e) of the BBA sets forth the contingency language for 
HHA PPS. If the Secretary for any reason does not establish and 
implement HHA PPS on October 1, 2000, the per-visit cost limits and 
per-beneficiary limits under the interim payment system will be reduced 
by 15 percent.

C. Summary of the Research

    The PPS described in the following sections is a culmination of 
substantial research efforts focusing on the areas of HHA payment and 
quality.

The Per-Visit Prospective Payment Demonstration

Description of the Demonstration

    Under the per-visit demonstration, administered under a contract to 
Abt Associates, Inc., 47 agencies in California, Florida, Illinois, 
Massachusetts, and Texas were phased

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into the project at the beginning of their fiscal years starting in 
October 1990 and continuing for 3 years. Of the 47 agencies, 26 were 
randomly assigned to be paid prospectively, and the remaining 21 were 
paid retrospectively, subject to the statutory limitations. The 
participating agencies were representative nationally in terms of their 
average costs per visit for each visit type and their patients' 
characteristics.
    For the first year, prospective per-visit rates by type of visit 
(for example, skilled nursing or occupational therapy) were set for 
each demonstration agency based on the agency's cost for the year 
preceding its entry into the project and adjusted for inflation. If the 
base year cost used to set the rates exceeded the statutory cost 
limits, it was reduced to satisfy the limits. For the second and third 
years, the agency-specific rates were updated for inflation. The 
demonstration payment rates were adjusted annually for changes in 
agencies' volume. Payments were adjusted to share losses and profits 
with us.
    The opportunity to earn a profit on visits was expected to motivate 
demonstration agencies to hold increases in cost per visit below the 
rate of increase in their payment per visit. It was expected that 
agencies would make a variety of changes to enhance efficiency and hold 
down both service-related and administrative costs. However, it was 
recognized that costs to the Medicare program could potentially 
increase under prospective rate setting, if agencies furnished more 
visits than they would have under cost reimbursement, or if agencies' 
efforts to lower costs also lowered quality of care and led to 
increased use of other Medicare services. It was the role of the 
evaluation contractor to study these and other potential consequences.

Evaluation of the Demonstration

    We contracted with Mathematica Policy Research, Inc. to perform an 
independent evaluation of the demonstration. The objectives of the 
evaluation were to describe and assess the impacts on the Medicare 
program and its beneficiaries and to understand possible changes in 
agency decision making and operations as a result of the incentives of 
the new payment method.
    Major data resources for the evaluation included Medicare claims, 
enrollment files, case studies, and site visits with participating 
providers, an annual mail survey of demonstration agencies, interviews 
with organizations involved in the demonstration (for example, fiscal 
intermediaries), provider cost reports, patient surveys, patient intake 
data collected by the providers, home health certification and plan of 
treatment forms (Form 485), and records of quality assurance reviews 
from the New England Research Institute, the demonstration's quality 
assurance contractor.
    Several types of multivariate regression models were used to 
estimate treatment-control differences. For example, analysis of costs 
per visit and visit volume involved a comparison of cost reports during 
the 3 years of the demonstration and the 3 prior years. Using a 
regression procedure, the treatment group's change in average visit 
cost and average number of visits was compared to the control group's 
change. Impacts on visits per episode were estimated using episode-
level data from claims, with separate analyses conducted for each 
demonstration year. Patient survey data and quality assurance reviews 
were among the sources for analyses of quality impacts, which 
controlled for potential confounding factors such as patient and agency 
characteristics.
    Qualitative research to understand agency responses used case study 
methods. Twenty-two cases for study (11 treatment and 11 control 
agencies) were drawn from across the five States to represent the 
variation in a range of provider characteristics, such as auspices, 
size, and urban or rural location. The agencies were followed over most 
of the 3 years of the demonstration. Data were collected through site 
visit and telephone interviews, as well as from cost reports and a mail 
survey of agencies. The case studies focused on several key aspects of 
demonstration operations, such as strategic planning, clinical costs, 
administrative costs, relations between the agencies and administrative 
organizations, and perceptions about a national program of prospective 
payment.

Evaluation Results

Cost

    The per-visit PPS did not result in more cost control, nor did it 
induce excessive volume. There were no statistically significant 
differences between treatment and control agencies in the change in 
average cost per visit, regardless of type of visit. For example, the 
cost per skilled nursing visit for treatment agencies increased from an 
average of about $81 to about $92 between the predemonstration and 
demonstration periods. Control agencies' average costs grew by a 
similar amount. A related analysis found that a subgroup of agencies--
freestanding agencies with a large proportion of Medicare visits--
exhibited treatment-control differences in profits and ability to 
control cost increases. Their greater success in generating profits and 
in holding down Medicare cost increases suggested that HHAs can be 
induced to control costs. Nonetheless, this possible demonstration 
effect was too small to produce a difference in impacts for the sample 
as a whole.

Utilization

    The analysis of volume suggested no impact from prospective rate 
setting. Average total visits for the two groups grew at similar rates 
between the base year and the end of the demonstration--21.3 percent 
per year for the treatment group and 23.6 percent per year for the 
control group. Visit growth for three specific types of visits (skilled 
nursing, aide, and physical therapy) was statistically equal for the 
two groups as well. Small sample sizes prevented reliable estimation 
for the remaining three visit types.
    Treatment group agencies did not differentially increase the number 
of visits per episode. They provided slightly fewer physical therapy 
visits per episode, a result that is inconsistent with the incentives 
to increase visits under visit-based rate setting and may not have been 
a result of the demonstration. The duration of episodes did not differ 
between treatment and control agencies, although the length of aide 
visits was significantly shorter for treatment agencies. However, the 
evaluators concluded this was probably not due to the prospective 
payment, and this finding was not supported by data from other 
evaluation sources. The demonstration had no effects on patients' use 
of other Medicare-covered services, such as hospital care or 
physicians' visits. Finally, per-visit PPS did not appear to affect 
patients' use of non-Medicare services or on the amount of informal 
care received.

Quality and Access

    The evidence suggested that quality of care was unaffected by per-
visit prospective payment. Analyses of quality assurance data uncovered 
no impacts. Access-related provider behavior--such as agencies becoming 
more selective about the patients they accepted--was unaffected. For 
example, treatment and control group patients differed significantly in 
all 3 years on only two of the many patient characteristics at 
admission--clinical stability and pre-admission location. There were no 
significant differences in the proportion of admissions with

[[Page 58138]]

characteristics suggesting a need for long visits.

Qualitative Findings

    The first year of the demonstration was a time of transition, 
during which participants were adjusting to demonstration operations, 
which included collection of special patient-intake data and use of a 
single fiscal intermediary. Agencies reported that these adjustments 
imposed costs that limited their ability to reduce overall costs. The 
environment of the first year was one of change and competition, which 
continually compelled providers to assess their services and service 
areas, payment sources, and marketing activities. For many providers, 
it was also a time of large volume growth and an increasing proportion 
of more acutely ill patients. Agencies were continuing to seek 
efficiency measures, as they had before the demonstration. The 
evaluators did not observe any effect of the demonstration itself on 
such clinical activities as referral procedures, intake procedures, 
assessment and care planning, and quality assurance procedures. 
Relations with the fiscal intermediary were generally smooth, although 
some problems needed resolution, particularly during the early months.
    By the third year of the demonstration, it was clear that the 
incentives introduced by the switch to visit-based prospective payment 
did not dramatically alter the overall environment of treatment 
agencies relative to controls. This outcome seemed attributable to 
background conditions deriving from Medicare program cost limits and 
allowable cost determinations. In addition, the combined effects of 
competition in the industry and cost control policies in other health 
sectors created a climate in which agencies, both treatment and 
control, felt pressures to produce services efficiently. Yet most 
identified little that could be done to reduce their costs. The 
evaluators concluded that the prospective payment incentive may have 
been responsible for some slight additional attention to cost cutting. 
Specific examples included more attention to efficiency and 
profitability in the strategic plans of treatment as compared to 
control agencies, more branch offices opened by treatment than control 
agencies, more use of computers by treatment than control agencies, and 
higher productivity expectations for staff of treatment compared to 
control agencies.

Summary of Results

    The evaluation findings overall suggested that prospective per-
visit rates are unlikely to generate sizable cost savings for the 
Medicare program. Agencies appeared to respond modestly to this 
incentive to be more efficient. Due to the limited size of the project, 
the evaluators had little opportunity to assess whether prospective 
rate setting worked better for certain types of agencies. Nevertheless, 
the demonstration suggested that agencies can make some changes to slow 
the rate of increase in costs per visit.

The Per-Episode Prospective Payment Demonstration Description of 
the Demonstration

    The per-episode PPS demonstration, administered under a contract to 
Abt Associates, Inc., began in June 1995. The demonstration was 
scheduled to terminate by December 1998. At the participating agencies' 
request, the demonstration has been extended pending the implementation 
of a national, episode-based PPS. However, as originally planned, the 
collection of evaluation data terminated at year-end 1998.
    Ninety-one agencies from five sites--California, Florida, Illinois, 
Massachusetts, and Texas--were randomly assigned to either the 
treatment group (PPS payment, 48 agencies) or the control group 
(conventional cost-based reimbursement, 43 agencies). The agencies 
phased into the demonstration at the beginning of their 1996 fiscal 
year.
    The payments received by the treatment group agencies for the first 
120 days of an episode are based on each agency's own costs in the 
fiscal year immediately preceding its entry into the demonstration, 
updated for inflation and adjusted for changes in its case mix. While 
each agency is ``at risk'' during the first 120 days after admission 
for all home health visits the patient needs, we reimburse treatment 
agencies for up to 99 percent of fiscal-year losses, up to the 
statutory payment limits. Profits in excess of the specified statutory 
limits are shared with us. For visits occurring after the initial 120 
days, agencies are reimbursed using prospective per-visit rates.
    Episodes are defined by gaps of at least 45 days in the receipt of 
Medicare home health care. Only after the 120-day payment period and a 
45-day gap in services could an agency receive a new episode-based 
payment for a given Medicare beneficiary.
    Treatment agencies can reduce the cost of care they furnish during 
the 120-day payment period by reducing visits, changing the mix of 
visits to make less costly visits a larger proportion of visits, 
reducing per-visit costs, or some combination of all three. The cost-
reducing activities raise the possibility that quality of care might 
deteriorate under episode-based payment. Quality reduction could occur 
through several cost-saving mechanisms, such as inadequate provision of 
expensive therapeutic services, excessive reductions in visit 
frequency, or excessive shortening of visits.

Evaluation of the Demonstration

    We contracted with Mathematica Policy Research, Inc. to evaluate 
the episode-based demonstration. As with the visit-based demonstration 
evaluation, this project sought to answer policy questions on two main 
issues: program impacts and agency decisions and operations. The 
program evaluation addresses impacts on home health utilization, other 
Medicare services utilization, non-Medicare services utilization, 
quality and access, and cost. The analysis of agency decisions and 
operations seeks to provide useful insights for the implementation of a 
national program of episode-based prospective payment.
    We also contracted with the Center for Health Policy Research at 
the University of Colorado to perform quality assurance monitoring. All 
agencies participating in the demonstration are required to collect 
patient status data at the start of care, at discharge, at 120 days 
after admission if the patient is still on service, at admission to an 
inpatient facility for 48 hours or more, and upon resumption of care 
after an inpatient stay. Outcomes are reported at the agency level. 
Based on outcome report findings, agencies are requested to engage in 
follow-up activities to investigate processes of care, and specific 
agencies are selected for an additional process of care review. In 
addition to outcome monitoring for individual agencies, the quality 
assurance project reports on patterns of outcomes for treatment and 
control agencies.
    The evaluation results to date are based largely on data from the 
first year of the demonstration. Most of the analyses are based on 
approximately 51,000 home health episodes from 85 of the demonstration 
agencies (6 dropped out or had inadequate data). All admissions 
occurring between an agency's start date (beginning of its 1996 fiscal 
year) and August 1996 are included. Medicare claims files provided data 
on the outcomes variables describing the use of services. Claims

[[Page 58139]]

data were supplemented with data from the quality assurance contractor 
for the analyses of quality impacts. Claims data and cost report data 
were used to research the impact of the demonstration on agency costs. 
Data from a survey of patients conducted during the second and third 
demonstration years were the basis for a study of utilization of non-
Medicare services and selected quality outcomes.
    For most statistical analyses, regression models were used to 
estimate treatment-control differences. Use of regression analysis 
permits the isolation of PPS effects from other potential causes of 
treatment-control differences, such as a difference in the proportion 
of agencies affiliated with a hospital. Data collected at admission for 
case-mix adjustment and from prior Medicare claims histories provided 
measures of pre-admission patient characteristics that were used to 
account for potential pre-existing treatment-control differences in 
patient populations. Other control variables were obtained from agency 
cost reports and the demonstration contractor.
    A qualitative research component of the evaluation is based on case 
study methods. For a judgmental sample of 67 demonstration agencies, 
primary data were collected during site visits early in the 
demonstration and supplemented by agency documents. Freestanding 
agencies (56) predominated in the sample. About half of the 
freestanding agencies were for-profit, and half were voluntary or 
private nonprofit organizations (primarily visiting nurse 
associations). Administrative data on these agencies came from our 
provider files. The researchers also conducted telephone interviews 
with representatives of the demonstration contractor and fiscal 
intermediaries.

Interim Evaluation Results

Cost

    On average, episode prospective payment reduced the cost per 
episode by $419, or 13 percent. This appears to have resulted from the 
combined effects of fewer visits and higher average cost per visit, 
compared to agencies not paid prospectively. For treatment agencies, 
the rising cost per visit would have increased the cost per episode by 
$377, whereas decreases in visits per episode would have reduced the 
cost per episode by $656, for a net decline of $280. For control 
agencies, a relatively small increase in cost per episode ($139, or 
about 4 percent) was due almost entirely to increases in costs per 
visit. Because treatment agencies' costs declined by $280 per episode 
instead of rising by $139, the overall effect of prospective payment 
was $419.
    The impact on cost per episode was similar across different types 
of agencies, except that small agencies (less than 30,000 visits in the 
base year) exhibited a significantly smaller effect than large 
agencies. Small agencies failed to decrease their cost per episode in 
the first demonstration year, evidently because they added to their 
cost per visit more, and lowered their number of visits less, than 
larger treatment agencies. This response may be due in part to more 
pronounced economies of scale among small agencies, with the result 
that they incur relatively high cost increases as volume declines.

Utilization

    Based on first-year findings, per-episode PPS appears to have a 
substantial impact on the amount of services delivered during the 120-
day payment period. Few other impacts on the pattern of service 
delivery were observed. The number of visits in a 120-day risk period 
was 17 percent lower for patients in treatment agencies compared to 
controls. Treatment agencies delivered an average of 37 visits, 
compared to an average of 45 for control agencies. This difference was 
primarily due to fewer skilled nurse visits, home health aide visits, 
and medical social worker visits. Episode prospective payment reduced 
the average length of episodes (within the first 120 days) by about 15 
percent. About 25 percent of stays exceeded 120 days under prospective 
payment, compared to about 35 percent without prospective payment.
    Except for occupational therapy, the proportion of patients 
receiving care in each home health discipline changed little under 
episode payment. The one-third reduction in the user rate for 
occupational therapy (to about 8 percent of patients) may be due to 
fewer patients receiving assessment visits from occupational 
therapists. Prospective payment appeared to have no effect on the 
proportion of visits per episode accounted for by any particular home 
health discipline.
    These findings generally applied to agencies regardless of size, 
nonprofit status, affiliation status (hospital or freestanding), or use 
pattern (that is, whether the agency provided more or less than the 
average number of visits during a base year, given its case mix). One 
exception to this rule was that the reduction in total visits was 
significantly greater for agencies with a high-use practice pattern 
than for agencies with a low-use practice pattern.
    The reduction in visits does not lead to compensating utilization 
in other parts of the health care system. The analysis of utilization 
and reimbursement for other Medicare-covered services during the 120-
day payment period found that prospective payment did not affect the 
use of reimbursement for these services. This suggests that a reduction 
in home health utilization at the level observed under the 
demonstration does not adversely affect care quality or shift costs to 
services in other settings (acute care hospitals, emergency rooms, 
skilled nursing facilities, other HHAs, and outpatient hospital 
departments). Questions on the patient survey addressed ``spillover 
effects'' on certain non-Medicare services. Prospective payment was 
associated with a lower likelihood of admission to an assisted living 
facility. It may have reduced the likelihood of admission to a nursing 
home. It did not affect the likelihood of receipt of nonresidential 
services, such as personal care aide and adult day care. Nor did it 
affect the likelihood of receipt of care from relatives or friends.

Quality

    The interim analysis of quality impacts found few differences in 
patient outcomes between treatment and control agencies, and when 
differences were found they were small. The three basic sources of 
quality evaluation data to date are claims, the patient survey, and 
patient assessment data.
    Analysis of claims data indicated that episode PPS patients have 
significantly lower emergency room use. There were no significant 
differences due to episode PPS in any other outcomes studied from the 
claims data, including institutional admissions for a diagnosis related 
to the home health diagnosis, and mortality.
    Results from the patient survey on client satisfaction suggested 
that both treatment and control group clients were generally satisfied. 
On three specific components of satisfaction with agency staff, 
treatment-group clients were found to be somewhat less satisfied than 
control group clients, although satisfaction levels were quite high in 
both groups. Measures of health and functional outcomes from the survey 
offered equivocal evidence for small negative effects of prospective 
payment in a few of the functional outcomes. Those results are 
preliminary and will require further study.
    Measures constructed from the patient status assessments at the 
start of care and at discharge or follow-up consist of indicators of 
improvement or

[[Page 58140]]

stabilization for 17 outcomes, such as improvement in pain or 
ambulation. Results from these data source are provisional, in part 
because differences in the timing of quality outcome data collection 
between the treatment and control groups could cause unreliable 
comparisons. As noted earlier, treatment agency patients tend to be 
discharged sooner. Their outcome measurements may reflect less 
improvement because of the earlier average observation point.
    The comparisons demonstrated one significant difference suggesting 
improvement in measures of confusion was more likely among treatment 
agencies. There were also two differences in the stabilization 
indicators, one favoring the treatment group and one the control group; 
however, both differences were small. Analysis of the assessment data 
by the quality assurance contractor using different methods suggested 
no consistent evidence that per-episode payment under the demonstration 
improves or harms patient outcomes. Several separate analyses conducted 
by the contractor revealed a mix of small impacts, some favoring the 
treatment group and others favoring the control group. A recent 
analysis of the second year of the demonstration did not show any 
statistically significant differences between treatment and control 
agencies. See Center for Health Policy Research, Executive Summary of 
Quality Assurance Activities and Findings to Date, December 1998.

Qualitative Findings

    The qualitative evaluation results to date come from the case study 
activities conducted early in the demonstration. Almost all of the case 
study agencies, which included both PPS agencies and controls, had 
taken steps to reduce their per-visit costs in the 3 years before the 
site visits. They had done so primarily to make themselves more 
attractive to managed care organizations from whom they were seeking 
contracts. Strategies to cut costs varied. About half of the agencies 
sought to reduce administrative costs (for example, through 
consolidating functions or positions) or to stabilize them while 
growing their volume. About one agency in five reduced per-visit costs 
by making technology investments, such as portable computers for home 
health workers. In addition, about one in six took an approach such as 
using lower-cost staff for intake, scheduling and record keeping; 
introduction of productivity standards and controls on overtime hours; 
moving away from hourly or salary payment of staff to per-visit 
payment; reducing travel costs by restructuring staffing of geographic 
areas or improving scheduling programs to reduce mileage; and reducing 
supply costs, through, for example, centralized purchasing.
    Half of the visited treatment agencies reported plans for specific 
initiatives to reduce per-episode costs spurred by their participation 
in the demonstration project. These initiatives included closer 
supervision of utilization through such measures as better review of 
the initial plan of treatment and requiring special justification for 
any visits beyond those originally approved; use of care protocols for 
patients with selected diagnoses; greater reliance on community 
services or informal caregivers; replacement of some visits by 
telephone contacts; speeding up patient education in self-care; 
eliminating multiple visits in a day; making greater use of specialists 
such as dietitians and wound healing experts; focusing on patient 
rehabilitation or environmental modifications to reduce patient need 
for personal care; and use of multidosing pumps for intravenous therapy 
patients, so that patients and caregivers can administer a larger 
proportion of therapy treatments without assistance.
    From their case studies conducted early in the demonstration, the 
evaluators concluded that treatment agencies did not change their 
behavior in ways that threatened access or quality of care. They did 
not change referral and patient admission practices to avoid costly 
patients or recruit lower-care ones. Many agencies were struggling to 
maintain a stream of referrals. They were not in a position to shun 
referral sources, and they did not do so. Some of the strategies being 
planned seemed likely to improve care quality, such as strategies to 
achieve quicker patient independence. For certain other strategies, the 
long-term consequences might be variable. For example, the success of 
greater reliance on informal caregivers and community resources would 
depend on the adequacy of these auxiliary resources.

Remaining Evaluation Activities

    The evaluation of the second year of the demonstration is expected 
to be completed by fall 1999. A draft report that includes analysis of 
utilization effects beyond the first 120 days has been received and is 
under review. The findings are consistent with the initial results 
reported earlier: Episode prospective payment reduced the average 
number of visits to a patient in the year following admission to home 
health care by 24 percent compared to the levels under cost-based 
reimbursement. Reductions in services occurred both during and after 
the 120-day period covered by the episode payment, and they were of a 
similar proportion for each service type. Prospectively paid agencies 
achieved these reductions by shortening the overall length of service 
and by lowering the frequency of visits provided. Reductions occurred 
among all subgroups of agencies and patients investigated, and they 
were stable between the first and second years of the demonstration.
    Subsequent reports will evaluate the consequences of these service 
reductions on patient health and access, non-home health expenditures, 
and other outcomes. These reports will include results from a follow-up 
patient survey at 8 months from admission that will address impacts on 
quality of care and use of non-Medicare health services over a longer 
term than did the first survey. There will be further case study 
results on agency response to the demonstration and an extension of 
previous work on cost impacts to include an analysis of agencies' 
financial performance. Finally, supplementary analyses will consider 
the representativeness of the demonstration sample and the patient 
selection behavior of agencies.

Case-Mix Research

    Case-mix adjustment is a prerequisite for an effective national 
home health PPS. With a prospectively set payment unit, providers have 
an incentive to seek profits by economizing on patient care during the 
covered period. For example, providers can try to economize by 
admitting patients with lower care needs, or by furnishing fewer and 
lower-quality services. Case-mix adjustment seeks to counteract this 
incentive by modifying the prospective payments according to patient 
need for services. To administer the case-mix adjustment system, 
patients are evaluated and then classified into groups with differing 
expected need. Varying payments for the groups will reduce provider 
incentives to economize inappropriately. Case-mix adjusted payments are 
intended to produce appropriate compensation for providers while 
retaining opportunities to manage care efficiently.

Background of the Case-Mix Project

    In the late 1980s, the Secretary funded several empirical studies 
that sought to increase understanding of the major issues facing PPS 
designers, particularly the factors that define case mix. As reported 
in the 1989 Report to Congress, studies investigating case-mix issues

[[Page 58141]]

were necessary because methodologies at that time were insufficiently 
tested on a large scale with Medicare patients. A sizable, 
comprehensive Medicare database was considered necessary to test 
existing methodologies and possibly develop new ones.
    We assembled this data resource under a cooperative agreement with 
the Georgetown University School of Nursing (Virginia K. Saba, 
``Develop and Demonstrate a Method for Classifying Home Health Patients 
to Predict Resource Requirements and to Measure Outcomes, Georgetown 
University School of Nursing, February 1991). Subsequent attempts to 
test existing case-mix methodologies using the Georgetown data 
suggested that indicators of home health treatments could play a 
substantial role in case-mix adjusters of acceptable predictive 
accuracy. Examples of treatment measures include indicators for 
specific skilled nursing activities, such as teaching diabetic care and 
infusion care, and physical, occupational, and speech therapy. Two 
basic case-mix adjustment methodologies tested with these data 
demonstrated comparable accuracy for the purposes of paying providers 
prospectively (Brown, Randall S., Barbara R. Phillips, and Valarie E. 
Cheh, et al. ``Case Mix Analysis Using Georgetown Data: Home Health 
Prospective Payment Demonstration.'' Princeton, NJ: Mathematica Policy 
Research, Inc., November 25, 1991). These two approaches were a 
regression-based approach and a classification-method approach that 
uses computer algorithms to find groups of similar patients.
    Although case-mix research on the Georgetown data and other 
smaller-scale data sets demonstrated progress in testing and developing 
case-mix methodologies, a significant concern lingered. Research had 
demonstrated the explanatory power of treatment information, but 
treatments are not necessarily a suitable basis for payment. Treatment 
planning and execution is subject to some discretion on the part of the 
provider. This means a case-mix system predicated on treatments planned 
or delivered may be vulnerable to manipulation for profit maximization.
    In the early 1990s, the per-visit prospective payment demonstration 
provided another relatively large source of data to continue case-mix 
adjuster development. The database was not as varied as the Georgetown 
database, but it was sizable, containing 11,000 cases. The 
expendability of possibly manipulable treatment variables was 
specifically addressed in the Georgetown research. This demonstration 
tested the impact of using less treatment information with the best 
methodologies. When measures of treatments considered highly or 
moderately vulnerable to provider manipulation were dropped from the 
study's case-mix adjuster, the predictive accuracy of the adjuster was 
poor. The researchers recommended that in future research we study 
additional patient characteristics data needed to make up for the loss 
of explanatory power from the treatments (Phillips, Barbara R., Randall 
S. Brown, Jennifer L. Schore, Amy C. Klein, Peter Z. Schochet, Jerrold 
W. Hill, and Dexter Chu. ``Case-Mix Analysis Using Demonstration Data: 
Home Health Prospective Payment Demonstration.'' Princeton, NJ: 
Mathematica Policy Research, Inc., December 21, 1992; and Phillips, 
Barbara R. ``Improving the Accuracy of Case-Mix Adjusters for Per-
episode Home Health Prospective Payment: Measures of Alternative 
Sources of Care and Patient and Caregiver Characteristics.'' Draft 
Report. Princeton, NJ: Mathematica Policy Research, Inc., April 27, 
1995).
    By 1994, we had launched a comprehensive review of home health care 
policies called the Medicare Home Health Initiative. One result was a 
recommendation to revise the HHA conditions of participation (COP). The 
revision would require a standard assessment instrument to be used in a 
program of continuous quality improvement. We subsequently adopted a 
comprehensive list of specific patient assessment elements to implement 
this quality improvement system (final regulations were published 
January 25, 1999 (64 FR 3747 and 64 FR 3764)). Known as the Outcome and 
Assessment Information Set (OASIS), these elements cover patient 
demographics and health history, living arrangements, supportive 
assistance, sensory status, integumentary status, respiratory status, 
elimination status, neuro/emotional/behavioral status, Activities of 
Daily Living (ADLs) and Instrumental Activities of Daily Living 
(IADLs), medications, equipment management, emergent care use, and 
discharge disposition. OASIS offers a fairly detailed examination of 
the patient's condition. Importantly, if OASIS elements could be the 
basis for a case-mix adjuster as well as continuous quality 
improvement, we could implement home health payment and quality reforms 
while minimizing data burdens on providers.

Case-Mix Research Project for a National Home Health PPS

    In 1996, in anticipation of the Medicare program's eventual 
adoption of OASIS assessment data, we began research with a sample of 
90 HHAs to develop a case-mix adjustment system for use under a future 
national prospective payment for home health care. The project was 
conducted under contract to Abt Associates, Inc., of Cambridge, Mass. 
(Contract Number 500-96-0003/TO2). The purpose of this project was to 
develop a case-mix adjuster based on OASIS assessment elements and, 
potentially, on additional assessment items that could enhance the 
case-mix adjuster's predictive accuracy. To assure its relevancy to 
Medicare's needs, the project collected data on a large cohort of 
Medicare patients admitted to a broad sample of Medicare-certified HHAs 
in late 1997 and early 1998. An important feature of the Abt Associates 
research is the use of improved measurement methods compared to 
previous studies. Improvements in measurement for the dependent 
variable, resource costs, and for the explanatory variables of patient 
characteristics allow the system's developers to reach a clearer 
understanding of the contribution of individual items to case-mix 
measurement. This leads to improved predictive accuracy for the case-
mix groups.
    Another important feature of the Abt Associates project is its 
objective of developing easily understandable patient case-mix 
groupings. We sought a system of groups that uses recognizable clinical 
categories and adheres to clinicians' logic as they assess a patient's 
care needs.
    The case-mix system resulting from the Abt Associates project was 
developed from statistical analysis, review of the literature, and 
consultation with home health clinicians. Government policy and 
research experts helped with the development process to ensure the 
administrative feasibility and policy relevance of the final product.
    The system is a straightforward method of combining 20 data 
elements to measure case mix. The data elements measure three basic 
dimensions of case mix: clinical severity factors, functional status 
factors, and service utilization factors. Each possible value for each 
data element used in a dimension is given a score. Scores were 
developed through statistical analysis of the agencies' data. Within 
each dimension, scores on assessment items are summed, and the 
resulting summation is used to

[[Page 58142]]

assign a patient to a severity level on the given dimension. The case-
mix system defines a set of 80 groups from all possible combinations of 
severity levels across the three dimensions.
    The process of defining a structure for the case-mix system, and of 
selecting items for the dimensions, is described in detail in Abt 
Associates, Second Interim Report, August 1999. The process of 
selecting items for the three case-mix dimensions employed not only 
statistical criteria for predictive accuracy, but also qualitative 
criteria relating to policy objectives, incentives to provide good 
care, susceptibility to gaming, apparent item subjectivity, and 
administrative feasibility. Further discussion of the item selection 
process is provided below in section II.C.
    The first case-mix system dimension is the clinical severity 
dimension. It is measured by OASIS items pertaining to the following 
clinical conditions and risk factors: diagnoses involving orthopedic, 
neurological, or diabetic conditions; therapies used at home (that is, 
intravenous therapy or infusion therapy, parenteral and enteral 
nutrition); vision status; pain frequency; status of pressure ulcers, 
stasis ulcers, and surgical wounds; dyspnea; urinary and bowel 
incontinence; bowel ostomy; and cognitive/behavioral problems such as 
impaired decisionmaking and hallucinations. This dimension captures 
significant indicators of clinical need from several OASIS subdomains, 
including patient history, sensory status, integumentary status, 
respiratory status, elimination status, and neuro/emotional/behavioral 
status.
    The second case-mix dimension is the functional status dimension, 
comprised of six Activities of Daily Living: upper and lower body 
dressing, bathing, toileting, transferring, and locomotion. These items 
come from the ADL/IADL subdomain of the OASIS assessment instrument.
    The third case-mix dimension is the services utilization dimension. 
This dimension is measured via two basic kinds of data elements. The 
first describes the patient's pre-admission location in the 14 days 
preceding admission to home care. The pre-admission location is 
recognized among clinicians and in the literature as an indicator for 
the amount and type of care likely to be needed by a patient. It comes 
from the patient history subdomain of OASIS. The second is a 
utilization variable from the period of the home health episode itself. 
This variable is receipt of home health therapies totaling at least 8 
hours. The data for this variable will come from the HHA's billing 
records. Ideally, the case-mix system should rely on data elements that 
do not depend on treatments planned or received; however, the case-mix 
research project found that a measure of therapy received is extremely 
powerful in explaining resource use, even after all other predictive 
patient characteristics are used in the system. Consequently, we 
decided to incorporate a measure of therapy. It is adopted under a 
definition designed to minimize its vulnerability to provider 
manipulation. A patient must need and use at least 8 hours of home 
health therapies to be assigned to a therapy case-mix group. In the Abt 
Associates sample, a minority of therapy users receive at least 8 hours 
of therapy. It is probable that many of the remaining therapy users 
received relatively little therapy beyond services from therapists for 
evaluation purposes. The therapy receipt definition in the case-mix 
system is intended to preserve access to therapy for patients with 
significant therapy needs. Patients receiving relatively little therapy 
or those with therapy use limited to evaluation services with or 
without a small amount of therapy are included in nontherapy groups. 
Their relative resource cost is accounted for in those groups.
    For each dimension, additional measures of patient characteristics 
or utilization were considered and tested before arriving at the final 
set of data elements in the recommended model. The proposed set of data 
elements is our best recommendation after an intensive process of 
subjecting the items to statistical analysis, policy criteria, criteria 
pertaining to clinical care incentives and gaming vulnerability that 
might be introduced, reliability-related criteria, and administrative 
feasibility considerations.
    The recommended case-mix system performs well in terms of overall 
predictive accuracy. It explains 32 percent of the variation in 
resource use over a 60-day episode. The 60-day episodes available for 
case-mix system development from the Abt Associates research sample 
pertained to the first 60 days from admission. However, a sizable 
number of observations was assembled from the study sample to evaluate 
the explanatory power for the subsequent 60-day period of care. From 
data available to the case-mix project to date, we find that the 
explanatory power of the groups is similar regardless of whether the 
episode is the patient's first 60 days or the subsequent 60 days 
following the start of care. The presence of certain data elements in 
the case-mix adjustment model may help explain the statistical finding 
suggesting that the case-mix model is inherently self-adjusting to 
changes in patient characteristics that drive resource use over a 
sequence of 60-day episodes. Examples comprise the preadmission 
location variable, the functional status elements, the therapy receipt 
variable, and the ulcers/wound status variables. As the accumulating 
data permit, we will continue to test the model's explanatory power on 
later 60-day units.
    The data and methods of the case-mix development project are 
described in further detail in sections II.A.2 and II.C below and in 
Abt Associates, Inc., Second Interim Report, August 1999. Comments on 
specific issues of model design and implementation are being solicited 
as noted in section II.C.

D. Home Health Agency Prospective Payment--Overview

1. Payment Provisions--National Episode Payment Rate

a. Episode Definition

    The PPS will apply to all home health services furnished by all 
HHAs participating in the Medicare program. Section 4603(a) of the BBA 
adds section 1895(b)(1) to the Act. Section 1895(b)(1) requires all 
services covered and paid on a reasonable cost basis under the Medicare 
home health benefit as of the date of the enactment of the BBA, 
including medical supplies, to be paid on the basis of a prospective 
payment amount under HHA PPS. Durable medical equipment (DME) is a 
covered home health service that is not currently paid on a reasonable 
cost basis, but paid on a fee schedule basis when covered as a home 
health service under the Medicare home health benefit. Under HHA PPS, 
DME covered as a home health service as part of the Medicare home 
health benefit will continue to be paid under the DME fee schedule. 
Thus, a separate additional payment amount based on the DME fee 
schedule in addition to the prospective payment amount for home health 
services will be made for DME covered as a home health service under 
PPS.
    In compliance with section 1895(b)(2) of the Act, requiring the 
Secretary to determine the unit of payment under PPS, we have analyzed 
the number, type, duration, and costs of visits furnished within the 
proposed episode payment. In addition, we will discuss the general 
system design that provides for continued access to quality services in 
section IV.J. of this regulation.
    Preliminary results from the Phase II per-episode HHA PPS 
demonstration have provided information regarding how length of 
episodes are affected by prospective payments and how analysis

[[Page 58143]]

from the National Claims History File can show the existing use and 
length of service. Preliminary results from the Phase II per-episode 
PPS demonstration indicate that about 60 percent of episodes paid under 
PPS were completed within 60 days and 73 percent within 120 days. These 
episode completion rates are about 5 to 10 percentage points higher 
than rates for the control group under the demonstration. These 
findings indicate that PPS should result in shorter average length of 
episodes.
    We also conducted analysis on an episode database created from the 
1997 National Claims History File using 60-day episodes. Data from the 
1997 national claims history suggest that the proportions completing 
their episodes in the first and second month are slightly lower than 
the proportions for the PPS demonstration control group. We interpret 
the demonstration findings to indicate that national PPS should use 
shorter average episodes. From the 1997 national claims history, we 
find at the end of a full year, 20 percent of home health beneficiaries 
have not yet completed their episodes. This indicates the need to 
provide continuing episode payments to capture the long-stay home 
health patient under PPS since the volume of long-stay cases exceeds 
the capacity of an outlier policy.

60-Day National Episode Payment

    Recognizing that OASIS data will be captured on a 60-day cycle and 
current Medicare plan of care certification requirements govern a 
bimonthly period of time, we are proposing a 60-day episode as the 
basic unit of payment for the HHA PPS. We are proposing that a new 60-
day episode begins with the first Medicare billable visit as day 1 and 
ends on and includes the 60th day from the start-of-care date. The next 
continuous episode recertification period would begin on day 61 and end 
on and include day 120. We are proposing the requirement that the 60-
day episode payment covers one individual for 60 days of care 
regardless of the number of days of care actually furnished during the 
60-day period unless there is one of the following intervening events 
during the 60-day episode: (1) A beneficiary elected transfer; (2) a 
discharge resulting from the beneficiary reaching the treatment goals 
in the original plan of care (not defined as a significant change in 
condition during an existing plan of care) and return to the same HHA; 
or (3) a significant change in condition resulting in a new case-mix 
assignment. The significant change in condition is a change not 
anticipated in the original plan of care or as part of the expected 
course of the patient's response to treatment. The significant change 
in condition must be sufficient to require a new OASIS assessment and 
thus, resulting in a change in the case-mix assignment.
    The intervening event defined above as (1) a beneficiary elected 
transfer or (2) a discharge and return to the same HHA during a 60-day 
episode, starts a new 60-day episode for purposes of payment, OASIS 
assessment, and physician certification of the plan of care. The 
original 60-day episode payment is proportionally adjusted to reflect 
the actual length of time the beneficiary remained under the agency's 
care prior to the intervening event of the beneficiary elected transfer 
or the discharge and return to the same HHA during the 60-day episode. 
The proportional payment adjustment that closes the original 60-day 
episode payment is called the partial episode payment adjustment or PEP 
adjustment. We are proposing the PEP adjustment to the original 60-day 
episode payment in order to equitably recognize the intervening events 
of a beneficiary elected transfer or a discharge and return to the same 
HHA over the course of a 60-day episode of home health care.
    Since we are proposing to close out the initial episode payment 
with a PEP adjustment and restart the 60-day episode clock under an 
existing episode due to a beneficiary elected transfer, we are 
concerned that these transfer situations could be subject to 
manipulation. Therefore, we are proposing not to apply the PEP 
adjustment in the situation of transfers between organizations of 
common ownership. A determination of whether an individual (or 
individuals) or organization possesses significant ownership or equity 
in the provider organization and the supplying organization, in order 
to consider if the organizations related by common ownership, will be 
made on the basis of the facts and circumstances in each case. This 
rule applies whether the provider organization or supplying 
organization is a sole proprietorship, partnership, corporation, trust 
or estate, or any other form of business organization, proprietary or 
nonprofit. In the case of a nonprofit organization, ownership or equity 
of interest will be determined by reference to the interest in the 
assets of the organization. In the situation of a transfer among 
organizations of common ownership, we are proposing that the HHAs under 
common ownership look to the initial HHA for payment. Therefore, PEP 
adjustment would not apply in situations of transfers among HHAs under 
common ownership.
    The discharge and return to the same HHA during the 60-day episode 
period is only recognized when a beneficiary has reached all treatment 
goals in the original plan of care for the 60-day episode. 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. The 
discharge cannot be a result of a significant change in condition. In 
order for the situation to be defined as a PEP adjustment due to 
discharge and return to the same HHA during the 60-day episode, the 
discharge must be a termination of the complete course of treatment in 
the original plan of care. We would not recognize any PEP adjustment in 
an attempt to circumvent the more conservative payment made under the 
significant change in condition payment adjustment discussed below.
    If a patient experiences an intervening hospital stay during an 
existing 60-day episode under an open plan of care, then the patient 
would not have met all of the treatment goals in the plan of care. 
Therefore, the intervening hospital admission during an existing 60-day 
episode could result in a SCIC adjustment, but could not be considered 
a discharge and return to the same HHA PEP adjustment.
    The PEP adjustment is based on the span of days including the start 
of care date (first billable service date through and including the 
last billable service date) under the original plan of care prior to 
the intervening event. The PEP adjustment is calculated using the span 
of days (first billable service date through and including the last 
billable service date) under the original plan of care as a proportion 
of 60. The proportion is multiplied by the original case mix and wage 
adjusted 60-day episode payment. For example, a patient is assigned to 
a 60-day episode payment of $3000. Day 1 through Day 30 the patient is 
served by HHA-1. Day 1 is the first billable service date and Day 30 is 
the last billable service provided by HHA-1 under the original plan of 
care. The beneficiary elects to transfer to HHA-2 on Day 35. The first 
ordered service for the beneficiary under the new plan of care is Day 
38. Day 38 starts a new 60-day episode clock for purposes of payment, 
OASIS assessment, and physician certification of the plan of care. Day 
38 becomes Day 1 of the new 60-day episode. The final payment to HHA-1 
is proportionally adjusted to reflect the length of time the 
beneficiary remained under its care. HHA-1 would receive a PEP 
adjustment equal to 30/60

[[Page 58144]]

* $3000 = $1500. The initial percentage payment will be adjusted 
accordingly to reflect the PEP adjustment. Several illustrative PEP 
adjustment examples are provided in section IV. of this regulation. An 
HHA may also receive a low-utilization payment adjustment instead of 
the PEP adjustment described in this section of the regulation or an 
outlier payment in addition to the PEP adjustment described in section 
IV. of this regulation.
    We are proposing the requirement that the 60-day episode payment 
covers the individual for 60 days of care unless one of three 
intervening events occurs. The PEP adjustment described above 
encompasses the two intervening events defined as a beneficiary elected 
transfer or a discharge and return to the same HHA over the course of a 
60-day episode of home health care. We are proposing that the third 
intervening during a 60-day episode of home health care that could 
trigger a change in payment level would be a significant change in the 
patient's condition. We are proposing the significant change in 
condition payment adjustment (SCIC adjustment) to be the proportional 
payment adjustment reflecting the time both prior and after the patient 
experienced a significant change in condition during the 60-day 
episode. The proposed SCIC adjustment occurs when a beneficiary 
experiences a significant change in condition during a 60-day episode 
that was not envisioned in the original plan of care. In order to 
receive a new case mix assignment for purposes of SCIC payment during 
the 60-day episode, the HHA must complete an OASIS assessment and 
obtain the necessary physician change orders reflecting the significant 
change in treatment approach in the patient's plan of care.
    The SCIC adjustment is calculated in two parts. The first part of 
the SCIC adjustment reflects the adjustment to the level of payment 
prior to the significant change in the patient's condition during the 
60-day episode. The second part of the SCIC adjustment reflects the 
adjustment to the level of payment after the significant change in the 
patient's condition occurs during the 60-day episode. The first part of 
the SCIC adjustment is determined by taking the span of days (first 
billable service date through the last billable service date) before 
the patient's significant change in condition (defined below) as a 
proportion of 60 multiplied by the original episode payment amount. The 
original episode payment level is proportionally adjusted using the 
span of time the patient was under the care of the HHA prior to the 
significant change in condition that warranted an OASIS assessment, 
physician change orders indicating the need for a significant change in 
the course of the treatment plan, and the new case mix assignment for 
payment at the end of the 60-day episode.
    The second part of the SCIC adjustment reflects the time the 
patient is under the care of the HHA after the patient experienced the 
significant change in condition during the 60-day episode that 
warranted the new case mix assignment for payment purposes. The second 
part of the SCIC adjustment is a proportional payment adjustment 
reflecting the time the patient will be under the care of the HHA after 
the significant change in condition and continuing until the end of the 
60-day episode. Once the HHA completes the OASIS, obtains the necessary 
physician change orders reflecting the need for a new course of 
treatment in the plan of care, and assigns a new case mix level for 
payment, the second part of the SCIC adjustment begins. The second part 
of the SCIC adjustment is determined by taking the span of days (first 
billable service date through the last billable service date) after the 
patient experiences the significant change in condition through the 
balance of the 60-day episode as a proportion of 60 multiplied by the 
new episode payment level resulting from the significant change. The 
initial percentage payment provided at the start of the 60-day episode 
will be adjusted at the end of the episode to reflect the first and 
second parts of the SCIC adjustment (or any applicable medical review 
or (LUPA) discussed below) determined at the final billing for the 60-
day episode. Illustrative examples are provided in section IV.J.4. of 
this proposed rule.
    As discussed above, we are concentrating additional monitoring 
resources on the events that would trigger the PEP adjustment and SCIC 
adjustment. We are also planning to analyze the data from the 
demonstration sites to determine the frequency of a (1) beneficiary 
elected transfer, (2) discharge and return to the same HHA during the 
60-day episode, or (3) significant change in condition, in order to 
establish a baseline of information to determine how frequently these 
events occur prior to PPS. Based on this information we will establish 
a baseline, identify agencies which differ significantly from it, and 
concentrate monitoring resources on those agencies.
    In order to address the needs of longer stay patients, at this time 
we are proposing not to limit the number of 60-day episode 
recertifications in a given fiscal year. There is the potential for 
unlimited consecutive episodes. Recertification of and payment for 
consecutive 60-day episodes is, of course, dependent on OASIS 
assessment and the patient's eligibility for continued medically 
necessary Medicare home health services. We believe the consecutive 60-
day episode recertification and payment will ensure continued access to 
the Medicare home health benefit without exceeding the statutory 
budget-neutrality targets.
    We believe the 60-day episode provides an appropriate time frame 
for purposes of prospective payment for many reasons. The 60-day 
episode period is the basic time frame under which HHAs have 
historically been required to manage and project home health care needs 
of beneficiaries in order to comply with current plan of care 
certification requirements for Medicare home health plans of care. The 
60-day episode period also basically matches the reassessment schedule 
for OASIS, and this parallel time frame will permit case-mix adjustment 
of each episode. Further, the 60-day episode captures the majority of 
stays experienced in the Phase II per-episode HHA PPS demonstration.
    As discussed above, about 60 percent of the Phase II per-episode 
HHA/PPS demonstration patients completed their episodes within 60 days. 
If capturing a majority of the patients is one criterion for the 
episode length, we now have evidence from the Phase II per-episode PPS 
demonstration that a 60-day episode will do so. A 120-day episode, as 
tested in the Phase II per-episode HHA/PPS demonstration, also meets 
this criterion, but we do not gain a significantly larger completion 
percentage by lengthening the episode to 120 days. A 120-day episode 
may result in more inequity in payments because of the larger risk of a 
change in a patient's condition over the span of the longer episode. We 
are specifically soliciting comments on the utility of a 60-day episode 
period for purposes of prospective payment and the efficacy of 
unlimited consecutive episode recertifications for eligible 
beneficiaries in a given fiscal year.

Low-Utilization Payment Adjustment

    As discussed above, the statute requires that the definition of the 
unit of payment must take into consideration the number, type, 
duration, mix , and cost of visits furnished within the unit of 
payment. We are concerned with the financial incentive to provide 
minimal services within an episode. We are also challenged by the 
possible motivation to obtain an additional full 60-day episode payment 
beyond a current episode by

[[Page 58145]]

furnishing the absolute minimum of additional services. Utilization 
incentives potentially change from overutilization under the cost based 
payment system to underutilization under a prospective payment system. 
We want to ensure that HHAs do not have an incentive to provide less 
care than is necessary. Under such an approach, an HHA that provided 
the minimum threshold number of visits or less during the 60-day 
episode would receive a low utilization payment adjustment reflecting a 
national average per-visit payment by discipline for the visits 
actually provided during the episode. We believe this policy reduces 
incentives to provide only one or two visits to beneficiaries to 
trigger a full prospective payment and, in addition, makes it harder to 
obtain either an initial or a second prospective payment by providing a 
minimal number of additional services. As a result of our analysis, we 
determined the need to recognize a low utilization payment adjustment 
under HHA PPS.
    Our next decision required us to determine the number of visits 
that must be provided before a full 60 day prospective payment is made. 
Increasing the number of visits required, decreases the potential for 
agency gaming by providing a few additional services to obtain a full 
prospective payment. Based on analysis of our episode database, we 
concluded approximately 12 percent of current episodes constitute four 
or fewer visits. We explored the option of a six or fewer visit 
threshold for the low utilization payment adjustment and found 
approximately 20 percent of episodes in our database contain six or 
fewer visits. However, we recognize that these numbers may change under 
a fully implemented PPS.
    A potential advantage of the six or fewer visit threshold would be 
to further reduce the number of episodes with only six or fewer visits 
during a 60-day episode; that is, agencies will have incentives to 
provide enough services to reach the threshold by increasing the number 
of services delivered to individuals who currently receive only a few. 
It would also make it harder to provide enough additional services to 
game or trigger full prospective episode payments inappropriately. 
However, the six visit threshold based on current data would result in 
20 percent of all episodes under national HHA PPS being paid at the 
lower per-visit amount. We are soliciting comments and supporting data 
on the most appropriate threshold for the low utilization payment 
adjustment. We also plan to focus our medical review resources on the 
fourth or sixth visit, whichever is chosen in the final rule, to assure 
the medical appropriateness of the visits which actually triggers a 
full prospective episode payment.
    We have developed our approach in the regulation to reflect the 
four or fewer visit threshold for the low-utilization payment 
adjustment. The methodology for the low-utilization payment adjustment 
and all other payment calculations in this rule reflect the four or 
fewer visit threshold. Under this proposed provision, a 60-day episode, 
a PEP adjustment, or a SCIC adjustment with four or fewer visits would 
be paid the national standardized per-visit amount by discipline for 
each visit type furnished during the 60-day episode. However, we are 
seeking comments and supporting data on the utility of the six or fewer 
visit threshold for the low-utilization payment adjustment. We are 
soliciting comments on the operational and financial impact of the low 
utilization payment adjustment. We are also specifically seeking 
comments on the potential financial impact on rural HHAs to comply with 
this requirement.
    We are concerned with the potential manipulation of the LUPA under 
a pattern of certification of continuous home health episodes. Our 
interest is focused on patterns of behavior involving two continuous 
60-day episodes. We are concerned that the possibility of a 60-day 
period may be too long for a second episode if the intensity of 
services is greater in the earlier part of that second episode. We are 
also concerned that agencies may have greater incentives to provide 
five additional visits beyond the first 60-day episode so as to trigger 
a second 60-day payment than they do at the beginning of the first 
episode. We are analyzing data on the second and subsequent 60-day 
episode and the distribution of the intensity of services within these 
episodes. Based on this analysis, we are considering the following 
possible alternative policies: (1) modify the proposed episode 
definition; (2) extend the LUPA for the second and subsequent episodes 
from four to six visits. We invite comment on these alternatives to the 
policies presented in this proposed regulation.

b. National Episode Payment Rate

    We propose that the HHA PPS use a 60-day national episode payment 
rate. Section 1895(b)(3)(A)(i) of the Act requires--(1) the computation 
of a standard prospective payment amount to include all costs of home 
health services covered and paid for on a reasonable cost basis and to 
be initially based on the most current audited cost report data 
available to the Secretary, and (2) the prospective payment amounts to 
be standardized to eliminate the effects of case mix and wage levels 
among HHAs. Section 5101(c) of OCESAA amends section 1895(b)(3)(A)(ii) 
of the Act, to require that the standard prospective payment amounts be 
budget neutral to the amounts expended under the current interim 
payment system as of the inception of the PPS on October 1, 2000, with 
the limits reduced by 15 percent. The data used to develop the HHA PPS 
rates were adjusted using the latest available market basket increases 
occurring between the cost-reporting periods contained in our database 
and September 30, 2001. Sections 1895(b)(3)(B)(i) and (b)(3)(B)(ii) of 
the Act, as amended by section 5101(d)(2) of OCESAA, require the 
standard prospective payment amounts for fiscal year 2002 or 2003 to be 
increased by a factor equal to the home health market basket minus 1.1 
percentage points. For any subsequent fiscal years, the statute 
requires the rates to be increased by the applicable home health market 
basket index change.
    The national 60-day episode payment incorporates adjustments to 
account for provider case mix using a clinical classification system 
that accounts for the relative resource utilization of different 
patient types. The classification system, The Clinical Model from Abt, 
uses patient assessment data (from the Outcome and Assessment 
Information Set (OASIS)) supplemented by one additional patient-
specific item regarding number of therapy hours received in the 60-day 
episode period that is completed by HHAs to assign patients into one of 
80 Home Health Resource Groups (HHRGs). The OASIS items and the 
supplemental therapy item are discussed in detail in section II.C.2. of 
this regulation. HHAs complete the OASIS assessment according to an 
assessment schedule specifically designed for Medicare payment (see 
section IV.L. of this regulation). The total case-mix-adjusted 60-day 
episode payment is based on the initial OASIS assessment and the 
supplemental item indicating projected therapy hours received in a 60-
day episode submitted at the start of the 60-day episode. The projected 
number of therapy hours received (physical, speech-language pathology, 
and occupational therapy in any combination) in a 60-day episode 
reported at the start of the 60-day episode is confirmed by the actual 
receipt of therapy via the line-item date visits submitted on the final 
claim at the

[[Page 58146]]

end of the 60-day episode. The reconciliation of projected therapy use 
with actual therapy services furnished during the 60-day episode has 
the potential to decrease the final payment if actual therapy use 
reported at the end of the episode does not correspond to the projected 
therapy use provided at the start of the episode. We are proposing to 
use visit utilization data as a proxy for time. The proxy approach is 
discussed in detail in the case-mix methodology in section II.C.2. of 
this regulation.
    For Medicare billing purposes, there are codes associated with each 
of the 80 HHRGs. The patient will be grouped into the appropriate case-
mix category from the OASIS assessment at the HHA. The case-mix 
methodology consists of 19 OASIS items plus one supplemental non-OASIS 
item. We are exploring the approach that the ``grouper'' software will 
be provided to HHAs via the HAVEN software used for State transmission 
of OASIS quality data. The OASIS assessment is fed into the grouper 
logic at the HHA. The grouper logic selects the OASIS elements 
supplemented by one additional non-OASIS item indicating projected 
therapy hours (as translated into therapy visits) in a 60-day episode 
needed to establish the case-mix group and determines the appropriate 
case-mix category for the patient. The visit projection must be based 
on the physician's orders in the plan of care certified by the 
physician. The grouper logic generates a code. The code corresponds to 
the appropriate case-mix category and would be placed on the claim at 
the provider. The initial claim is submitted for an initial percentage 
payment at the start of care (see section I.D.2. of this regulation on 
percentage payments). As mentioned above, as applicable, the 
confirmation of the projected number of therapy hours received during 
the 60-day episode from the line-item date visit information submitted 
at the end of the 60-day episode is used for pricing the final case-mix 
adjusted payment. The pricer logic at the Regional Home Health 
Intermediary (RHHI) will compute the final episode payment based on the 
reconciliation of the projected therapy use received during the 60-day 
episode with the actual therapy visits reported on the final claim 
submitted at the end of the 60-day episode.
    The confirmation of projected therapy services has the potential to 
decrease the final payment if the actual therapy use reported at the 
end of the episode does not correspond with the projected therapy use 
furnished at the start of the episode. The 60-day case-mix adjusted 
episode payment is intended to provide full payment for the patient for 
the 60-day period except in the case of a partial episode payment 
adjustment, low-utilization payment adjustment, outlier payment 
adjustment, or a finding that the episode was not medically necessary 
or covered due to medical review. We are seeking comments on our 
approach to the case-mix assignment during the 60-day episode. We are 
specifically seeking comments on potential effects on cash flow for 
HHAs. Operational aspects of the system design are discussed in more 
detail in section IV. of this regulation.
2. Payment Provisions--Split Payment
    We are proposing a split percentage payment during the 60-day 
episode period. We propose that there be two percentage payments 
(initial and final) and two corresponding claims (initial and final) 
per 60-day episode. First, the initial percentage payment will equal 50 
percent of the estimated case-mix adjusted episode payment. Each 
initial claim submitted for the initial percentage payment must be 
based on a current OASIS-based case mix and supplemented, as 
applicable, by one item indicating proposed therapy use in a 60-day 
episode. Second, the final payment will equal 50 percent of the actual 
case-mix adjusted episode payment. A new initial and final bill must be 
submitted for each recertified 60-day episode period. For example, 
patient is assessed via OASIS supplemented by the therapy variable, if 
applicable, and is categorized by the grouper logic into HHRG group Y. 
Included in HHRG group Y is a projected therapy use of 8 hours or more 
in a 60-day period. The HHRG group case-mix adjusted payment for the 
60-day episode is $2,000. The HHA submits the claim with the 
corresponding code to HHRG group Y. The pricer at the RHHI computes 50 
percent of the payment for HHRG group. The HHA receives an initial 
payment of $1,000. At the end of the 60-day episode, the HHA bills for 
the residual 50 percent final payment. The line-item date information 
confirms the receipt of at least 10 therapy visits as a proxy for time. 
The final claim is submitted for payment. The pricer at the RHHI 
confirms the line-item date information. No increase or decrease 
adjustment is necessary for therapy use. The pricer computes the 50 
percent residual final payment. The HHA receives a final payment of 
$1,000. The initial percentage payment will be adjusted to reflect a 
LUPA, PEP adjustment, SCIC adjustment, or medical review determination 
as applicable.
    Operational aspects of the split payment relationship to the system 
design are discussed in detail in section III. of this regulation. We 
are specifically soliciting comments on the impact on HHAs to 
financially and operationally comply with the split percentage payment 
approach. We are proposing a 50/50 percentage split for purposes of 
this proposed rule; however, more complete data may result in future 
refinements to the percentage payment approach.
3. Payment Provisions--Outlier Payments
    Section 1895(b)(5) of the Act notes that we may provide for 
additions or adjustments to the payments due to unusual variations in 
the type or amount of medically necessary home health care. The total 
amount for addition or adjustment payments during a fiscal year may not 
exceed 5 percent of total payments projected or estimated to be made 
based on the HHA PPS in that year. Because successive episode payments 
will be made for a beneficiary as long as the beneficiary continues to 
be recertified and otherwise eligible for additional home care, there 
will be no need for long-stay outlier cases under the HHA PPS. However, 
we believe outlier payments for 60-day episodes in which the HHA incurs 
extraordinary costs beyond the regular episode payment amount may be 
desirable. Outlier payments would provide some protection for 
beneficiaries whose care needs cost more than the amount of the episode 
payment. They would also provide HHAs with some financial protection 
against possible losses on individual beneficiaries.
    The methodology proposed for outlier payments is modeled on the 
outlier payment methodology of the Medicare inpatient hospital PPS. 
There are two basic principles underlying the approach: First, before 
outlier payments are made for a case or episode, cost should exceed the 
payment for the case. The amount by which cost exceeds payment should 
be the same for cases in all case-mix groups because a dollar lost is a 
dollar lost whether the case belongs in a low cost or a high cost case-
mix group. Use of a uniform fixed dollar loss for all case-mix groups 
avoids creating differential incentives to accept patients in different 
case-mix groups. The second principle is that outlier payments should 
cover less than the full amount of the additional costs above the 
outlier threshold to preserve the incentive to contain costs once a 
case qualifies for outlier payments. (See Emmett B. Keeler, Grace M. 
Carter, and Sally Trude, ``Insurance Aspects of DRG

[[Page 58147]]

Outlier Payments,'' The Rand Corporation, N-2762-HHS, October 1988.) We 
discuss the outlier payments in greater detail in section II.A.5. of 
this regulation.
    We are seeking comments on our approach to outlier payments.
4. Payment Provisions--Transition Period
    Section 4603(b)(1) of the BBA provides discretion on the transition 
from payment under the current reasonable cost-based interim payment 
system to the full prospective payment amount by blending a portion of 
the PPS amount with agency-specific costs for a period of time. The 
statute provides for the blend of agency-specific costs for up to 4 
years in a budget-neutral manner.
    Blending options provides significant practical obstacles. We could 
in theory blend what would have been paid under the current reasonable 
cost reimbursement system and PPS. A percentage of the payment would be 
based on costs of the agency building on the current interim payment 
system and a percentage would be based on the national PPS amount.
    While other prospective payment systems have used a blended agency 
and national payment amount, the complexities of blending dissimilar 
payment methodologies for home health are so great that we believe it 
is not a viable option. Moreover, OCESAA amended the statute to require 
that we implement PPS on the same date for all providers, regardless of 
their cost reporting period. This break in the cost reporting period 
further discourages continued use of the cost-based system. The 
legislation also reflects Congressional interest in expediting the 
transition from the interim payment system to PPS. We believe 
proceeding with a highly complicated percentage payment system based on 
historical data from the cost-based interim payment system would not be 
in the best interest of the industry based on historical reaction to 
the interim payment system.
    We believe full transition to the PPS system on October 1, 2000 is 
the most viable option.
5. Consolidated Billing for Home Health Agencies
    Both sections 4603(c)(2)(B) and (c)(2)(C) of the BBA require a new 
consolidated billing and bundling of all home health services while a 
beneficiary is under the plan of care. The BBA requires payment for all 
covered home health items and services to be made to an HHA. However, 
in accordance with section 1895(b)(1) of the Act, PPS payments are to 
include only those home health services paid on a reasonable cost 
basis, and DME is currently paid under the DME fee schedule. 
Furthermore, payment for Medicare covered home health services can only 
be made to the HHA that establishes the individual's home health plan 
of care. The result is that the HHA must bill when the plan of care 
specifies DME and even if an outside supplier provides it. HHAs will no 
longer be able to ``unbundle'' services to an outside supplier that can 
then submit a separate bill directly to the Part B carrier. Instead, 
the HHA itself will have to furnish the home health services either 
directly or under an arrangement with an outside supplier in which the 
HHA itself, rather than the supplier, bills Medicare. The outside 
supplier must look to the HHA rather than to Medicare Part B for 
payment. The HHA consolidated billing requirement is discussed in 
detail in section V. of this regulation.
6. Medical Review Under the Prospective Payment System
    The financial incentives available to HHAs change from 
overutilization to underutilization under an episode-based PPS. The 
initial claim for each 60-day episode may contain visit information and 
will only include the code corresponding to the appropriate case-mix 
category. The final claim for the 60-day episode will include all of 
the line-item visit information for the previous 60 days. Given the 
limited information on the initial claim, prepayment review of the 
initial claim would be limited to overall medical necessity of care and 
technical eligibility issues, such as whether the homebound requirement 
was met. Medical review will be conducted on a random and targeted 
basis. Targeting may include claim-specific and patterns of case-mix 
upcoding as well as general issues of the medical need for the episode 
of care and technical eligibility. There must be the capacity, for both 
prepayment and postpayment, to deny claims in total or to adjust 
payment to correct case mix. Medical review will validate OASIS case-
mix category information used for payment against medical records and 
the OASIS information separately submitted for quality. Medical review 
will also be conducted to verify individual beneficiary therapy 
information and patterns of therapy information for larger groups. The 
information reported on claims will be an essential part of this effort 
due to the significant impact of therapy use in the case-mix 
designation.
7. Continued Access to Quality Home Health Services Under the 
Prospective Payment System
    The quality component of PPS is critical to ensure that HHAs do not 
furnish less care than is necessary to beneficiaries in an attempt to 
increase profit. The advantage of using similar elements to measure 
quality through outcomes of care and case mix for payment purposes is 
that an agency that provides less care than needed to a patient in an 
episode will be likely to reflect poor outcomes of care in terms of 
quality. The quality component of the HHA PPS is crucial to ensuring 
that beneficiaries receive needed services. The continued access to 
quality services under PPS is discussed further in section IV.J. of 
this regulation.
8. Implementation of the Prospective Payment System
    Section 5101(c)(1) of OCESAA removed the effective date of the PPS 
by cost reporting period previously prescribed in the BBA and instead 
requires all Medicare participating HHAs to be paid under PPS effective 
on the same date of implementation-- October 1, 2000. The 
implementation approach is discussed in section IV.H. of this 
regulation.

II. Prospective Payment System for Home Health Agencies

A. National 60-Day Episode Payment

    This proposed rule sets forth the methodology for the national PPS 
applicable to all Medicare home health services covered under both Part 
A and Part B. This proposed rule incorporates a national 60-day episode 
payment for all of the reasonable costs of services furnished to an 
eligible beneficiary under a Medicare home health plan of care. This 
section describes the components of the national 60-day episode payment 
and the methodology and data used in computation.
1. Costs and Services Covered by the 60-Day Episode Payment
    The 60-day episode prospective payment applies to all home health 
services set forth in section 1861(m) of the Act that are covered and 
paid on a reasonable cost basis under the Medicare home health benefit 
as of the date of the enactment of the BBA, including medical supplies. 
DME is a covered home health service that is not currently paid on a 
reasonable cost basis, but is paid on a fee schedule basis when covered 
as a home health service under the Medicare home health benefit. Under 
the HHA PPS, DME covered as a home health service as part

[[Page 58148]]

of the Medicare home health benefit will continue to be paid under the 
DME fee schedule. Thus, we believe a separate payment amount in 
addition to the prospective payment amount for home health services 
will be made for DME currently covered as a home health service under 
the PPS. All DME must be billed by the HHA during the 60-day episode 
when it is furnished directly, under arrangement, or otherwise as 
discussed in section V.C. of this regulation. Although the covered 
osteoporosis drug under the home health benefit is currently paid on a 
reasonable cost basis, section 4603(c) of the BBA of '97 amended 
section 1833(a)(2)(A) of the Act to specifically exclude it from the 
prospective payment rate. In addition, like DME, the osteoporosis drug 
is included in the consolidated billing requirements.
2. Data Sources Used for the Development of the 60-Day Episode Payment
    The methodology we used in developing the 60-day episode payment 
combines a number of data sources. These data sources include audited 
cost report data, claims data, a wage index, a market basket inflation 
index, and Abt Associates Case-Mix Research Project Data. This section 
describes each of these data sources while the following section 
describes the methodology that combines them to produce the 60-day 
episode payment.

a. Audited Cost Report Data

    Section 1895(b)(1) of the Act requires the prospective payment 
amount to include all services covered and paid on a reasonable cost 
basis under the Medicare home health benefit, including medical 
supplies. Section 1895(b)(3)(A)(i) of the Act requires the computation 
of a standard prospective payment amount to be initially based on the 
most recent audited cost report data available to the Secretary. Under 
section 1895(b)(3)(A)(i) of the Act, the primary data source in 
developing the cost basis for the 60-day episode payments was the 
audited cost report sample of HHAs whose cost reporting periods ended 
in fiscal year 1997 (that is, ended on or after October 1, 1996 through 
September 30, 1997).
    In February 1998, we directed our fiscal intermediaries (FIs) to 
conduct comprehensive audits of the cost reports submitted by a sample 
of HHAs whose cost reporting periods ended in FFY 1997. Each FI 
received a list of agencies to audit and instructions on how to conduct 
the audits and report the data obtained.
    The sample was designed to be representative of the home health 
industry in several respects: type of provider (for example, provider-
based), census region, urban versus rural location, and large versus 
small agencies. We anticipated that many agencies in the sample would 
not be audited because their records were unavailable for a variety of 
reasons or their cost reporting periods were less than 12 months long. 
Consequently, the sample size was adjusted upward by 15 to 20 percent 
to allow for attrition.
    To create national HHA PPS rates, each observation in the final 
data set is weighted so that in the aggregate the entire sample 
reflects the national Medicare home health payment experience. For 
example, the estimates will reflect differences across census regions 
and urban versus rural areas.

Audit Sample Methodology

    The sample frame was intended to include all home health agencies 
except very small ones and agencies without a full year of cost 
reporting for the audit period. The sample selection design was a 
stratified sample. With this design, agencies are selected as samples 
within each stratum, where a stratum is defined for each provider type. 
There were four strata: freestanding not-for-profit, freestanding for-
profit, freestanding governmental, and provider-based agencies. The 
stratified design of the sample takes into account the number of 
providers and the variation in cost and beneficiaries associated with 
each provider type. The sample was designed to produce estimates from 
key elements of the audit data with a reasonable level of precision.
    One issue arose as auditing activities unfolded. Although 
ordinarily each sampling unit should appear once and only once in the 
frame, after the sample was drawn and fieldwork begun, it was found 
that this assumption was not strictly true for the governmental units. 
In some cases, multiple providers' numbers corresponding to a single 
cost report appear on the frame, while in other cases a provider number 
is a parent possibly with multiple subunits. In the former case, we 
considered the subunits associated with a single cost report as the 
appropriate sampling unit, and assigned weights to those observations 
to compensate for their higher probability of inclusion in the sample. 
This weighting procedure ensures that correct totals are obtained from 
the analysis.
    The original sample design anticipated that the weights would need 
further adjustment so that audits expected but ultimately missing from 
the sample are represented and the sample in total will produce the 
known totals from the frame for key subgroups or cells. The process 
assigns a larger weight to audited units in the sample similar (in the 
same cell) to those missed. In the case of the HHA, the cells were 
defined by cross-classification of three characteristics: urban or 
rural location; the four census regions of Northeast, Midwest, South, 
and West; and provider type. Therefore, the weights were adjusted for 
the missed sample units to ensure that the units obtained most closely 
represent the missed units cell by cell. (The adjustment gives more 
weight to the audited HHA in a cell to account for the missing audits 
within the cell.) The adjustment was a minor one, because examination 
of counts from the realized sample, intended sample, and sample frame 
showed that the sample actually obtained generally was within range or 
close to the specifications.
    After completing the weight adjustments, a file was created with 
the resulting weights, the provider number, provider type, Census4 
(four census regions), and Metropolitan Statistical Area (MSA) code. 
This file can be merged with the data from the cost reports for the 
audited providers to compute weighted values for costs and visits in 
order to compute the average cost-per-visit ratios by discipline. As a 
check on the computations, the following table is the result of a 
summary by provider type that agrees with the frame totals.

 
          Type                    Sample                  Frame #
 
            FS/F                      142                    3290
            FS/G                      159                     458
            FS/N                      171                     955
            PROV                       95                    2458
 

    The final audit sample contained 567 audited cost reports which 
were the basis of the home health PPS rate calculations. See Section 
III. below for a more detailed description of the sampling and 
estimation procedures.

Updating to September 30, 2001

    Before computing the average cost per visit for each discipline 
that would be used to calculate the prospective payment rate, we 
adjusted the costs from the audit sample by the latest available market 
basket factors to reflect expected cost increases occurring between the 
cost reporting periods ending in FY 1997 to September 30, 2001. 
Multiplying nominal dollars for a given FY end by their respective 
inflation adjustment factor will express those dollars in the dollar 
level for the FY end September 30, 2001. Therefore,

[[Page 58149]]

we multiplied the total costs for each provider by the appropriate 
inflation factor shown in the table below. See section II.A.2.b. of 
this regulation for a detailed description of the market basket.

Nonroutine Medical Supplies Paid on a Reasonable Cost Basis Under a 
Home Health Plan of Care

    Before computing the average cost per episode for nonroutine 
medical supplies paid on a reasonable cost basis under a home health 
plan of care, we also adjusted the audited cost report data for 
nonroutine medical supplies using the latest available market basket 
factors to reflect expected cost increases occurring between the cost 
reporting periods ending in FY 1997 to September 30, 2001.

Adjusting Costs for Providers Impacted by the Visit Limits

    For cost reporting periods ending in FY 1997, Medicare recognized 
reasonable costs as the lower of the provider's actual costs or the 
per-visit limit applied in the aggregate for the six disciplines. 
Because some providers' costs were higher than the per-visit limits 
applied in the aggregate for the six disciplines, it was necessary to 
adjust their costs in order to reflect only those costs for which the 
provider's payment was based. The adjustment factor was calculated by 
dividing a provider's total visit limit by the total Medicare costs, 
but only if the total visit limit was less than total Medicare costs. 
For those providers not impacted by the visit limit, no adjustment was 
necessary, and the adjustment factor was set equal to one. The 
adjustment factor was applied to each provider's total costs for each 
discipline. Summing each provider's updated, weighted, and adjusted 
total costs by the sum of visits for each discipline results in the 
nonstandardized, updated, weighted, and visit limit adjusted average 
cost per visit by discipline. The Office of Inspector General (OIG) has 
raised concerns that the payment rates may be inflated because improper 
costs were included in the base year data. These concerns are based on 
prior OIG reviews which have found improper payments have been made to 
HHAs in the past. Depending on the results of these past reviews and 
additional OIG reviews currently underway, HCFA may consider adjusting 
the payment rates to account for improper costs that were included in 
these rate calculations.

b. Home Health Agency Market Basket Index

    The data used to develop the HHA PPS payments (60-day episode and 
LUPA) were adjusted using the latest available market basket factors to 
reflect expected cost increases occurring between the cost reporting 
periods contained in our database and September 30, 2001. The following 
inflation factors were used in calculating the HHA PPS:

Factors for Inflating Database Dollars to September 30, 2001

------------------------------------------------------------------------
                      FY end                           1996       1997
------------------------------------------------------------------------
October 31........................................    1.15486  .........
November 30.......................................    1.15222  .........
December 31.......................................    1.14961  .........
January 31........................................  .........    1.14705
February 28.......................................  .........    1.14453
March 31..........................................  .........    1.14202
April 30..........................................  .........    1.13952
May 31............................................  .........    1.13703
June 30...........................................  .........    1.13444
July 31...........................................  .........    1.13175
August 31.........................................  .........    1.12896
September 30......................................  .........    1.12615
------------------------------------------------------------------------

    For fiscal year 2002 or 2003, sections 1895(b)(3)(B)(i) and 
(b)(3)(B)(ii) of the Act require the standard prospective payment 
amounts to be increased by a factor equal to the home health market 
basket minus 1.1 percentage points. In addition, for any subsequent 
fiscal years, the statute requires the rates be increased by the 
applicable home health market basket index change.

c. Claims Data

    We also conducted analysis on an episode database created from the 
1997 National Claims History File using 60-day episodes to define 
episode lengths. These data were based on use of home health services 
under the current system.
    The 1997 60-day episode file used to establish the PPS rates was 
created in two parts. The first part matched all home health claim 
records for each beneficiary together to create a complete episode 
history. We combined monthly records of home health services using a 
60-day gap of service as the break for when an episode would begin and 
end (that is, a 60-day consecutive gap in home health services would 
trigger a new episode). The second part of the episode file creation 
was to create exact 60-day episodes from the monthly episode file. 
Using the first day of the episode, we counted exactly 60 days to find 
the end of the 60-day episode. If the beneficiary was still receiving 
home health services, we then started another 60-day episode on day 61 
and continued the process until the end of the episode.
    In order to create the first part of the 1997 60-day episode file, 
we used the 100 percent National Claims History of 1997 HHA records. A 
list of Health Insurance Claim (HIC) numbers was created for all 
beneficiaries who received home health services in calendar year 1997. 
Using the HIC number for each of those beneficiaries, we compared it 
against the 1997 Master Beneficiary Denominator File. The comparison 
was done to eliminate (1) Railroad Board beneficiaries, (2) invalid 
beneficiary HIC numbers, and (3) beneficiaries enrolled in an HMO for 
any part of 1997.
    The valid matches on the 1997 Master Beneficiary Denominator File 
were then matched against the initial 100 percent of 1997 HHA records. 
The records that resulted from this step were compared to a program 
table consisting of the dates that encompassed the universe of complete 
episodes created (January 1996 through June 1998). The HHA records were 
reformatted with Units and Reimbursement allocated to 1 of 7 Revenue 
Center Code groupings:

550-559  skilled nursing
420-429  physical therapy
430-439  occupational therapy
440-449  speech pathology
560-569  medical social services
570-579  home health aide
270-279  medical supplies

    This output was then sorted by the ``From and Thru Dates'' on each 
claim to see if the From Date was within the first 2 months of 1997 and 
the Thru Date was within the last 2 months of 1997. If the From Date 
was within the first 2 months of 1997, a HIC list was created and 
matched to the 1996 HHA records. If the Thru Date was within the last 2 
months of 1997, a HIC list was created and matched to the 1998 HHA 
records. At the time these files were created, 1998 HHA records were 
complete only through June 1998. The HIC lists were processed through a 
cross-reference procedure that ensures that any changes in HIC numbers 
are related to the original HIC and to ensure all utilization for a 
beneficiary was reflected under one current HIC number. These files 
were matched against the 1996 HHA and 1998 HHA files, respectively. The 
outputs of these matches were reformatted with Units and Reimbursement 
allocated to 1 of 7 Revenue Center Code groupings (listed above). The 
same process was performed on the 1997 HHA records.
    The resulting three files for 1996, 1997, and 1998 were sorted by 
From Date within each HIC number. The sorted file was read and a 
complete

[[Page 58150]]

home health history was created for each beneficiary HIC. This was 
accomplished by sorting the HHA records for each HIC in chronological 
order from January 1996 through June 1998. During this process, Number 
of Days, Total Charges, and Total Reimbursement were allocated to a 
monthly table. For any records that spanned 2 calendar months, charges, 
visits, and reimbursement were apportioned based on the distribution of 
those days in each respective month. Whenever a beneficiary HIC's 
history was read and tabled, the data were analyzed in order to 
determine whether any prospective episodes would have ended in 1996 or 
started in 1998. If either was true, that historical utilization was 
discarded. The final valid data included 1996 data that were contiguous 
or ended within 2 months (60 days) of 1997 data and 1998 data that 
began within 2 months of 1997 data.
    Once the valid table was completed, a single episode or multiple 
episodes were determined by a 60-day break. The final episode(s) for 
each home health beneficiary with combined monthly records was written 
to an output file referred to as the 1997 Home Health Monthly Interval 
File.
    The 1997 HHA 60-Day Episode file was then derived from the 1997 
Home Health Monthly Interval File by analyzing monthly records by 
episode number and sequential month number. A full episode from the 
Home Health Monthly Interval File is made up of two consecutive monthly 
intervals in which the beneficiary received services (no 60-day gap in 
services furnished to that beneficiary for a given episode of care). 
Each monthly record within the common episode number was assigned a 
sequential month number to indicate where, in the sequence of monthly 
records for that given episode number, a particular monthly record 
exists.
    The first episode-begin-date for a 60-day episode was derived from 
the first from-date for a given previously established episode (a group 
of related monthly records) as read from the home health interval file. 
An episode-end-date for that first 60-day episode was calculated by 
adding 59 days to the episode-begin-date. Visits, charges, lengths of 
stay, and reimbursement dollars were then accumulated across the six 
disciplines (skilled nursing services, home health aide services, 
physical therapy (PT) services, occupational therapy (OT) services, 
speech-language pathology services, and medical social services) for 
the 60-day episode by adding in subsequent monthly interval records (if 
appropriate) for a given episode. If an episode-end-date occurs within 
a monthly record, accumulating variables were prorated between the 60-
day episode record that was closed out and the subsequent 60-day 
episode to be created. Consequently, the subsequent 60-day episode was 
assigned an episode-begin-date equal to that of the previous episode's 
episode-end-date plus 1. For episodes that did not begin and end within 
a monthly record, the episode-begin-dates were established from the 
from-date and episode-end-dates were calculated from the episode-begin-
date.
    The end result was a 1997 HHA episode file of 60-day episode 
records. In addition to the accumulating variables mentioned above, the 
episode record also contained up to three provider numbers of HHAs 
involved in furnishing care for that patient during the 60-day episode. 
For identifiable purposes, the episode record contained variables 
depicting--(1) the episode number (the episode number relates 60-day 
episode records for which no 60-day gap in services existed), (2) the 
total number of related 60-day episodes for that episode number, and 
(3) a sequential number for that 60-day episode within the episode 
number.
    Using the 60-day episode file, we were able to analyze the number, 
type, and duration of visits for each 60-day period as well as across 
multiple 60-day episodes. Since the full 100 percent episode file was 
created to determine actual episodes that could span more than 1 year, 
episodes were defined by actual start and end dates even if they were 
outside the calendar year period, as long as the beneficiary received 
home health services in calendar year 1997. This provided a true 
representation of the length of home health episodes and showed that 10 
percent of the beneficiaries were receiving services that spanned more 
than a full calendar year. This file also showed that 46 percent of the 
beneficiaries completed home health services in the first 60 days and 
over 60 percent actually completed their episodes in less than 120 
days.
    To complete the second part of the 1997 60-day episode file needed 
to calculate prospective payment rates and to develop impacts, we 
needed to convert the full episode file to a file containing only those 
60-day episodes that fell into the calendar year 1997 period. This 
meant that if a beneficiary started receiving home health services in 
July 1996 and continued for multiple 60-day episodes through June 1997, 
we only included their 4th, 5th, and 6th 60-day episodes that fell in 
calendar year 1997. Calculating the distribution of beneficiaries 
across the total number of episodes as we did for the full episode 
file, we determined that the total percentage of beneficiaries with 
only one episode increased to 51 percent. The table below shows the 
distribution across total number of 60-day episodes for both the full 
episode file and the calendar year 1997 file.

   Table 1.--Distribution of the Number of Consecutive 60-Day Episodes
------------------------------------------------------------------------
                                                            Distribution
                                             Distribution     based on
                                             based on all    only 60-day
                                                60-day        episodes
    Total number of consecutive 60-day      episodes--even      that
                 episodes                    those outside   occurred in
                                              the CY 1997    the CY 1997
                                                period         period
                                               (percent)      (percent)
------------------------------------------------------------------------
1.........................................             46             51
2.........................................             16             18
3.........................................              8              8
4.........................................              5              5
5.........................................              3              4
6.........................................              3              3
7.........................................              3             10
8.........................................              3   ............
9.........................................              2   ............
10........................................              2   ............
11........................................              1   ............
12........................................              2   ............
13........................................              2   ............
14........................................              3   ............
15........................................              0   ............
------------------------------------------------------------------------

    Next, we calculated the average number of visits by discipline for 
all 60-day episodes and compared that to only those episodes that fell 
into the calendar year 1997. We discovered that there was a slight 
decrease in the average number of visits for home health aide and 
skilled nursing services when using only the episodes that fell in 
calendar year 1997. This was expected due to the fact that the 
utilization in 1997 declined because of the incentives under Operation 
Restore Trust and because the distribution of beneficiaries having 
fewer number of total episodes increased as shown in Table 1 above. 
Beneficiaries with fewer total episodes had on average a lower total 
average number of visits.
    For purposes of rate setting, we believed it was more appropriate 
to use the average number of visits for only those episodes that 
occurred in calendar year 1997, as these reflect the reduced visit 
utilization experienced since 1997 and thus represented more closely 
the actual episodes that we would be paying for under PPS. Because we 
are paying episodes with four or fewer visits on a per-visit basis, 
under the LUPA methodology mentioned previously, it is necessary to 
exclude them for the calculation of the average number of

[[Page 58151]]

episodes. Taking the low-visit episodes out of the calculation resulted 
in an overall higher average for each discipline as would be expected.

 Table 2.--Comparison of the Average Number of Visits Per Episode for Each Discipline for the Full Episode File,
                      Episodes in CY 1997 and Episodes in CY 1999 With Five or More Visits
----------------------------------------------------------------------------------------------------------------
                                                                Average based                     Average based
                                                                on all 60-day    Average based    on only 60-day
                                                                episodes--even   on only 60-day   episodes that
            Average number of visits by discipline              those outside    episodes that    fell into the
                                                                 the CY 1997     fell into the    CY 1997 period
                                                                    period       CY 1997 period    with visits
----------------------------------------------------------------------------------------------------------------
Skilled Nursing Services.....................................            13.14            12.55            14.69
Physical Therapy Services....................................             2.08             2.35             2.74
Occupational Therapy Services................................              .36             0.41             0.48
Speech Pathology Services....................................              .14             0.15             0.18
Medical Social Services......................................              .30             0.31             0.36
Home Health Aide Services....................................            16.78            14.59            17.59
Total for all disciplines....................................             32.8            30.36            36.04
----------------------------------------------------------------------------------------------------------------

    Analysis of each 60-day episode that occurred within calendar year 
1997 showed that the distribution of visits across each discipline 
changed the longer the home health patient received home health 
services. For beneficiaries who had only one episode, the proportion of 
skilled nursing visits to home health aide visits was about 2 to 1. But 
for beneficiaries who are in their 6th consecutive episode, the 
relationship is reversed. The longer a beneficiary receives home health 
services, the lower their skilled nursing needs and the more they 
become dependent only on home health aide services. It is also 
noticeable and expected that physical therapy services decline over 
time. This finding suggests that future PPS research should be directed 
at whether the episode payment should vary with each consecutive 
episode.

                                         Table 3.--Distribution of Disciplines Across Series of 60-Day Episodes
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Episode No.
                                                                 within     Percent of   Percent of   Percent of    Percent of   Percent of   Percent of
              Total number of 60-day  episodes                 series of     skilled    home health  occupational     speech      medical      physical
                                                                 60-day      nursing        aide        therapy     pathology      social      therapy
                                                                episodes     services     services     services      services     services     services
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................................            1           50           26             3            1            2           19
2...........................................................            1           46           34             3            1            1           15
2...........................................................            2           44           40             2            1            1           12
3...........................................................            1           46           38             2            1            1           11
3...........................................................            2           43           44             2            1            1            9
3...........................................................            3           43           46             1            1            1            8
4...........................................................            1           45           42             2            1            1            9
4...........................................................            2           42           48             1            1            1            7
4...........................................................            3           42           49             1            1            1            6
4...........................................................            4           42           50             1            0            1            6
5...........................................................            1           44           45             2            1            1            8
5...........................................................            2           41           50             1            1            1            6
5...........................................................            3           40           52             1            0            1            5
5...........................................................            4           40           53             1            0            1            5
5...........................................................            5           40           53             1            0            1            5
6...........................................................            1           42           48             1            1            1            7
6...........................................................            2           39           53             1            0            1            5
6...........................................................            3           38           55             1            0            1            4
6...........................................................            4           38           57             1            0            1            4
6...........................................................            5           37           57             1            0            1            4
6...........................................................            6           38           56             1            0            1            4
7...........................................................            1           36           59             1            0            1            4
7...........................................................            2           35           60             1            0            1            3
7...........................................................            3           35           61             0            0            1            3
7...........................................................            4           34           62             0            0            1            3
7...........................................................            5           34           62             0            0            1            3
7...........................................................            6           34           62             0            0            1            2
7...........................................................            7           35           61             0            0            1            3
--------------------------------------------------------------------------------------------------------------------------------------------------------

National Part B Claims History File

    Nonroutine medical supplies are also a covered home health service 
listed in section 1861(m) of the Act. As discussed above, the home 
health prospective payment rate includes those items that are currently 
covered and paid on a reasonable-cost basis. DME covered as a home 
health service (see section 1861(m) of the Act) will continue to be 
paid the fee schedule amount. As discussed previously, there is a new 
consolidated billing provision that requires HHAs to bill for all home 
health services listed in section 1861(m)

[[Page 58152]]

of the Act that are ordered under a home health plan of care.
    Before PPS implementation, HHAs were not required to bundle all 
home health services. Specifically, nonroutine medical supplies that 
are covered and paid under Part B could have been furnished by a 
supplier rather than the HHA. Under the current interim payment system, 
nonroutine medical supply costs were subjected to the aggregate per-
beneficiary limits, but not the per-visit limits. Some HHAs may have 
chosen to unbundle those nonroutine medical supplies that had a 
corresponding Part B payment. In order to determine the scope of the 
unbundled nonroutine medical supplies under the current system, we 
identified 199 HCPCS codes, representing those items that would fall 
into the possible ``unbundled nonroutine medical supply'' category. We 
pulled all claims with the corresponding HCPCS codes from the Part B 
national claims history file. In order to determine whether the HCPCS 
codes were related to a beneficiary receiving home health services 
under a home health plan of care, we linked every Part B claim with one 
or more of the 199 HCPCS codes to home health episodes from our episode 
database, by beneficiary and dates of service. If a beneficiary 
received home health services during a 60-day episode and there was a 
corresponding Part B claim with one of the 199 HCPCS codes that was 
billed during the same 60-day episode, we identified the item as 
related to the home health stay.
    Since the nonroutine medical supply costs are bundled into the 
prospective payment rate and subjected to consolidated billing under 
prospective payment, we are proposing an additional payment amount in 
the 60-day episode base rate for those nonroutine medical supplies with 
corresponding Part B codes that may have been unbundled under the 
interim payment system. The methodology amount is set forth in section 
II.B. of this regulation.

d. Hospital Wage Index

    As discussed in section I. of this regulation, 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 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. The statute allows the 
Secretary to use the area where the services are furnished or such area 
as the Secretary may specify for the wage index adjustment. To be 
consistent with the application of the wage index adjustment under the 
current interim payment system for HHAs, we propose that the wage index 
value applied to the labor portion of the 60-day episode payment under 
HHA/PPS be adjusted by the appropriate wage index for the geographic 
area in which the beneficiary received home health services.
    In addition, section 1895(b)(3)(A)(i) of the Act requires the 
Secretary to standardize the cost data used in developing the HHA/PPS 
payment amount for wage levels among different HHAs in a budget-neutral 
manner. The wage-index adjustments to the 60-day episode payments must 
be made in a manner that does not result in aggregate payments that are 
greater or less than those that would otherwise be made if the 60-day 
episode payments were not adjusted by the wage index.
    Each HHA's labor market area is determined based on definitions of 
Metropolitan Statistical Areas (MSAs) issued by the Office of 
Management and Budget (OMB). In establishing the 60-day episode 
payments, we used the most recently published hospital wage index (that 
is, the FY 1999 hospital wage index published in the Federal Register 
on February 25, 1999 (64 FR 9378), which is based on 1995 hospital wage 
data) without regard to whether these hospitals have been reclassified 
to a new geographic area. Therefore, the prospective payments reflect 
the MSA definitions that are currently in effect under the hospital 
PPS.
    We believe the use of the hospital wage data results in an 
appropriate adjustment to the labor portion of costs based on an 
appropriate wage index as required under sections 1895(b)(3)(A)(i), 
(b)(4)(A)(ii), and (b)(4)(C) of the Act.

    Table 4A.--FY 1999 WAGE INDEX FOR RURAL AREAS--Pre-floor and Pre-
                              reclassified
------------------------------------------------------------------------
                                                                  Wage
                          Rural Area                             Index
------------------------------------------------------------------------
Alabama......................................................     0.7294
Alaska.......................................................     1.2430
Arizona......................................................     0.7989
Arkansas.....................................................     0.7250
California...................................................     0.9979
Colorado.....................................................     0.8436
Connecticut..................................................     1.2074
Delaware.....................................................     0.8807
Florida......................................................     0.8877
Georgia......................................................     0.7888
Guam.........................................................     0.6516
Hawaii.......................................................     1.0910
Idaho........................................................     0.8477
Illinois.....................................................     0.7916
Indiana......................................................     0.8380
Iowa.........................................................     0.7777
Kansas.......................................................     0.7319
Kentucky.....................................................     0.7844
Louisiana....................................................     0.7454
Maine........................................................     0.8467
Maryland.....................................................     0.8555
Massachusetts................................................     1.0834
Michigan.....................................................     0.8875
Minnesota....................................................     0.8595
Mississippi..................................................     0.7312
Missouri.....................................................     0.7452
Montana......................................................     0.8398
Nebraska.....................................................     0.7674
Nevada.......................................................     0.9256
New Hampshire................................................     1.0240
New Jersey \1\...............................................  .........
New Mexico...................................................     0.8269
New York.....................................................     0.8588
North Carolina...............................................     0.8112
North Dakota.................................................     0.7497
Ohio.........................................................     0.8519
Oklahoma.....................................................     0.7124
Oregon.......................................................     0.9910
Pennsylvania.................................................     0.8664
Puerto Rico..................................................     0.4080
Rhode Island \1\.............................................  .........
South Carolina...............................................     0.8046
South Dakota.................................................     0.7508
Tennessee....................................................     0.7492
Texas........................................................     0.7565
Utah.........................................................     0.8859
Vermont......................................................     0.9416
Virgin Islands...............................................     0.4588
Virginia.....................................................     0.7857
Washington...................................................     1.0489
West Virginia................................................     0.7875
Wisconsin....................................................     0.8711
Wyoming......................................................    0.8768
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.


  Table 4B--Wage Index for Urban Areas--Pre-floor and Pre-reclassified
------------------------------------------------------------------------
                                                                   Wage
 MSA              Urban Area  (Constituent counties)              Index
------------------------------------------------------------------------
0040 Abilene, TX                                                0.7981
       Taylor, TX
0060 Aguadilla, PR                                              0.4727
       Aguada, PR
       Aguadilla, PR
       Moca, PR
0080 Akron, OH                                                  0.9900
       Portage, OH
       Summit, OH
0120 Albany, GA                                                 0.7975
       Dougherty, GA
       Lee, GA
0160 Albany-Schenectady-Troy, NY                                0.8610
       Albany, NY
       Montgomery, NY

[[Page 58153]]

 
       Rensselaer, NY
       Saratoga, NY
       Schenectady, NY
       Schoharie, NY
0200 Albuquerque, NM                                            0.8613
       Bernalillo, NM
       Sandoval, NM
       Valencia, NM
0220 Alexandria, LA                                             0.8526
       Rapides, LA
0240 Allentown-Bethlehem-Easton, PA                             1.0204
       Carbon, PA
       Lehigh, PA
       Northampton, PA
0280 Altoona, PA                                                0.9335
       Blair, PA
0320 Amarillo, TX                                               0.8474
       Potter, TX
       Randall, TX
0380 Anchorage, AK                                              1.2818
       Anchorage, AK
0440 Ann Arbor, MI                                              1.1033
       Lenawee, MI
       Livingston, MI
       Washtenaw, MI
0450 Anniston, AL                                               0.8658
       Calhoun, AL
0460 Appleton-Oshkosh-Neenah, WI                                0.8825
       Calumet, WI
       Outagamie, WI
       Winnebago, WI
0470 Arecibo, PR                                                0.4867
       Arecibo, PR
       Camuy, PR
       Hatillo, PR
0480 Asheville, NC                                              0.8940
       Buncombe, NC
       Madison, NC
0500 Athens, GA                                                 0.8673
       Clarke, GA
       Madison, GA
       Oconee, GA
0520 Atlanta, GA                                                0.9915
       Barrow, GA
       Bartow, GA
       Carroll, GA
       Cherokee, GA
       Clayton, GA
       Cobb, GA
       Coweta, GA
       DeKalb, GA
       Douglas, GA
       Fayette, GA
       Forsyth, GA
       Fulton, GA
       Gwinnett, GA
       Henry, GA
       Newton, GA
       Paulding, GA
       Pickens, GA
       Rockdale, GA
       Spalding, GA
       Walton, GA
0560 Atlantic-Cape May, NJ                                      1.1536
       Atlantic, NJ
       Cape May, NJ
0600 Augusta-Aiken, GA-SC                                       0.9233
       Columbia, GA
       McDuffie, GA
       Richmond, GA
       Aiken, SC
       Edgefield, SC
0640 Austin-San Marcos, TX                                      0.8782
       Bastrop, TX
       Caldwell, TX
       Hays, TX
       Travis, TX
       Williamson, TX
0680 Bakersfield, CA                                            0.9531
       Kern, CA
0720 Baltimore, MD                                              0.9642
       Anne Arundel, MD
       Baltimore, MD
       Baltimore City, MD
       Carroll, MD
       Harford, MD
       Howard, MD
       Queen Anne's, MD
0733 Bangor, ME                                                 0.9474
       Penobscot, ME
0743 Barnstable-Yarmouth, MA                                    1.5382
       Barnstable, MA
0760 Baton Rouge, LA                                            0.8872
       Ascension, LA
       East Baton Rouge, LA
       Livingston, LA
       West Baton Rouge, LA
0840 Beaumont-Port Arthur, TX                                   0.8659
       Hardin, TX
       Jefferson, TX
       Orange, TX
0860 Bellingham, WA                                             1.1434
       Whatcom, WA
0870 Benton Harbor, MI                                          0.8531
       Berrien, MI
0875 Bergen-Passaic, NJ                                         1.2186
       Bergen, NJ
       Passaic, NJ
0880 Billings, MT                                               0.9143
       Yellowstone, MT
0920 Biloxi-Gulfport-Pascagoula, MS                             0.8276
       Hancock, MS
       Harrison, MS
       Jackson, MS
0960 Binghamton, NY                                             0.9059
       Broome, NY
       Tioga, NY
1000 Birmingham, AL                                             0.9073
       Blount, AL
       Jefferson, AL
       St. Clair, AL
       Shelby, AL
1010 Bismarck, ND                                               0.8025
       Burleigh, ND
       Morton, ND
1020 Bloomington, IN                                            0.8965
       Monroe, IN
1040 Bloomington-Normal, IL                                     0.8851
       McLean, IL
1080 Boise City, ID                                             0.9160
       Ada, ID
       Canyon, ID
1123 Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH           1.1269
       Bristol, MA
       Essex, MA
       Middlesex, MA
       Norfolk, MA
       Plymouth, MA
       Suffolk, MA
       Worcester, MA
       Hillsborough, NH
       Merrimack, NH
       Rockingham, NH
       Strafford, NH
1125 Boulder-Longmont, CO                                       1.0038
       Boulder, CO
1145 Brazoria, TX                                               0.8906
       Brazoria, TX
1150 Bremerton, WA                                              1.1055
       Kitsap, WA
1240 Brownsville-Harlingen-San Benito, TX                       0.8237
       Cameron, TX
1260 Bryan-College Station, TX                                  0.7820
       Brazos, TX
1280 Buffalo-Niagara Falls, NY                                  0.9587
       Erie, NY
       Niagara, NY
1303 Burlington, VT                                             0.9577
       Chittenden, VT
       Franklin, VT
       Grand Isle, VT
1310 Caguas, PR                                                 0.4400
       Caguas, PR
       Cayey, PR
       Cidra, PR
       Gurabo, PR
       San Lorenzo, PR
1320 Canton-Massillon, OH                                       0.8813
       Carroll, OH
       Stark, OH
1350 Casper, WY                                                  0.870
       Natrona, WY
1360 Cedar Rapids, IA                                           0.8814
       Linn, IA
1400 Champaign-Urbana, IL                                       0.8723
       Champaign, IL
1440 Charleston-North Charleston, SC                            0.9114
       Berkeley, SC
       Charleston, SC
       Dorchester, SC
1480 Charleston, WV                                             0.8990
       Kanawha, WV
       Putnam, WV
1520 Charlotte-Gastonia-Rock Hill, NC-SC                        0.9686
       Cabarrus, NC
       Gaston, NC
       Lincoln, NC
       Mecklenburg, NC
       Rowan, NC
       Stanly, NC
       Union, NC
       York, SC
1540 Charlottesville, VA                                        1.0272
       Albemarle, VA
       Charlottesville City, VA
       Fluvanna, VA
       Greene, VA
1560 Chattanooga, TN-GA                                         0.9074
       Catoosa, GA
       Dade, GA

[[Page 58154]]

 
       Walker, GA
       Hamilton, TN
       Marion, TN
1580 Cheyenne, WY                                               0.8149
       Laramie, WY
1600 Chicago, IL                                                1.0461
       Cook, IL
       DeKalb, IL
       DuPage, IL
       Grundy, IL
       Kane, IL
       Kendall, IL
       Lake, IL
       McHenry, IL
       Will, IL
1620 Chico-Paradise, CA                                         1.0145
       Butte, CA
1640 Cincinnati, OH-KY-IN                                       0.9595
       Dearborn, IN
       Ohio, IN
       Boone, KY
       Campbell, KY
       Gallatin, KY
       Grant, KY
       Kenton, KY
       Pendleton, KY
       Brown, OH
       Clermont, OH
       Hamilton, OH
       Warren, OH
1660 Clarksville-Hopkinsville, TN-KY                            0.8040
       Christian, KY
       Montgomery, TN
1680 Cleveland-Lorain-Elyria, OH                                0.9886
       Ashtabula, OH
       Cuyahoga, OH
       Geauga, OH
       Lake, OH
       Lorain, OH
       Medina, OH
1720 Colorado Springs, CO                                       0.9390
       El Paso, CO
1740 Columbia, MO                                               0.8942
       Boone, MO
1760 Columbia, SC                                               0.9290
       Lexington, SC
       Richland, SC
1800 Columbus, GA-AL                                            0.8511
       Russell, AL
       Chattahoochee, GA
       Harris, GA
       Muscogee, GA
1840 Columbus, OH                                               0.9781
       Delaware, OH
       Fairfield, OH
       Franklin, OH
       Licking, OH
       Madison, OH
       Pickaway, OH
1880 Corpus Christi, TX                                         0.8513
       Nueces, TX
       San Patricio, TX
1900 Cumberland, MD-WV                                          0.8242
       Allegany, MD
       Mineral, WV
1920 Dallas, TX                                                 0.9369
       Collin, TX
       Dallas, TX
       Denton, TX
       Ellis, TX
       Henderson, TX
       Hunt, TX
       Kaufman, TX
       Rockwall, TX
1950 Danville, VA                                               0.9045
       Danville City, VA
       Pittsylvania, VA
1960 Davenport-Moline-Rock Island, IA-IL                        0.8413
       Scott, IA
       Henry, IL
       Rock Island, IL
2000 Dayton-Springfield, OH                                     0.9605
       Clark, OH
       Greene, OH
       Miami, OH
       Montgomery, OH
2020 Daytona Beach, FL                                          0.9134
       Flagler, FL
       Volusia, FL
2030 Decatur, AL                                                0.8233
       Lawrence, AL
       Morgan, AL
2040 Decatur, IL                                                0.8035
       Macon, IL
2080 Denver, CO                                                 1.0331
       Adams, CO
       Arapahoe, CO
       Denver, CO
       Douglas, CO
       Jefferson, CO
2120 Des Moines, IA                                             0.8448
       Dallas, IA
       Polk, IA
       Warren, IA
2160 Detroit, MI                                                1.0544
       Lapeer, MI
       Macomb, MI
       Monroe, MI
       Oakland, MI
       St. Clair, MI
       Wayne, MI
2180 Dothan, AL                                                 0.7892
       Dale, AL
       Houston, AL
2190 Dover, DE                                                  0.9363
       Kent, DE
2200 Dubuque, IA                                                0.8222
       Dubuque, IA
2240 Duluth-Superior, MN-WI                                     0.9962
       St. Louis, MN
       Douglas, WI
2281 Dutchess County, NY                                        1.0530
       Dutchess, NY
2290 Eau Claire, WI                                             0.8573
       Chippewa, WI
       Eau Claire, WI
2320 El Paso, TX                                                0.9215
       El Paso, TX
2330 Elkhart-Goshen, IN                                         0.9305
       Elkhart, IN
2335 Elmira, NY                                                 0.8440
       Chemung, NY
2340 Enid, OK                                                   0.7983
       Garfield, OK
2360 Erie, PA                                                   0.9271
       Erie, PA
2400 Eugene-Springfield, OR                                     1.1193
       Lane, OR
2440 Evansville-Henderson, IN-KY                                0.8528
       Posey, IN
       Vanderburgh, IN
       Warrick, IN
       Henderson, KY
2520 Fargo-Moorhead, ND-MN                                      0.9520
       Clay, MN
       Cass, ND
2560 Fayetteville, NC                                           0.8389
       Cumberland, NC
2580 Fayetteville-Springdale-Rogers, AR                         0.8614
       Benton, AR
       Washington, AR
2620 Flagstaff, AZ-UT                                           0.9483
       Coconino, AZ
       Kane, UT
2640 Flint, MI                                                  1.1031
       Genesee, MI
2650 Florence, AL                                               0.7676
       Colbert, AL
       Lauderdale, AL
2655 Florence, SC                                               0.8501
       Florence, SC
2670 Fort Collins-Loveland, CO                                  1.0770
       Larimer, CO
2680 Ft. Lauderdale, FL                                         0.9807
       Broward, FL
2700 Fort Myers-Cape Coral, FL                                  0.8942
       Lee, FL
2710 Fort Pierce-Port St. Lucie, FL                             1.0241
       Martin, FL
       St. Lucie, FL
2720 Fort Smith, AR-OK                                          0.7623
       Crawford, AR
       Sebastian, AR
       Sequoyah, OK
2750 Fort Walton Beach, FL                                      0.8615
       Okaloosa, FL
2760 Fort Wayne, IN                                             0.9047
       Adams, IN
       Allen, IN
       De Kalb, IN
       Huntington, IN
       Wells, IN
       Whitley, IN
2800 Forth Worth-Arlington, TX                                  0.9719
       Hood, TX
       Johnson, TX
       Parker, TX
       Tarrant, TX
2840 Fresno, CA                                                 1.0700
       Fresno, CA
       Madera, CA
2880 Gadsden, AL                                                0.8779
       Etowah, AL
2900 Gainesville, FL                                            0.9453
       Alachua, FL
2920 Galveston-Texas City, TX                                   1.0894
       Galveston, TX
2960 Gary, IN                                                   0.9435
       Lake, IN
       Porter, IN
2975 Glens Falls, NY                                            0.8490
       Warren, NY
       Washington, NY

[[Page 58155]]

 
2980 Goldsboro, NC                                              0.8530
       Wayne, NC
2985 Grand Forks, ND-MN                                         0.8836
       Polk, MN
       Grand Forks, ND
2995 Grand Junction, CO                                         0.8279
       Mesa, CO
3000 Grand Rapids-Muskegon-Holland, MI                          0.9971
       Allegan, MI
       Kent, MI
       Muskegon, MI
       Ottawa, MI
3040 Great Falls, MT                                            0.8872
       Cascade, MT
3060 Greeley, CO                                                0.9457
       Weld, CO
3080 Green Bay, WI                                              0.9156
       Brown, WI
3120 Greensboro-Winston-Salem-High Point, NC                    0.9547
       Alamance, NC
       Davidson, NC
       Davie, NC
       Forsyth, NC Guilford, NC
       Randolph, NC
       Stokes, NC
       Yadkin, NC
3150 Greenville, NC                                             0.9434
       Pitt, NC
3160 Greenville-Spartanburg-Anderson, SC                        0.9222
       Anderson, SC
       Cherokee, SC
       Greenville, SC
       Pickens, SC
       Spartanburg, SC
3180 Hagerstown, MD                                             1.0183
       Washington, MD
3200 Hamilton-Middletown, OH                                    0.9233
       Butler, OH
3240 Harrisburg-Lebanon-Carlisle, PA                            1.0060
       Cumberland, PA
       Dauphin, PA
       Lebanon, PA
       Perry, PA
3283 Hartford, CT                                               1.1831
       Hartford, CT
       Litchfield, CT
       Middlesex, CT
       Tolland, CT
3285 Hattiesburg, MS                                            0.7261
       Forrest, MS
       Lamar, MS
3290 Hickory-Morganton-Lenoir, NC                               0.8904
       Alexander, NC
       Burke, NC
       Caldwell, NC
       Catawba, NC
3320 Honolulu, HI                                               1.1510
       Honolulu, HI
3350   Houma, LA
       Lafourche, LA
       Terrebonne, LA                                           0.8197
3360 Houston, TX                                                0.9889
       Chambers, TX
       Fort Bend, TX
       Harris, TX
       Liberty, TX
       Montgomery, TX
       Waller, TX
3400 Huntington-Ashland, WV-KY-OH                               0.9647
       Boyd, KY
       Carter, KY
       Greenup, KY
       Lawrence, OH
       Cabell, WV
       Wayne, WV
3440 Huntsville, AL                                             0.8385
       Limestone, AL
       Madison, AL
3480 Indianapolis, IN                                           0.9831
       Boone, IN
       Hamilton, IN
       Hancock, IN
       Hendricks, IN
       Johnson, IN
       Madison, IN
       Marion, IN
       Morgan, IN
       Shelby, IN
3500 Iowa City, IA                                              0.9481
       Johnson, IA
3520 Jackson, MI                                                0.9224
       Jackson, MI
3560 Jackson, MS                                                0.8292
       Hinds, MS
       Madison, MS
       Rankin, MS
3580 Jackson, TN                                                0.8560
       Madison, TN
       Chester, TN
3600 Jacksonville, FL                                           0.8900
       Clay, FL
       Duval, FL
       Nassau, FL
       St. Johns, FL
3605 Jacksonville, NC                                           0.7556
       Onslow, NC
3610 Jamestown, NY                                              0.7660
       Chautauqua, NY
3620 Janesville-Beloit, WI                                      0.9051
       Rock, WI
3640 Jersey City, NJ                                            1.1598
       Hudson, NJ
3660 Johnson City-Kingsport-Bristol, TN-VA                      0.8773
       Carter, TN
       Hawkins, TN
       Sullivan, TN
       Unicoi, TN
       Washington, TN
       Bristol City, VA
       Scott, VA
       Washington, VA
3680 Johnstown, PA                                              0.8619
       Cambria, PA
       Somerset, PA
3700 Jonesboro, AR                                              0.7407
       Craighead, AR
3710 Joplin, MO                                                 0.7873
       Jasper, MO
       Newton, MO
3720 Kalamazoo-Battlecreek, MI                                  1.1331
       Calhoun, MI
       Kalamazoo, MI
       Van Buren, MI
3740 Kankakee, IL                                               0.9418
       Kankakee, IL
3760 Kansas City, KS-MO                                         0.9645
       Johnson, KS
       Leavenworth, KS
       Miami, KS
       Wyandotte, KS
       Cass, MO
       Clay, MO
       Clinton, MO
       Jackson, MO
       Lafayette, MO
       Platte, MO
       Ray, MO
3800 Kenosha, WI                                                0.9129
       Kenosha, WI
3810 Killeen-Temple, TX                                         1.0109
       Bell, TX
       Coryell, TX
3840 Knoxville, TN                                              0.8918
       Anderson, TN
       Blount, TN
       Knox, TN
       Loudon, TN
       Sevier, TN
       Union, TN
3850 Kokomo, IN                                                 0.9275
       Howard, IN
       Tipton, IN
3870 La Crosse, WI-MN                                           0.8913
       Houston, MN
       La Crosse, WI
3880 Lafayette, LA                                              0.8255
       Acadia, LA
       Lafayette, LA
       St. Landry, LA
       St. Martin, LA
3920 Lafayette, IN                                              0.8841
       Clinton, IN
       Tippecanoe, IN
3960 Lake Charles, LA                                           0.7674
       Calcasieu, LA
3980 Lakeland-Winter Haven, FL                                  0.8939
       Polk, FL
4000 Lancaster, PA                                              0.9561
       Lancaster, PA
4040 Lansing-East Lansing, MI                                   1.0090
       Clinton, MI
       Eaton, MI
       Ingham, MI
4080 Laredo, TX                                                 0.7343
       Webb, TX
4100 Las Cruces, NM                                             0.8870
       Dona Ana, NM
4120 Las Vegas, NV-AZ                                           1.1413
       Mohave, AZ
       Clark, NV
       Nye, NV
4150 Lawrence, KS                                               0.8655
       Douglas, KS
4200 Lawton, OK                                                 0.8697
       Comanche, OK
4243 Lewiston-Auburn, ME                                        0.9149
       Androscoggin, ME
4280 Lexington, KY                                              0.8506
       Bourbon, KY
       Clark, KY

[[Page 58156]]

 
       Fayette, KY
       Jessamine, KY
       Madison, KY
       Scott, KY
       Woodford, KY
4320 Lima, OH                                                   0.8949
       Allen, OH
       Auglaize, OH
4360 Lincoln, NE                                                0.9303
       Lancaster, NE
4400 Little Rock-North Little Rock, AR                          0.8503
       Faulkner, AR
       Lonoke, AR
       Pulaski, AR
       Saline, AR
4420 Longview-Marshall, TX                                      0.8698
       Gregg, TX
       Harrison, TX
       Upshur, TX
4480 Los Angeles-Long Beach, CA                                 1.2085
       Los Angeles, CA
4520 Louisville, KY-IN                                          0.9093
       Clark, IN
       Floyd, IN
       Harrison, IN
       Scott, IN
       Bullitt, KY
       Jefferson, KY
       Oldham, KY
4600 Lubbock, TX                                                0.8496
       Lubbock, TX
4640 Lynchburg, VA                                              0.8900
       Amherst, VA
       Bedford, VA
       Bedford City, VA
       Campbell, VA
       Lynchburg City, VA
4680 Macon, GA                                                  0.8980
       Bibb, GA
       Houston, GA
       Jones, GA
       Peach, GA
       Twiggs, GA
4720 Madison, WI                                                1.0018
       Dane, WI
4800 Mansfield, OH                                              0.8534
       Crawford, OH
       Richland, OH
4840 Mayaguez, PR                                               0.4401
       Anasco, PR
       Cabo Rojo, PR
       Hormigueros, PR
       Mayaguez, PR
       Sabana Grande, PR
       San German, PR
4880 McAllen-Edinburg-Mission, TX                               0.8893
       Hidalgo, TX
4890 Medford-Ashland, OR                                        1.0020
       Jackson, OR
4900 Melbourne-Titusville-Palm Bay, FL                          0.9216
       Brevard, Fl
4920 Memphis, TN-AR-MS                                          0.8361
       Crittenden, AR
       DeSoto, MS
       Fayette, TN
       Shelby, TN
       Tipton, TN
4940 Merced, CA                                                 1.0033
       Merced, CA
5000 Miami, FL                                                  1.0017
       Dade, FL
5015 Middlesex-Somerset-Hunterdon, NJ                           1.1152
       Hunterdon, NJ
       Middlesex, NJ
       Somerset, NJ
5080 Milwaukee-Waukesha, WI                                     0.9356
       Milwaukee, WI
       Ozaukee, WI
       Washington, WI
       Waukesha, WI
5120 Minneapolis-St. Paul, MN-WI                                1.0854
       Anoka, MN
       Carver, MN
       Chisago, MN
       Dakota, MN
       Hennepin, MN
       Isanti, MN
       Ramsey, MN
       Scott, MN
       Sherburne, MN
       Washington, MN
       Wright, MN
       Pierce, WI
       St. Croix, WI
5140 Missoula, MT                                               0.9189
       Missoula, MT
5160 Mobile, AL                                                 0.8377
       Baldwin, AL
       Mobile, AL
5170 Modesto, CA                                                1.0346
       Stanislaus, CA
5190 Monmouth-Ocean, NJ                                         1.1317
       Monmouth, NJ
       Ocean, NJ
5200 Monroe, LA                                                 0.8219
       Ouachita, LA
5240 Montgomery, AL                                             0.7821
       Autauga, AL
       Elmore, AL
       Montgomery, AL
5280 Muncie, IN                                                 0.9414
       Delaware, IN
5330 Myrtle Beach, SC                                           0.8179
       Horry, SC
5345 Naples, FL                                                 1.0177
       Collier, FL
5360 Nashville, TN                                              0.9480
       Cheatham, TN
       Davidson, TN
       Dickson, TN
       Robertson, TN
       Rutherford TN
       Sumner, TN
       Williamson, TN
       Wilson, TN
5380 Nassau-Suffolk, NY                                         1.3593
       Nassau, NY
       Suffolk, NY
5483 New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT        1.2328
       Fairfield, CT
       New Haven, CT
5523 New London-Norwich, CT                                     1.1616
       New London, CT
5560 New Orleans, LA                                            0.9310
       Jefferson, LA
       Orleans, LA
       Plaquemines, LA
       St. Bernard, LA
       St. Charles, LA
       St. James, LA
       St. John The Baptist, LA
       St. Tammany, LA
5600 New York, NY                                               1.4461
       Bronx, NY
       Kings, NY
       New York, NY
       Putnam, NY
       Queens, NY
       Richmond, NY
       Rockland, NY
       Westchester, NY
5640 Newark, NJ                                                 1.1866
       Essex, NJ
       Morris, NJ
       Sussex, NJ
       Union, NJ
       Warren, NJ
     Newburgh, NY-PA                                            1.1155
       Orange, NY
       Pike, PA
5720 Norfolk-Virginia Beach-Newport News, VA-NC                 0.8275
       Currituck, NC
       Chesapeake City, VA
       Gloucester, VA
       Hampton City, VA
       Isle of Wight, VA
       James City, VA
       Mathews, VA
       Newport News City, VA
       Norfolk City, VA
       Poquoson City, VA
       Portsmouth City, VA
       Suffolk City, VA
       Virginia Beach City VA
       Williamsburg City, VA
       York, VA
5775 Oakland, CA                                                1.4993
       Alameda, CA
       Contra Costa, CA
5790 Ocala, FL                                                  0.9152
       Marion, FL
5800 Odessa-Midland, TX                                         0.8656
       Ector, TX
       Midland, TX
5880 Oklahoma City, OK                                          0.8708
       Canadian, OK
       Cleveland, OK
       Logan, OK
       McClain, OK
       Oklahoma, OK
       Pottawatomie, OK
5910 Olympia, WA                                                1.1522
       Thurston, WA
5920 Omaha, NE-IA                                               0.9972
       Pottawattamie, IA
       Cass, NE
       Douglas, NE
       Sarpy, NE
       Washington, NE

[[Page 58157]]

 
5945 Orange County, CA                                          1.1522
       Orange, CA
5960 Orlando, FL                                                0.9813
       Lake, FL
       Orange, FL
       Osceola, FL
       Seminole, FL
5990 Owensboro, KY                                              0.7771
       Daviess, KY
6015 Panama City, FL                                            0.8507
       Bay, FL
6020 Parkersburg-Marietta, WV-OH                                0.8016
       Washington, OH
       Wood, WV
6080 Pensacola, FL                                              0.8246
       Escambia, FL
       Santa Rosa, FL
6120 Peoria-Pekin, IL                                           0.8058
       Peoria, IL
       Tazewell, IL
       Woodford, IL
6160 Philadelphia, PA-NJ                                        1.1370
       Burlington, NJ
       Camden, NJ
       Gloucester, NJ
       Salem, NJ
       Bucks, PA
       Chester, PA
       Delaware, PA
       Montgomery, PA
       Philadelphia, PA
6200 Phoenix-Mesa, AZ                                           0.9591
       Maricopa, AZ
       Pinal, AZ
6240 Pine Bluff, AR                                             0.7912
       Jefferson, AR
6280 Pittsburgh, PA                                             0.9789
       Allegheny, PA
       Beaver, PA
       Butler, PA
       Fayette, PA
       Washington, PA
       Westmoreland, PA
6323 Pittsfield, MA                                             1.0819
       Berkshire, MA
6340 Pocatello, ID                                              0.8792
       Bannock, ID
6360 Ponce, PR                                                  0.4788
       Guayanilla, PR
       Juana Diaz, PR
       Penuelas, PR
       Ponce, PR
       Villalba, PR
       Yauco, PR
6403 Portland, ME                                               0.9561
       Cumberland, ME
       Sagadahoc, ME
       York, ME
6440 Portland-Vancouver, OR-WA                                  1.1178
       Clackamas, OR
       Columbia, OR
       Multnomah, OR
       Washington, OR
       Yamhill, OR
       Clark, WA
6483 Providence-Warwick-Pawtucket, RI                           1.0801
       Bristol, RI
       Kent, RI
       Newport, RI
       Providence, RI
       Washington, RI
6520 Provo-Orem, UT                                             0.9885
       Utah, UT
6560 Pueblo, CO                                                 0.8712
       Pueblo, CO
6580 Punta Gorda, FL                                            0.9031
       Charlotte, FL
6600 Racine, WI                                                 0.9130
       Racine, WI
6640 Raleigh-Durham-Chapel Hill, NC                             0.9812
       Chatham, NC
       Durham, NC
       Franklin, NC
       Johnston, NC
       Orange, NC
       Wake, NC
6660 Rapid City, SD                                             0.8208
       Pennington, SD
6680 Reading, PA                                                0.9234
       Berks, PA
6690 Redding, CA                                                1.1858
       Shasta, CA
6720 Reno, NV                                                   1.1095
       Washoe, NV
6740 Richland-Kennewick-Pasco, WA                               1.0287
       Benton, WA
       Franklin, WA
6760 Richmond-Petersburg, VA                                    0.9211
       Charles City County, VA
       Chesterfield, VA
       Colonial Heights City, VA
       Dinwiddie, VA
       Goochland, VA
       Hanover, VA
       Henrico, VA
       Hopewell City, VA
       New Kent, VA
       Petersburg City, VA
       Powhatan, VA
       Prince George, VA
       Richmond City, VA
6780 Riverside-San Bernardino, CA                               1.0757
       Riverside, CA
       San Bernardino, CA
6800 Roanoke, VA                                                0.8509
       Botetourt, VA
       Roanoke, VA
       Roanoke City, VA
       Salem City, VA
6820 Rochester, MN                                              1.1698
       Olmsted, MN
6840 Rochester, NY                                              0.9657
       Genesee, NY
       Livingston, NY
       Monroe, NY
       Ontario, NY
       Orleans, NY
       Wayne, NY
6880 Rockford, IL                                               0.8615
       Boone, IL
       Ogle, IL
       Winnebago, IL
6895 Rocky Mount, NC                                            0.9012
       Edgecombe, NC
       Nash, NC
6920 Sacramento, CA                                             1.1962
       El Dorado, CA
       Placer, CA
       Sacramento, CA
6960 Saginaw-Bay City-Midland, MI                               0.9487
       Bay, MI
       Midland, MI
       Saginaw, MI
6980 St. Cloud, MN                                              0.9586
       Benton, MN
       Stearns, MN
7000 St. Joseph, MO                                             0.9889
       Andrew, MO
       Buchanan, MO
7040 St. Louis, MO-IL                                           0.9151
       Clinton, IL
       Jersey, IL
       Madison, IL
       Monroe, IL
       St. Clair, IL
       Franklin, MO
       Jefferson, MO
       Lincoln, MO
       St. Charles, MO
       St. Louis, MO
       St. Louis City, MO
       Warren, MO
7080 Salem, OR                                                  0.9904
       Marion, OR
       Polk, OR0
7120 Salinas, CA                                                1.5142
       Monterey, CA
7160 Salt Lake City-Ogden, UT                                   0.9398
       Davis, UT
       Salt Lake, UT
       Weber, UT
7200 San Angelo, TX                                             0.7646
       Tom Green, TX
7240 San Antonio, TX                                            0.8100
       Bexar, TX
       Comal, TX
       Guadalupe, TX
       Wilson, TX
7320 San Diego, CA                                              1.2265
     San Diego, CA
7360 San Francisco, CA                                          1.3957
       Marin, CA
       San Francisco, CA
       San Mateo, CA
7400 San Jose, CA                                               1.3827
       Santa Clara, CA
7440 San Juan-Bayamon, PR                                       0.4623
       Aguas Buenas, PR
       Barceloneta, PR
       Bayamon, PR
       Canovanas, PR
       Carolina, PR
       Catano, PR
       Ceiba, PR
       Comerio, PR
       Corozal, PR
       Dorado, PR
       Fajardo, PR
       Florida, PR
       Guaynabo, PR
       Humacao, PR

[[Page 58158]]

 
       Juncos, PR
       Los Piedras, PR
       Loiza, PR
       Luguillo, PR
       Manati, PR
       Morovis, PR
       Naguabo, PR
       Naranjito, PR
       Rio Grande, PR
       San Juan, PR
       Toa Alta, PR
       Toa Baja, PR
       Trujillo Alto, PR
       Vega Alta, PR
       Vega Baja, PR
       Yabucoa, PR
7460 San Luis Obispo-Atascadero-Paso Robles, CA                 1.1264
       San Luis Obispo, CA
7480 Santa Barbara-Santa Maria-Lompoc, CA                       1.1194
       Santa Barbara, CA
7485 Santa Cruz-Watsonville, CA                                 1.3981
       Santa Cruz, CA
7490 Santa Fe, NM                                               0.9652
       Los Alamos, NM
       Santa Fe, NM
7500 Santa Rosa, CA                                             1.3597
       Sonoma, CA
7510 Sarasota-Bradenton, FL                                     0.9532
       Manatee, FL
       Sarasota, FL
7520 Savannah, GA                                               1.0060
       Bryan, GA
       Chatham, GA
       Effingham, GA
7560 Scranton--Wilkes-Barre--Hazleton, PA                       0.8299
       Columbia, PA
       Lackawanna, PA
       Luzerne, PA
       Wyoming, PA
7600 Seattle-Bellevue-Everett, WA                               1.1526
       Island, WA
       King, WA
       Snohomish, WA
7610 Sharon, PA                                                 0.8847
       Mercer, PA
7620 Sheboygan, WI                                              0.8225
       Sheboygan, WI
7640 Sherman-Denison, TX                                        0.8570
       Grayson, TX
7680 Shreveport-Bossier City, LA                                0.9386
       Bossier, LA
       Caddo, LA
       Webster, LA
7720 Sioux City, IA-NE                                          0.8481
       Woodbury, IA
       Dakota, NE
7760 Sioux Falls, SD                                            0.8912
       Lincoln, SD
       Minnehaha, SD
7800 South Bend, IN                                             0.9859
       St. Joseph, IN                                           0.9859
7840 Spokane, WA                                                1.0928
       Spokane, WA
7880 Springfield, IL                                            0.8720
       Menard, IL
       Sangamon, IL
7920 Springfield, MO                                            0.8071
       Christian, MO
       Greene, MO
       Webster, MO
8003 Springfield, MA                                            1.0990
       Hampden, MA
       Hampshire, MA
8050 State College, PA                                          0.9449
       Centre, PA
8080 Steubenville-Weirton, OH-WV                                0.8428
       Jefferson, OH
       Brooke, WV
       Hancock, WV
8120 Stockton-Lodi, CA                                          1.1075
       San Joaquin, CA
8140 Sumter, SC                                                 0.8127
       Sumter, SC
8160 Syracuse, NY                                               0.9400
       Cayuga, NY
       Madison, NY
       Onondaga, NY
       Oswego, NY
8200 Tacoma, WA                                                 1.0380
       Pierce, WA
8240 Tallahassee, FL                                            0.8449
       Gadsden, FL
       Leon, FL
8280 Tampa-St. Petersburg-Clearwater, FL                        0.9113
       Hernando, FL
       Hillsborough, FL
       Pasco, FL
       Pinellas, FL
8320 Terre Haute, IN                                            0.8991
       Clay, IN
       Vermillion, IN
       Vigo, IN
8360 Texarkana, AR-Texarkana, TX                                0.8506
       Miller, AR
       Bowie, TX
8400 Toledo, OH                                                 0.9991
       Fulton, OH
       Lucas, OH
       Wood, OH
8440 Topeka, KS                                                 0.9812
       Shawnee, KS
8480 Trenton, NJ                                                1.0509
       Mercer, NJ
8520 Tucson, AZ                                                 0.9028
       Pima, AZ
8560 Tulsa, OK                                                  0.8463
       Creek, OK
       Osage, OK
       Rogers, OK
       Tulsa, OK
       Wagoner, OK
8600 Tuscaloosa, AL                                             0.7641
       Tuscaloosa, AL
8640 Tyler, TX                                                  0.8818
       Smith, TX
8680 Utica-Rome, NY                                             0.8418
       Herkimer, NY
       Oneida, NY
8720 Vallejo-Fairfield-Napa, CA                                 1.3413
       Napa, CA
       Solano, CA
8735 Ventura, CA                                                1.1014
       Ventura, CA
8750 Victoria, TX                                               0.8381
       Victoria, TX
8760 Vineland-Millville-Bridgeton, NJ                           1.0440
       Cumberland, NJ
8780 Visalia-Tulare-Porterville, CA                             1.0083
       Tulare, CA
8800 Waco, TX                                                   0.8371
       McLennan, TX
8840 Washington, DC-MD-VA-WV                                    1.0807
       District of Columbia, DC
       Calvert, MD
       Charles, MD
       Frederick, MD
       Montgomery, MD
       Prince Georges, MD
       Alexandria City, VA
       Arlington, VA
       Clarke, VA
       Culpeper, VA
       Fairfax, VA
       Fairfax City, VA
       Falls Church City, VA
       Fauquier, VA
       Fredericksburg City, VA
       King George, VA
       Loudoun, VA
       Manassas City, VA
       Manassas Park City, VA
       Prince William, VA
       Spotsylvania, VA
       Stafford, VA
       Warren, VA
       Berkeley, WV
       Jefferson, WV
8920 Waterloo-Cedar Falls, IA                                   0.7958
       Black Hawk, IA
8940 Wausau, WI                                                 0.9733
       Marathon, WI
8960 West Palm Beach-Boca Raton, FL                             1.0219
       Palm Beach, FL
9000 Wheeling, WV-OH                                            0.7627
       Belmont, OH
       Marshall, WV
       Ohio, WV
9040 Wichita, KS                                                0.8898
       Butler, KS
       Harvey, KS
       Sedgwick, KS
9080 Wichita Falls, TX                                          0.7830
       Archer, TX
       Wichita, TX
9140 Williamsport, PA                                           0.8556
       Lycoming, PA
9160 Wilmington-Newark, DE-MD                                   1.1868
       New Castle, DE
       Cecil, MD
9200 Wilmington, NC                                             0.9343
       New Hanover, NC
       Brunswick, NC
9260 Yakima, WA                                                 1.0318
       Yakima, WA
9270 Yolo, CA                                                   1.1233
       Yolo, CA
9280 York, PA                                                   0.9410
       York, PA

[[Page 58159]]

 
9320 Youngstown-Warren, OH                                      0.9815
       Columbiana, OH
       Mahoning, OH
       Trumbull, OH
9340 Yuba City, CA                                              1.0865
       Sutter, CA
       Yuba, CA
9360 Yuma, AZ                                                   1.0058
       Yuma, AZ
------------------------------------------------------------------------

e. Abt Associates Case Mix Research Project Data

    Under the Abt Associates case-mix research project (Contract Number 
500-96-0003/TO2), data necessary for developing a system of case-mix 
groups were collected and assembled into an analytic file. The basic 
data components needed for case-mix system development were (1) a 
reliable measure of resource cost for a defined unit of time and (2) 
reliable measures of patient characteristics along with several 
utilization variables. The patient and utilization variables were to be 
tested for their usefulness as predictors of resource cost. The defined 
unit of time was the 60-day payment episode, which was simulated from 
dates appearing on Medicare claims and primary data (visit logs) 
collected as part of the Abt Associates research. A total of 22,120 
records for simulated 60-day episodes from more than 17,000 patients in 
the study sample comprise the file. A random subsample of episode 
records from this file was used for case-mix system development and 
refinement. The remaining records were used to validate the predictive 
accuracy of the recommended case-mix system. (A preliminary sample of 
4,303 records available early in the study was used for most of the 
period during which Abt Associates conducted case-mix system 
development activities.)
    After the case-mix system development phase was completed, the same 
file--now with a case-mix group assigned to every 60-day episode 
record--was combined with data on provider characteristics and national 
episode counts to generate a set of sample weights for the Abt 
Associates episode records. The provider characteristics data came from 
the On-line Survey and Certification System (OSCAR) Provider of Service 
file, and the national episode counts came from the episode claims file 
described in subsection c. above. In addition to the sample weights, 
the area hospital wage index applicable to each 60-day episode record 
was merged onto the sample of episodes.
    The sample weights were designed to make the sample episodes with 
their case-mix group assignments represent 100 percent of the payment 
episodes nationally in 1997. Weights were developed by case-mix group 
for up to 32 stratification cells defined from an agency auspices 
variable, urban/rural location, and regional location. Weights were 
computed from the ratio of 1997 episodes in the stratum to episodes in 
the sample from that stratum. Weights for initial 60-day episodes were 
derived separately from weights for noninitial 60-day episodes.
    After weighting the data, we estimated the average resource cost by 
case-mix group, as well as the overall average resource cost. Ratios 
formed from these averages provide case-mix relative weights. The 
file's sample weights also permit national estimates of case-mix group 
frequencies for 60-day episodes in 1997. Thus, the sample weights in 
conjunction with the case-mix group assignment for each record in the 
sample support two procedures underlying the rate setting methodology. 
One is the computation of the case-mix relative weights shown in Table 
9. This computation procedure is described in Section II.C.3. The 
second procedure is the computation of the standardization factor 
(which also relies on the merged area hospital wage index). For a 
description of the standardization factor computation, see section 
II.A.3.d.
    The remainder of this section provides a summary of the study 
sample and file construction activities leading to the Abt Associates 
analytic file comprising 22,120 simulated 60-day episodes. More 
detailed information on these aspects of the study is found in section 
II.C below.
    Ninety agencies were selected to provide the patient sample--a 
cohort of all patients newly admitted between October 1997 and April 
1998. Agencies were drawn from eight States (Arkansas, California, 
Florida, Illinois, Massachusetts, Pennsylvania, Texas, and Wisconsin) 
chosen to be representative of four census geographic regions 
(northeast, north central, south, and west). Within these States, 
agencies were selected from the four major auspices types (freestanding 
for-profit, freestanding voluntary/private nonprofit, hospital-based, 
and government) and both urban and rural areas. A final selection 
criterion was the practice pattern of the agencies, measured in terms 
of their visit volume relative to other agencies in the region.
    Primary data sources for the study came from patient assessments 
and visit logs. Secondary data came from Medicare claims and several 
other administrative and economic data bases.
    The assessment instrument consisted of OASIS data items 
supplemented by approximately 40 additional assessment items. Using the 
visit logs, agencies in the study collected data on every home health 
visit to members of the cohort. The visit logs provide the study's 
fundamental measure of resource use, the visit time, which is converted 
into a standardized resource cost using Bureau of Labor Statistics 
hourly wage data. Previous research on case mix generally used a 
measure of resource use based on the count of visits. The case-mix 
study measured time spent on visits rather than visit counts themselves 
to provide more reliable information for forming case-mix groups than 
did previous research.
    Medicare claims for the 6-month cohort were linked to the patient 
characteristics data (OASIS and other assessment items) and visit log 
data to verify membership in the patient cohort, to provide utilization 
measures, and to simulate 60-day episodes, using the from-and thru-
dates on the claims. Assessments were linked to an episode in the 
simulation file only if the assessment was conducted within 14 days of 
the start of the episode. Iterative matching algorithms, and intensive 
manual review of potential matches, were used to match assessments and 
visit logs to the claims records.
    In order to estimate resource use for each 60-day period of care, 
decision rules for allocating claims and visit logs by discipline to 
60-day ``windows'' of time, or episodes, were developed.
    After resources were calculated for all simulated payment segments, 
analysis of the data revealed the presence of outliers in mean minutes 
per visit by discipline within payment segment. Outlier values were 
replaced with agency-level mean visit lengths by home health 
discipline. The application of the various linkage rules resulted in 
the final analytic file consisting of 22,120 60-day episodes of care. 
Further information on these data procedures is provided below in 
Section II.C. For complete details, see Abt Associates, Inc., Second 
Interim Report, August 1999.
3. Methodology Used for the Calculation of the 60-Day Episode Payment 
Amount
    The methodology used to compute the standardized national 60-day 
episode payment rates was a multistep process combining each of the 
data sources described above. As stated above,

[[Page 58160]]

section 1895(b)(3)(A)(i) of the Act, requires--(1) the computation of a 
standard prospective payment amount that includes all costs of home 
health services covered and paid for on a reasonable-cost basis be 
initially based on the most recent audited cost report data available 
to the Secretary, and (2) the prospective payment amounts to be 
standardized to eliminate the effects of case mix and wage levels among 
HHAs. Section 5101(c)(1) of the OCESAA amends section 1895(b)(3)(A)(ii) 
of the Act, to require the standard prospective payment amounts be 
budget neutral to the amounts expended under the current interim 
payment system with the limits reduced by 15 percent at the inception 
of the PPS on October 1, 2000. The data used to develop the HHA PPS 
rates were adjusted using the latest available market basket increases 
occurring between the cost reporting periods contained in our database 
and September 30, 2001.
    With data described above we calculated the standard average 
prospective payment amount for the 60-day episode using the following 
formula:
    The nonstandardized average prospective payment amount for a 60-day 
episode is calculated by--
    (1) multiplying the national mean cost per visit updated for 
inflation for each of the six disciplines (skilled nursing, physical 
therapy, occupational therapy, speech-language pathology services, 
medical social services, and home health aide services) in a 60-day 
episode by (2) the national mean utilization for each of the six 
disciplines in a 60-day episode summed in the aggregate. Added to this 
amount are amounts for (1) nonroutine medical supplies paid on a 
reasonable-cost basis under a home health plan of care, (2) possible 
unbundled nonroutine medical supplies billed under Part B that will be 
included under the PPS rate, and (3) an OASIS adjustment to pay HHAs 
for estimated ongoing OASIS assessment reporting costs.

Nonroutine Medical Supplies

    The per-episode nonroutine medical supply amounts, paid on a 
reasonable cost basis under a home health plan of care, were calculated 
by summing the nonroutine medical supply costs for all of the providers 
in the audited cost report sample weighted to represent the national 
population and updated to FY 2001. That total was divided by the number 
of episodes for the providers in the audited cost report sample 
weighted to represent the national population and updated to FY 2001.
    The per-episode possible unbundled nonroutine medical supply 
amounts billed under Part B included in the PPS rate were calculated by 
summing the allowed charges for the 199 HCPC codes (described in 
section II.A.2.c.) in calendar year 1997 for beneficiaries under a home 
health plan of care. That total was divided by the total number of 
episodes in calendar year 1997 from the episode database.

Ongoing OASIS Cost Adjustments

    In the August 11, 1998 IPS Per-Visit and Per-Beneficiary 
Limitations notice (63 FR 42912) HCFA discussed a proposed adjustment 
for HHAs for the agency collection of the Outcome Assessment 
Information Set (OASIS) Data. Collecting and reporting OASIS is a 
condition of Medicare participation for HHAs. As we stated in the 
August 11, 1998 IPS notice, we believe there will be no permanent 
ongoing incremental costs associated with OASIS collection. 
Additionally, we believe that there will be no further one-time, start-
up, OASIS reporting costs beyond those recognized at the inception of 
OASIS collection under IPS. However, we do believe that ongoing costs 
are associated with reporting OASIS data. Our proposed adjustment for 
the ongoing costs associated with OASIS reporting is based on 
information from the ongoing Medicare Quality and Improvement 
Demonstration, as well as the OASIS demonstration data. We assume, for 
purposes of deriving the OASIS proposed adjustment, that the typical 
HHA has 486 admissions and 30,000 visits per year and an 18 person 
staff. OASIS reporting adjustments are unlike the one-time OASIS 
collection adjustments published in the August 11, 1998 Federal 
Register which were based only on the number of skilled visits. These 
reporting adjustments are based on total Medicare visits. The following 
are HCFA's estimates of costs a typical HHA will incur for OASIS 
reporting which form the basis of the per-visit OASIS reporting 
adjustment and the per-episode OASIS adjustment. The first descriptive 
chart below shows the base OASIS reporting costs for an HHA which 
include the following: audits to ensure data accuracy; data entry, 
editing and auditing; supplies; and telephone costs. We estimate these 
ongoing OASIS costs to total $.101228 per visit. The second descriptive 
chart shows the OASIS personal computer costs for those HHAs that are 
unable to run OASIS because they lack the requisite hardware needed to 
support automation of the assessment tool. We estimate this percentage 
to be 50 percent (64 FR 3759). These costs consist of the depreciation 
of a personal computer and printer. For years one through three, HHAs 
are able to depreciate both their personal computer and printer. We 
estimate this OASIS cost to be $.026778 per visit. For years four and 
five, HHAs can only depreciate their printer. We estimate this OASIS 
cost to be $.004 per visit. In order for HHAs to keep pace with the 
ever evolving computing standards, to include enhancements to computer 
hardware and software, as well as future versions of Haven's OASIS 
software, this process of the depreciation of computer hardware is one 
that would repeat itself every five years. In that vain, a yearly 
average computer hardware depreciation adjustment was computed to yield 
an OASIS adjustment for each of the five years. This was accomplished 
by multiplying the first three years' computer hardware depreciation 
adjustment of $.026778 by 3, multiplying the following two years' 
computer hardware depreciation adjustment of $.004 by 2, summing those 
two factors, and dividing that sum by the total number of depreciable 
years(5) to get a yearly average for the computer hardware depreciation 
adjustment of $.017667. This yearly average for computer hardware 
depreciation adjustments ($.017667), when added to the base OASIS 
adjustment ($.101228), results in a total OASIS adjustment of $.118895 
rounded to $.12 per visit.
    For purposes of calculating the ongoing OASIS adjustment for the 
60-day episode payment, we multiplied the average number of visits per 
60-day episode (36 visits) by the total rounded per-visit OASIS 
adjustment ($.12 per visit). The calculation resulted in a per-episode 
OASIS adjustment of $4.32 for each 60-day episode under HHA PPS. The 
home health prospective payment calculation is provided in Table 5.
    We calculated the ongoing OASIS adjustment for the low utilization 
payment adjustments by adding the total rounded per-visit OASIS 
adjustment ($.12 per visit) to the national standardized average cost 
per visit by discipline for each of the four or fewer visits provided 
in the episode. The low utilization payment adjustment calculation is 
provided in Table 6.

BILLING CODE 4120-01-P

[[Page 58161]]

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[[Page 58162]]

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[[Page 58163]]

    The nonstandardized average prospective payment amount must be 
standardized to eliminate the effects of case mix and wage levels among 
HHAs. The standard average prospective payment amount for the 60-day 
episode equals the nonstandardized average prospective payment amount 
for a 60-day episode divided by the standardization factor. The 
standardization factor is discussed in section II.A.3.d. of this 
regulation. Once the payment rate is standardized, that amount is 
multiplied by the budget-neutrality factor. The budget-neutrality 
factor is discussed in section II.A.3.e. of this regulation. The 
standardized budget-neutral amount is divided by 1.05 to account for 
outlier payments capped at 5 percent of total estimated outlays under 
PPS.
    The actual national 60-day episode payment amount that will be paid 
to HHAs incorporates the standard average prospective payment amount 
adjusted to account for case mix and wage index. All of the elements 
incorporated into the national 60-day episode payment amounts (the 
standard average prospective payment amount adjusted to account for 
case mix and wage index) must be budget neutral to the interim payment 
system limitation amounts reduced by 15 percent. Table 5 illustrates 
the home health prospective payment calculation.

[[Page 58164]]

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[[Page 58165]]

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[[Page 58166]]

[GRAPHIC] [TIFF OMITTED] TP28OC99.004



BILLING CODE 4120-01-C

[[Page 58167]]

    Each component of the methodology is discussed below. The 
methodology set forth in this rule may be refined based on the 
accumulation of national OASIS data reported to us. We are specifically 
soliciting comments on the impact on HHAs to financially comply with 
the methodology set forth in this section.

a. Cost Data--60-Day Episode Payment

    The audited cost data is discussed above in detail in section 
II.A.2.a. of this proposed regulation. The data source used in 
developing the national mean cost per visit for a 60-day episode is the 
audited cost report sample database. We calculated the national mean 
cost per visit for each of the six disciplines (skilled nursing, 
physical therapy, occupational therapy, speech-language pathology 
services, medical social services, and home health aide services) used 
in a 60-day episode. The data source in developing the average cost per 
episode for nonroutine medical supplies paid on a reasonable-cost basis 
under a home health plan of care is the audited cost report sample 
database also discussed in section II.A.2.a. and III of this proposed 
regulation.

b. Utilization Data--60-Day Episode Payment

    As discussed above, developing the national mean number of visits 
for each of the six disciplines in a 60-day episode resulted from the 
thorough analysis of the national claims history. See section II.A.2.c. 
of this regulation for a detailed description of the utilization data 
analysis.

c. Updating the Data

    The HHA market basket index reflects changes over time in the 
prices of an appropriate mix of goods and services included in covered 
HHA services. The HHA market basket index is used to develop the 
national 60-day episode payment rates. The data used to develop the HHA 
PPS rates were adjusted using the latest available market basket 
increases occurring between the cost reporting periods contained in our 
database and September 30, 2001. For fiscal year 2002 or 2003, sections 
1895(b)(3)(B)(i) and (b)(3)(B)(ii) of the Act require the standard 
prospective payment amounts be increased by a factor equal to the home 
health market basket minus 1.1 percentage points. In addition, for any 
subsequent fiscal years, the statute requires the rates to be increased 
by the applicable home health market basket index change. A complete 
discussion concerning the design and application of the HHA market 
basket index and the factors used in developing the 60-day episode 
payment rates is discussed in section II.A.2.b. of this regulation.

d. Standardization Factor

    Section 1895(b)(3)(A)(i) of the Act requires that the prospective 
payment amounts be standardized to eliminate the effects of variation 
in wage levels and case mix among HHAs. The objective of 
standardization is to ensure that the wage-index and case-mix 
adjustments to the episode payment amount do not alter the aggregate 
payments that would occur in the absence of these adjustments. All the 
estimates described in this section are based on episodes with more 
than four visits since only those episodes will be paid on a per-
episode basis.
    Several types of information are required for standardization. To 
account for wage differences, the proportion of labor and nonlabor 
components of HHA costs must be identified. These proportions are based 
on the relative importance of the different components of the HHA 
market basket index. As calculated, the labor-related portion of cost 
is 77 percent and the nonlabor-related portion is 23 percent. Wage 
differences are measured using the hospital wage index. In 
standardizing the episode payment amount, we used the FY 1999 hospital 
wage index, which is based on 1995 hospital wage data. For application 
of the wage index, the statute allows us to use the service area or any 
other area we specify. To be consistent with the current interim 
payment system, the wage index value that will be applied to the labor 
portion of the episode amount will be the appropriate wage index for 
the geographic area where the beneficiary received home health 
services.
    To account for case-mix differences, it is necessary to have 
information on the distribution of 60-day home health episodes among 
the 80 groups of the HHRG case-mix system. For this proposed rule, the 
only available nationally representative sample of Medicare home health 
episodes with information on HHRG case mix is the Abt data set 
(described in section II.C. of the preamble) that was used to develop 
the HHRG case-mix classification system. As national OASIS data become 
available, we will develop a national data set that may enable us to 
refine our standardization estimate for the final rule. Also required 
for standardization is the set of HHRG relative weights that reflect 
the resource intensity of the average episode in each HHRG group 
relative to the overall average episode. A detailed description of the 
HHRG relative weights appears in section II.C. of this regulation.
    Ideally, standardization would be estimated using nationally 
representative data with information on the joint variation in case-mix 
and wage-index values. Currently, national data on wage-index variation 
are only available from the episode data set constructed from 1997 
Medicare home health claims. However, we are not able to classify these 
data by case mix using the HHRGs. Only the Abt data set currently 
provides information on both wage and case-mix variation. However, 
because they are a sample, the Abt data provide less information on 
wage variation than the claims episode data set.
    In calculating standardization factors using the Abt sample, 
population weights that reflect the number of episodes in the national 
population represented by each sample episode were used in place of 1.0 
for each episode to obtain the best population estimate from the 
sample. These weights take account of the region, agency type, and 
urban/rural characteristics used to stratify the Abt sample as well as 
the case-mix distribution among HHRGs in the Abt data. The national 
episode data derived from 1997 home health claims were the source of 
the population estimates of episodes by region and agency 
characteristics. These weights should not be confused with the audit 
sample weights described in section II.A.2.a. The Abt sample weights 
are described in detail in Appendix F of Abt Associates, Inc. Case-Mix 
Adjustment for a National Home Health Prospective Payment System. 
Second Interim Report, August 1999.
    To make full use of the available data, we developed the following 
strategy for standardizing the episode amount: First, we estimated two 
standardization factors using the Abt data set. One accounts only for 
variation in wage-index values; the other accounts for both case-mix 
and wage-index variation. The Abt standardization factors differ by 
about .006 (.96093 vs. .96667). Next, the wage-only standardization 
factor from the Abt data was compared to the wage-only standardization 
factor computed from the national claims episode data (.96093 vs. 
.94935). These standardization factors differ by about .012. These 
three estimates are quite consistent with one another. However, because 
the wage-only standardization factor based on the national claims data 
provides the most reliable estimate of the effects of wage variation, 
we decided to use it (.94935) after applying a small adjustment for the 
combined effects of wage and case-mix variation. Therefore,

[[Page 58168]]

we multiplied .94935 by the ratio of the two Abt estimates 
(.9667/.96093=1.00597) to obtain a standardization factor of .95502.
    Each of the three estimates of the standardization factor was 
calculated in the following manner: For each episode (or in the case of 
the Abt data, the number of episodes represented by each sample 
episode), the appropriate wage-index value was multiplied by the labor-
related proportion of cost (.77) and added to the nonlabor-related 
proportion (.23) to obtain a wage-adjustment factor. In turn, the wage-
adjustment factor was multiplied by the HHRG relative weight. The 
product of the wage and case-mix factors was summed over all episodes 
in the database, yielding a case-mix and wage-adjusted episode sum. 
Dividing the case-mix and wage-adjusted episode sum by the total number 
of episodes (the unadjusted episode sum) yields the standardization 
factor, a ratio that indicates how the combined effects of wage and 
case-mix variation impact aggregate payments. If the standardization 
factor is greater than one, the unstandardized episode cost must be 
reduced to account for the aggregate payment effect of the case-mix and 
wage-index payment adjustments. If the factor is less than one, then 
the unstandardized episode cost must be increased to accomplish the 
same objective. The standardized episode amount is equal to the 
unstandardized episode cost divided by the standardization factor. Note 
that all three of our estimates were less than one, which implies that 
the standardization factor increases the standard episode amount. Our 
final standardization factor produces an increase of about 4.7 percent.
    The OASIS data should give us better information about the national 
distribution of episodes across the HHRG categories. As these data are 
collected and reported, we will examine them to determine whether 
refinements to the current estimate are needed.

e. Budget-Neutrality Factor

    Section 1895(b)(3)(A)(i) of the Act requires that the standardized 
prospective payment amounts be computed in a budget-neutral manner so 
that the total amounts payable under the PPS are equal to the amounts 
that would have been made if the PPS were not in effect (that is, 
payments were made under the interim payment system) but if the per-
visit and per-beneficiary limits had been reduced by 15 percent. The 
BBA had established budget-neutrality with respect to expenditures that 
would have been made under the interim payment system for FY 2000 (that 
is, beginning October 1, 1999), and section 5101(c) of OCESAA changed 
the date for the budget-neutrality calculation to be expenditures that 
would have been made under the interim payment system for FY 2001 (that 
is, beginning October 1, 2000), as if the 15 percent reduction in per-
visit and per-beneficiary limits had taken place. Before calculating 
home health PPS rates in 2001, the IPS rates are reduced by 15 percent. 
Then, the total amounts payable under the PPS are calculated in a 
budget neutral fashion to be what would have been expended under the 
current interim payment system with the limits reduced by 15 percent at 
the inception of the PPS on October 1, 2000. The reduction in the IPS 
limits will occur even if the PPS is not implemented by the October 1, 
2000 statutory deadline.
    To determine the adjustment factor, we determined what would have 
been paid under a prospective payment system having an episode payment 
of the non-standardized payment rate described earlier, which is 
$2,599.56. Under this system, in cases where a beneficiary receives 
four or fewer visits in an episode, we plan to reimburse at the per-
visit rates described in low utilization payment adjustment methodology 
section of this regulation. We assumed that 5 percent of episodes would 
be reimbursed under this method. We determined the average 
reimbursement in these cases would be $348.72. This amount was 
determined by taking the difference between the non-standardized 
episode payment without low utilization episodes, $2,599.56 and the 
non-standardized payment that included such episodes in the average 
payment, $2,250.84.
    In determining how many episodes there will be in fiscal year 2001, 
results from the analysis of the calendar year 1997 episode file were 
applied to the actual number of visits incurred in calendar year 1997. 
The most accurate estimate of incurred visits for 1997 is 281.6 
million. The number of visits per episode resulting from these visits 
would have been 31.34, resulting in 8.985 million episodes. Although 
the number of visits in total has declined since 1997, there is nothing 
to indicate whether this would affect the number of 60-day episodes in 
a year. We are projecting that the total number of episodes will be the 
same in fiscal year 2001 as it was for 1997, 8.985 million. It is 
estimated that 95 percent of these episodes will be receiving an 
average payment of $2,599.56 and 5 percent will receive an average 
payment of $348.72. This would result in incurred fee-for-service home 
health payments of (8.985*.95*2599.56)+(8.985*.05* 348.72), equaling 
$22,346 million for fiscal year 2001.
    The current projection of incurred fee-for-service home health 
expenditures for FY 2001 under IPS with a 15 percent reduction in the 
per-visit and beneficiary cap limits is $17,466 million. We add to this 
the projected costs of the non-routine medical supplies under PPS that 
may have otherwise been unbundled under the interim payment system, 
which is $93 million. The budget neutrality factor is then calculated 
by dividing the sum of (1) our current projection for fee-for-service 
incurred home health expenditures and (2) the projected non-routine 
medical supplies currently paid by fee schedule by the projected 
aggregate episode payments: (17,466+93)/22,346=0.78578. The resulting 
budget neutrality factor is 0.78578.
4. Methodology Used for Low-Utilization Payments
    As discussed above, section 1895(b)(1) of the Act requires the 
development of the definition of the unit of payment or episode to take 
into consideration the number, type, duration, mix, and cost of visits 
provided within the unit of payment. As a result of our analysis, we 
determined the need to also recognize a low-utilization payment under 
HHA PPS. Low-utilization payment would reduce the 60-day episode 
payments or the PEPA to those HHAs that provide minimal services to 
patients during a 60-day episode.
    Payments for low-utilization episodes will be made on a per-visit 
basis using the cost-per-visit rates by discipline determined from the 
audited cost report sample for calculation of the standard episode 
amount. Included in these per-visit amounts are amounts for (1) 
nonroutine medical supplies paid under a home health plan of care, (2) 
nonroutine medical supplies possibly unbundled to Part B, and (3) a per 
visit ongoing OASIS reporting adjustment as discussed above in section 
II.A.3 of this regulation. These per-visit ``prices'' would be updated 
and adjusted for budget neutrality in the same manner as the standard 
episode amount. For low-utilization payments, they would be adjusted by 
the wage index in the same manner as the standard episode amount. 
However, the low-utilization payments are not case mix adjusted. The 
standardization factor used to adjust the LUPAs was calculated using 
national claims data for episodes containing four or fewer visits. This 
standardization factor includes adjustments only for the

[[Page 58169]]

wage index. The ``savings'' from the reduced episode payments would be 
redistributed to all episodes.
    Below is Table 6, which presents the home health low-utilization 
provider adjustment payment calculation.

                                      Table 6.--Home Health Low-Utilization Provider Adjustment Payment Calculation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Average cost per
                                           Average cost per    visit for non      Average                                                  Final wage
                                Average      visit for non    routine medical     cost per                                              standardized and
                                cost per    routine medical  supplies possibly   visit for   Standardization     Budget      Outlier     budget neutral
 Home health discipline type   visit from      supplies        unbundled and      ongoing    factor for wage   neutrality   adjustment      per visit
                                the PPS       reported as    billed separately     OASIS        index \1\      factor \2\   factor \3\   payment amounts
                                 audit       costs on the      to part B and     adjustment                                                per 60-day
                                 sample       cost report    reimbursed on the   costs \4\                                               episode for FY
                                                                fee schedule                                                                  2001
--------------------------------------------------------------------------------------------------------------------------------------------------------
Home Health Aide Services...       $41.66             $1.41              $0.35        $0.12         .94622         .78578         1.05            $34.44
Medical Social Services.....       154.03              1.41               0.35         0.12         .94622         .78578         1.05            123.31
Occupational Therapy.              103.79              1.41               0.35         0.12         .94622         .78578         1.05             83.57
 Services...................
Physical Therapy Services...       103.56              1.41               0.35         0.12         .94622         .78578         1.05             83.39
Skilled Nursing Services....        94.62              1.41               0.35         0.12         .94622         .78578         1.05             76.32
Speech Pathology Services...       112.91              1.41               0.35         0.12         .94622         .78578         1.05             90.79
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Based on 100% episode for episodes with 4 or fewer visits and wage index only standardization factor.
\2\ Budget neutral to current IPS with 15% reduction in limits.
\3\ Adjustment to PPS rate to account for 5% of total payments to outlier episodes.
\4\ See Section II.A.3 for description of calculation of OASIS Adjustment cost.


Calculation for Nonroutine Medical Supplies Per-Visit Amount Included in
                         the Home Health Benefit
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Non Routine Medical Supplies included in the home        $419,729,371.85
 health benefit and reported as costs on the Cost
 Report \1\..........................................
Total number of visits for those providers in the            298,478,790
 audited cost report sample \2\......................
Average Cost per visits for Non Routine Medical                    $1.41
 Supplies included in the home health benefit and
 reported as costs on the Cost Report................
------------------------------------------------------------------------
\1\ Source: Audited Cost Report Data from the audit sample updated to FY
  2001 and weighted to National Totals.
\2\ Source: Calendar Year 1997 Episode file.


  Calculation for Nonroutine Medical Supplies Per-Visit Amount Possibly
                    Unbundled and Billed Under Part B
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Non Routine Medical Supplies possibly unbundled and       $92,958,370.81
 billed separated to Part B and reimbursed on the Fee
 Schedule \1\........................................
Total number of visits for all providers in the              263,144,000
 calendar year 1997 file adjusted for estimated total
 episodes in FY 2001 \2\.............................
Average Payment per visits for Non Routine Medical                 $0.35
 Supplies possibly unbundled and billed separately to
 Part B..............................................
------------------------------------------------------------------------
\1\ Source: 1997 National Claims History Part B file extract for 199
  codes matched to the 60-day episode file by beneficiary and dates of
  service.
\2\ Calendar Year 1997 Episode file.

5. Methodology Used for Outlier Payments
    As discussed above, while we are not statutorily required to make 
provision for outlier payments, we are proposing outlier payments. 
Outlier payments are payments made in addition to regular 60-day case-
mix-adjusted episode payments for episodes that incur unusually large 
costs due to patient home health care needs. Outlier payments would be 
made for episodes whose estimated cost exceeds a threshold amount for 
each HHRG. The outlier threshold for each HHRG is defined as the 60-day 
episode payment for the HHRG plus a fixed dollar loss amount that is 
the same for all case-mix groups. Outlier payments can be made for 60-
day episode payments that reflect a PEP adjustment or SCIC adjustment. 
The PEP adjustment results in a truncated episode period and a SCIC 
adjustment results in a total of two proportional payments over a 60-
day episode, but these periods could still incur unusually large costs. 
The outlier threshold for the PEP adjustment is the PEP adjustment plus 
a fixed dollar loss. The outlier threshold for the SCIC adjustment 
equals the total SCIC payment plus a fixed dollar loss. The wage 
adjusted component discussed below will be applied consistently for the 
60-day episode payment, the PEP adjustment, and the total SCIC 
adjustment. The outlier payment is defined to be a proportion of the 
estimated costs beyond the threshold. The proportion of additional 
costs paid as outlier payments is referred to as the loss-sharing 
ratio.
    The fixed dollar loss amount and the loss-sharing ratio are chosen 
so that estimated total outlier payments are 5 percent of total episode 
payments. The 5 percent constraint on total outlier payments creates a 
tradeoff between the values selected for the fixed dollar loss amount 
and the loss-sharing ratio. For a given level of outlier payments, a 
higher fixed dollar loss amount reduces the number of cases that 
receive outlier payments, but makes it possible to select a higher 
loss-sharing ratio and therefore increase outlier payments per episode. 
Alternatively, a lower fixed dollar loss amount means that more 
episodes qualify for outlier payments, but outlier payments per episode 
must be lower. Therefore, setting these two parameters involves policy 
choices about the number of outlier cases and their rate of payment.
    Estimating the fixed dollar loss amount and loss-sharing ratios 
that are consistent with the 5 percent constraint requires simulation 
of payments under the PPS (including PEP adjustment, LUPA, 60-day 
episode, SCIC adjustments and outlier payments) with and without 
outlier payments. Feasible choices of fixed dollar loss amounts and 
loss-sharing ratios must meet the following conditions: First, total 
payments with and without outlier payments must be equal. Second, for 
the simulation with outlier payments, total outlier payments must be 5 
percent of total payments including outlier payments. In calculating 
LUPA and 60-day episode payments the standard per-visit and episode 
amounts are divided by 1.05 as the means of financing the

[[Page 58170]]

outlier payments. There will be no retroactive payments or recoupments 
in the event the projected amounts turn out to be different than the 
actual payment.
    This simulation requires information on the HHRG for each episode 
with more than four visits in order to calculate the case-mix adjusted 
episode payment. The case-mix adjusted payment is necessary to 
determine the outlier threshold. In other words, episodes that qualify 
for outlier payments cannot be identified without knowing the assigned 
HHRG. Because the Abt sample data are the only data source that 
contains HHRG information by episode, they were used to simulate 
potential outlier policy parameters.
    Another data requirement for the policy simulation and also for 
actual implementation of an outlier payment policy is an estimate of 
the resource cost of each episode. To calculate outlier payments, two 
questions must be answered: Does the cost of the episode exceed the 
outlier threshold, and if so, by how much? Using the Abt data, we 
estimated the cost of each episode using the same method that we 
propose to use for the low-utilization. Specifically, the national per-
visit cost amounts used in constructing the standard episode payment 
amount were multiplied by the number of visits in each discipline to 
estimate a standard cost of the episode. In actually making outlier 
payments under PPS, the cost of outlier episodes would be calculated 
using the per-visit ``prices'' for each discipline that are used to pay 
for low-utilization episodes.
    The wage adjustment can be conceptualized in two ways that are 
mathematically equivalent. First, all components could be wage 
adjusted: the case-mix adjusted episode amount, the fixed dollar loss 
amount, and the estimated cost of the episode. Then the difference 
between the wage-adjusted episode cost and the wage-adjusted outlier 
threshold would be multiplied by the loss-sharing ratio to obtain the 
outlier payment for the episode. Alternatively, but equivalently, the 
outlier threshold and the episode cost could be determined without 
applying the wage adjustment. Their difference could then be multiplied 
by the loss-sharing ratio and wage adjusted to obtain the outlier 
payment.
    Simulations using the Abt data provide some guidance about the 
tradeoffs involved in the choice of outlier policy parameters. As shown 
below, a loss-sharing ratio of .80 is consistent with a fixed dollar 
loss of 1.35 times the standard episode payment amount. With these 
values, 5.5 percent of regular episodes would qualify for outlier 
payments, and the average outlier payment per outlier episode would be 
93 percent of the standard episode payment amount. Decreasing the loss-
sharing ratio to .70 supports a fixed dollar loss of 1.22 times the 
standard episode payment amount and increases the percent of episodes 
receiving outlier payments to 6.5 percent. For purposes of this rule, 
we are proposing the outlier policy option of a fixed dollar loss of 
1.07 times the standard episode payment amount and a loss sharing ratio 
of .60. We believe this option provides the most equitable threshold 
for qualification of an outlier payment in the first year of PPS. The 
proposed option increases the estimated percent of episodes receiving 
outlier payment to 7.5 percent while holding estimated outlier outlays 
at the required 5 percent. We are interested in receiving comments 
concerning the choice of the outlier policy parameters set forth below.
    The data were collected between October 1997 and April 1998, a 
period that is initially pre-interim payment system and that ends early 
in the interim payment system experience. Again, the availability of 
national OASIS data for outlier simulations before finalization of this 
rule will help us refine our outlier estimates.

  Options for Outlier Policy Parameters: The Tradeoff Between the Fixed Dollar Loss and the Loss Sharing Ratio
----------------------------------------------------------------------------------------------------------------
                                                                   Outlier          Outlier      Outlier payment
              Fixed dollar loss                 Loss sharing     payments of      episodes of    of std. episode
                                                   ratio        total payments   total episodes        amt.
----------------------------------------------------------------------------------------------------------------
1.35........................................              .80              5.0              5.5              .93
1.29........................................              .75              5.0              5.9              .93
1.22........................................              .70              5.0              6.5              .72
1.15........................................              .65              5.0              7.0              .66
1.07........................................              .60              5.0              7.5              .62
----------------------------------------------------------------------------------------------------------------

    Example: An HHA serves a beneficiary who resides in Harrisburg, PA. 
The HHA determines the beneficiary is in HHRG C3F4S0. The episode 
contained 88 skilled nursing visits and 60 home health aide visits. It 
qualifies for outlier payments. To simplify matters and demonstrate the 
determination of outlier payments, the example begins after the case-
mix-adjusted episode payment has been calculated. Further, Harrisburg 
was chosen because its wage-index value is very close to 1.0060, and 
again for simplicity, the wage-index adjustment has also been omitted.

1. Determine the outlier threshold for C3F4S0 with the fixed
 dollar loss option of 1.07:
    Outlier threshold = Fixed Dollar Loss + Case-mix adj.      $2,179.63
     payment Fixed Dollar Loss = 1.07 * $2,037.04...........
    Case-mix adjusted episode payment = ($2,037.04 * 1.4357)   $2,924.58
                                                             -----------
        Outlier threshold...................................   $5,104.21
2. Calculate the standard cost of the episode:
    88 skilled nursing visits @ $76.32......................   $6,716.16
    60 hh aide visits @ $34.44..............................   $2,066.40
                                                             -----------
        Total cost..........................................   $8,782.56
3. Calculate the cost in excess of the threshold:
    $8,782.56-$5,104.21.....................................   $3,678.35
4. Calculate the outlier payment:
    $3,678.35 * .6..........................................   $2,207.01
5. Calculate total payment for the episode:
    $2,924.58 + $2,207.01...................................   $5,131.59
 

B. Examples of National Standardized 60-Day Episode Payment Amounts and 
Low-Utilization Payment Adjustments

    For any HHRG group, to compute a case-mix and wage-adjusted 60-day 
episode prospective payment amount, the standardized prospective 
payment rate for FY 2001 (see Table 5 of this regulation) is multiplied 
by the case-mix index from Table 9 for that HHRG

[[Page 58171]]

group. To compute a wage-adjusted national 60-day episode payment, the 
labor-related portion of the 60-day national prospective payment rate 
for FY 2001 is multiplied by the HHA's appropriate wage-index factor 
listed in Table 4A or 4B. The product of that calculation is added to 
the corresponding nonlabor-related component. The resulting amount is 
the national case-mix and wage-adjusted 60-day episode prospective 
payment rate for FY 2001.

  Example 1.--An HHA is providing services to a Medicare beneficiary in
 State College, PA. The HHA determines the beneficiary is in HHRG C2F2S2
 
 
 
 
  COMPUTATION OF CASE MIX AND WAGE ADJUSTED PROSPECTIVE PAYMENT AMOUNT
Case mix index from Table 9 for case mix group..............      1.8275
Standardized Prospective Payment Rate for FY 2001...........   $2,037.04
Calculate the Case Mix adjusted Prospective Payment Rate for   $3,722.69
 FY 2001 (1.8275 * $2,037.04)...............................
Calculate the Labor portion of the Prospective Payment Rate    $2,891.34
 for FY 2001 (.77668 * $ 3,722.69)..........................
Apply wage index factor from Table 4B for patient in State     $2,732.03
 College, PA (0.9449 * $ 2,891.34)..........................
Calculate the Non-Labor portion of the Prospective Payment       $831.35
 Rate for FY 2001 (.22332 * $3,722.69)......................
Calculate Total Prospective Payment Rate for FY 2001 by        $3,563.38
 adding the labor and non labor portion of the case mix and
 wage index amounts ($2,732.03 + $831.35)...................
 


 Example 2. An HHA serves a beneficiary who resides in Lake Placid, NY.
            The HHA determines the patient is in HHRG C1F4S3
------------------------------------------------------------------------
 
------------------------------------------------------------------------
  COMPUTATION OF CASE MIX AND WAGE ADJUSTED PROSPECTIVE PAYMENT AMOUNT
 
Case mix index from Table 9 for case mix group..............      2.2241
Standardized Prospective Payment Rate for FY 2001...........   $2,037.04
Calculate the Case Mix adjusted Prospective Payment Rate for   $4,530.58
 FY 2001 (2.2241 * $2,037.04)...............................
Calculate the Labor portion of the Prospective Payment Rate    $3,518.81
 for FY 2001 .77668 * $4,530.58)............................
Apply wage index factor from Table 4A for patient in Lake      $3,021.95
 Placid, NY (0.8588 * $3,518.81)............................
Calculate the Nonlabor portion of the Prospective Payment      $1,011.77
 Rate for FY 2001 (.22332 * $4,530.58)......................
Calculate Total Prospective Payment Rate for FY 2001 by        $4,033.72
 adding the labor and nonlabor portion of the case mix and
 wage index amounts ($3,021.95 + $ 1,011.77)................
------------------------------------------------------------------------


  Example 3.--HHA Serves a Beneficiary Who Resides in Fort Collins, CO.
          The HHA Determines the Beneficiary Is in HHRG C3F0S0
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
  COMPUTATION OF CASE MIX AND WAGE ADJUSTED PROSPECTIVE PAYMENT AMOUNT
 
Case mix index from Table 9 for case mix group..............       .9591
Standardized Prospective Payment Rate for FY 2001...........   $2,037.04
Calculate the Case Mix adjusted Prospective Payment Rate for   $1,953.73
 FY 2001 (.9591 * $ 2,037.04)...............................
Calculate the Labor portion of the Prospective Payment Rate    $1,517.42
 for FY 2001 (.77668 * $1,953.73)...........................
Apply wage index factor from Table 4B for patient in Fort      $1,634.26
 Collins, CO (1.0770 * $1,517.42)...........................
Calculate the Non-Labor portion of the Prospective Payment       $436.31
 Rate for FY (2001 .22332 * $1,953.73)......................
Calculate Total Prospective Payment Rate for FY 2001 by        $2,070.57
 adding the labor and non labor portion of the case mix and
 wage index amounts ($1,634.26 + $ 436.31)..................
------------------------------------------------------------------------


Example 4.--HHA Serves a Beneficiary Who Resides in Grand Forks, ND. The
            HHA Determines the Beneficiary Is in HHRG C0F3S1
 
 
 
 
  COMPUTATION OF CASE MIX AND WAGE ADJUSTED PROSPECTIVE PAYMENT AMOUNT
 
Case mix index from Table 9 for case mix group..............       .8537
Standardized Prospective Payment Rate for FY 2001...........   $2,037.04
Calculate the Case Mix adjusted Prospective Payment Rate for   $1,739.02
 FY 2001 (.8537* $2,037.04).................................
Calculate the Labor portion of the Prospective Payment Rate    $1,350.66
 for FY 2001 (.77668 * $1,739.02)...........................
Apply wage index factor from Table 4B for patient in Grand     $1,193.44
 Forks, ND (0.8836 * $1,350.66).............................
Calculate the Non-Labor portion of the Prospective Payment       $388.36
 Rate for FY (2001 .22332 * $1,739.02)......................
Calculate Total Prospective Payment Rate for FY 2001 by        $1,581.80
 adding the labor and non labor portion of the case mix and
 wage index amounts ($1,193.44 + $388.36)...................
 

    Example 5. An HHA in Baltimore, MD assigns a patient to an HHRG at 
the start of a 60-day episode. The final claim for the patient 
indicates that only two visits (one skilled nursing and one home health 
aide) were furnished during the 60-day episode. The HHA would be paid 
the low-utilization payment adjustment. Any necessary adjustment to the 
50 percent initial payment for the episode would be made on subsequent 
claims for the HHA.

       Computation of Wage Index Adjusted Low Utilization Payment
------------------------------------------------------------------------
                                                            Final wage
                                                           standardized
                                                            and budget
                                                           neutral per-
            Number and visit discipline type               visit payment
                                                          amounts per 60-
                                                            day episode
                                                          for FY2001 \1\
------------------------------------------------------------------------
1 Skilled Nursing Visit.................................          $76.32
1 Home Health Aide Visit................................          34.44
------------------------------------------------------------------------
\1\ See Table 6 for the Calculation of Final Wage Standardized and
  Budget Neutral Per-Visit Payment Amounts Per 60-Day Episode for FY
  2001.

Calculate the labor portion of the Standardized Budget Neutral Per-
Visit Payment Amount for 1 Skilled Nursing Visit--.77668 * $76.32 = 
$59.28
Apply wage index factor from Table 4B for Baltimore, MD--.9642 * 
$59.28 = $57.15
Calculate the non-labor portion of the Standardized Budget Neutral 
Per-Visit Payment Amount for 1 Skilled Nursing Visit--.22332* $76.32 
= $17.04

[[Page 58172]]

SUBTOTAL-Low Utilization Payment for 1 Wage Adjusted Skilled Nursing 
Visit rendered in a 60-day episode--$57.15 + $17.04 = $74.19
Calculate the labor portion of the Standardized Budget Neutral Per-
Visit Payment Amount for 1 home health aide visit--.77668* $34.44 = 
$26.75
Apply wage index factor from Table 4B for Baltimore, MD--.9642* 
$26.75 = $25.79
Calculate the non-labor portion of the Standardized Budget Neutral 
Per-Visit Payment Amount for 1 home health aide visit--.22332* 
$34.44 = $7.69
SUBTOTAL--Low Utilization Payment for 1 wage adjusted home health 
aide visit rendered in a 60-day episode--$25.79 + $7.69 = $33.48
Calculate Total Low Utilization Payment Adjustment for 2 visits 
provided during the 60-day episode by adding the wage adjusted 
skilled nursing visit and the wage adjusted home health aide visit--
$74.19 + $33.48 = $107.67

C. Design and Methodology for Case-Mix Adjustment of 60-Day Episode 
Payments

1. Background on Clinical Model Patient Classification System
    As discussed above in section I.C. of this regulation, in 1996, we 
began the current research project. The basic approach to the home 
health case-mix adjuster development was to use the patient data and 
other appropriate data to define alternative case-mix adjusters and 
then estimate their ability to explain variation (R-squared value) in 
resource use over the course of a 60-day payment period. Compared to 
the 120-day payment period tested under the Phase II per-episode HHA 
PPS Demonstration, a 60-day payment period will make payments more 
responsive to the needs of long-stay home health patients and Medicare 
(as the payor), as discussed in section I.D.1.a of the preamble to this 
regulation.
    The two basic data sources for the study are case-mix explanatory 
variables from the patient data on OASIS-B (supplemented by additional 
patient-specific items) and a resource-use variable from visit data. To 
arrive at an estimate of resource use from the visit logs (as discussed 
in section I.C. of this regulation), time is weighted by mean labor 
cost for the discipline providing the visit. Medicare claims were 
linked to the OASIS data and the visit log data to verify the visits 
and provide utilization measures.
    Clinical judgment was used to refine the components and structure 
of a decision tree for assigning patients into case-mix groups. Along 
with clinical judgment, the relative predictive value of potential 
case-mix variables, their susceptibility to gaming and subjectivity, 
and as well as administrative implications were considered in the final 
resolution of the elements retained in the Clinical Model. The Clinical 
Model consists of 80 HHRGs and has an R-squared of 32 percent. The 
information to assign a patient to one of the 80 HHRGs are comprised of 
19 OASIS-B elements supplemented by one additional patient status item 
regarding projected therapy use in the 60-day episode. The non-OASIS 
items tested in the case-mix research did not significantly increase 
the predictive value of the model; therefore, the non-OASIS items were 
not included in the final case-mix methodology.
2. Home Health Resource Group (HHRG) Classification System
    In the HHRG case-mix classification system, patient characteristics 
and health status information from the OASIS-B such as ``primary home 
care diagnosis,'' ``ability to perform ADLs'' as supplemented by 
projected therapy use during a 60-day episode, will be used to assign 
the patient to an HHRG for payment.
    The HHRG system measures three dimensions of case mix. Table 7 
provides the HHRG system three-level decision tree logic.

BILLING CODE 4120-01-P

[[Page 58173]]

[GRAPHIC] [TIFF OMITTED] TP28OC99.005



[[Page 58174]]

[GRAPHIC] [TIFF OMITTED] TP28OC99.006


BILLING CODE 4120-01-C
    A patient can be classified in one of 80 possible HHRG categories. 
The first level of the decision tree is the Clinical Dimension, which 
is divided into four severity groups. A patient is assigned one of four 
severity levels in the Clinical Dimension: minimum, low, moderate, or 
high clinical severity. To determine the severity group, a numeric 
score is applied to each answer provided to the following 12 clinical 
OASIS-B items: MO230 primary home health diagnosis, MO250 IV/Infusion/
Parenteral/Enteral Therapies, MO390 Vision, MO420 Pain, MO460 Current 
Pressure Ulcer Stage, MO476 Stasis Ulcer, MO488 Surgical Wound, MO490 
Dyspnea, MO530 Urinary Incontinence, MO540 Bowel Incontinence, MO550 
Bowel Ostomy, MO610 Behavioral Problems. Table 7 provides the 
corresponding numeric scores for the responses provided to the items in 
the four severity groups within the Clinical Dimension. The scores are 
then summed. The severity level is determined by the value of the 
summed score. The next level of the subdivision of the decision tree 
logic is based on patient functional status.
    The Functional Dimension is divided into five severity groups. A 
patient is assigned one of five severity levels in the Functional 
Dimension: minimum, low, moderate, high, or maximum functional 
severity. To determine the severity group, a numeric score is applied 
to each answer provided for the following six OASIS-B items: MO650 and 
MO660 Dressing Upper and Lower Body, MO670 Bathing, MO680 Toileting, 
MO690 Transferring, and MO700 Locomotion. Table 7 provides the 
corresponding numeric scores to the responses provided to the 
functional status items. The scores are then summed. The severity level 
for the Functional Dimension is determined by the value of the summed 
score. The final level of the subdivision of the decision tree logic is 
the Services Utilization Dimension.
    The Services Utilization Dimension is also divided into four 
severity groups. A patient is assigned to one of the four following 
severity levels in the Services Utilization Dimension: minimum, low, 
moderate, or high. To determine the severity group, a numeric score is 
applied to each answer provided to the following OASIS-B item divided 
into two questions, and one supplemental item regarding projected 
receipt of therapy use: MO170 hospital discharge in past 14 days, MO170 
inpatient rehabilitation/SNF discharge in past 14 days, and receipt of 
therapy. Table 7 provides the corresponding scores to the responses 
provided to the items in the Services Utilization Dimension. The scores 
are then summed. The severity level for the Services Utilization 
Dimension is determined by the value of the summed scores.
    We are proposing a utilization proxy for the time variable 
corresponding to the need for 8 or more therapy hours during a 60-day 
episode. As a result of the Abt case-mix research, Abt determined that 
10 visits of physical therapy, occupational therapy, or speech-language 
pathology services in any combination in a 60-day period equate to 8 
hours of physical therapy, occupational therapy, or speech-language 
pathology services in any combination in a 60-day period. At the 
inception of HHA PPS, the case-mix treatment variable regarding the 
need for 8 or more hours of therapy in a 60-day episode will be defined 
as 10 visits of physical therapy, occupational therapy, or speech-
language pathology services in any combination furnished during the 60-
day episode.
    As discussed above, HHAs will project the therapy need for the 
patient at the start of the 60-day episode. In accordance with the 
utilization proxy for time developed by Abt, the need for 8 or more 
hours of therapy during the 60-day episode will be defined as 10 visits 
of physical therapy, occupational therapy, or speech-language pathology 
services in any combination in a 60-day episode. The projection of 
therapy use

[[Page 58175]]

at the start of the 60-day episode (8 hours of therapy as defined as 10 
visits) will be confirmed at the end of the 60-day episode with the 
current line-item date visit billing requirements included on the final 
claim under PPS. We envision that the pricer logic at the RHHI will 
confirm the projection of the utilization data at the start of care 
with the actual utilization data submitted on the final claim. If 8 or 
more hours of therapy as defined as 10 therapy visits are projected at 
the start of the episode and confirmed at the end of the episode via 
the line-item date billing information on the final claim, the episode 
would be paid at the case-mix index level including the therapy-use 
variable. This assumes no adjustment for other reasons, for example, 
medical review etc. However, the reconciliation of projected therapy 
use with actual therapy use has the potential to decrease the final 
episode payment if the actual therapy use reported at the end of the 
episode on the final claim does not correspond to projected therapy use 
provided at the start of the episode. Depending upon the results of the 
reporting of 15-minute increment billing, we will of course consider 
reverting to measure the therapy use in terms of hours by 15-minute 
increments rather than visits.
    We are soliciting comments on the financial impact of this proposal 
on HHAs as well as suggestions for future research to refine the PPS 
methodology after implementation. The 60-day payment schedule results 
in conforming changes to the current time frames governing plan of care 
certifications and recertifications and the cycle of OASIS assessments. 
The conforming changes are discussed in section IV. of this regulation.
    Application of the case-mix indices to the standardized 60-day 
payment amount presented in Table 6 results in 80 separate case-mix-
adjusted 60-day episode national payment amounts corresponding to the 
80 separate HHRG classification groups described above and individually 
listed in Table 9.
    Below is Table 8 designating the acceptable ICD-9 codes 
corresponding to the orthopedic, neurological, and diabetes diagnosis 
groups for purposes of case-mix classification.

         Table 8.--ICD-9 Codes Used to Define Diagnostic Groups
------------------------------------------------------------------------
                DG                  ICD-9 Code         Description
------------------------------------------------------------------------
ORTHO............................          170  MAL NEO BONE/ARCTIC
                                                 CART.
ORTHO............................          171  MAL NEO SOFT TISSUE.
ORTHO............................          213  BEN NEO BONE/ARCTIC
                                                 CART.
ORTHO............................          274  GOUT.
ORTHO............................          710  DIFF CONNECTIVE TISS
                                                 DIS.
ORTHO............................          711  ARTHROPATHY W INFECTION.
ORTHO............................          712  CRYSTAL ARTHROPATHIES.
ORTHO............................          713  ARTHROPATH IN OTHER DIS.
ORTHO............................          714  OTH INFLAMM POLYARTHROP.
ORTHO............................          716  ARTHROPATHIES NEC/NOS.
ORTHO............................          717  INTERNAL DERANGEMENT
                                                 KNEE.
ORTHO............................          718  OTHER JOINT DERANGEMENT.
ORTHO............................          720  INFLAM SPONDYLOPATHIES.
ORTHO............................          721  SPONDYLOSIS ET AL.
ORTHO............................          722  INTERVERTEBRAL DISC DIS.
ORTHO............................          723  OTHER CERVICAL SPINE DI.
ORTHO............................          724  BACK DISORDER NEC & NOS.
ORTHO............................          725  POLYMYALGIA RHEUMATICA.
ORTHO............................          728  DIS OF MUSCLE/LIG/
                                                 FASCIA.
ORTHO............................          730  OSTEOMYELITIS.
ORTHO............................          731  OSTEITIS DEFORMANS.
ORTHO............................          732  OSTEOCHONDROPATHIES.
ORTHO............................          781  NERV/MUSCULSKEL SYS
                                                 SYMP.
ORTHO............................          800  SKULL VAULT FRACTURE.
ORTHO............................          801  SKULL BASE FRACTURE.
ORTHO............................          802  FRACTURE OF FACE BONES.
ORTHO............................          803  OTHER SKULL FRACTURE.
ORTHO............................          804  MULT FX SKULL W OTH
                                                 BONE.
ORTHO............................          805  VERTEBRL FX W/O CORD
                                                 INJ.
ORTHO............................          806  VERTEBRAL FX W CORD INJ.
ORTHO............................          807  FX RIB/STERN/LARYN/
                                                 TRACH.
ORTHO............................          808  PELVIC FRACTURE.
ORTHO............................          809  FRACTURE OF TRUK BONES.
ORTHO............................          810  CLAVICLE FRACTURE
ORTHO............................          811  SCAPULA FRACTURE.
ORTHO............................          812  HUMERUS FRACTURE.
ORTHO............................          813  RADIUS & ULNA FRACTURE.
ORTHO............................          814  CARPAL FRACTURE.
ORTHO............................          815  METACARPAL FRACTURE.
ORTHO............................          816  FRACTURE PHALANGES,
                                                 HAND.
ORTHO............................          817  MULTIPLE HAND FRACTURES.
ORTHO............................          818  FRACTURE ARM MULT/NOS.
ORTHO............................          819  FX ARMS W RIB/STERNUM.
ORTHO............................          820  FRACTURE NECK OF FEMUR.
ORTHO............................          821  OTHER FEMORAL FRACTURE.
ORTHO............................          822  PATELLA FRACTURE.
ORTHO............................          823  TIBIA & FIBULA FRACTURE.
ORTHO............................          824  ANKLE FRACTURE.
ORTHO............................          825  FX OF TARSAL/METATARSAL.

[[Page 58176]]

 
ORTHO............................          827  LOWER LIMB FRACTURE NEC.
ORTHO............................          828  FX LEGS W ARM/RIB.
ORTHO............................          831  SHOULDER DISLOCATION.
ORTHO............................          832  ELBOW DISLOCATION.
ORTHO............................          833  WRIST DISLOCATION.
ORTHO............................          835  DISLOCATION OF HIP.
ORTHO............................          836  DISLOCATION OF KNEE.
ORTHO............................          837  DISLOCATION OF ANKLE.
ORTHO............................          838  DISLOCATION OF FOOT.
ORTHO............................          846  SPRAIN SACROILIAC
                                                 REGION.
ORTHO............................          847  SPRAIN OF BACK NEC/NOS.
ORTHO............................           88  TRAUMATIC AMPUT ARM/
                                                 HAND.
ORTHO............................          896  TRAUMATIC AMPUTAT FOOT.
ORTHO............................          897  TRAUMATIC AMPUTATION
                                                 LEG.
ORTHO............................          927  CRUSHING INJ UPPER LIMB.
ORTHO............................          928  CRUSHING INJURY OF LEG.
NEURO............................           13  CNS TUBERCULOSIS.
NEURO............................           45  ACUTE POLIOMYELITIS.
NEURO............................           46  CNS SLOW VIRUS
                                                 INFECTION.
NEURO............................           47  ENTEROVIRAL MENINGITIS.
NEURO............................           48  OTH ENTEROVIRAL CNS DIS.
NEURO............................           49  OTH NONARTHROPOD CNS
                                                 VIR.
NEURO............................          191  MALIGNANT NEOPLASM
                                                 BRAIN.
NEURO............................          192  MAL NEO NERVE NEC/NOS.
NEURO............................          225  BENIGN NEO NERVOUS SYST.
NEURO............................          320  BACTERIAL MENINGITIS.
NEURO............................          321  OTH ORGANISM MENINGITIS
NEURO............................          322  MENINGITIS, UNSPECIFIED.
NEURO............................          323  ENCEPHALOMYELITIS.
NEURO............................          324  CNS ABSCESS.
NEURO............................          325  PHLEBITIS INTRCRAN SINU.
NEURO............................          326  LATE EFF CNS ABSCESS.
NEURO............................          330  CEREBRAL DEGEN IN CHILD.
NEURO............................          331  CEREBRAL DEGENERATION.
NEURO............................          332  PARKINSON'S DISEASE.
NEURO............................          333  EXTRAPYRAMIDAL DIS NEC.
NEURO............................          334  SPINOCEREBELLAR DISEASE.
NEURO............................          335  ANT HORN CELL DISEASE.
NEURO............................          336  SPINAL CORD DISEASE NEC.
NEURO............................          337  AUTONOMIC NERVE
                                                 DISORDER.
NEURO............................          340  MULTIPLE SCLEROSIS.
NEURO............................          341  OTHER CNS DEMYELINATION.
NEURO............................          342  HEMIPLEGIA.
NEURO............................          343  INFANTILE CEREBRAL
                                                 PALSY.
NEURO............................          344  OTH PARALYTIC SYNDROMES.
NEURO............................          347  CATAPLEXY AND NARCOLEPS.
NEURO............................          348  OTHER BRAIN CONDITIONS.
NEURO............................          349  CNS DISORDER NEC/NOS.
NEURO............................          352  DISORDER CRAN NERVE NEC.
NEURO............................          356  HERED PERIPH NEUROPATHY.
NEURO............................          357  INFLAM/TOXIC NEUROPATHY.
NEURO............................          358  MYONEURAL DISORDERS .
NEURO............................          392  RHEUMATIC CHOREA.
NEURO............................          430  SUBARACHNOID HEMORRHAGE.
NEURO............................          431  INTRACEREBRAL
                                                 HEMORRHAGE.
NEURO............................          432  INTRACRANIAL HEM NEC/
                                                 NOS.
NEURO............................          433  PRECEREBRAL OCCLUSION.
NEURO............................          434  CEREBRAL ARTERY OCCLUS.
NEURO............................          435  TRANSIENT CEREB
                                                 ISCHEMIA.
NEURO............................          436  CVA .
NEURO............................          437  OTH CEREBROVASC DISEASE.
NEURO............................          741  SPINA BIFIDA.
NEURO............................          742  OTH NERVOUS SYSTEM ANOM.
NEURO............................          851  CEREBRAL LACER/
                                                 CONTUSION.
NEURO............................          852  MENINGEAL HEM FOLLOW
                                                 INJ.
NEURO............................          853  OTH TRAUMATIC BRAIN HEM.
NEURO............................          854  OTHER BRAIN INJURY.
NEURO............................          907  LATE EFF NERV SYSTEM
                                                 INJ.
NEURO............................          950  INJ OPTIC NERV/PATHWAYS.
NEURO............................          951  CRANIAL NERVE INJURY
                                                 NEC.
NEURO............................          952  SPINAL CORD INJ W/O FX.
NEURO............................          953  INJ NERVE ROOT/SPIN
                                                 PLEX.

[[Page 58177]]

 
NEURO............................          954  INJURY OTH TRUNK NERVE.
NEURO............................          955  INJ PERIPH NERV SHLD/
                                                 ARM.
NEURO............................          956  INJ PERIPH NERV PELV/
                                                 LEG.
DM...............................          250  DIABETES MELLITUS.
------------------------------------------------------------------------

3. Determining the Case-Mix Indices
    As discussed in section I. of this regulation, sections 
1895(b)(4)(A)(i) and (b)(4)(B) of the Act require us to establish and 
make appropriate case-mix adjustments to the episode payment in a 
manner that explains a significant amount of the variation in cost. 
Case-mix adjustment takes into account the relative resource use of 
different patient types served by an HHA. The goal of a case-mix 
payment system is to measure the intensity of care and services 
required for each patient and translate it into an appropriate payment 
level. A patient's need for care resources is represented by an index 
score or relative weight based on the combination of clinical, 
functional, and service utilization indicators measured at the start of 
the 60-day episode. The decision tree logic for the case-mix groups is 
discussed in section II.C.2. of this regulation.
    As also discussed in section I.C. of this regulation, the patient 
classification system used under the HHA PPS is the Clinical Model 
developed by Abt, an 80-group patient case-mix classification system 
(HHRGs), which provides the basis for the case-mix payment indices used 
both for standardization of the 60-day episode payments and 
subsequently to establish the case-mix adjustments to the 60-day 
episode payment for patients with different home health service needs. 
These indices reflect the weight of relative resource utilization or 
value of each of the 80 HHRGs relative to all of the groups.
    These payment indices are based on patient data (from the OASIS-B 
supplemented by an additional non-OASIS treatment variable) and average 
resource use per discipline. To arrive at an estimate of resource use 
through visit logs, time is weighted by mean labor cost for each of the 
six disciplines covered under the Medicare home health benefit 
providing the visit. Medicare claims were linked to the OASIS data and 
the visit log data to verify the visits and provide utilization 
measures.

Construction of the Relative Weights for the HHRGs

    Each of the 80 HHRGs is assigned a relative weight that, when 
multiplied by the wage-adjusted standard episode amount, comprises the 
case-mix-adjusted payment for each episode. The relative weights 
measure the average resource intensity of the episodes in each HHRG 
relative to the average resource intensity of all episodes. The data 
that Abt used to develop the case-mix groups of the HHRG classification 
system were also used to construct the relative weights reported in 
Table 9. At this time, they are the only data that contain information 
on resource intensity by HHRG. Because we are proposing to pay episodes 
with four or fewer visits on a per-visit basis, we excluded those 
episodes from the data used to construct the relative weights. The 
resulting data set contained 19,449 episodes. The measure of resource 
intensity used in the computation was the same variable that Abt used 
in developing the HHRG system: the minutes spent on each visit were 
multiplied by a standard national labor cost per minute for the type of 
visit (skilled nursing, home health aide, etc.); these standard visit 
costs were then summed for all visits within the episode to obtain the 
cost for the episode.
    If a large national data set that linked resource utilization and 
HHRG classifications for 60-day episodes of care were available, we 
would have computed the relative weights in the following manner: 
First, we would have calculated the mean cost per episode for each 
HHRG, as well as the mean cost for all episodes. Then, each mean cost 
would have been divided by the mean cost of all episodes. Calculating 
the relative weights in this manner ensures that the relative weight of 
the average episode is 1.0.
    However, since only a sample data set is available, it was 
necessary to modify this method in order to obtain reliable relative 
weights. The Abt data set is large enough to establish the case-mix 
groups and to calculate average resource use for many of the HHRG 
categories. However, there are also many HHRGs with relatively small 
numbers of episodes for which reliable estimates cannot be made. As a 
result, it was necessary to make full use of the information contained 
in the sample. We are proposing to revise the case mix weights to 
adjust for changes in patient population, actual changes in home health 
care practice patterns, and changes in the coding or classification of 
patients that do not reflect real changes in case mix.
    All episodes at each level of the clinical, functional, and service 
domains were employed to estimate the resource use for specific 
combinations of clinical, functional, and service levels. For example, 
in estimating the average cost of HHRG C3F4S1, we used data for all C3 
episodes, all F4 episodes, and all S1 episodes. The method involved 
computing an average cost for each clinical level (C0, C1, C2, and C3), 
each functional level (F0, F1, F2, F3, and F4), and each service level 
(S0, S1, S2, and S3). Then the average additional cost of each level 
above the C0F0S0 base cost was computed: C1-C0, C2-C0, C3-C0; F1-F0, 
F2-F0, F3-F0, F4-F0; S1-S0, S2-S0, S3-S0. Finally, these average 
additional cost amounts were added to the base cost (C0F0S0) to obtain 
the average cost of each HHRG. For example, to calculate the average 
cost of C1F1S0, take the C0F0S0 amount and add to it the additional 
cost of C1 cases (C1-C0) and the additional cost of F1 cases (F1-F0); 
likewise, to obtain the average cost of C3F4S1, start with C0F0S0 and 
add to it C3-C0, F4-F0, and S1-S0.
    In more precise statistical terms, the mean cost estimates 
described above were obtained using multiple regression analysis. To 
account for the stratification of the sample, weighted regression was 
used. We regressed the dependent variable (the Abt resource cost) on 
categorical variables C1-C3, F1-F4, and S1-S3. By omitting C0, F0, and 
S0 from the regression, the intercept term measures the mean cost of 
the C0F0S0 group. The regression coefficients of each of the clinical, 
functional, and service levels measure the mean difference in cost 
between the given level and the base cost (C0F0S0). For example, the 
coefficient of the C2 variable measures the average cost difference, 
C2-C0.
Example: Calculation of Relative Weight for HHRG C3F4S1

Average cost for HHRG C0F0S0:..............................     $1371.44
Additional average cost of C3:.............................     +1121.77

[[Page 58178]]

 
Additional average cost of F4:.............................     +1239.00
Additional average cost of S1:.............................      +218.09
                                                            ------------
Average cost of C3F4S1:....................................    $3,950.30
 

Relative weight of C3F4S1: Average cost of C3F4S1 divided by average 
cost of all episodes: $3950.30/$2599.56=1.5196

                 Table 9--Relative Case-Mix Weights Corresponding to Home Health Resource Groups
----------------------------------------------------------------------------------------------------------------
                                                                                                       Case mix
                   HHRG group                                      HHRG description                     weight
----------------------------------------------------------------------------------------------------------------
C0F0S0..........................................  ``Clinical=Min, Functional=Min, Service=Min''....       0.5276
C0F0S1..........................................  ``Clinical=Min, Functional=Min, Service=Low''....       0.6115
C0F0S2..........................................  ``Clinical=Min, Functional=Min, Service=Mod''....       1.4400
C0F0S3..........................................  ``Clinical=Min, Functional=Min, Service=High''...       1.6620
C0F1S0..........................................  ``Clinical=Min, Functional=Low, Service=Min''....       0.6015
C0F1S1..........................................  ``Clinical=Min, Functional=Low, Service=Low''....       0.6854
C0F1S2..........................................  ``Clinical=Min, Functional=Low, Service=Mod''....       1.5140
C0F1S3..........................................  ``Clinical=Min, Functional=Low, Service=High''...       1.7360
C0F2S0..........................................  ``Clinical=Min, Functional=Mod, Service=Min''....       0.7234
C0F2S1..........................................  ``Clinical=Min, Functional=Mod, Service=Low''....       0.8073
C0F2S2..........................................  ``Clinical=Min, Functional=Mod, Service=Mod''....       1.6359
C0F2S3..........................................  ``Clinical=Min, Functional=Mod, Service=High''...       1.8579
C0F3S0..........................................  ``Clinical=Min, Functional=High, Service=Min''...       0.7698
C0F3S1..........................................  ``Clinical=Min, Functional=High, Service=Low''...       0.8537
C0F3S2..........................................  ``Clinical=Min, Functional=High, Service=Mod''...       1.6822
C0F3S3..........................................  ``Clinical=Min, Functional=High, Service=High''..       1.9043
C0F4S0..........................................  ``Clinical=Min, Functional=Max, Service=Min''....       1.0042
C0F4S1..........................................  ``Clinical=Min, Functional=Max, Service=Low''....       1.0881
C0F4S2..........................................  ``Clinical=Min, Functional=Max, Service=Mod''....       1.9166
C0F4S3..........................................  ``Clinical=Min, Functional=Max, Service=High''...       2.1386
C1F0S0..........................................  ``Clinical=Low, Functional=Min, Service=Min''....       0.6131
C1F0S1..........................................  ``Clinical=Low, Functional=Min, Service=Low''....       0.6970
C1F0S2..........................................  ``Clinical=Low, Functional=Min, Service=Mod''....       1.5255
C1F0S3..........................................  ``Clinical=Low, Functional=Min, Service=High''...       1.7475
C1F1S0..........................................  ``Clinical=Low, Functional=Low, Service=Min''....       0.6870
C1F1S1..........................................  ``Clinical=Low, Functional=Low, Service=Low''....       0.7709
C1F1S2..........................................  ``Clinical=Low, Functional=Low, Service=Mod''....       1.5995
C1F1S3..........................................  ``Clinical=Low, Functional=Low, Service=High''...       1.8215
C1F2S0..........................................  ``Clinical=Low, Functional=Mod, Service=Min''....       0.8089
C1F2S1..........................................  ``Clinical=Low, Functional=Mod, Service=Low''....       0.8928
C1F2S2..........................................  ``Clinical=Low, Functional=Mod, Service=Mod''....       1.7214
C1F2S3..........................................  ``Clinical=Low, Functional=Mod, Service=High''...       1.9434
C1F3S0..........................................  ``Clinical=Low, Functional=High, Service=Min''...       0.8553
C1F3S1..........................................  ``Clinical=Low, Functional=High, Service=Low''...       0.9392
C1F3S2..........................................  ``Clinical=Low, Functional=High, Service=Mod''...       1.7677
C1F3S3..........................................  ``Clinical=Low, Functional=High, Service=High''..       1.9898
C1F4S0..........................................  ``Clinical=Low, Functional=Max, Service=Min''....       1.0897
C1F4S1..........................................  ``Clinical=Low, Functional=Max, Service=Low''....       1.1736
C1F4S2..........................................  ``Clinical=Low, Functional=Max, Service=Mod''....       2.0021
C1F4S3..........................................  ``Clinical=Low, Functional=Max, Service=High''...       2.2241
C2F0S0..........................................  ``Clinical=Mod, Functional=Min, Service=Min''....       0.7192
C2F0S1..........................................  ``Clinical=Mod, Functional=Min, Service=Low''....       0.8031
C2F0S2..........................................  ``Clinical=Mod, Functional=Min, Service=Mod''....       1.6316
C2F0S3..........................................  ``Clinical=Mod, Functional=Min, Service=High''...       1.8536
C2F1S0..........................................  ``Clinical=Mod, Functional=Low, Service=Min''....       0.7932
C2F1S1..........................................  ``Clinical=Mod, Functional=Low, Service=Low''....       0.8771
C2F1S2..........................................  ``Clinical=Mod, Functional=Low, Service=Mod''....       1.7056
C2F1S3..........................................  ``Clinical=Mod, Functional=Low, Service=High''...       1.9276
C2F2S0..........................................  ``Clinical=Mod, Functional=Mod, Service=Min''....       0.9150
C2F2S1..........................................  ``Clinical=Mod, Functional=Mod, Service=Low''....       0.9989
C2F2S2..........................................  ``Clinical=Mod, Functional=Mod, Service=Mod''....       1.8275
C2F2S3..........................................  ``Clinical=Mod, Functional=Mod, Service=High''...       2.0495
C2F3S0..........................................  ``Clinical=Mod, Functional=High, Service=Min''...       0.9614
C2F3S1..........................................  ``Clinical=Mod, Functional=High, Service=Low''...       1.0453
C2F3S2..........................................  ``Clinical=Mod, Functional=High, Service=Mod''...       1.8738
C2F3S3..........................................  ``Clinical=Mod, Functional=High, Service=High''..       2.0959
C2F4S0..........................................  ``Clinical=Mod, Functional=Max, Service=Min''....       1.1958
C2F4S1..........................................  ``Clinical=Mod, Functional=Max, Service=Low''....       1.2797
C2F4S2..........................................  ``Clinical=Mod, Functional=Max, Service=Mod''....       2.1082
C2F4S3..........................................  ``Clinical=Mod, Functional=Max, Service=High''...       2.3303
C3F0S0..........................................  ``Clinical=High, Functional=Min, Service=Min''...       0.9591
C3F0S1..........................................  ``Clinical=High, Functional=Min, Service=Low''...       1.0430
C3F0S2..........................................  ``Clinical=High, Functional=Min, Service=Mod''...       1.8715
C3F0S3..........................................  ``Clinical=High, Functional=Min, Service=High''..       2.0935
C3F1S0..........................................  ``Clinical=High, Functional=Low, Service=Min''...       1.0331
C3F1S1..........................................  ``Clinical=High, Functional=Low, Service=Low''...       1.1170
C3F1S2..........................................  ``Clinical=High, Functional=Low, Service=Mod''...       1.9455

[[Page 58179]]

 
C3F1S3..........................................  ``Clinical=High, Functional=Low, Service=High''..       2.1675
C3F2S0..........................................  ``Clinical=High, Functional=Mod, Service=Min''...       1.1550
C3F2S1..........................................  ``Clinical=High, Functional=Mod, Service=Low''...       1.2389
C3F2S2..........................................  ``Clinical=High, Functional=Mod, Service=Mod''...       2.0674
C3F2S3..........................................  ``Clinical=High, Functional=Mod, Service=High''..       2.2894
C3F3S0..........................................  ``Clinical=High, Functional=High, Service=Min''..       1.2013
C3F3S1..........................................  ``Clinical=High, Functional=High, Service=Low''..       1.2852
C3F3S2..........................................  ``Clinical=High, Functional=High, Service=Mod''..       2.1138
C3F3S3..........................................  ``Clinical=High, Functional=High, Service=High''.       2.3358
C3F4S0..........................................  ``Clinical=High, Functional=Max, Service=Min''...       1.4357
C3F4S1..........................................  ``Clinical=High, Functional=Max, Service=Low''...       1.5196
C3F4S2..........................................  ``Clinical=High, Functional=Max, Service=Mod''...       2.3481
C3F4S3..........................................  ``Clinical=High, Functional=Max, Service=High''..       2.5702
----------------------------------------------------------------------------------------------------------------

4. Application of the Clinical Model Patient Classification System
    The following are several illustrative examples.

Case 1

    An 83-year-old woman was discharged from a hospital 2 days ago 
after admission for a stroke and referred for home health care. She has 
residual right hemiparesis and also has diabetes and hypertension. She 
is able to dress her upper body if clothes are laid out for her, but 
needs help putting on socks, nylons and sometimes slacks. She needs 
assistance with bathing to get in and out of the tub and uses a cane 
for ambulating on flat surfaces and to transfer from sitting to 
standing, but needs another person's assistance to go up and down 
stairs. She is occasionally incontinent of urine, especially at night.
    Her plan of care includes--

Physical therapy: two 45-minute visits per week for 9 weeks
Occupational therapy: one 45-minute visit per week for 4 weeks
Skilled nursing: one visit per week for 2 weeks, then one visit every 
other week for 7 weeks
Aide: one visit twice a week for 9 weeks
Scoring: Clinical Severity=19 (for neurologic diagnosis)+8 urinary 
incontinence=27 high severity
Functional Status Domain=4 (for dressing)+9 (bathing)+6 (locomotion)=19 
Moderate severity
Service Domain=2 (hospital discharge)+4 (therapy more than 8 hours) 
Moderate severity
HRG=C3F2S2

Case 2

    A 73-year-old man with amyotrophic lateral sclerosis (ALS) is 
referred for home health care after a hospitalization for an aspiration 
pneumonia. Because of his inability to swallow, he had a gastrostomy 
tube placed during the hospitalization and now receives enteral 
feeding. He is dependent in all activities of daily living (ADLs).
    His plan of care includes--

Skilled nursing three times a week for 9 weeks
Aide services daily for 9 weeks
Scoring
Clinical severity=19 (for neurological)+20 (for enteral feeding)
High
Functional status=27 High severity
Service Domain=0 Minimum severity
HRG=C3F3S0
5. Background on Case-Mix Research Project for a National Home Health 
PPS
    In 1996, in anticipation of the Medicare program's eventual 
adoption of OASIS assessment data, we began research with a sample of 
90 HHAs to develop a case-mix adjustment system for use under a future 
national prospective payment for home health care. The project was 
conducted under contract to Abt Associates, Inc., of Cambridge, Mass. 
(Contract Number 500-96-0003/TO2). Agencies participating in the sample 
have collected OASIS data supplemented by approximately 50 additional 
assessment items on all patients newly admitted between October 1997 
and April 1998 (this group of patients is called the six-month cohort) 
to enable comparisons among items in terms of their utility in 
measuring case mix. At the same time, agencies in the study collected 
data on every home health visit to members of the cohort. Visit 
information was collected on visit logs specially designed for each 
home health service discipline (skilled nursing, physical therapy, 
medical social work, etc.). The visit logs provided the fundamental 
measure of resource use for developing case-mix groups. This measure is 
the visit time, which is converted into a standardized resource cost 
using Bureau of Labor Statistics hourly wage data (see below for 
further description).
    The development of case-mix groups requires identifying groups of 
patients with similar resource cost and similar clinical and functional 
characteristics. To do this, data analyses studied the statistical 
association between clinical and functional characteristics, as 
measured by the assessments, and resource cost, as measured by the 
standardized resource cost. In choosing patient characteristics for 
inclusion in the case-mix adjuster, and in arranging those 
characteristics into a system of groups, the system's developers gave 
considerable weight to the clinical diagnostic process. We sought data 
elements and an overall system that reflected a clinician's perspective 
when confronted with a patient with care needs to be assessed. We also 
gave considerable weight to simplicity in the system's overall 
structure, and thus opted for a straightforward three-dimensional 
approach. Under this approach, a patient's case-mix classification is 
found by assessing the patient on each of the three dimensions, and 
then combining the results from the three dimensions. Further details 
on the methods of the study and the resulting case-mix system follow.

Methods

Sample Selection

    Agencies were recruited for the case-mix research in the spring of 
1997. The sample design was intended to permit the computation of 
nationally representative results. Eight States (Arkansas, California, 
Florida, Illinois, Massachusetts, Pennsylvania, Texas, and Wisconsin) 
were selected to be representative of four census geographic regions: 
northeast, north central, south, and west. Sample selection was also 
intended to ensure that the four major auspices types (freestanding 
for-profit, freestanding voluntary/private nonprofit, hospital-based, 
and

[[Page 58180]]

government) and both urban and rural agencies would be included. In 
addition, selection criteria included the historical practice pattern 
of the agencies, in order to ensure representation of agencies with 
relatively low, moderate, and high numbers of visits per episode in 
their region. When cross-classified, the four selection criteria--
region (four classes), auspices (four classes), urban/rural (two 
classes), and practice pattern (three classes)-- produced a theoretical 
stratification scheme consisting of 96 cells. Target sample sizes for 
the cells were proportional to the universe populations of the cells 
(for example, some of the cells had zero agencies in the universe), and 
totaled 90 agencies for the sample overall. To be selected, agencies 
had to have active Medicare certification before July 1, 1993, at least 
50 Medicare patients in CY 1995, could not be participating in other 
HCFA demonstrations involving collection of OASIS data, and could not 
have been participating in the treatment group of the per-visit home 
health prospective payment demonstration.
    Considerable effort was made to recruit and inform potential 
participants of the study goals and operations, and potential benefits 
to themselves. Potential participants were told they could expect to 
receive three main benefits from participation-- management reports 
based on the data to be collected during the study, technical 
assistance and training on OASIS procedures, and reimbursement for data 
collection costs. Out of 1,797 eligible providers, approximately 290 
agencies actually volunteered to participate in the study. Agencies 
were randomly selected from among the volunteers within each sampling 
cell in July 1997. Further details of the recruitment process are 
provided in Abt Associates, First Interim Report, July 1998 (revised 
December 1998).

Agency Training

    The next phase of the study was training the agencies in data 
collection procedures. Abt Associates staff developed a Procedures 
Manual covering the project overview, directions on administering 
patient assessments using the OASIS and supplemental items (OASIS and 
the supplemental items were termed OASIS+, data storage and transfer 
procedures, and information on training techniques for agencies to use 
internally with their staff. Particular attention was given to item-by-
item guidelines for OASIS elements, in part to ensure the reliability 
of the data collected for developing the case-mix adjuster. The uniform 
assessments afforded by OASIS were a strength of the project, because 
reliable data allow analysts to accurately evaluate the contribution of 
potential case-mix variables to a case-mix adjuster.
    Additional training activities included slides and other written 
materials, and 2-day training sessions for participants. At least one 
training session was held in each of the 8 States in July and August of 
1997. Training sessions were attended by 296 staff from the 90 
participating agencies, and covered the meaning and intent of the OASIS 
and other assessment items, as well as operational procedures and data 
management. A significant effort was made to educate staff in methods 
of training and motivating their colleagues at the participating 
agency. After the sessions, follow-up training activities and other 
educational contacts were conducted by the contractor. Once the study 
was underway, Abt Associates continued to promote communication with 
the agencies, and to foster information-sharing among agencies, through 
activities such as conference calls, meetings, and an e-mail discussion 
group.

Data Resources

    The two basic data sources for the study are case-mix explanatory 
variables from the patient assessments and a resource use variable from 
the visit data. Claims data comprised a third data source, and were 
used to verify membership in the 6-month cohort and to supply several 
additional potential case-mix explanatory variables for testing. All 
three sources of data were collected on the 6-month cohort from 
admission until the end of home care in the participating agency or 
March through April 1999, whichever came first.
    OASIS data. Study agencies collected patient characteristics data 
using the OASIS assessment supplemented by additional assessment items 
at the following points: admission to home health, resumption of care 
following an inpatient stay, at follow up (every 57 to 62 days until 
discharge), upon transfer to an inpatient facility, and at discharge or 
death at home. The 129 patient data elements cover the following 
domains: patient demographics and health history, living arrangements, 
supportive assistance, sensory status, integumentary status, 
respiratory status, elimination status, neuro/emotional/behavioral 
status, ADLs and IADLs, medications, equipment management, emergent 
care use, and discharge disposition. The items supplemental to OASIS 
were integrated in the following OASIS domains: demographics and 
patient history; living arrangements; supportive assistance; 
integumentary status; elimination status; neuro/emotional/behavioral 
status; ADLs and IADLs; and medications. An additional dimension was 
added to the assessment data set, nutrition/hydration status, as the 
research literature indicates that nutritional status and the potential 
for dehydration are important predictors of poorer outcomes. 
Development of new items was beyond the scope of the project; 
therefore, supplemental items generally came from previously validated 
instruments such as the Minimum Data Set for Home Care (MDS-HC) 
(Morris, J. N., B. E. Fries, and D. Mehr, et al. ``A Comprehensive 
Clinical Assessment in Community Settings.'' November 1996a, 
unpublished manuscript; and Morris, J. N. The Minimum Data Set for Home 
Care. Presentation for ``The Key to Elderly Care in an Aging World'' in 
Reykjavik, Iceland, 1996b).
    Visit log data. Visit information was recorded on a visit log 
separately tailored for each type of visit (for example, home health 
aide or medical social worker). The visit log consists of identifying 
information, starting and ending times, and a column of items for 
checkoff that detail the services performed during the visit and 
factors explaining the time spent. The checkoff items were not intended 
to capture information on all activities performed in the home--only 
those likely to significantly affect the length of the visits. The 
starting and ending times allow the calculation of total visit time for 
the key resource use measure for the study. To arrive at a standardized 
measure of resource use, time is weighted by the average labor cost for 
the discipline of the clinician making the visit.
    Standardized measure of resource use. Previous research on case mix 
generally used a measure of resource use based on the count of visits. 
However, visit lengths may vary substantially, making visit counts a 
relatively imprecise measure of resource use. The case-mix study 
measured time spent on visits, rather than the number of visits 
themselves, to provide a more reliable measure resource use than did 
previous research. The mean labor cost estimate for the standardized 
resource use measure was based on hourly wage data from HHA respondents 
to the U.S. Bureau of Labor Statistics Occupational Employment Survey 
(OES). The survey collects wage data by occupation and industry. The 
Standard Industrial Classification industry category used for our 
estimate excludes agencies under

[[Page 58181]]

government auspices and hospital-based agencies where workers are 
employed by the hospital. However, government civil service grades or 
hospital pay for specialized occupations may systematically depart from 
market wage rates. Our mean labor cost included an estimate of 
benefits. Following our salary equivalency estimates for therapists, 
the benefits were estimated exclusive of supplemental pay. The 
occupational category mix within each discipline (for example, 
registered nurses and licensed practical nurses delivering skilled 
nursing visits) was estimated from the OES data. For further details on 
the derivation of the mean labor cost used in the study, see Appendix E 
in Abt Associates, Inc., First Interim Report, July 1998, Revised 
December 1998.
    Medicare claims. The Medicare claims for the 6-month cohort were 
linked to the patient characteristics data and visit log data to verify 
membership in the 6-month cohort and to provide utilization measures 
(for example, therapy use or institutional health care services 
received during the episode). The Medicare claims were also used to 
simulate 60-day episodes, using the from-and through-dates on the 
claims.
    Data collection and management. The project's data management 
procedures were designed to support agencies in the collection and 
submission of consistent and reliable data on patient characteristics 
and service use. Participating agencies entered the patient assessment 
data into an electronic data file using software provided by Abt 
Associates or their own data systems. Data entry on site was required 
because this allowed a computer program to edit the data and to report 
any errors for correction before the data were submitted to Abt 
Associates. The visit logs were printed in different colors to minimize 
the chances for confusion. The forms were designed for optical scanning 
of the checkoff boxes, and the agencies forwarded the originals 
directly to an optical scanning contractor. The data were double 
entered and scanned, and the hard copy forms were sent to Abt 
Associates, along with the electronic data files, for cleaning. Abt 
processed all visit log forms received from project agencies, and 
generated reports for the agencies indicating the outcomes of this 
editing process. When agencies received the error reports and the 
associated hard copy logs, their responsibility was to review the 
problems, make any changes, and resubmit the forms.
    Data preparation. The OASIS and other assessment items that had 
been submitted by agencies had to be merged with the records for cohort 
patients as defined using the claims data. Iterative matching 
algorithms, and intensive manual review of potential matches, were used 
to match assessment records to the claims patient records. Of 21,426 
patients identified for the 6-month cohort from claims, 17,351 had one 
or more assessments that could be matched at the time Abt Associates 
constructed the analytic file used for case-mix system development. 
Visit logs on more than 750,000 visits that had been submitted by 
project agencies and processed by August 1998 were available for 
matching to claims records. Because of the occasional presence of 
inaccurate data in the identifying fields on the visit logs, it was 
necessary to protect against false matching based on incorrect visit 
log data. Even with an exact match on one key matching field (besides 
the necessary match on provider, discipline and date), it was required 
that the rest of the key fields be compatible. To accomplish this, a 
matching algorithm was developed by Abt Associates and applied to 
comparisons of all possible match fields. Based on the algorithm, 
588,846 logged visits were matched to claims for cohort patients. The 
remaining logs come from visits to non-cohort Medicare patients at 
participating providers and visits to non-Medicare patients, inasmuch 
as some agencies completed logs for all of their home care patients, 
regardless of payor, to simplify recordkeeping procedures during the 
study. In addition, some of the unmatched logs likely come from an 
unknown number of visits to patients in the 6-month cohort whose 
identifying information was not sufficient to make a match at the time 
of file construction. (For further details of these matching 
procedures, see Abt Associates, Second Interim Report, August 1999.)
    Analytic file construction. The project data were assembled to 
simulate a 60-day episode. In order to estimate resource use for each 
60-day period of care, we developed certain decision rules for 
allocating claims and visit logs by discipline to 60-day ``windows'' of 
time, or episodes. Because we superimposed the 60-day episodes on the 
pre-existing claims stream, an episode could start and end sometime 
during the period covered by a claim. Many claims did not show the date 
of each visit; therefore, an algorithm was needed to allocate visits 
when a claim period fell into more than one episode. In general, the 
visit logs were used to make this allocation since they provided 
individual visit dates. If some logs were missing, the percentages of 
nonmissing logs falling in the claim service period before and after 
the episode date boundary were used to allocate visits identified on 
the claim to the two episodes straddled by the claim. If no logs were 
available, the visits from claims were allocated to the episodes in 
proportion to the number of days covered by the claim that fell in each 
60-day episode. In episodes with missing logs, additional steps were 
taken to estimate the missing minutes of care that would have been 
measured in the missing logs. Efforts were made to use all available 
patient-and discipline-specific information in the imputation. 
Combining these procedures with a rule requiring a 60-day gap in 
service before a new start of care could be initiated for a cohort 
member resulted in a total of 31,725 payment episodes--an average of 
approximately 1.4 60-day episodes per cohort member with the data 
available at the time of file construction. After resources were 
calculated for all payment segments, analysis of the data revealed the 
presence of extreme values of mean minutes per visit by discipline 
within the 60-day episode. Visit lengths in episodes with extreme 
values (defined as the highest and lowest 0.25 percent of cases within 
each home health discipline) were replaced with agency-level mean visit 
lengths by discipline. A total of 335 episodes (1 percent) were 
adjusted in this manner, resulting in an insignificant change in mean 
total resources per 60-day episode. These allocation, imputation, and 
data adjustment procedures are described in detail in Abt Associates, 
Inc., Second Interim Report, August 1999.

Linking the Assessment Data

    To complete the analytic file, the patient assessment data had to 
be added to the simulated episode file that contained data on visits 
and resource costs. To protect the reliability of the assessment data 
for the purpose of case-mix system development, assessments were linked 
to an episode in the simulation file only if the assessment was 
conducted within 14 days of the start of the episode.

Analytical Approach

    Initial development of the case-mix model used data from 4,303 
episodes pertaining primarily to the first 60-day period of care for 
members of the 6-month cohort who enrolled from October 1997 through 
December 1997. Subsequent refinement of the model occurred after the 
analytic file was enlarged with data accumulated later to create an 
augmented file. The augmented file was partitioned into a

[[Page 58182]]

development sample and a validation sample. The development sample, 
consisting of 10,413 initial 60-day episodes for cohort members and 
2,059 subsequent episodes, was used for the refinement phase. The 
development sample episodes were randomly selected from the augmented 
file. The remaining episodes--6,963 initial episodes and 1,331 
subsequent episodes--were reserved to validate the final model.
    The basic approach to case-mix development was to use the patient 
data and other appropriate data to identify candidate case-mix 
adjusters or their components, and then estimate their ability to 
explain variation in resource use over the course of the simulated 60-
day episode. The measure of ``explanatory power'' used to evaluate the 
overall system and its component dimensions as development proceeded 
was the coefficient of determination, or R-squared.
    The R-squared measures the proportion of variation in standardized 
resource costs that is explained by the case-mix groups. R-squared 
cannot be negative or greater than one. An R-squared of one would 
indicate that each case-mix group's average resource cost exactly 
predicts the individual resource cost of each episode in the case-mix 
group. In actual applications in social science research, an R-squared 
of one could be obtained only if each observation comprised its own 
group. The R-squared for the final home health case-mix model is .32. 
Based on the R-squared results, the home health case-mix system has 
predictive accuracy comparable to its counterparts from other payment 
systems. The diagnosis-related group (DRG) system used for hospital PPS 
has an R-squared reported in various studies in the range of .26 to .33 
(Worthman, Linda G. and Shan Cretin. Review of the Literature on 
Diagnosis Related Groups, A RAND Note, N-2492-HCFA, Santa Monica, CA, 
October 1986). The Resource Utilization Groups (RUGS)-III system of 44 
case mix groups used for Medicare SNF per diem prospective payment has 
a reported R-squared as high as .56 (Fries, B. E., D. P. Schneider, and 
W. J. Foley, et al., ``Refining a Case-Mix Measure for Nursing Homes: 
Resource Utilization Groups (RUG/II).'' Medical Care 32:668-685, 1994). 
But comparisons between the SNF and home health case-mix measures must 
recognize that home health resource consumption is being ``predicted'' 
over a 60-day period rather than on a daily basis, and that factors 
other than case mix may be a stronger influence on resource consumption 
under home health, leaving less variation to be explained by case-mix 
variables. Additionally, there is evidence that the RUGS-III system in 
actual application under the Medicare program will achieve an R-squared 
of less than .56 (White, A., S. Pizer, and C. White. Refining Resource 
Utilization Groups (RUG-III) for a National Skilled Nursing Facility 
System: Technical Expert Panel Briefing. October 1998).
    To construct alternative case-mix groupings, preliminary regression 
analyses were used to investigate the relative importance of various 
factors explaining resource use. Then, clinical judgment was used to 
identify and define clinically meaningful dimensions of case mix, 
taking into account the results from the regressions. Alternative ways 
of measuring and constructing the dimensions and relating them to one 
another in a complete structure were explored in consultation with 
clinical experts. Along with clinical considerations, policy and 
incentive implications of alternative variables or structures were also 
considered--particularly the implications of alternatives for promoting 
improvement in health and functional status and for making the adjuster 
vulnerable to manipulation for profit-maximization.
    Another consideration was ease of implementing the system. For 
example, if all of the case-mix elements were available on the OASIS 
assessment, then adoption of the data collection procedures necessary 
for PPS would already be accomplished when agencies met the OASIS 
requirements of the revised Conditions of Participation, pending for 
the quality system. Thus, the resulting case-mix groupings, and their 
component dimensions, were evaluated and refined interactively with 
clinical, policy, and administrative input.
    Case-mix development work under the Abt Associates contract 
produced two alternative case-mix models, dubbed the ``clinical'' model 
and the ``diagnostic'' model. The two models had many elements in 
common, but the diagnostic model gave more emphasis to medical 
diagnosis in measuring case mix. In the diagnostic model, patients were 
classified into one of seven diagnosis groups based on the home health 
primary diagnosis from the OASIS. Further subgrouping of the basic 
seven groups was based on clinical, functional, and utilization-related 
variables. There has been controversy regarding the relative advantages 
and disadvantages of a diagnostically-driven model. Proponents believe 
it more accurately reflects the way clinicians think about patients. It 
may also have the potential to create more homogeneous patient 
groupings, providing an opportunity to develop clinical, functional, 
and utilization criteria customized for different diagnoses. There are 
several disadvantages of the diagnostically-driven model, however. One 
is that only a relatively few diagnostic categories (notably 
orthopedic, neurological, diabetes, and skin wounds/lesions) carried 
significant explanatory power in the analyses. This suggests that 
diagnostic classification beyond these few categories brings little or 
no additional benefit in predictive accuracy. Also, the diagnosis-based 
approach usually leads to a model with a higher number of end-points 
that may make it more complex and difficult to use. Another 
disadvantage is that the use of diagnostic categories is problematic 
when dealing with a home care population that frequently has multiple 
diagnoses--the choice of a primary diagnosis to report could be unduly 
influenced by payment incentives. If the case-mix system were to 
consider multiple diagnoses simultaneously, the problem of incentive 
impacts on reporting might be reduced, but at the expense of more 
complexity in the adjuster. High predictive accuracy could outweigh 
these disadvantages, but the R-squared of the diagnostic model was not 
appreciably higher than the simpler clinical model.
    The case-mix project analytic work occurred in three stages: early 
exploratory analyses, clinically driven development work, and 
refinements.
    Early data analyses. We began exploratory analyses with the 4,303 
observations available early in the analysis phase. These analyses 
relied mostly on regression equations to begin to understand which 
OASIS and other assessment variables might play an important role in an 
eventual case-mix adjuster, and to gauge how much variation in resource 
use beyond case mix alone could be explained in a mathematical model 
that included factors such as agency characteristics, economic 
characteristics in the agency's environment, and events taking place 
during the home health visit. These exploratory regressions suggested 
that up to .47 of the variation in resource use could be explained 
using regression analyses that accounted for a range of causal factors 
encompassing more than case mix. The equations included variables to 
measure clinical, functional, home environment, agency, and economic 
factors; home health treatment variables; and unusually time-consuming 
events taking place during

[[Page 58183]]

visits. These analyses highlighted several potentially appropriate and 
powerful variables in the data, such as preadmission location of the 
patient; certain acute conditions (orthopedic, neurologic, open wounds 
and lesions, diabetes); the presence of an ostomy; and functional 
dependence in locomotion. These models further suggested that 
restricting the explanatory variables to a subset of purely clinical 
and functional patient characteristics alone would produce an R-squared 
of approximately .20.
    Clinically driven case-mix models: The project's goal from the 
outset was to develop a case-mix adjuster that defines a number of 
mutually exclusive patient groups that could be associated with 
differing resource use. Another criterion for the grouping system is 
that it should be clinically meaningful to the home health clinicians 
using it, by making use of recognized clinical categories and by being 
consistent with the clinical diagnostic process. A further criterion 
was simplicity; ideally, the system should be comprised of a limited 
number of mutually exclusive groups, and rules for classifying patients 
into groups should be straightforward.
    As described in their project report (Abt Associates, Inc., Second 
Interim Report, August 1999), these objectives were approached by the 
Abt Associates nurse-clinicians through a combination of professional 
experience and study of previous work in the field reported in the 
literature. They first focused on identifying clinically significant 
indicators that address patient care needs from the perspective of the 
home health clinician. To help identify indicators, they considered the 
following questions: What level of complexity, severity and instability 
characterizes the patient's clinical condition? How much and what type 
of assistance does the patient need with activities of daily living? 
Does the patient require special therapies or high-tech services? What 
cognitive impairments, behavioral characteristics, risk factors, and 
environmental conditions affect the amount and type of care this 
patient will require? The Abt team then proceeded to review the patient 
assessment variables as a source of information for the indicators. The 
resulting list of variables was reviewed in light of several issues:
    Policy implications: Some patient characteristics are not suitable 
as a basis for payment because they raise issues of equity or are 
otherwise questionable from a policy perspective. For example, the 
assessment's race and education variables were excluded, as were 
measures of the patient's social or physical environment (for example, 
unsanitary or unsafe conditions). Similarly, a case-mix adjustment 
system should not discourage assistance from family members of home 
care patients. Although many observers assume that the availability or 
efficacy of a caregiver is a significant influence on HHA resource 
consumption, adjusting payment in accordance with caregiver variables 
does not seem advisable.
    Administrative ease: Initially, the list of assessment items 
capturing clinically significant indicators included some that were 
supplemental to the OASIS itself. Incorporating these items in the 
assessment would require modification of the OASIS data collection 
procedures and complicate the startup phase for OASIS data collection. 
We carefully examined the explanatory power of the individual items and 
sought substitutes for them whenever possible from among the existing 
OASIS items. We were able to find substitutes for almost all of them 
with little impact on the explanatory power of the model. The only 
notable exception was an assessment item about a history of falls, 
which analysis suggests could raise the explanatory power of the model 
by about one one-hundredth. However, because this was the only 
remaining variable that was not obtainable from the existing OASIS 
collection procedure, we weighed its utility against possible delays 
and confusion in OASIS implementation and decided not to use it. A 
utilization variable pertaining to inpatient stays occurring during the 
home health episode was also seriously considered but ultimately 
dropped because data limitations prevented us from clearly 
understanding its impact and because it posed an added data collection 
burden for home health providers. This item would have required the HHA 
to report whether a Medicare-covered inpatient stay occurred during the 
60-day episode and the length of the stay. This information would be 
used to determine any adjustment to the case-mix group assignment at 
the end of the episode.
    Other criteria: Reliability-related concerns were also a part of 
the item selection process. If case-mix variables address 
characteristics that appear subject to varying interpretation by 
assessing clinicians, the system could be vulnerable to manipulation by 
providers or patients. When payment increments are at stake, great care 
must be taken before accepting items even if they have been proved 
reliable in other circumstances, such as quality assurance research. 
For example, items on rehabilitative prognosis and overall prognosis 
were eliminated on these grounds. Some symptoms may be very short-
lived, but if they are present at the time of the assessment they would 
have an impact on the case-mix adjuster if included. An example is a 
supplemental item such as ``In last 3 days, noticeable decrease in the 
amount of food client usually eats or fluids usually consumed?'' We 
determined that basing payment adjustments on potentially transient 
signs and symptoms captured by these items is ill-advised because their 
impact on care delivery is uncertain at best. In addition, diagnoses 
that were candidates for inclusion in broader diagnosis groups were 
reviewed by a member of our clinical staff from the perspective of 
their reliability as markers for resource-intensive conditions.
    Incentive effects: Unintended incentive effects could result from 
using variables that reward providers for negative practice patterns, 
such as the use of a urinary catheter absent clinical need for the 
device.
    Structure of the system for case-mix measurement. In addition to 
studying individual variables from the perspectives of explanatory 
power, policy and administrative implications, and reliability, it was 
necessary to define the system's decision logic, or structure. Examples 
of other grouping models developed for research purposes, case-mix 
classification, risk adjustment or care and treatment were studied to 
suggest ways of categorizing functional impairment, clinical severity, 
and other patient characteristics--such as whether to group patient 
characteristics via distinct dimensions of health status (for example, 
functional versus clinical); whether to consider bifurcations of groups 
for which partitioning would produce clinical and statistical meaning 
(that is, ADL ``splits,'' as the RUG-III system uses); the desirability 
of symmetrical versus asymmetrical models; and whether to create an 
indexing system or a categorical system. For example, when considering 
issues such as cognition, we considered whether these variables would 
be more appropriately captured within a clinical or functional domain, 
or whether they would provide more clinical meaning (or statistical 
power) if used as a binary split (that is, yes/no cognitive impairment) 
after clinical and functional groups were established.
    Similarly, in our consideration of existing classification systems, 
we examined the clinical value of different structural and operational 
features of systems. The Nursing Severity Index, for example, adds 
points per each qualifying nursing diagnosis and sums to a total score. 
The total score, or index, reflects the patient's severity, with a

[[Page 58184]]

total index of 34 reflecting the highest severity of illness. Unlike 
the NSI, the RUG-III classification system is a hierarchical system, 
with seven general categories that are placed in general order of costs 
associated with caring for residents. The first category, or top split, 
is rehabilitation; the last is reduced physical function. As we 
reviewed these systems, we gave consideration to which type of system 
seemed least complex for use by home health clinicians, most 
clinically-intuitive, and most feasible to operationalize, given the 
nature of the assessment data set.
    Abt Associates used a computer package called PC-Group, which 
creates decision trees whose terminal nodes may be regarded as case-mix 
groups. This package allows the analyst to ``grow'' the tree 
interactively, which means considerable judgment can be imposed in 
selecting and dividing nodes as the tree is constructed.
    To produce a workable product with the package, it was necessary 
for the Abt analysts to summarize their variables first. Based on the 
conceptual work and literature review conducted during the project, 
they arrived at a small set of dimensions for summarizing assessment 
elements. There are separate dimensions for clinical severity; 
functional status; and service utilization. This organizing principle 
suggests that patients can be classified along each dimension, and this 
classification is correlated with resource consumption in home care. In 
an effort to maximize the clinical utility and explanatory power of the 
patient classification model, the project team experimented with many 
variations of each dimension, adding and removing items and examining 
their effect on the way the models functioned.
    The Clinical Severity Dimension. The clinical severity in the final 
model incorporates three diagnostic categories: Neurologic, Orthopedic, 
and Diabetes. Specific diagnoses comprising each group were reviewed to 
ensure that diagnoses used on highly heterogeneous groups of patients 
would not be included. Inclusion of these diagnoses could weaken the 
predictive power of the case-mix adjuster. The diagnoses in each group 
are shown in Table 9. The diagnosis code comes from OASIS item number 
M230. The clinical dimension also includes the following OASIS items as 
indicators of clinical severity: status of wounds and ulcers (M0460, 
M0476, M0488); vision status (M0390); pain frequency (M0420); presence 
of a bowel ostomy; (M0550) use of parenteral and enteral nutrition, and 
intravenous therapy or infusion therapy (M0250); dyspnea (M0490); 
urinary and bowel incontinence (M0530, M0540); and behavioral problems 
(M0610).
    Early versions of the clinical model did not include measures of 
cognitive, sensory and behavioral impairment which might affect 
resource use, primarily because statistical analysis did not suggest 
they were useful in explaining variation. Based upon subsequent review, 
we determined this was a serious omission from the model, so we renewed 
attempts to integrate cognition and related indicators into the model. 
An additional dimension consisting solely of the OASIS neurological, 
cognitive, sensory, and behavioral (NCSB) variables was created, which 
produced a minor variance reduction in the overall sample of only .015. 
Furthermore, the highest degree of cognitive impairment was not 
consistently related to the highest mean costs.
    Since increasing levels of severity of the NCSB variables as a 
group are not consistently associated with increased resource use, we 
did not attempt to use them as an independent dimension. Using data 
from regression analysis, however, we were able to integrate M0390 
(vision) and M0610 (behaviors) into the Clinical Severity dimension in 
a way that did not produce counter-intuitive cost groupings.
    Further technical discussion of the statistical results on each 
variable is found in Abt Associates, Second Interim Report, August 
1999, Chapter 3.
    The Functional Status dimension. As in the development of the 
clinical severity dimension, we began by selecting assessment items 
considered to be potential predictors of increased resource use, 
focusing on the extent of assistance the patient required with 
activities of daily living. Early exploration with the available 
functional indicators suggested OASIS items were equivalent in 
explanatory power to the supplemental items we tested. We tested 
restricting the ADLs to late loss ADLs (that is, those ADLs likely to 
be lost late in life: eating, transferring, toileting, and bed 
mobility) to see whether the restricted list better predicted resource 
use in the home-bound elderly, as is the case among the elderly which 
reside in nursing homes (Williams, Brent C., Brant E. Fries, and 
William J. Foley, ``Activities of Daily Living and Costs in Nursing 
Homes,'' Health Care Financing Review, 15 (4):117-134 (Summer 1994)). 
This was not supported. We also experimented with cognition-related 
variables, based on findings in the literature (Torres, H. A., L. 
Fratiglioni, Z. Guo, M. Viitanen, E. von Strauss, and B. Winblad, 
``Dementia is the Major Cause of Functional Dependence in the Elderly: 
3-Year Follow-up Data from a Population-based Study,'' American Journal 
of Public Health, 88:1452-1456 (1998).
    In the version of the dimension ultimately used in the Clinical 
model, ambulation locomotion was integrated and both early-loss and 
late-loss ADLs were included (while cognitive factors were incorporated 
into the Clinical Dimension). We dropped the eating and grooming ADLs 
because they were statistically redundant when the other items 
(dressing (M0650, M0660), bathing (M0670), toileting (M0680), 
transferring (M0690), and locomotion (M0700)) were included. M0650 
(Dressing Upper body) and M0660 (Dressing lower body) were found to 
have a significant degree of interaction and therefore were combined. 
Additional experimentation with the functional status dimension 
involved testing different schemes for ordering the variables and 
partitioning subgroups of patients in accordance with measurements on 
the variables.
    None of the variables in the Functional Status Dimension was 
eliminated due to reliability-related or incentive concerns. Some home 
health clinicians who reviewed the model in October 1998 commented on 
the potential of functional status items to be manipulated by 
providers, who would have an incentive to make patients seem as 
functionally impaired as possible on admission to home care. However, 
because the functional status items make an important contribution in 
predicting home health resource use, and because they are integral to 
clinical decisionmaking for the home care benefit, they were retained. 
Furthermore, under the planned Outcome-Based Quality Improvement system 
for home care, beyond the initial assessment, quality assurance 
monitoring may help counteract any tendency to overstate the functional 
dependency of patients. We are soliciting suggestions for approaches, 
new assessment items, procedures, or other mechanisms that might help 
guard against mismeasurement of functional status items due to payment 
incentives.

The Service Utilization Dimension

    The Service Utilization dimension contains variables related to 
services the patient received both before and during the episode of 
home care. To measure utilization before the start of home care, OASIS 
item M0170 collects information about inpatient discharges during the 
14 days before the assessment. In the analysis of costs associated with 
pre-admission location, we examined how

[[Page 58185]]

responses to M0170 were related to mean resource cost. It should be 
noted that a Medicare SNF stay is always preceded by an acute care 
hospital stay, so if a patient has a long SNF stay (exceeding 14 days) 
the acute care stay probably would not be measured by this item. A 
similar censoring of an acute care event may also occur with 
rehabilitation stays, although there is no Medicare requirement that 
such stays be preceded by an acute care hospital stay. On the other 
hand, if both an acute care stay and a SNF or rehabilitation inpatient 
discharge occurred within the previous 14 days, it seems likely that 
the SNF stay or rehabilitation stay was relatively short. We found that 
patients who are admitted to home care directly from the community are 
on average more resource-intensive for home care providers than 
patients who were recently discharged from an acute care hospital and 
had no evidence from M0170 that they used post-acute institutional 
care. Patients experiencing both a hospital and SNF/rehabilitation stay 
within the past 14 days are about as resource-intensive as the patients 
with no pre-admission stay. Finally, patients for whom only a SNF/
rehabilitation hospital stay is observable within the past 14 days are 
the most expensive. We theorize that they tended to have relatively 
long SNF or rehabilitation stays of (at least 14 days), which may 
suggest that the definition of this group using M0170 is a marker for 
clinically complicated cases with intensive care needs.
    The other variable in the service utilization dimension measures 
home health therapy hours totaling 8 hours or more during the 60-day 
episode. In developing the patient classification models, we sought to 
focus on variables that predicted care needed by the patient, as 
opposed to care furnished by providers. Ideally, we sought a case-mix 
adjustor that creates as little incentive as possible for providers to 
enhance revenues by providing unnecessary services. However, including 
a variable measuring the receipt of a significant amount of home health 
therapy (physical, occupational, or speech/language) improved the R-
squared of our models by about .20. The RUG-III system for SNF case-mix 
measurement also includes an indicator for receipt of therapy. An 
advantage of paying differentially for therapy cases in the case-mix 
adjuster is that it will help to maintain access to therapy among home 
health patients who need it. The threshold of 8 hours targets 
additional payments for home health therapy to patients with a clear 
need for therapy. We believe this decision rule will motivate home 
health providers to efficiently plan therapy evaluation visits and 
therapy delivery for patients who need little or no therapy.
    Additional variables were tested for the services utilization 
dimension. We decided not to use a variable for previous home health 
utilization in the past 90 days because, under the influence of payment 
incentives, it carried the potential to encourage readmissions to home 
care within the 90-day window. The predictive value of the service 
utilization was lowered by only .0059 as a result. We also tested the 
value of including inpatient stay events during the episode. This 
intervening-stay variable modestly improved the total R-squared for the 
model. However, as discussed above, it may present substantial data 
collection burdens for providers.

Scoring Patient Variables and Developing Severity Categories

    Variables within the clinical and functional dimensions have 
differing impacts on resource cost. Before the final refinement phase 
of model development, we assigned a score to each outcome on each 
variable based on the increase in mean resource cost associated with 
each outcome. Within each dimension, the sum of scores for the 
component variables is correlated with resource consumption in home 
care. This is consistent with our conceptualization of the clinical, 
functional, and service utilization components as dimensions along 
which patients can be classified in accordance with their home health 
resource consumption.
    During the refinement phase of model development, we used 
regression-adjusted mean resource cost to re-examine the scores. The 
purpose of the regression was to control for all case-mix variables 
simultaneously to get a more accurate picture of their respective 
independent contribution to resource use. Having quantified their 
contribution via the regression, we could derive more accurate scores 
for the variables. In addition, we looked for results that could signal 
redundancy among the variables and tested several interaction terms in 
the regression. (Interaction terms capture potential synergy among 
variables.) Both the improved scoring and the interaction terms could 
potentially improve the explanatory power of the case-mix system. The 
results of the regression analyses changed some of the scoring and 
resulted in the merging of some items. A few items were eliminated 
after examining the regressions, which suggested they were redundant.
    The next step in model development was to find score intervals 
along the clinical dimension and the functional dimension that would 
define patient groups of relative severity along the respective 
dimension. Whenever possible, we used ``natural breaks'' in the array 
of scores in the sample to define the intervals. When partitioning the 
functional dimension scores, we examined the types of dependencies that 
would be captured in the intervals, particularly at the low and high 
end of the functional dimension. We determined the number of intervals 
also in light of the number of groups that would ultimately be created 
as more intervals are defined. The R-squared does not improve 
substantially when one or two more breaks are defined, but the number 
of groups increases greatly, adding to the complexity of the system.
    For the clinical dimension, we classified patients into four levels 
of impact (minimal, low, moderate, and high), and for the functional 
dimension, five levels of impact (minimal, low, moderate, high, and 
maximum). The service utilization dimension is actually comprised of 
categorical variables that partition patients into four groups of 
increasing impact on resource use. We assigned scores to each of these 
four groups in accordance with the increasing impact.
    Case-mix Groups. Each dimension contains four or five impact levels 
or intervals (for example, high, moderate, minimum, and low). For every 
combination of intervals, there is a case-mix group. For example, 
patients who are high on the clinical dimension, moderate on the 
functional dimension, and low on the services utilization dimension are 
grouped together. Since there are four clinical levels, five functional 
levels, and four service utilization levels, the case-mix system 
comprises a total of 80 groups. Half of the groups involve patients 
with therapy use of at least 8 hours.
    In the case-mix research sample, the number of patients in each 
group varies widely, from few or no patients to between 1,000 and 1,500 
in several of the groups (unweighted data). The therapy groups comprise 
a minority of patients in the sample-- 15 percent (unweighted). 
Approximately 30 percent of the sample fell into the minimal clinical 
level, 30 percent into the low clinical level, 23 percent into the 
moderate clinical level, and 17 percent into the high clinical level. 
Approximately 15 percent of the sample fell into the minimal functional 
level, 30 percent into the low functional level, 36

[[Page 58186]]

percent into the moderate functional level, 11 percent into the high 
functional level, and 7 percent into the maximal functional level.

III. Audited Cost Report Data Sample Methodology

Audited Cost Report Data

    Section 1895(b)(1) of the Act requires the prospective payment 
amount to include all services covered and paid on a reasonable cost 
basis under the Medicare home health benefit, including medical 
supplies. Section 1895(b)(3)(A)(i) of the Act requires the computation 
of a standard prospective payment amount to be initially based on the 
most recent audited cost report data available to the Secretary. Under 
section 1895(b)(3)(A)(i) of the Act, the primary data source in 
developing the cost basis for the 60-day episode payments was the 
audited cost report sample of HHAs whose cost reporting periods ended 
in fiscal year 1997 (that is, ended on or after October 1, 1996 through 
September 30, 1997).
    In February 1998, we directed our fiscal intermediaries (FIs) to 
conduct comprehensive audits of the cost reports submitted by a sample 
of HHAs whose cost reporting periods ended in FFY 1997. Each FI 
received a list of agencies to audit and instructions on how to conduct 
the audits and report the data obtained.
    The sample was designed to be representative of the home health 
industry in several respects: provider-based versus freestanding, 
census region, urban versus rural location, and large versus small 
agencies. Because we anticipated that many agencies in the sample would 
not be audited because their records were unavailable for a variety of 
reasons or their cost reporting periods were less than 12 months long, 
the sample size was adjusted upward by 15 to 20 percent to allow for 
attrition.
    To create national HHA PPS rates, each observation in the final 
data set is weighted to reflect the national Medicare home health 
payment experience. For example, the estimates will reflect differences 
across census regions and urban versus rural areas.

Audit Sample Methodology

    To meet these objectives, a statistical sample begins with a list 
of all HHAs that submit cost reports. The list is referred to as a 
frame. Considerable effort went into the process of developing the 
frame for HHAs and identifying units to be included. The frame for this 
sample excludes all HHAs that are incidental providers (too small) or 
not likely to yield a full year of cost reporting for the audit period.
    Once a frame was developed, we selected a sample. The sample for 
the HHAs was selected by choosing samples for each provider type 
(freestanding not-for-profit, freestanding for-profit, freestanding 
governmental, and provider-based). The provider types are referred to 
as strata in sampling terms. The design of the sample took into account 
the number of providers and the variation in cost and beneficiaries in 
each stratum. The sample was designed to produce estimates from key 
elements of the audit data with a reasonable level of precision.
    A sample selection assumes the frame is complete and each sampling 
unit appears once and only once in the frame. Unfortunately, after the 
sample was drawn and fieldwork begun, we found that this assumption was 
not strictly true for the governmental units.
    The problem arises from the fact that multiple providers, referred 
to as subunits, report under a single cost report. In some cases, 
multiple providers' numbers corresponding to a single cost report 
appear on the frame, while in other cases a provider number is a parent 
possibly with multiple subunits. We then considered the subunits 
associated with a single cost report as the appropriate sampling unit 
because there is no way to accurately distribute costs among subunits. 
The subunits on the frame associated with a single cost report were 
identified and the listings of individual subunits were regarded as if 
the appropriate sampling unit had been included a known number of times 
on the frame list.
    This somewhat changed the sample composition. When the sample was 
drawn for a stratum so that each unit on the list has the same 
probability of selection (as among the governmental units), the 
probability that the multiply-listed unit be included in the sample was 
higher. The higher probability of representation is in proportion to 
the number of inclusions on the frame list. This is like a drawing in 
which an individual enters his name (or his family members' names) 
multiple times to enhance his (or his family's) odds of winning. When 
one analyzes data from a sample that is biased by giving a higher 
probability of selection to some units, these units need to be given 
smaller weights if the estimates are to correctly represent the 
population that the frame should have enumerated.
    That is, the analysis of the sample data must take into account the 
sampling probabilities by assigning each sampling unit a weight that is 
less if the probability of inclusion is higher. Indeed, the sample may 
include the same subunit multiple times, and we retained the values for 
each time the unit appears in the sample when the proper weights are 
used.
    For purposes of this example, n equals the number of governmental 
subunits reporting under a single cost report in the frame. Therefore, 
a governmental cost report is n-times more likely to appear in the 
sample, and the weights for each occurrence in the sample are reduced 
by dividing by n. A description of a similar situation involving a 
household survey based on samples drawn from children in school is 
described in Morris H. Hansen, William N. Hurwitz, and William G. 
Madow, Sample Survey Methods and Theory, vol. 1 (NY: Wiley, 1953) 59-
65. Because households with large families will have a higher 
probability of being included in the sample, households with large 
families will be over-represented in the sample unless some adjustment 
is made. That adjustment can be done, as we did here, by providing 
weights in the analysis that give less weight to the households that 
are more likely to be included in the sample.
    From the frame we have known totals for the number of units in the 
cells. Weights were adjusted so that corresponding totals based on the 
sample match these known cell totals. Even if all units in the sample 
were successfully audited, the process described above ensures that 
correct cell totals are obtained from the analysis.
    However, when audits are not obtained as intended and the missed 
units are not in the sample as intended, the weights must be adjusted 
so that the sample data reproduce the known totals from the frame for 
key subgroups or cells. The process assigns a larger weight to audited 
units in the sample similar (in the same cell) to those missed. In the 
case of the HHA, the cells were defined by the urban or rural area; the 
four census regions of Northeast, Midwest, South, and West; and 
provider type. Therefore, the weights were adjusted for the missed 
sample units to ensure that the units obtained most closely represent 
the missed units cell by cell.

Summary of the Missing Audits in the Home Health Audit Sample and 
Results Used to Develop Weights for the Sample

    In the home health audit sample design we assumed there would be 
nonresponse or missing audits for a variety of reasons. The reasons 
included situations such as the following: the provider no longer 
existed in order to do the audit, the provider was under

[[Page 58187]]

investigation, or the provider filed a short cost report, that is, a 
cost reporting period less than 12 months. The chart below shows the 
original sample sizes for each provider type and the oversampling 
cushion associated with each one. Because we rounded numbers up in the 
sample size calculations and selection algorithms, the actual 
oversampling factors exceed 13 percent, as follows:

------------------------------------------------------------------------
                                   True sample                Oversample
             Stratum                   size      Oversample   percentage
------------------------------------------------------------------------
Freestanding nonprofit...........          161           31         19.3
Freestanding for profit..........          148           23         15.5
Freestanding government..........          141           20         14.2
Provider-based...................           98           23         23.5
------------------------------------------------------------------------

    After examining the data for missing cases, we found the actual 
number of missing cases as follows:

------------------------------------------------------------------------
                                  Sample            Percent   Percent of
            Stratum                size    Actual   missed      target
------------------------------------------------------------------------
Freestanding nonprofit.........      192      171      10.9        107.5
Freestanding for profit........      171      142      17           98.0
Freestanding government........      161      159       1.2        114.2
Provider-based.................      121       95      21.5         98.0
------------------------------------------------------------------------

    From this it is evident that the sample actually obtained generally 
was within range or close to the specifications. The percent of target 
is based on the sample size without the allowance for anticipated 
missed audits.

Freestanding for Non-Profit Summaries

Distribution of Sample and Frame for Freestanding for Nonprofit by Urban/
                         Rural and Census Region
------------------------------------------------------------------------
                     Area                       Audits   Missed   Frame
------------------------------------------------------------------------
MW--Rural....................................       12        0       58
MW--Urban....................................       40        4      195
NE--Rural....................................        9        1       59
NE--Urban....................................       46        3      260
SO--Rural....................................       20        6      112
SO--Urban....................................       25        2      148
WS--Rural....................................        5        3       49
WS--Urban....................................       14        2       74
------------------------------------------------------------------------

Freestanding For-Profit Summaries

 Distribution of Sample and Frame for Freestanding For-Profit by Urban/
                         Rural and Census Region
------------------------------------------------------------------------
                     Area                       Audits   Missed   Frame
------------------------------------------------------------------------
MW--Rural....................................        6        0      131
MW--Urban....................................       19        6      520
NE \1\--Urban................................       18        0      263
SO--Rural....................................       21        2      458
SO--Urban....................................       54       15     1311
WS--Rural....................................        7        1      102
WS--Urban....................................       17        5      489
------------------------------------------------------------------------
\1\ No sample was obtained in the NE Rural category for this group. This
  cell was combined with NE Urban in obtaining weights.

Freestanding Governmental Summaries

Distribution of Sample and Frame for Freestanding Governmental by Urban/
                         Rural and Census Region
------------------------------------------------------------------------
                     Area                       Audits   Missed   Frame
------------------------------------------------------------------------
MW--Rural....................................       53        1      222
MW--Urban....................................       11        0       36
NE--Rural....................................        8        0       29
NE--Urban....................................        9        0       42
SO--Rural....................................       49        1      193
SO--Urban....................................       20        0       69
WS--Rural....................................        8        0       25
WS--Urban....................................        1        0       11
------------------------------------------------------------------------

Provider-Based Summaries

 Distribution of Sample and Frame for Provider-Based by Urban/Rural and
                              Census Region
------------------------------------------------------------------------
                     Area                       Audits   Missed   Frame
------------------------------------------------------------------------
MW--Rural....................................       15        2      450
MW--Urban....................................       13        0      293
NE--Rural....................................        2        0       31
NE--Urban....................................        9        3      196
SO--Rural....................................       26        4      567
SO--URBAN....................................       13       11      485
WS--Rural....................................       10        3      195
WS--Urban....................................        7        3      241
------------------------------------------------------------------------

Determination of the Weights for the Actual Sample

    The weights would essentially be equal for each HHA within a type 
if all HHAs in the sample had been successfully audited. The weights 
would be the ratio of the frame to sample size for each type because 
the units were drawn with equal probability within provider type. 
However, as noted above, some of the proposed sample units were not 
successfully audited. Therefore, the numbers for the distribution in 
the frame given above were used as known control totals. Then the known 
control totals were used to adjust the weights to the frame control 
totals. The ratio of the frame to the corresponding sample totals is 
used as the weight for the corresponding cases in the sample, provided 
the audits are not missing. If the HHA was not audited and therefore 
missing, the weight was zero. This process gives more weight to the 
audited HHA in a cell to account for the missing audits within the 
cell. This is equivalent to imputing the weighted average of the 
audited HHAs in the cell to the missed HHAs within the same cell. In 
one case noted above, cells were combined because there were no 
providers in the sample in the relatively small NE Rural cell for 
freestanding for-profit providers.

Weight Adjustment Factors to Account for Governmentals

    In the case of the governmental HHAs, the adjustment process was 
modified to account for the multiple subunits included on the frame. 
First, it was necessary to examine the provider numbers on the frame 
for the governmental HHAs. Providers that are subunits have the last 
four digits in the range 7800-7999. We also used the last four digits 
to identify parent units. Parents have the last four digits in the 
ranges 7000-7299 or 7400-7799 or 8000-8499 or 9000-9999. The following

[[Page 58188]]

list shows the distribution of subunits and parents on the frame by 
State.

------------------------------------------------------------------------
                   State                    Provider  Subunits   Parents
------------------------------------------------------------------------
AL........................................        61        60         1
AR........................................        62        62         0
AZ........................................         5         0         5
CA........................................         7         0         7
CO........................................         8         0         8
CT........................................         8         0         8
DE........................................         1         0         1
FL........................................         2         0         2
GA........................................         3         1         2
IA........................................        56         0        56
ID........................................         2         0         2
IL........................................        29         0        29
IN........................................         3         0         3
KS........................................        21         0        21
KY........................................        18         0        18
LA........................................         6         0         6
MA........................................         3         0         3
MD........................................        10         9         1
MI........................................        18         0        18
MN........................................        31         0        31
MO........................................        26         0        26
MS........................................        16        16         0
MT........................................         4         0         4
NC........................................        39         0        39
ND........................................         2         0         2
NE........................................         2         1         1
NH........................................         2         0         2
NJ........................................         6         0         6
NM........................................         2         0         2
NV........................................         2         0         2
NY........................................        50         0        50
OH........................................        30         0        30
OR........................................         3         0         3
PR........................................         1         0         1
SC........................................        13        13         0
SD........................................         1         0         1
TN........................................         4         0         4
TX........................................         2         0         2
UT........................................         1         0         1
VA........................................         9         0         9
VI........................................         1         0         1
WI........................................        39         0        39
WV........................................        16        15         1
WY........................................         2         1         1
------------------------------------------------------------------------

    An examination of the data for the few cases with multiple subunits 
from the same State confirmed that parent numbers were from a single 
cost report, and subunits, as in Alabama, all had a single cost report 
but a different parent.
    Although there are various possible approaches regarding this 
issue, the approach taken here is consistent with the HCFA numbering 
conventions and the data examined to the extent we were able to confirm 
them from the sample. Therefore, a number of units was assigned to each 
HHA in the frame for the governmental HHAs. The number of units 
assigned is one for each parent and the sum of the number of subunits 
within a State for each subunit within the corresponding State. The 
same unit numbers were also assigned to the HHAs in the sample.
    When totals are computed for the reciprocal of the unit numbers, 
the result is the number of cost reports. To see how this works, 
consider the State of Alabama. There are 60 subunits each assigned a 
unit count of 60, and there is 1 parent assigned a unit count of 1. The 
sum of the reciprocal of the unit numbers for the 60 subunits is 60 
times \1/60\ or 1, and the sum of the reciprocal of the unit number of 
1 for the parent is 1. Therefore, there would be two cost reports if 
all of the HHAs from Alabama were audited.
    The following summary by State shows the number of governmental 
providers on the frame and the number of cost reports or audits one 
would expect to find for each State if all governmental providers on 
the frame were audited.

------------------------------------------------------------------------
                                                                 Cost
                     State                        Provider     reports
------------------------------------------------------------------------
AL............................................           61            2
AR............................................           62            1
AZ............................................            5            5
CA............................................            7            7
CO............................................            8            8
CT............................................            8            8
DE............................................            1            1
FL............................................            2            2
GA............................................            3            3
IA............................................           56           56
ID............................................            2            2
IL............................................           29           29
IN............................................            3            3
KS............................................           21           21
KY............................................           18           18
LA............................................            6            6
MA............................................            3            3
MD............................................           10            2
MI............................................           18           18
MN............................................           31           31
MO............................................           26           26
MS............................................           16            1
MT............................................            4            4
NC............................................           39           39
ND............................................            2            2
NE............................................            2            2
NH............................................            2            2
NJ............................................            6            6
NM............................................            2            2
NV............................................            2            2
NY............................................           50           50
OH............................................           30           30
OR............................................            3            3
PR............................................            1            1
SC............................................           13            1
SD............................................            1            1
TN............................................            4            4
TX............................................            2            2
UT............................................            1            1
VA............................................            9            9
VI............................................            1            1
WI............................................           39           39
WV............................................           16            2
WY............................................            2            2
------------------------------------------------------------------------

    Frame totals for possible audits were obtained by using the 
assigned unit numbers for each HHA in the governmental stratum. 
Therefore, the following control totals apply to the governmental 
stratum.

------------------------------------------------------------------------
                     Area                           HHAs        Audits
------------------------------------------------------------------------
MW--Rural.....................................          222       222.00
MW--Urban.....................................           36        36.00
NE--Rural.....................................           29        29.00
NE--Urban.....................................           42        42.00
SO--Rural.....................................          193        61.31
SO--Urban.....................................           69        31.69
WS--Rural.....................................           25        25.00
WS--Urban.....................................           11        11.00
------------------------------------------------------------------------

    Note that a summary by State yields whole numbers for the audits. 
However, both the urban and rural classifications occur within a State. 
Therefore, a single audit may apply to providers within each category.
    The corresponding sample totals are as follows:

------------------------------------------------------------------------
                     Area                        Providers      Audits
------------------------------------------------------------------------
MW--Rural.....................................           54        54.00
MW--Urban.....................................           11        11.00
NE--Rural.....................................            8         8.00
NE--Urban.....................................            9         9.00
SO--Rural.....................................           50        12.18
SO--Urban.....................................           20         8.45
WS--Rural.....................................            8         8.00
WS--Urban.....................................            1         1.00
------------------------------------------------------------------------

    These totals are used to obtain the adjusted weights so that the 
sample totals for audits will match the frame totals. This is as if 458 
audits are needed to audit the frame of 627 HHA providers because a 
single audit covers multiple provider numbers or subunits.

Final Weight Factor Calculations

    The weight adjustment was applied to the cells defined by the four 
major census regions and the Urban/Rural classification. The weight 
adjustments used the control totals from the frame. Each weight was 
modified so that the weighted totals using the providers actually 
audited for each cell matched the corresponding control totals. The 
adjustment was a simple ratio adjustment. This corrected for the 
imbalance associated with sampling and the imbalance that arose from 
the distribution of missed audits.
    After completing the weight adjustments, a file was created with 
the resulting weights, the provider number, provider type, Census 4 
(four census regions), and Metropolitan Statistical Area (MSA) code. 
This file can be merged with the data from the cost reports for the 
audited providers to compute weighted values for costs and visits in 
order to compute the average cost-per-visit ratios by discipline. As a 
check on the computations, the following table is the result of a 
summary by provider type that agrees with the frame totals.

[[Page 58189]]



------------------------------------------------------------------------
                                                                 Frame
                       Type                           Sample      No.
------------------------------------------------------------------------
FS/F..............................................        142       3290
FS/G..............................................        159        458
FS/N..............................................        171        955
Provider..........................................         95       2458
------------------------------------------------------------------------

    The final audit sample contained 567 audited cost reports which 
were the basis of the HHA PPS rate calculations.

IV. HHA PPS Framework--How the System Works

    We are proposing the following policy framework; however, 
refinements will be made based on comments, additional national data, 
and efficiencies realized in the development of the final rule.
    As discussed earlier in this regulation, we are proposing a 60-day 
episode as the ordinary unit of payment for home health PPS. The new 
60-day episode begins with the start of care date, which is the first 
billable service date, and includes the 60th day from start of care 
date. The 60-day episode payment covers one individual for 60 days of 
care regardless of the number of days of care actually provided during 
the 60-day period unless there is a PEP adjustment, SCIC adjustment, 
LUPA, additional outlier payment, or medical review determination.
    The 60-day episode payment will be case-mix adjusted using the 
OASIS assessment (as mandated by HHA conditions of participation 
regulations published in the Federal Register on January 25, 1999 at 65 
FR 3747 and 65 FR 3764) supplemented, as applicable, by one additional 
patient-specific item regarding projected number of therapy hours 
received in the 60-day episode period (see section II.C. and IV.L of 
this regulation). The total case-mix-adjusted 60-day episode payment is 
based on the initial OASIS assessment and the supplemental item 
regarding projected therapy hours received submitted at the start of 
the 60-day episode and the confirmation of projected therapy use 
submitted via the line-item date visit information reported on the 
final claim at the end of the 60-day episode.

A. Start of Care

    The HHA establishes the plan of care and the patient will be 
grouped into the appropriate case-mix category via the OASIS assessment 
and the additional item regarding projected number of therapy hours 
received in a 60-day episode at the HHA. We are exploring the approach 
that would allow grouper software at the HHA to interface with the 
HAVEN software used for State transmission of OASIS quality data. The 
OASIS assessment supplemented by one additional treatment-specific item 
on projected therapy use is fed into the grouper logic, and the grouper 
logic selects the OASIS elements needed to establish the case-mix group 
and determines the appropriate case-mix category for the patient. The 
grouper logic generates a code. The code corresponds to the appropriate 
case-mix category and is placed on the initial claim. The HHA must have 
all physician orders in the plan of care and a physician's signature 
for the plan of care before billing. The physician's orders for therapy 
services will be a key focus of medical review.
    The initial claim with the appropriate code is submitted to the 
RHHI for payment. The pricer computes the initial percentage payment 
equal to 50 percent of the 60-day case-mix adjusted payment for that 
HHRG category. The pricer also adjusts the payment by the appropriate 
wage index corresponding to the site of service delivery. The clean 
claim is processed, and the initial 50 percent payment is issued to the 
HHA.
    The HHA that initially establishes the plan of care is responsible 
for billing for all home health services provided under the plan of 
care, including nonroutine medical supplies and durable medical 
supplies in a 60-day episode. If a patient transfers during a 60-day 
episode, the responsibility for consolidating billing moves to the 
transfer HHA.

The Use of Clinical Model ``Grouper'' Software

    As discussed at the beginning of this section, all data necessary 
to classify a patient to one of the 80 HHRG categories are contained on 
the OASIS-B supplemented, as applicable, by one additional item 
regarding projected therapy use in a given 60-day episode period. Under 
this PPS, HHAs are required to use the collection reporting 
requirements for the data elements in the Federal Register on January 
25, 1999, supplemented by one additional item regarding projected 
therapy use in a given 60-day episode period for classification of 
patients for case mix. We expect that the software programs that use 
OASIS-B supplemented by projected therapy use to assign patients to the 
appropriate groups, called grouper software, will be available from 
many software vendors. The version we use will be available at no cost 
from our future HCFA website on PPS. We are proposing an option to 
build the grouper logic into the HAVEN software, which is used for 
transmission of OASIS-B data for purposes of quality via the State 
system. We may refine the grouper logic with experience and the onset 
of 15-minute increment billing data in the future.

B. End of Episode

    The final claim may contain all of the line-item date visit 
information for the entire 60-day episode period. As discussed above, 
the confirmation of actual therapy hours received in the previous 60-
day episode period will be captured with a utilization proxy based on 
the line-item date visit information reported on the final claim. The 
final claim will be sent to the RHHI and the pricer will compute the 
final payment equal to 50 percent of the actual case-mix-adjusted 
episode payment and wage index adjusts the payment. If the actual 
therapy use does not correspond to the code submitted for the episode, 
a correction will be necessary.

C. Recertification of 60-Day Episode Period

    At the end of the 60-day episode a decision must be made to 
recertify the patient for another 60-day episode period. An eligible 
beneficiary who qualifies for a continuous 60-day episode would start 
the continuous 60-day episode on Day 61. A new OASIS is performed as 
part of the overall approach to assessment and to determine the 
appropriate case-mix category for the next episode. The physician's 
orders for services in the plan of care and the physician's 
certification of eligibility are required before the HHA submits a bill 
for the next 60-day episode period.

D. Determining Whether a Beneficiary Is Under an Established Plan of 
Care

    Episodes must be tracked to ensure the case-mix adjusted episode 
payment is allocated to the appropriate HHA. This tracking requirement, 
which is needed for payments, proration, and consolidated billing, 
entails both an ability for internal RHHI systems to inquire and 
establish the status of HHAs providing services under a home health 
plan of care in a given 60-day episode period, as well as an external 
ability for HHAs to query the system to determine whether a beneficiary 
is already under an established home health plan of care in a given 60-
day episode period. The national episode history by beneficiary must be 
created and maintained that contains beneficiary identification, 
provider identification, dates of service, utilization, case-mix 
classification codes, and discharge and transfer status indicators. 
HCFA is proposing to develop a tracking system available to both 
providers and RHHIs that would provide information on whether a

[[Page 58190]]

beneficiary is under an established home health plan of care.

E. Medical Review

    Section 1816 of the Act requires our contractors to conduct audits 
of providers' records, as needed, to ensure that payments are 
appropriate for the items or services furnished. Payments under this 
HHA PPS are per episode prospective payment rates based on the 
patient's condition as determined by classification into one of the 80 
HHRGs. This classification system uses patient assessment data from the 
OASIS-B supplemented, as applicable, by one additional patient-specific 
item regarding the amount of therapy hours received in the 60-day 
episode period. HHAs must complete the OASIS assessment according to an 
assessment schedule specifically designed for Medicare payment (see 
section IV.L. of this regulation). HHAs will send each patient's OASIS-
B (including, as indicated, projected therapy use) to the State and 
claims for Medicare payment to the RHHI.
    The total case-mix-adjusted 60-day episode payment is based on the 
initial OASIS assessment and, if applicable, a supplemental item 
indicating the projected therapy (that is, physical, speech-language 
pathology, and occupational therapy in any combination) hours to be 
received in a 60-day episode submitted at the start of the 60-day 
episode (note: we are proposing to use therapy visit data as a proxy 
for time). The projected number of therapy hours reported at the start 
of the 60-day episode (that is, on the initial claim) is confirmed by 
the actual receipt of therapy identified on the final claim (that is, 
line-item visit information) at the end of the 60-day episode. The 
initial claim for each 60-day episode may not contain visit information 
and may only include the code corresponding to the appropriate case-mix 
category/HHRGs. The final claim for the 60-day episode may include all 
of the line-item visit information for the previous 60 days. Adjustment 
to the HHRG payment is the confirmation of actual therapy use and 
coverage determinations based on medical review of the claim. These 
adjustments are in lieu of the partial episode, low-utilization, and 
outlier payment adjustments (see sections I.D., II.A.4., and II.A.5. of 
this regulation) discussed in the earlier sections of this proposal.
    The medical review process for HHA PPS bills must be consistent 
with the new total case-mix-adjusted 60-day episode payment process and 
billing information available on the initial and final claims for each 
60-day episodes. Considering the limited information available on the 
initial claim, prepayment medical review of the initial claim would 
probably be limited to the technical eligibility for home health 
services and overall medical necessity of care. For example, the RHHI 
would determine if the patient is homebound (HCFA=Pub. 11, Sec. 204.1), 
whether a plan of treatment is established (HCFA=Pub. 11, Sec. 204.2), 
and skilled services are needed. For the final claim for the 60-day 
episode, line-item date visit information for the previous 60 days will 
be considered in confirming actual therapy use and medical necessity 
coverage determinations. For continuous 60-day episode periods, any 
payment adjustments (for example, recovery of overpayments) would be 
made on an ensuing 60-day episode claim for that or other patients. At 
this time, specific to final closeout claims (see section IV.B. of this 
regulation), we anticipate no change in the current process for 
recovering overpayments from an HHA.
    Because all Medicare-participating HHAs will be transitioned onto 
the new payment system on a particular calender date (see section IV.H. 
of this regulation), the initial medical review strategy for HHA PPS 
bills will be a parallel approach of random and focused medical review. 
The purpose of the random review is to get a cross-sectional overview 
of trends in beneficiary care and utilization of services. The 
information gained will support HCFA's and RHHI's data needs and aid in 
developing focused medical review (FMR) criteria that may be unique to 
a particular RHHI's provider population. In addition to the random 
review, RHHIs will continue to monitor specific claims or services 
historically known for potential areas of abuse. As with current 
medical review guidelines, RHHIs will be required to validate suspected 
problems before targeting medical review efforts.
    After a few months of HHA PPS experience, HCFA and the RHHIs should 
be able to gain the information needed to identify and study trends in 
beneficiary care and utilization of services. At that time, medical 
review efforts will return to a data-driven approach targeting on those 
areas with the most potential for inappropriate billing, 
overutilization, and abuse (that is, FMR). Review efforts may be claim 
specific and driven by patterns of case-mix upcoding or the medical 
need for the episode(s) of care and technical eligibility. As with 
current Medicare medical review practice, HCFA will allow RHHIs to 
supplement their primary prepayment review activities with a limited 
amount of postpayment review.
    Prepayment and postpayment review activity will continue with the 
capability to deny claims in total or adjust payment to correct case 
mix. Also, because this case-mix classification system can be 
supplemented by the amount of therapy hours received in a 60-day 
episode period, if applicable to the claim, medical review should 
ensure that the therapy was actually furnished and intensity (for 
example, time) of those services were reasonable and necessary for the 
beneficiary's condition. Information, such as the patient's OASIS, 
medical records, and the billing history will be considered in 
determining payment for covered services. This same review strategy 
will also be used to determine the coverage of medical supplies and DME 
under a home health plan of care (that is, consolidated billing). 
Finally, if during the review of HHA PPS claims the RHHI becomes 
suspicious of poor health and safety conditions, case referrals will be 
made to HCFA staff who will in turn alert the applicable State 
Agencies. Beneficiary quality of care concerns will also be referred to 
the applicable Peer Review Organization.
    To accomplish this new perspective on medical review of HHA claims, 
the RHHIs need to have timely information on patients to determine, for 
example, whether the HHRG rate to be paid is appropriate and accurately 
reflects the beneficiary's clinical condition. The HHA PPS Inquiry 
System (see section III.E. of this regulation) will provide the RHHIs 
with the internal and external real-time query capability to access the 
information as establishing the status of an HHA providing services 
under a home health plan of care in a given 60-day episode period, 
beneficiary identification, provider identification, dates of service, 
utilization, case-mix classification codes, and discharge and transfer 
status indicator codes. Also, RHHI access into the national HCFA 
Repository should help facilitate the data matching and analysis of 
beneficiary-specific OASIS-B and billing information used to support 
program integrity functions.

F. Overpayments and Adjustments

    If it is determined from proration, medical review, etc. that the 
preliminary case-mix-adjusted episode payment exceeds the amount 
ultimately due to an HHA, the overpayment may be offset against future 
episode payments due to the HHA for the same or other agency patients.

[[Page 58191]]

G. Implementation Effective Date for PPS

    OCESAA requires all HHAs to be paid under PPS effective upon 
implementation of the system October 1, 2000. There is no transition by 
cost reporting period; therefore, all HHAs begin PPS on the same 
implementation date (October 1, 2000). We are aware that most cost 
reporting periods do not end with the statutory implementation date of 
PPS. Rather than requiring the close-out of cost reports with short 
period cost reports, we are exploring the use of a supplemental 
schedule in the cost report to allocate costs and limits between pre- 
and post-PPS.

H. Claims Processing Transition

    Under the October 1, 2000 PPS implementation date, all HHAs must 
bill for all eligible Medicare beneficiaries under a home health plan 
of care under the PPS. If an HHA has beneficiaries already under an 
established plan of care, all open bills for services provided 
September 30, 2000 or earlier will need to be closed as of September 
30, 2000.

I. Quality System

    Under the Medicare COPs, HHAs must develop, implement, maintain, 
and evaluate an effective, data-driven quality assessment and 
performance improvement program. The program must reflect the 
complexity of the HHA's organization and services, including those 
services provided directly or under arrangement. The HHA must take 
actions that result in improvements in the HHA's performance across the 
spectrum of care. An integral part of this approach is the additional 
COP requirement that HHAs use a standard core assessment data set, the 
Outcome and Assessment Information Set (OASIS), when evaluating 
patients. The OASIS is a set of valid, reliable measures, developed to 
assess patient outcomes to care provided in the home.
    The use of a uniform patient assessment in home health is part of a 
broader HCFA goal to develop outcome measures for all provider types. 
The OASIS is expected to become one of the most important aspects of 
the HHA's quality assessment and performance improvement efforts. By 
integrating a core standard assessment data set into its own more 
comprehensive assessment system, an HHA can use this data set as the 
foundation for valid and reliable information for patient assessment, 
care planning, and service delivery, as well as to build a strong and 
effective quality assessment and performance improvement program.
    As a part of the COP, Medicare-certified HHAs are required to 
collect, and report to the States, OASIS data on all adult home health 
patients served by the agency with the following exceptions: (1) 
Maternity patients; (2) those under 18; and (3) those receiving other 
than personal care services or health services, for example, 
housekeeping and chore services. We will regularly collect OASIS data 
from the States for storage in a national OASIS repository. Information 
from the repository will be used to generate national OASIS outcome 
reports for dissemination through the States to the HHAs to be used for 
outcome based quality improvement (OBQI).
    The general framework for OBQI is a two-stage process of continuous 
quality improvement. Data are collected at regular time intervals for 
all adult patients. Outcome measures are computed using the OASIS data 
reported by the HHAs. Risk adjustment is undertaken, and outcome 
reports are produced for specific patient conditions (focused reports) 
and for all adult patients (global reports). These outcome reports are 
provided to the participating HHAs and are used to determine which 
outcomes are inferior, thereby providing a focus for agency staff to 
target problematic care. Exemplary care is also investigated in order 
to reinforce positive care behaviors. A plan of action allows the 
agency to monitor the changes in care behavior and through the next 
round of data collection, determine if targeted outcomes have improved 
and if reinforcement activities have maintained exemplary outcomes. 
HHAs are expected to integrate this information into the development of 
their OBQI programs to care for all home health patients.
    The State Agencies will be responsible for disseminating the 
national aggregate information, generating and disseminating State 
aggregate information, and providing individual reports for each HHA in 
their State. Each HHA will have regular access to outcome reports based 
on its own OASIS data submissions and comparative State and national 
aggregate reports. Eventually, the individual HHA reports will include 
case-mix-adjusted outcomes from the HHA's current year and previous 
year. In addition, through the States, the HHA will have continuous on-
line access to case-mix, tabular, and adverse event reports based on 
its own reported OASIS data.
    We will provide support to the States and HHAs to ensure the 
continuous reporting of OASIS data, the generation of OBQI reports, and 
the development and use of OBQI programs by HHAs. To assist in the 
effective use of OBQI, HHAs will be expected to participate in a 
program specified by the Secretary that involves the targeting of State 
or specific national quality outcomes for improvement.

J. Illustrative Examples

1. 60-day Episode--No Recertification
    In a 60-day episode, a patient is assessed and assigned to HHRG10 
by HHA-A. The patient is under a physician certified plan of care with 
a predicted end date of Day 30. The patient meets the treatment goals 
and is discharged on Day 30. The patient does not experience a 
significant change in condition from Day 1-30. The patient does not 
return to HHA-A during Day 31-60 of the 60-day episode and does not 
transfer to another HHA during Day 31-60 of the 60-day episode. Even 
though HHA-A only served the patient from Day 1-30, HHA-A receives the 
total 60-day episode payment for the patient.

BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP28OC99.007

2. 60-Day Episode with Recertification
    An eligible home health patient is certified for a 60-day episode 
period including the start of care date October 1 through and including 
the last day of the episode November 29. The patient is grouped into 
HHRG W. No therapy is required for the patient. The corresponding 
payment amount for

[[Page 58192]]

HHRG W is $800. The HHA has obtained a signed plan of care before 
billing. The HHA submits the initial claim with the code associated 
with HHRG W to the RHHI. The pricer computes the 50 percent payment for 
HHRG W, and the RHHI processes the $400 payment to the HHA.
    The 60-day payment covers the patient for the 60-day period 
covering October 1 (the first billable service date) through November 
29. At the end of the episode, the HHA reassesses the patient via the 
OASIS and in conjunction with the physician determines the need for 
continued home care. At the end of the episode, the HHA submits the 
final claim for the residual 50 percent payment for HHRG W. The HHA 
submits the final claim to the RHHI. The pricer computes the 50 percent 
residual payment and processes the clean claim. The HHA receives the 
$400 residual payment for the patient.
    At the end of the episode, the HHA also completes a follow-up OASIS 
for purposes of recertification of the 60-day episode. The reassessment 
OASIS is fed into the grouper logic at the HHA, and a different HHRG 
code is generated. The HHRG U is placed on the claim, and the HHA will 
submit an initial claim for the next 60-day episode. The cycle repeats. 
As discussed above, the recertification of subsequent episodes for 
continuous home care spans the start of care date plus 60 days. Unlike 
the PEP adjustment, continuous episode recertifications for eligible 
beneficiaries do not begin with the first billable visit.
3. Partial Episode Payment Adjustment Examples
    The following specific intervening events--
     a beneficiary elected transfer; or
     a discharge and return to the same HHA start a new 60-day 
episode clock for purposes of payment, OASIS assessment, and physician 
certification of the plan of care. The original 60-day episode payment 
is proportionally adjusted to reflect the length of time the 
beneficiary remained under the agency's care prior to the intervening 
event. The proportional payment is called the PEP adjustment.
    The PEP adjustment is based on the span of days including the 
start-of-care date (first billable service date through and including 
the last billable service date) under the original plan of care prior 
to the intervening event. The PEP adjustment is calculated using the 
span of days (first billable service date through and including the 
last billable service date) under the original plan of care as a 
proportion of 60. The proportion is multiplied by the original case mix 
and wage adjusted 60-day episode payment.

Beneficiary Elected Transfer

    In a 60-day episode, a patient is assigned to HHRG10=$3000 by HHA-1 
and is discharged on Day 20. Day 18 is the last day of the current 60-
day episode with a physician ordered/billable visit. The patient 
transfers to HHA-2 on Day 40. HHA-2 assesses the patient and obtains 
physician orders for a new plan of care. The first ordered service/
billable service is Day 43. Day 43 becomes Day 1 of the new 60-day 
episode for HHA-2. The PEP adjustment for HHA-1 would equal $3000 * 18/
60. The triggering date for the end of the partial episode is the last 
physician ordered service/billable visit date for the HHA. The 
triggering date for the new 60-day episode is the first ordered service 
in the new plan of care corresponding to the new 60-day episode due to 
the beneficiary elected transfer or transfer to a new HHA that is not 
under common ownership with original HHA-1.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP28OC99.008

Discharge and Return to the Same HHA During the 60-Day Episode

    In a 60-day episode, a patient is discharged on Day 20 and returns 
to the same HHA on Day 35. The patient met the treatment goals in the 
original plan of care. The original plan of care was terminated with no 
anticipated need for home care during the balance of the 60-day 
episode. The initial percentage payment would be adjusted to recognize 
the 20 days served by the HHA under the initial case-mix category. The 
last ordered visit was under the original plan of care coincidentally 
furnished on Day 20 of the initial 60-day episode. For example, the 
patient is assigned to HHRG10=3000 episode payment, is discharged on 
Day 20, and returns to the same HHA on Day 35. The HHA would reassess 
the patient on or about Day 35 and start a new 60-day clock for 
physician recertification, OASIS, and case-mix assignment for payment. 
The start of the new payment clock corresponds to the first physician 
ordered service/billable service in the new plan of care. For purposes 
of this example, the first physician ordered service in the new plan of 
care for the new 60-day episode payment is Day 40. Day 40 of the 
original episode becomes Day 1 of the new certified period.
    The adjusted payment for the partial episode spans the start of 
care date (Day 1-first physician ordered service) through and including 
the last day of the 60-day episode that includes the last physician 
ordered service furnished/billable visit prior to the intervening event 
as a proportion of 60 days. The adjusted payment for the partial 
episode spans Day 1 through and including Day 20. Day 20 is the last 
day of the original episode that includes a physician ordered/billable 
service. The PEP adjustment would equal $3000 times 20/60. The 
triggering date that closes the original episode with a PEP adjustment 
is the last date of service with a physician ordered/billable service 
prior to the intervening event. The triggering date for the new episode 
is the first ordered service in the new plan of care corresponding to 
the new 60-day episode due to discharge and return to the HHA in same 
episode.

[[Page 58193]]

[GRAPHIC] [TIFF OMITTED] TP28OC99.009


4. Significant Change in Condition Payment Adjustment Examples
    As discussed above, we are proposing that the third intervening 
event over a course of a 60-day episode of home health care that could 
trigger a change in payment level would be a significant change in the 
patient's condition. We are proposing the significant change in 
condition payment adjustment (SCIC Adjustment) to be the proportional 
payment adjustment reflecting the time both prior and after the patient 
experienced a significant change in condition during the 60-day 
episode. The proposed SCIC adjustment occurs when a beneficiary 
experiences a significant change in condition during a 60-day episode 
that was not envisioned in the original plan of care. In order to 
receive a new case mix assignment for purposes of payment during the 
60-day episode, the HHA must complete an OASIS assessment and obtain 
the necessary physician change orders reflecting the significant change 
in treatment approach in the patient's plan of care.
    As discussed above, the SCIC adjustment occurs in two parts during 
the 60-day episode. The first part of the SCIC adjustment uses the span 
of days of the first billable service date through the last billable 
service date prior to the intervening event of the patient's 
significant change in condition that warrants a new case mix assignment 
for payment. The second part of the SCIC adjustment is determined by 
taking the span of days (first billable service date through the last 
billable service date) after the patient experiences the significant 
change in condition through the balance of the 60-day episode as a 
proportion of 60 multiplied by the new episode payment level resulting 
from the significant change. The initial percentage payment provided at 
the start of the 60-day episode will be adjusted at the end of the 
episode to reflect the first and second parts of the SCIC adjustment 
(or any applicable medical review or LUPA) determined at the final 
billing of the 60-day episode .
    For example, an HHA assigns a patient to a HHRG that equals $2,000 
and would be paid the initial 50 percent equaling $1,000 at the start 
of the episode. The patient's first billable service date is Day 1. The 
patient experiences a significant change in condition on Day 19. The 
last billable service date prior to the significant change in condition 
is Day 20. The HHA completes the OASIS assessment, obtains the 
necessary physician change orders to alter the course of treatment in 
the plan of care, and changes the case mix assignment for payment 
reflecting the patient's change in condition. The HHA has all of the 
necessary information to begin rendering services under the revised 
plan of care and at the new case mix level of a HHRG that equals $4,000 
on Day 25. The span of days that are used to calculate the first part 
of the SCIC adjustment are Day 1 through Day 20. Day 25 is the first 
billable service date under the second part of the SCIC adjustment. Day 
60 is the last billable service date at the case mix level HHRG that 
equals $4,000 prior to the end of the 60-day episode.
    The first part of the SCIC adjustment is:

(Day 1-Day 20) 20/60  x  $2,000 = $666.67

    The second part of the SCIC adjustment is:

(Day 25-Day 60) 36/60  x  $4,000 = $2,400.00
Total SCIC Adjustment= $3,066.67

The original $1,000 payment (50 percent of the HHRG=$2,000) would be 
adjusted with $2,066.67. to pay the balance of the total SCIC 
Adjustment of $3,066.67 unless there is any applicable medical review 
or LUPA determined at the final billing for the 60-day episode.
[GRAPHIC] [TIFF OMITTED] TP28OC99.010



[[Page 58194]]


BILLING CODE 4120-01-C

K. Required Schedule for Completing OASIS Supplemented by One 
Additional Case-Mix Item

    As discussed above, sections 1895(b)(4)(A)(i) and (b)(4)(B) of the 
Act require the Secretary to establish and make appropriate case-mix 
adjustments to the units of payment in a manner that explains a 
significant amount of the variation in cost among different units of 
service. Section 1895(b)(2) of the Act requires the Secretary to 
provide a general system design for the HHA PPS that provides for 
continued access to quality services. Further, section 4602(e) of the 
BBA, effective for cost reporting periods beginning on or after October 
1, 1997, the Secretary may require all HHAs to submit additional 
information that the Secretary considers necessary for the development 
of a reliable case-mix system.

Required Schedule for Completion of OASIS Supplemented by One 
Additional Case-Mix Item

    As discussed above, the initial OASIS assessment completed at the 
start of care and the assessment at every subsequent follow-up 
recertification for beneficiaries who continue to be eligible for home 
health services will be the only assessments recognized for purposes of 
payment for the 60-day episode. The start of care OASIS must be 
completed at the beginning of each 60-day episode. An HHA may not bill 
for the initial percentage episode payment without the grouper-
generated code corresponding to the complete OASIS assessment 
supplemented, as necessary, by the additional therapy variable for that 
60-day episode. We are proposing to amend the current bimonthly 
completion time frames published in the January 25, 1999 conditions of 
participation (COP) final rule (64 FR 3764) by revising 42 CFR 484.55, 
``Condition of participation: Comprehensive assessment of patients,'' 
paragraph (d)(1), to state that the standard for the update of the 
comprehensive assessment would be every 60 days beginning with the 
start of care date, unless there is an intervening beneficiary elected 
transfer, a significant change in condition resulting in a new case mix 
assignment, or a discharge and return to the same HHA during the 60-day 
episode. We are using discrete 60-day episodes for purposes of payment 
under PPS, so it is necessary to replace references to the current 
``bimonthly period'' to ``every 60 days unless there is an intervening 
beneficiary elected transfer, a significant change in condition 
resulting in a new case mix assignment, or a discharge and return to 
the same HHA during the 60-day episode.'' The initial OASIS assessment 
completed at the start of care is updated every 60 days. The initial 
OASIS and subsequent follow-up OASIS supplemented, as applicable, by 
the treatment variable regarding therapy use will also be updated on a 
60-day timetable. Each 60-day follow-up OASIS supplemented by the 
treatment variable regarding therapy will be the basis for case-mix 
adjusting each subsequent 60-day episode period for purposes of 
payment.
    One modification to the current OASIS schedule for the follow-up 
assessment is necessary in order for the case-mix adjustment of each 
subsequent 60-day episode recertification. The current follow-up 
assessment schedule does not now include data elements MO230 Primary 
Home Care Diagnosis and MO390 Vision. Both are necessary elements of 
the case-mix adjustment methodology. The schedule for follow-up 
assessments must be modified to include these two case-mix variables. 
Each follow-up assessment is used as the basis for updating the 
comprehensive assessment and case-mix adjusting subsequent 60-day 
episodes for payment purposes. The follow-up assessment schedule must 
include all 19 OASIS items that have been determined to be necessary 
for case-mix adjustment.
    As discussed above in section IV.A. of this regulation, we are 
proposing that the grouper logic will be located at the provider level. 
The grouper logic at the HHA will select and categorize the relevant 
OASIS items and one treatment variable regarding therapy use necessary 
to establish a case-mix category for payment purposes. As stated above, 
under section 4602(e) of the BBA, effective for cost reporting periods 
beginning on or after October 1, 1997, the Secretary may require all 
HHAs to submit additional information that the Secretary considers 
necessary for the development of a reliable case-mix system. Therapy 
use (physical therapy, speech-language pathology services, and 
occupational therapy) during the 60-day episode is a significant 
explanatory variable in the clinical case-mix model. Since actual 
therapy use cannot be determined until the end of the 60-day episode, 
we are proposing the projection of therapy use at the start of the 60-
day episode and the confirmation of the therapy use at the end of the 
60-day episode. As discussed in section II.C. of this regulation, the 
research has developed a utilization proxy for time. As stated above, 
10 therapy visits equate to 8 or more therapy hours during a 60-day 
episode. We will use the line-item date information from the close-out 
bill to confirm the projected therapy use incorporated into the code 
placed on the start of care bill.
    The additional case-mix item regarding therapy use during a 60-day 
episode will be effective October 1, 2000 with the date of PPS 
implementation.

L. Relationship Between Payment and OASIS

    As explained above, each Medicare home health patient is classified 
into an HHRG group for each 60-day episode period. The group to which 
the patient is classified is based on the information about the 
patient's clinical resource needs as reported on the OASIS-B as part of 
the approach to overall comprehensive assessment as required by 42 CFR 
484.55 in the HHA COPs, and the services ordered in the patient's home 
health plan of care, including but not limited to, a physician's orders 
for therapy services.

M. Transition of Assessment and Certification Dates for Beneficiaries 
Under an Established Home Health Plan of Care

    For eligible beneficiaries under an established home health plan of 
care on October 1, 2000, we are providing transition alternatives.
1. Use of Current OASIS Assessment for Purposes of Case-Mix 
Classification
    If a beneficiary is under an established home health plan of care 
before October, 1, 2000 and the HHA has completed a Start of Care or 
Follow-Up OASIS earlier than September 1, 2000, the HHA must complete a 
one-time additional Follow-Up OASIS within 5 days before October 1, 
2000 for purposes of case-mix classification. If a beneficiary is under 
an established home health plan of care before October 1, 2000 and the 
HHA completed a Start of Care or Follow-Up OASIS on or after September 
1, 2000 and does not wish to do a one-time OASIS at the inception of 
PPS, the HHA may use that earlier version of the OASIS. This is a one-
time grace period.
2. Physician Certification Dates for Beneficiaries Under an Established 
Home Health Plan of Care
    If a beneficiary is under an established home health plan of care 
before October 1, 2000 and the certification date is earlier than 
September 1, 2000, the HHA in conjunction with a certifying physician 
must complete a one-time additional recertification of the plan of care 
before the inception of PPS on October 1, 2000.

[[Page 58195]]

If a beneficiary is under an established home health plan of care 
before October 1, 2000 and the certification date is on or after 
September 1, 2000 and the HHA in conjunction with a certifying 
physician does not wish to do a one-time additional recertification of 
the plan of care at the inception of PPS, the HHA may use the 
recertification date (September 1, 2000 through September 30, 2000) 
from the earlier version of the plan of care. This is a one-time grace 
period.

V. Consolidated Billing

A. Background

    Under the HHA Consolidated Billing requirement established by 
sections 4603(c)(2)(B) and (c)(2)(C) of the BBA, the HHA that 
establishes the home health plan of care has the Medicare billing 
responsibility for all of the Medicare-covered home health services 
listed in section 1861(m) of the Act that the patient receives and are 
ordered by the physician in the plan of care.

B. HHA Consolidated Billing Legislation

Specific Provisions of the Legislation

    Sections 4603(c)(2)(B) and (c)(2)(C) of the BBA amend sections 
1842(b)(6) and 1862(a) of the Act, respectively, to require a new 
consolidated billing and bundling of all home health services while a 
beneficiary is under the plan of care. The statute now requires payment 
for all items and services to be made to an agency.
    Specifically, the law requires, ``in the case of home health 
services furnished to an individual who (at the time the item or 
service is furnished) is under the plan of care of a home health 
agency, payment shall be made to the agency (without regard to whether 
or not the item or service was furnished by the agency, by others under 
arrangement with them made by the agency, or when any other contracting 
or consulting arrangement, or otherwise).''
    However, the statute also provides for separate payment amounts for 
home health care and services currently provided under the DME fee 
schedule. As discussed above in section I.D.1.a. of this regulation, 
under the HHA PPS, DME covered as a home health service as part of the 
Medicare home health benefit will continue to be paid under the DME fee 
schedule. We believe a separate payment amount in addition to the 
prospective payment amount for home health services will be made for 
DME currently covered as a home health service under the PPS. 
Nevertheless, payment for home health services can only be made to the 
HHA that establishes the individual's home health plan of care. This 
requirement would apply even in circumstances in which the services are 
not provided directly or under arrangement. For example, this would 
require the HHA to bill when the plan of care specifies DME and an 
outside supplier provides it.

C. Types of Services That Are Subject to the Provision

    Under the consolidated billing requirement, we require that the HHA 
must submit all Medicare claims for the home health services included 
in 1861(m) of the Act while the beneficiary is under the home health 
plan of care established by a physician and is eligible for the home 
health benefit. The home health services included in consolidated 
billing are:
     Part-time or intermittent skilled nursing care.
     Part-time or intermittent home health aide services.
     Physical therapy.
     Speech-language pathology.
     Occupational therapy, medical social services.
     Routine and nonroutine medical supplies.
     A covered osteoporosis drug (as defined in section 
1861(kk) of the Act--(not paid under PPS rate, see 1833(a)(2)(A)), but 
excluding other drugs and biologicals).
     DME subject to 20 percent coinsurance whether covered 
under Part A or Part B.
     Medical services provided by an intern or resident-in-
training of the hospital, under an approved teaching program of the 
hospital in the case of an HHA that is affiliated or under common 
control with a hospital
     Services at hospitals, SNFs, or rehabilitation centers 
when they involve equipment too cumbersome to bring to the home.

We are seeking comments on the operational feasibility of this 
requirement.

D. Effects of This Provision

    HHAs will no longer be able to ``unbundle'' services to an outside 
supplier that can then submit a separate bill directly to the Part B 
carrier. Instead, the HHA itself will have to furnish the home health 
services either directly or under an arrangement with an outside 
supplier in which the HHA itself, rather than the supplier, bills 
Medicare. The outside supplier must look to the HHA rather than to 
Medicare Part B for payment. This will be a change, especially 
regarding nonroutine medical supplies and DME.
    The consolidated billing requirement eliminates the potential for 
duplicative billings for the same services to the RHHI by the HHA and 
to the Part B carrier by an outside supplier. All covered home health 
services listed in section 1861(m) of the Act ordered in the patient's 
plan of care must be billed by the HHA. We are exploring two options 
for the administrative implementation of this provision. The first 
option would require that all covered home health services listed in 
section 1861(m) of the Act ordered in the patient's plan of care must 
be billed by the HHA to the RHHI. This would include all home health 
services included in the prospective payment amount (part-time or 
intermittent skilled nursing services, part-time or intermittent home 
health aide services, physical therapy services, occupational therapy 
services, speech-language pathology services, medical social services, 
and medical supplies) and the separate additional fee schedule payment 
for durable medical equipment subject to the 20 percent coinsurance 
would be billed by the HHA to the RHHI. The second option would require 
all covered home health services listed in section 1861(m) of the Act 
ordered in the plan of care included in the prospective payment amount 
(part-time or intermittent skilled nursing services, part-time or 
intermittent home health aide services, physical therapy services, 
occupational therapy services, speech-language pathology services, 
medical social services, and medical supplies) to be billed by the HHA 
to the RHHI and the separate additional fee schedule payment for 
durable medical equipment subject to the 20 percent coinsurance billed 
by the HHA as a supplier to be billed to the Durable Medical Equipment 
Regional Carrier under Part B. This means the HHA would have to 
otherwise conform with supplier standards. We solicit public comment on 
either of these approaches.
    As discussed in section II.D.4 of this regulation, the 
responsibility for consolidated billing moves to the transfer HHA. The 
consolidated billing requirement enhances the HHA's capacity to meet 
its existing responsibility to oversee and coordinate the Medicare-
covered home health services that each of its patients receives.
    Consistent with SNF PPS consolidated billing, the beneficiary 
exercises his or her freedom of choice for the entire home health 
benefit of services listed in 1861(m) by choosing the HHA. Once a home 
health patient chooses a particular HHA, he or she has clearly 
exercised freedom of choice with respect to all items and services 
included within the scope of the

[[Page 58196]]

Medicare home health benefit. The HHA's consolidated billing role 
supersedes all other billing situations the beneficiary may wish to 
establish for home health services covered under the scope of the home 
health benefit during the certified episode.
    Current law is silent regarding the specific terms of an HHA's 
payment to an outside supplier, and does not authorize the Medicare 
program to impose any requirements in this regard. We remain concerned, 
however, over the potential for the provision of unnecessary services, 
and will continue to evaluate possible legislative and other approaches 
addressing this concern. One appropriate way to address any abusive 
practices would be through more vigorous enforcement of existing 
statutes and regulations (such as medical review procedures). Further, 
since under current law, an HHA's relationship with its supplier is 
essentially a private contractual matter, the terms of the supplier's 
payment by the HHA must be arrived at through direct negotiations 
between the two parties themselves. Accordingly, we believe that the 
most effective way for a supplier to address any concerns that it may 
have about the adequacy or timeliness of the HHA's payment would be for 
the supplier to ensure that any terms to which it agrees in such 
negotiations satisfactorily address those concerns. Finally, we note 
that matters relating to the enforcement of the statutory anti-kickback 
provisions lie exclusively within the purview of the Office of the 
Inspector General, and any questions or concerns in this area should be 
directed to the attention of that agency.

E. Effective Date for Consolidated Billing

    The effective date for consolidated billing is October 1, 2000.

VI. Provisions of the Proposed Rule

    We are proposing to make a number of revisions to the regulations 
in order to implement both the prospective payment system and the HHA 
Consolidated Billing provision. We propose to make conforming changes 
in 42 CFR parts 409, 424, and 484 to synchronize all timeframes for the 
plan of care certification, OASIS resumption of care assessment, and 
episode payments to reflect a 60-day period. In addition, we are 
proposing to add a new subpart in part 484 to set forth our new payment 
system for HHAs. These revisions and others are discussed in detail 
below.
    First, we are proposing to revise part 409, subpart E, which 
discusses the requirements that must be met for Medicare to make 
payment for home health services. We are proposing to make a conforming 
change in Sec. 409.43 regarding the plan of care requirements. 
Specifically, we propose to revise the frequency for review in 
paragraph (e) of this section by replacing the phrase ``62 days'' with 
``60 days unless there is--
     An intervening beneficiary elected transfer;
     A significant change in condition resulting in a new case 
mix assignment; or
     A discharge and return to the same HHA during the 60-day 
episode that warrants a new 60-day episode payment and a new physician 
certification of the new plan of care.''
    In addition, we are proposing to revise subpart H of this part 
regarding payments of hospital insurance benefits. We are proposing to 
revise paragraph (a) in Sec. 409.100, which discusses payment for 
services, to specify the conditions under which Medicare may pay 
hospital insurance benefits for home health services. We are proposing 
to provide introductory text to paragraph (a) and to redesignate the 
current paragraph (a) as paragraph (a)(1). Proposed paragraph (a)(2) of 
this section would require that Medicare may pay hospital insurance 
benefits for the home health services specified at section 1861(m) of 
the Act, when furnished to an individual who at the time the item or 
service is furnished is under a plan of care of an HHA, to the HHA 
(without regard to whether the item or service is furnished by the HHA 
directly, under arrangement with the HHA, or under any other 
contracting or consulting arrangement).
    We are proposing to make similar changes in part 410, subpart I, 
which deals with payment of benefits under Part B. We propose to add a 
new paragraph (b)(19) to Sec. 410.150 to specify the conditions under 
which Medicare Part B pays for home health services. Specifically, 
proposed paragraph (b)(19) would specify that Medicare Part B pay a 
participating HHA, for home health services furnished to an individual 
who at the time the item or service is furnished is under a plan of 
care of an HHA (without regard to whether the item or service is 
furnished by the HHA directly, under arrangement with the HHA, or under 
any other contracting or consulting arrangement).
    We also propose to revise part 411 subpart A, which discusses 
excluded services. We propose to add a new paragraph (q) to Sec. 411.15 
to specify the conditions under which HHA services are excluded from 
coverage. Proposed paragraph (q) would specify that a home health 
service as defined in section 1861(m) of the Act furnished to an 
individual who is under a plan of care of an HHA is excluded from 
coverage unless that HHA has submitted a claim for payment for such 
services.
    We are also proposing to simplify the authority citation for part 
413. In Sec. 413.1 in the introduction to the section on principles of 
reasonable cost reimbursement, we are proposing to add a new paragraph 
(h) to include the timeframe under which home health services will be 
paid prospectively. Paragraph (h) under this section would specify that 
the amount paid for home health services as defined in section 1861(m) 
of the Act that are furnished beginning on or after October 1, 2000 to 
an eligible beneficiary under a home health plan of care is determined 
according to the prospectively determined payment rates for HHAs set 
forth in part 484, subpart E of this chapter. In addition, we propose 
to amend Sec. 413.64 concerning payments to providers. Specifically, we 
propose to amend paragraph (h)(1) of this section by removing Part A 
and Part B HHA services from the periodic interim payment method.
    We also propose to revise part 424, which explains the conditions 
for Medicare payment. We are proposing to revise Sec. 424.22 regarding 
the certification requirements as a condition for payment. We are 
proposing to add a new paragraph (a)(1)(v) that would specify that as a 
condition for payment of home health services under Medicare Part A or 
Medicare Part B, a physician must certify that the individual is 
correctly assigned to one of the HHRGs. We are also proposing to make a 
conforming change at paragraph (b)(1) of this section regarding the 
timing of the recertification. Specifically, we propose to amend 
Sec. 424.22(b) by replacing the phrase ``at least every 2 months'' with 
``at least every 60 days,'' and adding the following sentence: ``The 
recertification is required at least every 60 days unless there is a 
beneficiary elected transfer, or a discharge and return to the same HHA 
during the 60-day episode that warrants a new 60-day episode payment 
and a new physician certification of the new plan of care.''
    We are proposing to add a new statutory authority, section 1895 of 
the Act, to paragraph (a) of Sec. 484.200, ``Basis and scope.'' Section 
1895 provides for the implementation of a prospective payment system 
for HHAs for portions of cost-reporting periods occurring on or after 
October 1, 2000.
    We are proposing to revise the regulations in 42 CFR part 484, 
which deal with the conditions that an HHA must meet in order to 
participate in

[[Page 58197]]

Medicare. First, we are proposing to revise the part heading from 
``Conditions Of Participation: Home Health Agencies'' to the more 
generic heading ``Home Health Services.'' We are proposing to make a 
conforming change in Sec. 484.18(b) by replacing the phrase ``62 days'' 
with ``60 days unless there is--
     A beneficiary elected transfer;
     A significant change in condition resulting in a change in 
the case-mix assignment; or
     A discharge and return to the same HHA during the 60-day 
episode.''
    Also, we propose to revise Sec. 484.55(d)(1) by replacing ``every 
second calendar month'' with language that reflects the 60-day episode 
and possible PEP adjustment or SCIC adjustment. We are proposing to 
require that the comprehensive assessment be updated and revised as 
frequently as the patient's condition warrants but not less frequently 
than every 60 days beginning with the start-of-care date unless there 
is--
     A beneficiary elected transfer;
     A significant change in condition resulting in a change in 
the case-mix assignment; or
     A discharge and return to the same HHA during the 60-day 
episode.
    In addition, we are proposing to add and reserve a new subpart D, 
then add a new subpart E, ``Prospective Payment System for Home Health 
Agencies.'' This new subpart would set forth the regulatory framework 
of the new prospective payment system. It specifically discusses the 
development of the payment rates, associated adjustments, and related 
rules. In Sec. 484.202, ``Definitions,'' we are proposing the following 
definitions for purposes of this new subpart:
    As used in this subpart--
    Case-mix index means a scale that measures the relative difference 
in resource intensity among different groups in the clinical model.
    Clinical model means a system for classifying Medicare-eligible 
patients under a home health plan of care into mutually exclusive 
groups based on clinical, functional, and intensity-of-service 
criteria. The mutually exclusive groups are defined as Home Health 
Resource Groups (HHRGs).
    Discipline means one of the six home health disciplines covered 
under the Medicare home health benefit (skilled nursing services, home 
health aide services, physical therapy services, occupational therapy 
services, speech-language pathology services, and medical social 
services).
    Market basket index means an index that reflects changes over time 
in the prices of an appropriate mix of goods and services included in 
home health services.
    In proposed Sec. 484.205 ``Basis of payment,'' we discuss the 
Medicare payment to providers of services. Proposed Sec. 484.205(a) 
describes the method by which the provider will receive payment. 
Specifically, Sec. 484.205(a)(1) provides that an HHA receives a 
national 60-day episode payment of a predetermined rate for a home 
health service paid on a reasonable cost basis. We determine this 
national 60-day episode payment under the methodology set forth in 
Sec. 484.215. Paragraph (a)(2) would specify that an HHA may receive a 
low-utilization payment adjustment (LUPA) of a predetermined per-visit 
rate. We determine the LUPA under the methodology set forth in 
Sec. 484.230. Paragraph (a)(3) of this section provides that an HHA may 
receive a PEP adjustment due to an intervening event during an existing 
60-day episode that initiates the start of a new 60-day episode payment 
and a new patient plan of care. We determine the PEP adjustment under 
the methodology set forth in Sec. 484.235. Paragraph (a)(4) of this 
section specifies that a HHA may receive a significant change in 
condition payment adjustment (SCIC) adjustment due to the intervening 
event defined as a significant change in the patient's condition during 
an existing 60-day episode. We determine the SCIC adjustment under a 
methodology set forth in Sec. 484.237.
    Proposed paragraph (b) discusses the 60-day episode payment and 
circumstances surrounding adjustments to the payment method. This 
paragraph proposes that the national 60-day episode payment represents 
payment in full for all costs associated with furnishing a home health 
service paid on a reasonable cost basis as of August 5, 1997 (the date 
of the enactment of the BBA) unless the national 60-day episode payment 
is subject to a low-utilization payment adjustment as set forth in 
Sec. 484.230, a partial episode payment adjustment as set forth in 
Sec. 484.235, a significant change in condition payment adjustment set 
forth in Sec. 484.237 or an additional outlier payment as set forth in 
Sec. 484.240. All payments under this system may be subject to a 
medical review adjustment. DME provided as a home health service as 
defined in section 1861(m) of the Act continues to be paid the fee 
schedule amount.
    In paragraph (c) of this section, we propose the low-utilization 
payment adjustment to the 60-day episode payment. We would require that 
an HHA receive a national 60-day episode payment of a predetermined 
rate for home health services paid on a reasonable cost basis as of 
August 5, 1997, unless we determine at the end of the 60-day episode 
that the HHA furnished minimal services to a patient during the 60-day 
episode. We determine a low-utilization payment adjustment under the 
methodology set forth in Sec. 484.230.
    In paragraph (d), we discuss the partial episode payment adjustment 
(PEP). We describe that an HHA receives a national 60-day episode 
payment of a predetermined rate for home health services paid on a 
reasonable cost basis as of August 5, 1997, unless there is an 
intervening event that warrants the initiation of a new 60-day episode 
payment and a new physician certification of the new plan of care. The 
initial HHA receives a PEP adjustment reflecting the length of time the 
patient remained under its care. The PEP adjustment would not apply in 
situations of transfers among HHAs of common ownership. Further, the 
discharge and return to the same HHA is only recognized in those 
circumstances when a beneficiary reached the goals in the original plan 
of care. The original plan of care must have been terminated with no 
anticipated need for additional home health services for the balance of 
the 60-day episode. We determine a partial episode payment adjustment 
under the methodology set forth in Sec. 484.235.
    In paragraph (e), we discuss the significant change in condition 
adjustment. We discuss that the HHA receives a national 60-day episode 
payment of a predetermined rate for home health services paid on a 
reasonable cost basis as of August 5, 1997, unless HCFA determines an 
intervening event defined as a beneficiary experiencing a significant 
change in condition during a 60-day episode that was not envisioned in 
the original plan of care. In order to receive a new case mix 
assignment for purposes of payment during the 60-day episode, the HHA 
must complete an OASIS assessment and obtain the necessary physician 
change orders reflecting the significant change in the treatment 
approach in the patient's plan of care. The significant change in 
condition payment adjustment is a proportional payment adjustment 
reflecting the time both before and after the patient experienced a 
significant change in condition during the 60-day episode.
    In paragraph (f), we discuss how we treat payment for outliers. In 
this paragraph we would provide that an HHA receives a national 60-day 
episode payment of a predetermined rate for

[[Page 58198]]

home health services paid on a reasonable-cost basis as of August 5, 
1997, unless the estimated cost of the 60-day episode exceeds a 
threshold amount. The outlier payment is defined to be a proportion of 
the estimated costs beyond the threshold. An outlier payment is a 
payment in addition to the national 60-day episode payment. The total 
of all outlier payments is limited to 5 percent of total outlays under 
the HHA PPS. We determine an outlier payment under the methodology set 
forth in Sec. 484.240.
    In the proposed Sec. 484.210, we would specify the data used for 
the calculation of the national prospective 60-day episode payment. 
These data include the following:
     Medicare cost data on the most recent audited cost report 
data available.
     Utilization data based on Medicare claims.
     An appropriate wage index to adjust for area wage 
differences.
     The most recent projections of increases in costs from the 
HHA market basket index.
     OASIS assessment data and other data that account for the 
relative resource utilization for different HHA Medicare patient case-
mix.
    In Sec. 484.215, paragraphs (a) through (e) would specify the 
methodology used for the calculation of the national 60-day episode 
payment. Proposed paragraph (a) would specify that in calculating the 
initial unadjusted national 60-day episode payment applicable for a 
service furnished by an HHA using data on the most recent available 
audited cost reports, we determine each HHA's costs by summing its 
allowable costs for the period. We determine the national mean cost per 
visit.
    Proposed paragraph (b) of this section would specify that in 
calculating the initial unadjusted national 60-day episode payment, we 
determine the national mean utilization for each of the six disciplines 
using home health claims data.
    Proposed paragraph (c) of this section would specify that we use 
the HHA market basket index to adjust the HHA cost data to reflect cost 
increases occurring between October 1, 1996 through September 30, 2001. 
For each fiscal year from 2002 or 2003, we update the cost data by a 
factor equivalent to the annual market basket index percentage minus 
1.1 percentage points.
    Proposed paragraph (d) of this section would describe how we 
calculate the unadjusted national average prospective payment amount 
for the 60-day episode. Specifically, we would calculate this payment 
amount by--
     Computing the mean national cost per visit;
     Computing the national mean utilization for each 
discipline;
     Multiplying the mean national cost per visit by the 
national mean utilization summed in the aggregate for each discipline; 
then
     Adding to this amount, amounts for nonroutine medical 
supplies and an OASIS adjustment for estimated ongoing reporting costs.
    Proposed paragraph (e) regarding standardization of the data for 
variation in area wage levels and case-mix would specify that we 
standardize the cost data described in paragraph (a) of this section to 
remove the effects of geographic variation in wage levels and variation 
in case mix. We standardize the cost data for geographic variation in 
wage levels using the hospital wage index. We standardize the cost data 
for HHA variation in case mix using the case-mix indices and other data 
that indicate HHA case mix.
    Proposed Sec. 484.220 would describe how we calculate the national 
adjusted prospective 60-day episode payment rate for case-mix and area 
wage levels. This section would specify that we adjust the national 
prospective 60-day episode payment rate to account for HHA case mix 
using a case-mix index to explain the relative resource utilization of 
different patients. We also adjust the national prospective 60-day 
episode payment rate to account for geographic differences in wage 
levels using an appropriate wage index.
    In proposed Sec. 484.225, we explain our methods for annually 
updating the national adjusted prospective 60-day episode payment rates 
for inflation. This update is handled in the following manner:
     We update the unadjusted national 60-day episode payment 
rate on a fiscal year basis.
     For FY 2001, the unadjusted national 60-day episode 
payment rate is adjusted using the latest available market basket 
factors.
     For fiscal year 2002 or 2003, the unadjusted national 60-
day episode payment rate is equal to the rate for the previous period 
or fiscal year increase by a factor equal to the HHA market basket 
minus 1.1 percentage point.
     For any subsequent fiscal years, the unadjusted national 
rate is equal to the rate for the previous fiscal year increased by the 
applicable HHA market basket index amount.
    In proposed Sec. 484.230, we explain the methodology we use for the 
calculation of the low-utilization payment adjustment. In this section, 
we would specify that in calculating the low-utilization payment 
adjustment an episode with four or fewer visits is paid the national 
average standardized per-visit amount by discipline for each visit 
type. We would also specify that the national average standardized per-
visit amount is determined by using cost data set forth in 
Sec. 484.210(a) and adjusting by the appropriate wage index.
    Proposed Sec. 484.235 illustrates the methodology we used to 
calculate the partial episode payment adjustment. The intervening event 
of a beneficiary elected transfer, or discharge and return to the same 
HHA during the 60-day episode warrants a new 60-day episode payment and 
a new physician certification of a new plan of care. The original 60-
day episode payment is adjusted with a partial episode payment that 
reflects the length of time the beneficiary remained under the care of 
the original HHA. The partial episode payment is calculated using the 
actual days served by the original HHA as a proportion of 60 multiplied 
by the initial 60-day episode payment.
    Proposed Sec. 484.237 illustrates the methodology we used to 
calculate the significant change in condition payment adjustment. The 
intervening event, here a beneficiary experiencing a significant change 
in condition during a 60-day episode that was not envisioned in the 
original plan of care, initiates the significant change in condition 
payment adjustment. The significant change in condition adjustment is 
calculated in two parts. The first part of the SCIC adjustment reflects 
the adjustment to the level of payment prior to the significant change 
in the patient's condition during the 60-day episode. The second part 
of the SCIC adjustment reflects the adjustment to the level of payment 
after the significant change in the patient's condition occurs during 
the 60-day episode. The first part of the SCIC adjustment is determined 
by taking the span of days prior to the patient's significant change in 
condition as a proportion of 60 multiplied by the original episode 
amount. The original episode payment level is proportionally adjusted 
using the span of time the patient was under the care of the HHA prior 
to the significant change in condition that warranted an OASIS 
assessment, physician change orders indicating the need for a 
significant change in the course of the treatment plan, and the new 
case mix assignment for payment at the end of the 60-day episode. The 
second part of the SCIC adjustment is a proportional payment adjustment 
reflecting the time the patient will be under the care of the HHA after 
the significant change in condition and continuing until the end

[[Page 58199]]

of the 60-day episode. The second part of the SCIC adjustment is 
determined by taking the span of days (first billable service date 
through the last billable service date) after the patient experiences 
the significant change in condition through the balance of the 60-day 
episode as a proportion of 60 multiplied by the new episode payment 
level resulting from the significant change. The initial percentage 
payment provided at the start of the 60-day episode will be adjusted at 
the end of the episode to reflect the first and second parts of the 
SCIC adjustment.
    Proposed Sec. 484.240 describes the methodology we used to 
calculate the outlier payment. This methodology for the calculation of 
the outlier payment involves the following:
     We make an outlier payment for an episode whose estimated 
cost exceeds a threshold amount for each case-mix group.
     The outlier threshold for each case-mix group is the 
episode payment amount for that group, the PEP adjustment amount for 
the episode or the total significant change in condition adjustment for 
the episode plus a fixed dollar loss amount that is the same for all 
case-mix groups.
     The outlier payment is a proportion of the amount of 
estimated cost beyond the threshold.
     We estimate the cost for each episode by applying the 
standard per-visit amount to the number of visits by discipline 
reported on claims.
     The fixed dollar loss amount and the loss-sharing 
proportion are chosen so that the estimated total outlier payment is no 
more than 5 percent of total episode payment.
    Proposed Sec. 484.250 relates to data that must be submitted for 
the development of a reliable case mix. Specifically, we would require 
an HHA to submit the OASIS data described at the current 
Sec. 484.55(b)(1) and (d)(1) (that we propose to revise in this rule) 
to administer the payment rate methodologies described in Sec. 484.215 
(methodology used for the calculation of the national 60-day episode 
payment), Sec. 484.230 (methodology used for the calculation of the 
LUPA), Sec. 484.235 (methodology used for the calculation of the PEP 
adjustment), and Sec. 484.237 (methodology used for the calculation of 
the SCIC adjustment.
    Proposed Sec. 484.260 discusses the limitation for review with 
regard to our new payment system. In this section, we specify that 
judicial or administrative review under sections 1869 or 1878 of the 
Act, or otherwise, is prohibited with regard to the establishment of a 
payment unit including the national 60-day episode payment rate and the 
LUPA. This prohibition includes the establishment of the transition 
period, definition and application of the unit of payments, the 
computation of initial standard prospective payment amounts, the 
establishment of the adjustment for outliers, and the establishment of 
case-mix and area wage adjustment factors.

VII. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, when we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

VIII. Collection of Information Requirements

    Under the Paperwork Reduction Act (PRA) of 1995, we are required to 
provide 60-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 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 are soliciting public comment on each of these issues for the 
information collection requirements (ICRs) as summarized and discussed 
below.

Section 484.55  Condition of Participation: Comprehensive Assessment of 
Patients

    Section 484.55(d)(1), ``Update of the comprehensive assessment,'' 
requires entities to complete OASIS every 60 days beginning with the 
start of care date. This proposed requirement will revise the current 
requirement referenced in Sec. 484.55(d)(1) by replacing ``every second 
calendar month'' with ``every 60 days'' and adding language to address 
the possible PEP adjustment or SCIC adjustment. The new language would 
require that the comprehensive assessment be updated and revised as 
frequently as the patient's condition warrants but not less frequently 
that every 60 days beginning with the start-of-care date, unless there 
is--
     A beneficiary elected transfer;
     A significant change in condition resulting in a new case-
mix assignment; or
     A discharge and return to the same HHA during the 60-day 
episode that warrants a new 60-day episode payment and a new physician 
certification of the new plan of care. We believe the 60-day episode 
provides an appropriate time frame for purposes of prospective payment 
for many reasons. The 60-day episode period is the basic time frame 
under which HHAs have historically been required to manage and project 
home health care needs of beneficiaries in order to comply with current 
plan of care certification requirements for Medicare home health plans 
of care. The 60-day episode period basically matches the reassessment 
schedule for OASIS, and this parallel time frame will permit case-mix 
adjustment of each episode. As discussed above in section I.C., the 60-
day episode captures the majority of stays experienced in the per-
episode HHA PPS Demonstration.
    We do not believe the change in reporting from at least every 62 
days to 60 days imposes any additional burden on HHAs. However, we 
explicitly solicit comments on this revision of reporting requirements.
    We are specifically seeking comments on the potential burden 
associated with the PEP adjustment in terms of acquiring a new 
physician certification and new plan of care in order to receive a new 
60-day episode payment when a patient is discharged and returns to the 
same HHA during the 60-day episode or a beneficiary elects to transfer 
to a new HHA during the 60-day episode. We do not believe there is any 
new burden associated with requiring a new physician certification and 
new plan of care when a patient elects to transfer to a new HHA during 
a 60-day episode, as these are current requirements. We also believe 
the SCIC adjustment reflects the current practice of notifying the 
physician when the patient's condition changes and obtaining necessary 
physician change orders to reflect a change in the course of treatment 
in the beneficiary's existing plan of care. We are, however, seeking 
comments on the proposal.
    Each episode must be identified to establish that a beneficiary is 
under a plan of care at that primary HHA. The primary HHA is 
responsible for coordinating the beneficiary's care and

[[Page 58200]]

billing for all covered home health services ordered in the plan of 
care for the 60-day episode. The primary HHA must provide this 
information to HCFA. Consistent with the patients' rights provisions in 
the HHA conditions of participation regulation, the HHA must advise 
patients that as their primary HHA, all covered home health services 
provided during the episode must be furnished directly or under 
arrangement with the agency unless the beneficiary elects to transfer 
to another primary HHA. The acknowledgment that this information has 
been provided should be retained by the HHA. We do not envision a new 
specific form requirement for the primary HHA designation. We are 
specifically seeking comments on the industry's ability to 
operationally comply with this requirement.
    We have submitted a copy of this proposed rule to the Office of 
Management and Budget (OMB) for its review of the information 
collection requirements described above. These requirements are not 
effective until they have been approved by OMB.
    If you comment on any of these information collection and record 
keeping requirements, please mail copies directly to the following:

Health Care Financing Administration, Office of Information Services, 
Security and Standards Group, Division of HCFA Enterprise Standards, 
Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850, Attn: 
John Burke, HCFA-1059-P
      and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Allison Eydt, HCFA Desk Officer.

IX. Regulatory Impact Statement

    Section 804(2) of title 5, United States Code (as added by section 
251 of Public Law 104-121), specifies that a ``major rule'' is any rule 
that the Office of Management and Budget finds is likely to result in--
     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers, 
individual industries, Federal, State, or local government agencies, or 
geographic regions; or
     Significant adverse effects on competition, employment, 
investment productivity, innovation, or on the ability of United States 
based enterprises to compete with foreign based enterprises in domestic 
and export markets.
    We estimate, based on a simulation model, that the redistributional 
effects on HHAs participating in the Medicare program associated with 
this proposed rule would range from a positive $650 million for 
freestanding not-for-profit agencies to a negative $983 million for 
freestanding for-profit agencies in FY 2001. Therefore, this rule is a 
major rule as defined in Title 5, United States Code, section 804(2).
    We have examined the impacts of this proposed rule as required by 
Executive Order 12866, the Unfunded Mandates Reform Act of 1995, 
(Public Law 104-4), and the Regulatory Flexibility Act (RFA) (Public 
Law 96-354). Executive Order 12866 directs agencies to assess all costs 
and benefits of available regulatory alternatives and, when regulation 
is necessary, to select regulatory approaches that maximize net 
benefits (including potential economic, environmental, public health 
and safety effects, distributive impacts, and equity). A regulatory 
impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more annually). 
Section 1895(b)(3)(A)(i) of the Act requires that the total amounts 
payable under the HHA PPS be equal to the total amount that would have 
been paid if this system had not been in effect. Section 
1895(b)(3)(A)(ii) of the Act requires the standard prospective payment 
amounts to be budget neutral to the FY 2001 home health interim payment 
system limits reduced by 15 percent. Section 4603(e) requires that the 
15 percent reduction in interim payment system limits takes place if 
the PPS is not implemented. Section 5101(d)(2) of OCESAA adds a new 
section 1895(b)(3)(B)(ii) to the Act to require the standard 
prospective payment amounts to be increased by a factor equal to the 
home health market basket minus 1.1 percentage points for FY 2002 or 
2003. In addition, for subsequent fiscal years, the law requires the 
rates to be increased by the applicable home health market basket index 
change. Thus, subject to these adjustments, the statutory construction 
of this proposed rule is budget neutral. However, we are aware that 
there would be a number of organizational accommodations that must be 
made by HHAs in order to make the transition from the cost-based/
interim payment system environment to a prospective payment environment 
that would result in costs to these entities. On that basis, we are 
preparing this RIA.
    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies prepare an assessment of anticipated costs and benefits 
for any rule that may result in an expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of $100 
million in any given year. We believe that the costs associated with 
this proposed rule that apply to these governmental sectors would fall 
below this threshold. Therefore, the law does not apply and we have not 
prepared an assessment of anticipated costs and benefits of this 
proposed rule.
    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 governmental agencies. 
Most HHAs are considered small entities, either by nonprofit status or 
by having revenues of $5 million or less annually. Table 10 illustrates 
the distribution of HHAs by provider type participating in Medicare as 
of April 13, 1999.

               Table 10.--Number of HHAs by Provider Type
------------------------------------------------------------------------
                      HHA provider type                          Number
------------------------------------------------------------------------
Visiting Nurse Association...................................        484
Combination Government and Voluntary.........................         34
Official Health Agency.......................................      1,067
Rehab Facility Based.........................................          2
Hospital Based...............................................      2,486
Skilled Nursing Facility Based...............................        174
Other........................................................      4,612
                                                              ----------
    Total....................................................     8,859
------------------------------------------------------------------------
Source: HCFA--On Line Survey Certification and Reporting System Standard
  Report 10--4/13/99.

    The following RIA/RFA analysis, together with the rest of this 
preamble, explains the rationale for and purposes of this rule, 
analyzes alternatives, and presents the measures we propose to minimize 
the burden on small entities.

A. Background

1. General
    This proposed rule sets forth a prospective payment system for all 
costs of home health services under section 1895(b) of the Act. Section 
5101(c)(2) of OCESAA amended the statute to require that all HHAs be 
paid under HHA PPS effective October 1, 2000. Section I. of the 
preamble details the requirements of the BBA and OCESAA for the 
development of the HHA PPS. Below we summarize a number of those areas 
that specifically apply to the impact.
     Section 1895(b)(1) of the Act provides for a transition of 
not longer than 4 years during which a portion of the prospective 
payment amount may be agency-specific as long as the blend

[[Page 58201]]

does not exceed budget-neutrality targets.
     Section 1895(b)(3)(A)(i) of the Act requires that the 
prospective payment amounts be standardized to eliminate the effects of 
case mix and wage levels among HHAs.
     Section 1895(b)(3)(C) of the Act provides for outlier 
payments. Section 1895(b)(5) of the Act states that total outlier 
payments cannot exceed 5 percent of either projected or estimated total 
HHA PPS payments.
    Section 1895(b) of the Act allows us broad authority in the 
establishment of several key elements of the system. Most of these 
elements, and the alternatives that were considered, are discussed in 
detail earlier in the preamble of this proposed rule. Several that 
warrant additional discussion are the length of episode for payment 
purposes, the case-mix methodology, and proration of prospective 
payment amounts.
2. 60-Day Episode Definition and Payment Rate
    As we explain in section II. of the preamble, we are proposing that 
the prospective payment unit of payment under the HHA PPS be based on a 
60-day episode of Medicare-covered home health care as OASIS data will 
be captured on a 60-day cycle. Current Medicare plan-of-care 
certification requirements are also done bimonthly, and most episodes 
in the HHA per-episode PPS demonstration ended in 60 days or less.
    As we explain in section II. of the preamble, the 60-day episode 
payment rate includes all costs of home health services covered and 
paid for on a reasonable-cost basis and would be based on the most 
recently available audited cost-report data. It would be standardized 
to eliminate the effects of case mix and wage levels among HHAs. It 
must be budget neutral to the current HHA interim payment system 
limitation amounts reduced by 15 percent at the inception of the HHA 
PPS on October 1, 2000. As amended by section 5101(d)(2) of OCESAA, 
sections 1895(b)(3)(B)(i) and (b)(3)(B)(ii) of the Act require that the 
standard prospective payment amounts are to be increased by a factor 
equal to the home health market basket minus 1.1 percentage points for 
fiscal year 2002 or 2003. Also, it incorporates adjustments to account 
for provider case mix using a clinical classification system that 
accounts for the relative resource utilization of different patient 
types. The classification system used, the Clinical Model from Abt, 
uses the OASIS patient data set supplemented, as applicable, by one 
additional patient-specific item regarding number of therapy hours/
visits received in the 60-day episode period.
3. Case Mix
    The goal of a case-mix payment system is to measure the intensity 
of care and services required for each patient and translate it into an 
appropriate payment level. Case-mix adjustment takes into account the 
relative resource use of different patient types served by an HHA. As 
we explain in section II. of the preamble, sections 1895(b)(4)(A)(i) 
and (b)(4)(B) of the Act require us to establish and make appropriate 
case-mix adjustments to the episode payment amounts in a manner that 
explains a significant amount of the variation in cost among different 
units of services. The patient classification system used under the HHA 
PPS is the Clinical Model from Abt, an 80-group patient classification 
system, that provides the basis for the case-mix payment indices used 
both for standardization of the 60-day episode payments and 
subsequently to establish the case-mix adjustments to the 60-day 
episode payment for patients with different home health service needs.

B. Alternatives Considered

Several alternatives have been considered in our development of the HHA 
PPS.
1. Unit of Payment
    Section 1895(b)(2) of the Act requires the Secretary in defining a 
prospective payment amount to consider an appropriate unit of service 
and the number, type, and duration of visits provided within the unit; 
and potential changes in the mix of services provided within that unit 
and their cost. As discussed in section II. of this preamble, we are 
proposing a 60-day episode for the unit of payment under the HHA PPS. 
The proposed system provides for a low-utilization payment adjustment 
(LUPA) and a partial episode payment adjustment (PEP) adjustment. The 
proposed payment system also provides for a separate cost outlier 
payment in addition to the 60-day episode payment. Outlier payment 
alternatives are discussed below.

a. 60-Day National Episode Payment

    Recognizing that (1) OASIS data will be captured on a 60-day cycle, 
(2) current Medicare plan of care certification requirements govern a 
bimonthly period of time, and (3) most episodes of care will be 
concluded in 60 days or less in the HHA PPS demonstration, we are 
proposing a 60-day episode as the unit of payment for HHA PPS. We are 
proposing that the 60-day episode begins with the start-of-care date as 
day 1 (first billable date) and ends on and includes the 60th day from 
start of care. The next continuous episode period would begin on day 61 
as the start-of-care date and end on and include day 120. We are 
proposing the requirement that the 60-day episode payment covers one 
individual for 60 days of care regardless of the number of days of care 
actually provided during the 60-day period, unless there is a low-
utilization payment adjustment, partial episode payment adjustment, 
additional outlier payment, or medical review determination. An HHA 
that accepts a Medicare-eligible beneficiary for home health care for 
the 60-day episode period and submits a bill for payment may not refuse 
to treat an eligible beneficiary who has been discharged from the HHA 
during the 60-day episode, but later requires Medicare-covered home 
health services during the same 60-day episode period and elects to 
return to the same HHA.
    In order to address the needs of longer stay patients, at this time 
we are proposing not to limit the number of 60-day episode 
recertifications in a given fiscal year. There is the potential for 
unlimited consecutive episodes if eligibility and coverage rules 
continue to be satisfied. Recertification of and payment for 
consecutive 60-day episodes is, of course, dependent on OASIS 
assessment and the patient's eligibility and need for continued 
medically necessary Medicare home health services. We believe 
consecutive 60-day episode recertification and payment would ensure 
continued access to the Medicare home health benefit without exceeding 
the statutory budget-neutrality targets.
    We believe the 60-day episode provides an appropriate time frame 
for purposes of prospective payment for many reasons. The 60-day 
episode period is the basic time frame that HHAs have historically been 
required to manage and project home health care needs of beneficiaries 
in order to comply with current plan of care certification requirements 
for Medicare home health plans of care. The 60-day episode period also 
matches the reassessment schedule for OASIS, and this parallel time 
frame would permit case-mix adjustment of each episode.
    We considered the option of a 120-day episode payment under the 
national HHA PPS. As discussed in section I. of this preamble, the HHA 
per-episode PPS demonstration tested a 120-day episode payment. In the 
HHA per-episode PPS demonstration, the 120-day episode payment was 
calculated using agency-specific costs in a given base-year

[[Page 58202]]

period. The calculation used for the 120-day episode payment in the HHA 
per-episode PPS demonstration was mean agency-specific cost per 
discipline multiplied by mean agency-specific utilization per 
discipline summed in the aggregate. The 60-day national episode payment 
methodology set forth in this rule parallels the general formula of 
mean cost multiplied by mean utilization summed in the aggregate. 
However, the 60-day episode payment for the national system is based on 
national mean cost and national mean utilization from the audited cost 
report sample database. The HHA per-episode PPS demonstration reflected 
an agency-specific methodology.
    Another feature of the HHA per-episode PPS demonstration that was 
not adopted in the national PPS proposal is a prospective per-visit 
payment approach after completion of the 120-day episode. In the HHA 
per-episode PPS demonstration, agencies were paid a prospective per-
visit amount for beneficiaries who required home health care after the 
120-day episode had elapsed. Under the national HHA PPS, we are 
proposing continuous 60-day case-mix and wage-adjusted episode payments 
for beneficiaries who continue to be eligible for Medicare-covered home 
health services.
    Based on the HHA per-episode PPS demonstration findings, the 60-day 
episode captured the majority of stays experienced in the HHA per-
episode PPS demonstration. About 60 percent of the HHA per-episode PPS 
demonstration patients completed their episodes within 60 days. One 
criterion for the appropriate episode length is that it capture a 
majority of the patients. We now have evidence from the HHA per-episode 
PPS demonstration that a 60-day episode will do so. A 120-day episode, 
as tested in the HHA per-episode PPS demonstration, also meets this 
criterion, but we do not gain significantly larger completion 
percentage by lengthening the episode to 120 days. Moreover, a 120-day 
episode would result in more inequity in payments because of the larger 
risk of a change in a patient's condition over the span of the longer 
episode. We are specifically soliciting comments on the utility of a 
60-day episode period for purposes of prospective payment and the 
efficacy of unlimited consecutive episode recertifications for eligible 
beneficiaries in a given fiscal year. We are also proposing a low-
utilization payment adjustment (LUPA).

b. Low-Utilization Payment Adjustment

    As discussed in section I. of the preamble, the statute requires 
that the definition of the unit of payment or episode must take into 
consideration the number, type, duration, mix, and cost of visits 
provided within the unit of payment. As a result of our analysis, we 
determined the need to also recognize a low-utilization payment under 
the HHA PPS. Low-utilization payment would reduce the 60-day episode 
payments, the partial episode payment adjustment, or the significant 
change in condition adjustments to those HHAs that provide minimal 
services to patients during the time the beneficiary is under their 
care. A reduced payment for low-utilization episodes would moderate the 
financial incentive for extreme skimping on services provided within an 
episode. It would also reduce the incentive to obtain an additional 
episode payment beyond a current episode by providing a bare minimum of 
additional services. It also redistributes monies to episodes 
reflecting higher service intensity.
    Episodes with four or fewer visits would be paid the national 
average standardized per-visit amount times the number of visits 
actually provided during the episode. Based on analysis of our episode 
database, we concluded approximately 15 percent of current episodes 
constitute four or fewer visits. We explored the option of a six-visit 
threshold for low-utilization payments, but found approximately 20 
percent of episodes in our episode database contain six or fewer 
visits. However, we are soliciting comments on the six or fewer visit 
threshold as discussed above in section I.D. of this regulation.

c. Partial Episode Payment Adjustment

    We are proposing that the 60-day episode payment covers one 
beneficiary for 60 days of care regardless of the number of the days of 
care actually furnished during the 60-day episode unless one of the 
following intervening events occurs during the 60-day episode:
     A beneficiary elected transfer, or
     A discharge and return to the same HHA.
    The intervening event described above restarts the 60-day episode 
clock for purposes of payment, OASIS assessment, and new physician 
certification of the new plan of care. The original 60-day episode 
payment is proportionally adjusted to reflect the actual length of time 
the beneficiary remained under the agency's care prior to the 
intervening event. The proportional payment is called the partial 
episode payment adjustment (PEP) adjustment.
    The PEP adjustment is based on the span of days including the start 
of care date (first billable service date through and including the 
last billable service date) under the original plan of care prior to 
the intervening event. The PEP adjustment is calculated using the span 
of days (first billable service date through and including the last 
billable service date) under the original plan of care as a proportion 
of 60. The proportion is multiplied by the original case mix and wage 
adjusted 60-day episode payment. For example, a patient is assigned to 
a 60-day episode payment of $3000. Day 1 through Day 30 the patient is 
served by HHA-1. Day 1 is the first billable service date and Day 30 is 
the last billable service provided by HHA-1 under the original plan of 
care. The beneficiary elects to transfer to HHA-2 on Day 35. The first 
ordered service for the beneficiary under the new plan of care is Day 
38. Day 38 starts a new 60-day episode clock for purposes of payment, 
OASIS assessment, and physician certification of the plan of care. Day 
38 becomes Day 1 of the new 60-day episode. The final payment to HHA-1 
is proportionally adjusted to reflect the length of time the 
beneficiary remained under its care. HHA-1 would receive a PEP 
adjustment of 30/60 * $3000 = $1500.
    d. Significant Change in Condition Adjustment
    We are proposing the requirement that the 60-day episode payment 
covers the individual for 60 days of care unless one of three 
intervening events occurs. The PEP adjustment described above 
encompasses the two intervening events defined as a beneficiary elected 
transfer or a discharge and return to the same HHA over the course of a 
60-day episode of home health care. We are proposing that the third 
intervening event over a course of a 60-day episode of home health care 
that could trigger a change in payment level would be a significant 
change in the patient's condition. The proposed SCIC adjustment occurs 
when a beneficiary experiences a significant change in condition during 
a 60-day episode that was not envisioned in the original plan of care. 
In order to receive a new case mix assignment for purposes of SCIC 
payment during the 60-day episode, the HHA must complete an OASIS 
assessment and obtain the necessary physician change orders reflecting 
the significant change in the treatment approach in the patient's plan 
of care.
    The SCIC adjustment is calculated in two parts. The first part of 
the SCIC adjustment reflects the adjustment to the level of payment 
prior to the significant change in the patient's condition during the 
60-day episode. The second part of the SCIC adjustment reflects the 
adjustment to the level of

[[Page 58203]]

payment after the significant change in the patient's condition occurs 
during the 60-day episode. The first part of the SCIC adjustment uses 
the span of days of the first billable service date through the last 
billable service date prior to the intervening event of the patient's 
significant change in condition that warrants a new case mix assignment 
for payment. The first part of the SCIC adjustment is determined by 
taking the span of days prior to the patient's significant change in 
condition as a proportion of 60 multiplied by the original episode 
payment amount. The original episode payment level is proportionally 
adjusted using the span of time the patient was under the care of the 
HHA prior to the significant change in condition that warranted an 
OASIS assessment, physician change orders indicating the need for a 
significant change in the course of the treatment plan, and the new 
case mix assignment for payment at the end of the 60-day episode.
    The second part of the SCIC adjustment reflects the time the 
patient is under the care of the HHA after the patient experienced the 
significant change in condition during the 60-day episode that 
warranted the new case mix assignment for payment purposes. The second 
part of the SCIC adjustment is a proportional payment adjustment 
reflecting the time the patient will be under the care of the HHA after 
the significant change in condition and continuing until the end of the 
60-day episode. Once the HHA completes the OASIS, obtains the necessary 
physician change orders reflecting the need for a new course of 
treatment in the plan of care, and assigns a new case mix level for 
payment, the second part of the SCIC adjustment begins. The second part 
of the SCIC adjustment is calculated by using the span of days of the 
first billable service date through the last billable service date 
during the balance of the 60-day episode. The second part of the SCIC 
adjustment is determined by taking the span of days (first billable 
service date through the last billable service date) after the patient 
experiences the significant change in condition through the balance of 
the 60-day episode as a proportion of 60 multiplied by the new episode 
payment level resulting from the significant change. The initial 
percentage payment provided at the start of the 60-day episode will be 
adjusted at the end of the episode to reflect the first and second 
parts of the SCIC adjustment (or any applicable medical review or LUPA 
discussed below) determined at the final billing for the 60-day 
episode.
2. Outlier Payments
    Section 1895(b)(5) of the Act governs the payment option for 
additions or adjustments to the payments due to unusual variations in 
the type or amount of medically necessary home health care under the 
HHA PPS. The total amount for addition or adjustment payments during a 
fiscal year may not exceed 5 percent of total payments projected or 
estimated to be made based on the HHA PPS in that year.
    We considered the option of a long-stay outlier payment. Because we 
are proposing that successive episode payments would be made for a 
beneficiary as long as the beneficiary continues to be eligible and 
requires covered services, there would be no need for long-stay outlier 
cases under the HHA PPS. However, we believe outlier payments for 60-
day episodes in which the HHA incurs extraordinary costs beyond the 
regular episode payment amount may be desirable. Outlier payments would 
provide some protection for beneficiaries whose care needs cost much 
more than the prospectively determined amount of the episode payment. 
They would also provide HHAs with some financial protection against 
possible losses on individual beneficiaries.
    As discussed in section I. of the preamble, while we are not 
statutorily required to make provision for outlier payments, we are 
proposing outlier payments. Outlier payments are payments made in 
addition to regular 60-day case-mix-adjusted episode payments for 
episodes that incur unusually large costs due to patient home health 
care needs. Outlier payments would be made for episodes whose estimated 
cost exceeds a threshold amount for each HHRG. The outlier threshold 
for each HHRG would be the 60-day episode payment amount for that group 
plus a fixed dollar loss amount that is the same for all case-mix 
groups. Outlier payments would be made for 60-day episode payments that 
have been adjusted by a PEP adjustment or SCIC adjustment. The outlier 
threshold for the PEP adjustment equals the PEP adjustment plus a fixed 
dollar loss amount that is the same for all case-mix groups. The 
outlier threshold for the SCIC adjustment is the total SCIC payment 
plus a fixed dollar loss amount that is the same for all case mix 
groups. The outlier payment would be a proportion of the amount of 
estimated costs beyond the threshold. Costs would be estimated for each 
episode by applying standard per-visit amounts to the number of visits 
by discipline reported on claims. The fixed dollar loss amount and the 
loss-sharing proportion would be chosen so that estimated total outlier 
payments are no more than 5 percent of total episode payments. As 
discussed above, there is no need for a long-stay outlier payment 
because we are not limiting the number of continuous episode payments 
in a fiscal year that may be made for Medicare home health care to 
eligible beneficiaries. As described above, the proposed outlier option 
is a fixed dollar loss of 1.07 times the standard episode payment 
amount and a loss sharing ratio of .60. The proposed option results in 
7.5 percent of total estimated episodes receiving outlier payment, 
while holding total estimated outlier outlays to the required 5 
percent.
3. Transition
    Section 1895(b)(1) of the BBA provides discretion on providing for 
a transition from the current cost-based interim payment system to a 
full prospective payment system by permitting a blended PPS payment 
amount. Under such a transition, the law allows us to provide for a PPS 
amount, with a portion of payments based on agency-specific costs. The 
law provides for this blended PPS amount for up to 4 years in a budget-
neutral manner.
    Blending options provides significant practical obstacles. We could 
in theory blend what would have been paid under the current reasonable-
cost reimbursement system and the PPS. A percentage of the payment 
would be based on reasonable costs building off the current interim 
payment system and a percentage would be based on the national PPS 
amount.
    While other PPS systems have used a blended agency and national 
payment amount, the complexities of blending payments under such 
dissimilar payment methodologies for home health are so great, that we 
believe it is not a viable option. Moreover, OCESAA requires that we 
implement the PPS on the same date for all providers, regardless of 
their cost-report year. This break in cost-report year would further 
encourage continued use of the cost-based system. Recent legislation 
also reflects Congressional interest in expediting the transition from 
the interim payment system to the PPS. We believe proceeding with a 
highly complicated blended percentage payment system based on 
historical data from the cost-based interim payment system would not be 
in the best interest of the industry.
    Section 1895(b)(3) also provides the option to recognize regional 
differences or differences based upon whether the

[[Page 58204]]

services or agency are in an urbanized area. We are proposing a 
national system of payment rates upon PPS implementation. The wage-
index adjustment based on site of service reflects the regional 
differences in wages across urban and rural areas.
4. Operational Options
    As discussed above, we envision two claims per beneficiary per 60-
day episode. The initial claim submitted at the start of care will 
contain the appropriate HHRG code for purposes of partial payment for 
the 60-day episode and the final claim will be submitted at the end of 
the 60-day episode. The final claim may contain all of the line-item 
data visit information for the 60-day period and permit payment for the 
balance due for the episode. We do not believe this billing approach 
would impose any additional burden on the industry. We are proposing to 
require that the HHA identify itself as the primary HHA for the 
beneficiary during the 60-day episode. This is necessary to establish 
the HHA to which payment is made during the episode. We do not envision 
a new specific form requirement for this requirement.
5. Consolidated Billing
    The requirement to consolidate all durable medical equipment (DME) 
with the billing for home health services is expected to have a number 
of positive benefits. By making the HHA accountable for all services 
furnished to a Medicare patient, the HHA is in a better position to 
coordinate all aspects of the care being provided. This ensures that 
the responsibility for managing both the services and the DME needed 
for the patient's care is located in one place. The coordination will 
reduce the possibility of duplicate billings for DME and the 
opportunities for abusive billing practices. Moreover, the patient does 
not have to deal with two or more entities involved in the patient's 
care--one providing the skilled care and one or more entities supplying 
the DME during the time the HHA is in charge of caring for the patient.
    However, we are concerned that because the statute requires an HHA 
to assume responsibility for all DME while the patient is under the 
care of the HHA, problems may occur for patients who already have a 
relationship with their current DME supplier. The impact of the 
consolidated billing provision with regard to DME takes effect when an 
HHA takes over the care of a patient, the HHA has no agreement with the 
patient's DME supplier, and the patient's existing relationship with 
the DME supplier ends. The HHA's DME supplier will replace the previous 
supplier and the patient will be required to receive his or her 
equipment from the new DME supplier. When a patient is discharged from 
the HHA, a similar situation could arise. Unless the patient chooses to 
continue receiving his or her DME from the HHA's DME supplier, when the 
patient is discharged, he or she will have to find a new supplier or 
reestablish contact with the previous supplier.
    The problem of switching suppliers as a result of the consolidated 
billing requirement could be especially acute for a patient who must 
maintain a long term relationship with a DME supplier. Patients who 
might be most affected by the consolidated billing requirement include 
those who need oxygen equipment or complex equipment such as motorized 
wheelchairs that require periodic maintenance. Switching between DME 
suppliers could be confusing for patients and could affect a patient's 
treatment and well being. Currently we have no immediate solutions to 
these difficulties under the current statutory language and invite 
public comment.

C. Effects of This Proposed Rule

    This proposed rule would establish requirements for the new 
prospective payment system for home health agencies as required by 
section 4603 of the BBA, as amended by section 5101 of OCESAA. These 
include the implementation of a prospective payment system for home 
health agencies, consolidated billing requirements, and a number of 
other related changes. The prospective payment system described in this 
rule replaces the retrospective reasonable cost-based system currently 
used by Medicare for the payment of home health services subject to 
interim payment system limits under Part A and Part B.
    Section 1895(b)(3)(A)(i) of the Act requires the computation of a 
standard prospective payment amount to be initially based on the most 
recent audited cost-report data available to the Secretary. In 
accordance with this section of the Act, the primary data source in 
developing the cost basis for the 60-day episode payments was the 
audited cost-report sample of HHAs whose cost reporting periods ended 
in fiscal year 1997 (that is, ending on or after October 1, 1996 
through September 30, 1997).
    However, Table 11 below illustrates the proportion of HHAs that are 
likely to be affected.
    This table reflects how agencies would be paid under PPS versus how 
they would be paid under the interim payment system (IPS) with the 15 
percent reduction in limits required in FY 2001. The limits under IPS 
were determined by updating the per-visit limits in effect for FY 2000 
by the market basket minus 1.1 percent updating each agency's per-
beneficiary cap for FY 2000 by this same percentage. Each of these 
limits was then reduced by 15 percent. For each agency in the audited 
cost report data set, we updated their costs from FY 1997 to FY 2001 by 
our best estimate of HHA cost increases during this period. We then 
compared each agency's FY 2001 costs to the IPS limits to determine 
their IPS payment in FY 2001. To determine each agency's payment under 
PPS, we translated the cost report data into 60-day episodes and used 
the average case mix for urban/rural and provider type as a proxy. We 
extrapolated the audited cost report data to reflect the total Medicare 
HHA distribution. We obtained average case-mix values based on the type 
of provider and whether the HHA was urban or rural from the Abt data 
set. We then multiplied the agency's expected number of episodes in FY 
2001 by the wage-adjusted and case-mix-adjusted episode payment to 
obtain the agency's expected PPS payment. The PPS payment was then 
compared to the IPS payment.

Table 11.--Impact of the Home Health Prospective Payment Amounts on Home
  Health Agencies by Type and Location for the 567 Audited Cost Report
                             Sample Agencies
------------------------------------------------------------------------
                                                              Percentage
                                                             Change from
                       Type of agency                         (IPS--15%)
                                                                to PPS
------------------------------------------------------------------------
                        ALL AGENCIES                                 0.0
 
              By Urban/Rural and Provider Type
Rural:
  Freestanding:
    For-Profit.............................................        -17.0
    Governmental...........................................         46.4
    Non-Profit.............................................         13.7
  Provider Based10.1.......................................
Urban:
  Freestanding:
    For-Profit.............................................        -18.4
    Governmental...........................................         50.9
    Non-Profit.............................................         20.5
  Provider Based...........................................          2.1
 
                      By Provider Type
 
Freestanding:..............................................
  For-Profit...............................................        -18.1
  Governmental.............................................         47.9
  Non-Profit...............................................         19.4
Provider Based.............................................          3.8
 

[[Page 58205]]

 
                       By Urban/Rural
 
Rural Agencies.............................................          4.2
Urban Agencies.............................................         -0.4
 
                         By Region
 
Midwest States.............................................         21.8
Northeast States...........................................         21.4
Southern States............................................        -15.5
Western States.............................................         -1.3
------------------------------------------------------------------------

    Table 11 represents the projected effects of the HHA PPS and is 
based on the 567 providers in the audited cost-report sample weighted 
to the national total of HHAs. This sample has been adjusted by the 
most recent market basket factors to reflect the expected cost 
increases occurring between the cost-reporting periods for the data 
contained in the database and September 30, 2001.
    This impact table compares the effect on categories of HHAs in 
moving from the interim payment system limits minus 15 percent payment 
methodology to the PPS payment methodology and thus already factors in 
the effects of the interim payment system minus 15 percent limits. 
These cost limits have already had the effect of reducing many extremes 
in the cost of the system; therefore, as a result of the interim 
payment system, a majority of HHA providers are currently held at the 
median national cost per beneficiary or below. It should be noted that 
HHAs will have had 2 or more years experience under this system before 
PPS implementation.
    Column one of this table divides HHAs by a number of 
characteristics including provider type, region, and urban versus rural 
location. For purposes of this impact table four regions have been 
defined: Northeast, South, Midwest, and West. The Northeast Region 
consists of Connecticut, Massachusetts, Maine, New Hampshire, New 
Jersey, New York, Pennsylvania, Puerto Rico, Rhode Island, Vermont, and 
the Virgin Islands. The South Region consists of Alabama, Arkansas, the 
District of Columbia, Delaware, Florida, Georgia, Kentucky, Louisiana, 
Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, 
Tennessee, Texas, Virginia, and West Virginia. The Midwest Region 
consists of Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, 
Missouri, North Dakota, Nebraska, Ohio, South Dakota, and Wisconsin. 
The West Region consists of Alaska, Arizona, California, Colorado, 
Hawaii, Idaho, Montana, New Mexico, Nevada, Oregon, Utah, Washington, 
and Wyoming.
    Column two shows the percentage change in Medicare payments a 
particular category of HHAs would experience in moving from the interim 
payment system limits minus 15 percent payment methodology to the 
proposed PPS payment methodology. Because the statute requires 
aggregate payments under the HHA PPS and HHA interim payment system 
minus 15 percent payment methodology to be budget neutral, the effect 
on agencies in the aggregate is zero.
    Rural freestanding for-profit HHAs experience a 17.0 percent 
decrease in moving from the interim payment system limits minus 15 
percent payment methodology to the PPS payment methodology. Rural 
freestanding governmental HHAs experience a 46.4 percent increase in 
moving from the interim payment system limits minus 15 percent payment 
methodology to the PPS payment methodology. Rural freestanding 
nonprofit HHAs experience a 13.7 percent increase in moving from the 
interim payment system limits minus 15 percent payment methodology to 
the PPS payment methodology. Rural provider-based HHAs, in the 
aggregate, experience a 10.1 percent increase in moving from the 
interim payment system limits minus 15 percent methodology to the PPS 
payment methodology. Rural agencies, in the aggregate, experience a 4.2 
percent increase in moving from the interim payment system limits minus 
15 percent payment methodology to the PPS payment methodology.
    Urban freestanding for-profit HHAs experience an 18.4 percent 
decrease in moving from the interim payment system limits minus 15 
percent payment methodology to the PPS payment methodology. Urban 
freestanding governmental HHAs experience a 50.9 percent increase in 
moving from the interim payment system limits minus 15 percent payment 
methodology to the PPS payment methodology. Urban freestanding 
nonprofit HHAs experience a 20.5 percent increase in moving from the 
interim payment system limits minus 15 percent payment methodology to 
the PPS payment methodology. Urban provider-based HHAs, in the 
aggregate, experience a 2.1 percent increase in moving from the interim 
payment system limits minus 15 percent payment methodology to the PPS 
payment methodology. Urban agencies, in the aggregate, experience a -
0.4 percent decrease in moving from the interim payment system limits 
minus 15 percent payment methodology to the PPS payment methodology.
    The current cost limits have been criticized as providing better 
financial treatment of urban providers relative to rural providers. The 
HHA PPS system, which is based on patient characteristics, tends to 
level the playing field; thus, rural providers, in general, fare 
relatively better than urban providers. The largest impact on urban 
providers is in the urban freestanding for-profit category where it can 
be argued that historical costs have been disproportionately high 
compared to other providers for reasons unrelated to the relative needs 
of the patients they serve.
    Freestanding for-profit HHAs, in the aggregate, experience an 18.1 
percent decrease in moving from the interim payment system limits minus 
15 percent payment methodology to the PPS payment methodology. 
Freestanding governmental HHAs, in the aggregate, experience a 47.9 
percent increase in moving from the interim payment system limits minus 
15 percent payment methodology to the PPS payment methodology. 
Freestanding nonprofit HHAs, in the aggregate, experience a 19.4 
percent increase in moving from the interim payment system limits minus 
15 percent payment methodology to the PPS payment methodology. 
Provider-based HHAs, in the aggregate, experience a 3.8 percent 
increase in moving from the interim payment system limits minus 15 
percent payment methodology to the PPS payment methodology.
    It should be noted that governmental providers fare relatively 
better under the HHA PPS system than other types of providers. In part, 
this is because the HHA PPS system is driven primarily by the needs of 
patients rather than utilization incentives. Thus, governmental 
providers are less affected by the interim payment system limits minus 
15 percent payment methodology because their costs have been 
historically lower and visit utilization per episode is much lower. On 
average, governmental agencies have reported lower average costs per 
visit as well as fewer visits per episode. It should be noted that this 
category of HHAs accounts for only 2.6 percent of total home health 
expenditures and therefore the large increase attributed to them has 
little impact in the aggregate system costs. Although provider-based 
agencies tended to have, as a group, higher per-

[[Page 58206]]

visit costs, the payment differential reflected in this impact table 
for provider-based agencies is relatively modest and in a positive 
direction. This can be attributed to the fact that the reduction in the 
per-visit limit under interim payment system limits minus 15 percent 
payment methodology has the effect of reducing this cost-per-visit 
differential, and thus provider-based HHAs actually gain slightly under 
PPS.
    HHAs in the Midwest region experience a 21.8 percent increase in 
moving from the interim payment system limits minus 15 percent payment 
methodology to the PPS payment methodology. HHAs in the Northeast 
region experience a 21.4 percent increase in moving from the interim 
payment system limits minus 15 percent payment methodology to the PPS 
payment methodology. HHAs in the South region experience a 15.4 percent 
decrease in moving from the interim payment system limits minus 15 
percent payment methodology to the PPS payment methodology. HHAs in the 
West region experience a 1.3 percent decrease in moving from the 
interim payment system limits minus 15 percent payment methodology to 
the PPS payment methodology.
    We would have preferred to provide an impact table with more 
regions; however, the limitations of our data prevented us from 
obtaining provider data at a lower level than the four major regions. 
However, this regional breakdown does reflect what one might expect in 
moving from our current interim payment system cost limitations payment 
methodology to a national PPS payment methodology. Medicare payments 
have historically varied by region without regard to the relative 
needs/conditions of patients; therefore, those regions that had the 
highest unexplained costs for home health services are the most 
impacted areas (South region followed by the West region). In contrast, 
the Northeast region and the Midwest region fare relatively well by 
comparison. It must be noted that in a payment methodology system that 
is legislatively required to achieve budget neutrality, any effort to 
increase payments to those regions more affected by a national payment 
system necessarily results in a reduction of payments to those regions 
that have historically restrained costs under home health.

D. Rural Hospital Impact Statement

    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 50 beds.
    We have not prepared a rural impact statement since we have 
determined, and the Secretary certifies, that this rule would not have 
a significant economic impact on the operations of a substantial number 
of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget. We have 
reviewed this proposed rule under the threshold criteria of Executive 
Order 13132, Federalism. We have determined that the proposed rule 
would not have substantial direct effects on the rights, roles, and 
responsibilities of States.

List of Subjects

42 CFR Part 409

    Health facilities, Medicare.

42 CFR Part 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Rural areas, X-rays.

42 CFR Part 411

    Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare.

42 CFR Part 484

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

    For the reasons set forth in the preamble, 42 CFR chapter IV would 
be amended as follows:

PART 409--HOSPITAL INSURANCE BENEFITS

    A. Amend part 409 as set forth below:
    1. The authority citation for part 409 continues to read as 
follows:

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

    2. In Sec. 409.43, revise paragraph (e) to read as follows:


Sec. 409.43  Plan of care requirements.

* * * * *
    (e) Frequency of review. (1) The plan of care must be reviewed by 
the physician (as specified in Sec. 409.42(b)) in consultation with 
agency professional personnel at least every 60 days unless there is 
a--
    (i) Beneficiary elected transfer;
    (ii) Significant change in condition resulting in a change in the 
case-mix assignment; or
    (iii) Discharge and return to the same HHA during the 60-day 
episode that warrants a new 60-day episode payment and a new physician 
certification of the new plan of care.
    (2) Each review of a beneficiary's plan of care must contain the 
signature of the physician who reviewed it and the date of review.
* * * * *
    3. In Sec. 409.100, revise paragraph (a) to read as follows:


Sec. 409.100  To whom payment is made.

    (a) Basic rule. Except as provided in paragraph (b) of this 
section--
    (1) Medicare pays hospital insurance benefits only to a 
participating provider.
    (2) For home health services furnished to an individual who at the 
time the item or service is furnished is under a plan of care of an 
HHA, payment is made to the HHA (without regard to whether the item or 
service is furnished by the HHA directly, under arrangement with the 
HHA, or under any other contracting or consulting arrangement).
* * * * *

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

    B. Amend part 410 as set forth below:
    1. The authority citation for part 410 continues to read as 
follows:

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

    2. In Sec. 410.150, republish the introductory text to paragraph 
(b) and add new paragraph (b)(19) to read as follows:


Sec. 410.150  To whom payment is made.

* * * * *
    (b) Specific rules. Subject to the conditions set forth in 
paragraph (a) of this section, Medicare Part B pays as follows:
* * * * *
    (19) To a participating HHA, for home health services furnished to 
an individual who at the time the item or service is furnished is under 
a plan of care of an HHA (without regard to whether the item or service 
is furnished by the HHA directly, under arrangement with the HHA, or 
under any other contracting or consulting arrangement).

[[Page 58207]]

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

    C. Amend part 411 as set forth below:
    1. The authority citation for part 411 continues to read as 
follows:

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

    2. In Sec. 411.15, republish the introductory text to the section, 
and add a new paragraph (q) to read as follows:


Sec. 411.15  Particular services excluded from coverage.

    The following services are excluded from coverage:
* * * * *
    (q) A home health service as defined in section 1861(m) of the Act 
furnished to an individual who is under a plan of care of an HHA, 
unless that HHA has submitted a claim for payment for such services.

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

    D. Amend part 413 as set forth below:
    1. Revise the authority citation for part 413 to read as follows:

    Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social 
Security Act (U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).

    2. In Sec. 413.1, add a new paragraph (h) to read as follows:


Sec. 413.1  Introduction.

* * * * *
    (h) Payment for services furnished by HHAs. The amount paid for 
home health services as defined in section 1861(m) of the Act that are 
furnished beginning on or after October 1, 2000 to an eligible 
beneficiary under a home health plan of care is determined according to 
the prospectively determined payment rates for HHAs set forth in part 
484, subpart E of this chapter.


Sec. 413.64  [Amended]

    3. In Sec. 413.64, in paragraph (h)(1), remove the phrase ``and for 
both Part A and Part B HHA services'' at the end of the paragraph.

PART 424--CONDITIONS FOR MEDICARE PAYMENT

    E. Amend part 424 as set forth below:
    1. The authority citation for part 424 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act 
(U.S.C. 1302 and 1895hh).

    2. In Sec. 424.22, republish the introductory text to paragraph 
(a)(1), add a new paragraph (a)(1)(v), and revise paragraph (b)(1) to 
read as follows:


Sec. 424.22  Requirements for home health services.

* * * * *
    (a) Certification--(1) Content of certification. As a condition of 
payment of home services under Medicare Part A or Medicare Part B, a 
physician must certify as follows:
* * * * *
    (v) The individual is correctly assigned to one of the Home Health 
Resource Groups.
* * * * *
    (b) Recertification. (1) Timing and signature of recertification. 
Recertification is required at least every 60 days, preferably at the 
time the plan is reviewed, and must be signed by the physician who 
reviews the plan of care. The recertification is required at least 
every 60 days unless there is a--
    (i) Beneficiary elected transfer; or
    (ii) Discharge and return to the same HHA during the 60-day 
episode.
* * * * *

PART 484--HOME HEALTH SERVICES

    F. Amend part 484 as set forth below:
    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).

    2. Revise the heading for part 484 to read as set forth above.


Sec. 484.18  [Amended]

    3. In Sec. 484.18, in paragraph (b), remove the phrase ``62 days'' 
and in its place add the phrase ``60 days unless there is a beneficiary 
elected transfer; a significant change in condition resulting in a 
change in the case-mix assignment; or a discharge and return to the 
same HHA during the 60-day episode.''
    4. In Sec. 484.55, revise paragraph (d)(1) to read as follows:


Sec. 484.55  Condition of participation: Comprehensive assessment of 
patients.

* * * * * *
    (d) Standard: Update of the comprehensive assessment. * * *
    (1) Every 60 days beginning with the start-of-care date, unless 
there is a--
    (i) Beneficiary elected transfer;
    (ii) Significant change in condition resulting in a new case-mix 
assignment; or
    (iii) Discharge and return to the same HHA during the 60-day 
episode.
* * * * *
    5. Add and reserve a new subpart D.
    6. Add a new subpart E, consisting of Secs. 484.200, 484.202, 
484.205, 484.210, 484.215, 484.220, 484.225, 484.230, 484.235, 484.237, 
484.240, 484.250, and 484.260 to read as follows:

Subpart E--Prospective Payment System for Home Health Agencies

Sec.
484.200  Basis and scope.
484.202  Definitions.
484.205  Basis of payment.
484.210  Data used for the calculation of the national prospective 
60-day episode payment.
484.215  Methodology used for the calculation of the national 60-day 
episode payment.
484.220  Calculation of the national adjusted prospective 60-day 
episode payment rate for case mix and area wage levels.
484.225  Annual update of the national adjusted prospective 60-day 
episode payment rate.
484.230  Methodology used for the calculation of the low-utilization 
payment adjustment.
484.235  Methodology used for the calculation of the partial episode 
payment adjustment
484.237  Methodology used for the calculation of the significant 
change in condition payment adjustment
484.240  Methodology used for the calculation of the outlier 
payment.
484.250  Patient assessment data.
484.260  Limitation on review.

Subpart E--Prospective Payment System for Home Health Agencies


Sec. 484.200  Basis and scope.

    (a) Basis. This subpart implements section 1895 of the Act, which 
provides for the implementation of a prospective payment system (PPS) 
for HHAs for portions of cost reporting periods occurring on or after 
October 1, 2000.
    (b) Scope. This subpart sets forth the framework for the HHA PPS, 
including the methodology used for the development of the payment 
rates, associated adjustments, and related rules.


Sec. 484.202  Definitions.

    As used in this subpart--
    Case-mix index means a scale that measures the relative difference 
in resource intensity among different groups in the clinical model.
    Clinical model means a system for classifying Medicare-eligible 
patients under a home health plan of care into mutually exclusive 
groups based on clinical, functional, and intensity-of-service 
criteria. The mutually exclusive groups are defined as Home Health 
Resource Groups (HHRGs).

[[Page 58208]]

    Discipline means one of the six home health disciplines covered 
under the Medicare home health benefit (skilled nursing services, home 
health aide services, physical therapy services, occupational therapy 
services, speech-language pathology services, and medical social 
services).
    Market basket index means an index that reflects changes over time 
in the prices of an appropriate mix of goods and services included in 
home health services.


Sec. 484.205  Basis of payment.

    (a) Method of payment. (1) An HHA receives a national 60-day 
episode payment of a predetermined rate for a home health service paid 
on a reasonable cost basis. HCFA determines this national 60-day 
episode payment under the methodology set forth in Sec. 484.215.
    (2) An HHA may receive a low-utilization payment adjustment (LUPA) 
of a predetermined per-visit rate. HCFA determines the LUPA under the 
methodology set forth in Sec. 484.230.
    (3) An HHA may receive a partial episode payment adjustment (PEP) 
adjustment due to an intervening event defined as a beneficiary elected 
transfer or a discharge and return to the same HHA during the 60-day 
episode that warrants a new 60-day episode payment during an existing 
60-day episode, that initiates the start of a new 60-day episode 
payment and a new physician certification of the new plan of care. HCFA 
determines the PEP adjustment under the methodology set forth in 
Sec. 484.235.
    (4) An HHA may receive a significant change in condition payment 
adjustment (SCIC Adjustment) due to the intervening event defined as a 
significant change in the patient's condition during an existing 60-day 
episode. The SCIC adjustment occurs when a beneficiary experiences a 
significant change in condition during a 60-day episode that was not 
envisioned in the original plan of care. We determine the SCIC 
Adjustment under a methodology set forth in Sec. 484.237.
    (b) Episode payment. The national 60-day episode payment represents 
payment in full for all costs associated with furnishing a home health 
service paid on a reasonable cost basis 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. DME provided as a home health 
service as defined in section 1861(m) of the Act continues to be paid 
the fee schedule amount.
    (c) Low-utilization payment. An HHA receives a national 60-day 
episode payment of a predetermined rate for home health services paid 
on a reasonable cost basis as of August 5, 1997, unless HCFA determines 
at the end of the 60-day episode that the HHA furnished minimal 
services to a patient during the 60-day episode. HCFA determines a low-
utilization payment adjustment under the methodology set forth in 
Sec. 484.230.
    (d) Partial episode payment adjustment. An HHA receives a national 
60-day episode payment of a predetermined rate for home health services 
paid on a reasonable cost basis as of August 5, 1997, unless HCFA 
determines an intervening event, defined as a beneficiary elected 
transfer, or discharge and return to the same HHA during a 60-day 
episode, warrants a new 60-day episode payment. The PEP adjustment 
would not apply in situations of transfers among HHAs of common 
ownership. The discharge and return to the same HHA during the 60-day 
episode is only recognized in those circumstances when a beneficiary 
reached the goals in the original plan of care. The original plan of 
care must have been terminated with no anticipated need for additional 
home health services for the balance of the 60-day episode. If the 
intervening event warrants a new 60-day episode payment and the new 
physician certification of a new plan of care, the initial HHA receives 
a partial episode payment adjustment reflecting the length of time the 
patient remained under its care. HCFA determines a partial episode 
payment adjustment under a methodology set forth in Sec. 484.235.
    (e) Significant change in condition adjustment. The HHA receives a 
national 60-day episode payment of a predetermined rate for home health 
services paid on a reasonable cost basis as of August 5, 1997, unless 
HCFA determines an intervening event defined as a beneficiary 
experiencing a significant change in condition during a 60-day episode 
that was not envisioned in the original plan of care occurred. In order 
to receive a new case mix assignment for purposes of payment during the 
60-day episode, the HHA must complete an OASIS assessment and obtain 
the necessary physician change orders reflecting the significant change 
in the treatment approach in the patient's plan of care. The total 
significant change in condition payment adjustment is a proportional 
payment adjustment reflecting the time both prior and after the patient 
experienced a significant change in condition during the 60-day 
episode.
    (f) Outlier payment. An HHA receives a national 60-day episode 
payment of a predetermined rate for a home health service paid on a 
reasonable cost basis as of August 5, 1997, unless the estimated cost 
of the 60-day episode exceeds a threshold amount. The outlier payment 
is defined to be a proportion of the estimated costs beyond the 
threshold. An outlier payment is a payment in addition to the national 
60-day episode payment. The total of all outlier payments is limited to 
5 percent of total outlays under the HHA PPS. HCFA determines an 
outlier payment under the methodology set forth in Sec. 484.240.


Sec. 484.210  Data used for the calculation of the national prospective 
60-day episode payment.

    To calculate the national prospective 60-day episode payment, HCFA 
uses the following:
    (a) Medicare cost data on the most recent audited cost report data 
available.
    (b) Utilization data based on Medicare claims.
    (c) An appropriate wage index to adjust for area wage differences.
    (d) The most recent projections of increases in costs from the HHA 
market basket index.
    (e) OASIS assessment data and other data that account for the 
relative resource utilization for different HHA Medicare patient case 
mix.


Sec. 484.215  Methodology used for the calculation of the national 60-
day episode payment.

    (a) Determining an HHA's costs. In calculating the initial 
unadjusted national 60-day episode payment applicable for a service 
furnished by an HHA using data on the most recent available audited 
cost reports, HCFA determines each HHA's costs by summing its allowable 
costs for the period. HCFA determines the national mean cost per visit.
    (b) Determining HHA utilization. In calculating the initial 
unadjusted national 60-day episode payment, HCFA determines the 
national mean utilization for each of the six disciplines using home 
health claims data.
    (c) Use of the market basket index. HCFA uses the HHA market basket 
index to adjust the HHA cost data to reflect cost increases occurring 
between October 1, 1996 through September 30, 2001.
    (d) Calculation of the unadjusted national average prospective 
payment amount for the 60-day episode. HCFA

[[Page 58209]]

calculates the national unadjusted 60-day episode payment in the 
following manner:
    (1) By computing the mean national cost per visit.
    (2) By computing the national mean utilization for each discipline.
    (3) By multiplying the mean national cost per visit by the national 
mean utilization summed in the aggregate for the six disciplines.
    (4) By adding to this amount, amounts for nonroutine medical 
supplies and an OASIS adjustment for estimated ongoing reporting costs.
    (e) Standardization of the data for variation in area wage levels 
and case mix. HCFA standardizes the cost data described in paragraph 
(a) of this section to remove the effects of geographic variation in 
wage levels and variation in case mix. HCFA standardizes the cost data 
for geographic variation in wage levels using the hospital wage index. 
HCFA standardizes the cost data for HHA variation in case mix using the 
case-mix indices and other data that indicate HHA case mix.


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

    HCFA adjusts the national prospective 60-day episode payment rate 
to account for HHA case mix using a case-mix index to explain the 
relative resource utilization of different patients. HCFA also adjusts 
the national prospective 60-day episode payment rate to account for 
geographic differences in wage levels using an appropriate wage index.


Sec. 484.225  Annual update of the national adjusted prospective 60-day 
episode payment rate.

    (a) HCFA updates the unadjusted national 60-day episode payment 
rate on a fiscal year basis.
    (b) For fiscal year 2001, the unadjusted national 60-day episode 
payment rate is adjusted using the latest available market basket 
factors.
    (c) For fiscal year 2002 or 2003, the unadjusted national 60-day 
episode payment rate is equal to the rate for the previous period or 
fiscal year increase by a factor equal to the HHA market basket minus 
1.1 percentage point.
    (d) For subsequent fiscal years, the unadjusted national rate is 
equal to the rate for the previous fiscal year increased by the 
applicable HHA market basket index amount.


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

    An episode with four or fewer visits is paid the national average 
standardized per-visit amount by discipline for each visit type. The 
national average standardized per-visit amount is determined by using 
cost data set forth in Sec. 484.210(a) and adjusting by the appropriate 
wage index.


Sec. 484.235  Methodology used for the calculation of the partial 
episode payment adjustment.

    (a) HCFA makes a partial episode payment adjustment to the original 
60-day episode payment that is interrupted by an intervening event 
described in Sec. 484.205(d).
    (b) The original 60-day episode payment is adjusted to reflect the 
length of time the beneficiary remained under the care of the original 
HHA.
    (c) The partial episode payment is calculated by determining the 
actual days served by the original HHA as a proportion of 60 multiplied 
by the initial 60-day episode payment.


Sec. 484.237  Methodology used for the calculation of the significant 
change in condition payment adjustment.

    (a) HCFA makes a significant change in condition payment adjustment 
to the original 60-day episode payment that is interrupted by the 
intervening event defined in Sec. 484.205(e).
    (b) The SCIC adjustment is calculated in two parts.
    (1) The first part of the SCIC adjustment reflects the adjustment 
to the level of payment prior to the significant change in the 
patient's condition during the 60-day episode. The first part of the 
SCIC adjustment is determined by taking the span of days prior to the 
patient's significant change in condition as a proportion of 60 
multiplied by the original episode amount.
    (2) The second part of the SCIC adjustment reflects the adjustment 
to the level of payment after the significant change in the patient's 
condition occurs during the 60-day episode. The second part of the SCIC 
adjustment is calculated by using the span of days of the first 
billable service date through the last billable service date during the 
balance of the 60-day episode.
    (c) The initial percentage payment provided at the start of the 60-
day episode will be adjusted at the end of the episode to reflect the 
first and second parts of the total SCIC adjustment determined at the 
end of the 60-day episode.


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

    (a) HCFA makes an outlier payment for an episode whose estimated 
cost exceeds a threshold amount for each case-mix group.
    (b) The outlier threshold for each case-mix group is the episode 
payment amount for that group, the PEP adjustment amount for the 
episode or the total significant change in condition adjustment amount 
for the episode plus a fixed dollar loss amount that is the same for 
all case-mix groups.
    (c) The outlier payment is a proportion of the amount of estimated 
cost beyond the threshold.
    (d) HCFA estimates the cost for each episode by applying the 
standard per-visit amount to the number of visits by discipline 
reported on claims.
    (e) The fixed dollar loss amount and the loss sharing proportion 
are chosen so that the estimated total outlier payment is no more than 
5 percent of total episode payment.


Sec. 484.250  Patient assessment data.

    HCFA requires an HHA to submit the OASIS data described at 
Sec. 484.55(b)(1) and (d)(1) to administer the payment rate 
methodologies described in Secs. 484.215, 484.230, 484.235, and 
484.237.


Sec. 484.260  Limitation on review.

    Judicial or administrative review under sections 1869 or 1878 of 
the Act, or otherwise, is prohibited with regard to the establishment 
of the payment unit, including the national 60-day episode payment rate 
and the LUPA. This prohibition also includes the establishment of the 
transition period, definition and application of the unit of payments, 
the computation of initial standard prospective payment amounts, the 
establishment of the adjustment for outliers, and the establishment of 
case-mix and area wage adjustment factors.

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

    Dated: May 4, 1999.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Dated: July 21, 1990.
Donna E. Shalala,
Secretary.
[FR Doc. 99-27864 Filed 10-27-99; 8:45 am]
BILLING CODE 4120-01-P