[Federal Register Volume 65, Number 128 (Monday, July 3, 2000)]
[Rules and Regulations]
[Pages 41128-41214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16432]



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Part II





Department of Health and Human Services





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Health Care Financing Administration



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



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

  Federal Register / Vol. 65, No. 128 / Monday, July 3, 2000 / Rules 
and Regulations  

[[Page 41128]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

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

[HCFA-1059-F]
RIN 0938-AJ24


Medicare Program; Prospective Payment System for Home Health 
Agencies

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

ACTION: Final rule.

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SUMMARY: This final rule establishes 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 and by sections 302, 305, and 
306 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
of 1999. The requirements 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 under Part A and Part B.

EFFECTIVE DATE: These regulations are effective October 1, 2000.

FOR FURTHER INFORMATION CONTACT:
Bob Wardwell (Project Manager), (410) 786-3254
Susan Levy (Payment Policy), (410) 786-9364
Debbie Chaney (Data), (410) 786-8164
Randy Throndset (Data), (410) 786-0131

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    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, the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act for 
Fiscal Year 1999 and the Medicare, Medicaid and SCHIP Balanced 
Budget Refinement Act of 1999, for the Development of a Prospective 
Payment System for Home Health Agencies
C. Summary of the Proposed Rule
    1. Transition to PPS
    2. Unit of Payment (60-Day Episode)
    3. Split Percentage Payment Approach to the 60-Day Episode 
Payment (Periodic Interim Payments Statutorily Eliminated With PPS)
    4. Partial Episode Payment Adjustment (PEP Adjustment)
    5. Significant Change In Condition Adjustment (SCIC Adjustment)
    6. Low-Utilization Payment Adjustment (LUPA)
    7. Case-Mix Methodology
    8. Outlier Payments
    9. Consolidated Billing/Bundling

II. Provisions of Proposed Rule

III. Analysis and Responses to Public Comments

A. 60-Date Episode Payment Definition
B. Definition of Non-Routine Medical Supplies Included in the 
Episode Definition
C. Possible Inclusion of Medicare Part B Therapy Services in the 
Episode
D. Continuous Episode Recertifications
E. Transition/Blend
F. Split Percentage Payment
G. Statutory Elimination of Periodic Interim Payments
H. Low Utilization Payment Adjustment (LUPA)
I. Partial Episode Payment Adjustment (PEP Adjustment)
J. Significant Change in Condition Payment Adjustment (SCIC 
Adjustment)
K. Case-Mix
L. Episode Rate Methodology
M. Audited Cost Report Sample
N. Cost Outlier Payments
O. Budget Neutrality
P. Discharge Issues
Q. Consolidated Billing
R. Physician Certification of the HHRG
S. Small Rural Providers
T. Wage Index
U. Market Basket
V. Alternative Methods of Care
W. Discrimination
X. Other Federal Requirements
Y. OASIS Assessment and Plan of Care Certification Transition 
Concerns
Z. Billing Issues
AA. Cost Reporting Under PPS
BB. OASIS Data and Grouper Issues
CC. Medical Review Under PPS
DD. Quality under PPS
EE. Medicare Secondary Payor (MSP) Under PPS
FF. Appeal Rights Under PPS
GG. Suggestions for HCFA

IV. Overview of Final Regulation

A. Costs and Services Covered by the 60-Day Episode Payment
B. Data Sources Used for the Development of the 60-Day Episode 
Payment
    1. Audited Cost Report Data
    2. Home Health Agency Market Basket Index
    3. Claims Data
    4. Hospital Wage Index
C. Methodology Used for the Calculation of the 60-Day Episode 
Payment Amount
    1. Cost Data--60-Day Episode Payment
    2. Utilization Data--60-Day Episode Payment
    3. Updating the Data
    4. Standardization Factor
    5. Budget-Neutrality Factor
D. Methodology Used for Low-Utilization Payments
E. Methodology Used for Outlier Payments
F. Examples of National Standardized 60-Day Episode Payment Amounts 
and Low-Utilization Payment Adjustments
G. Design and Methodology for Case-Mix Adjustment of 60-Day Episode 
Payments
    1. Revisions to the Case-Mix Classification System
    2. Diagnosis Coding Changes in the Revised Case-Mix Model
    3. Determining the Case-Mix Indices
H. Consolidated Billing
    1. Background
    2. HHA Consolidated Billing Legislation
    3. Types of Services That Are Subject to the Provision
    4. Effects of This Provision
    5. Effective Date for Consolidated Billing

V. Provisions of the Final Rule

VI. Collection of Information Requirements

VII. Regulatory Impact Analysis

A. Background
B. Revisions to the Proposed Rule
C. Effects of This Final Rule
D. Rural Hospital Impact Statement

VIII. 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
BBRA                                  Medicare, Medicaid, and SCHIP
                                       Balanced Budget Refinement Act of
                                       1999
COPs                                  Conditions of participation

[[Page 41129]]

 
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
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 (BBA), Public Law 105 33, 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-related, 
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 
reasonable 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 for FY 1999 (OCESAA), 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'' 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 FFY 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 was contingency language for the home health PPS provided in 
the BBA that was also amended by section 5101 of OCESAA. The language 
provided that if the Secretary, for any reason, does not establish and 
implement the PPS for home health services by October 1, 2000, 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. Section 302 of the Medicare, 
Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA), 
Public Law 106-113, enacted on November 29, 1999, however, subsequently 
removed the contingency language governing the 15 percent reduction to 
the IPS cost limits for FFY 2001. It also increased the per-beneficiary 
limit for those providers with limits below the national median.

B. Requirements of the Balanced Budget Act of 1997, the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act for Fiscal 
Year 1999, and the Medicare, Medicaid and SCHIP Balanced Budget 
Refinement Act of 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), 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

[[Page 41130]]

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 302 of the BBRA, 
delayed the application of the 15 percent reduction in the budget 
neutrality target for PPS until one year after PPS implementation. The 
law further requires the Secretary to report within 6 months of 
implementation of PPS on the need for the 15 percent reduction.
    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 306 
of the BBRA amended the statute to provide a technical correction 
clarifying the applicable market basket increase for PPS in each of FYs 
2002 and 2003. The technical correction clarifies that the update in 
home health PPS in FY 2002 and FY 2003 will be the home health market 
basket minus 1.1 percent.
    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;
     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) now 
provides 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.
    Section 4603(e) of the BBA sets forth the contingency language for 
HHA PPS noting that 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. Section 302(a) of the BBRA of 1999 eliminated 
the interim payment system contingency language by striking this 
section from the statute.
    Section 305 of the BBRA refined the consolidated billing 
requirements under PPS. The new law excludes durable medical equipment 
(DME) from the home health consolidated billing requirements.

C. Summary of the Proposed Rule

    We published a proposed rule in the Federal Register on October 28, 
1999 at (64 FR 58134) that set forth proposed

[[Page 41131]]

requirements that would establish the new prospective payment system 
for home health agencies as required by the Balanced Budget Act (BBA) 
of 1997, as amended by the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act (OCESAA), of 1999, and the Medicare, 
Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA). The 
PPS 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.
1. Transition to PPS
    The statute provides authority for a transition period of no longer 
than 4 years to PPS. We proposed a full transition to the PPS. The 
overwhelming majority of the industry seems eager to move to PPS. 
However, some individual home health agencies (HHAs) will object to PPS 
because they currently enjoy a competitive advantage with high cost 
limits under the interim payment system. Furthermore, the statute now 
requires that we pay all providers under PPS on October 1, 2000 rather 
than phasing in by cost reporting period.
2. Unit of Payment (60-Day Episode)
    We proposed a 60-day episode as the basic unit of payment under the 
HHA PPS. Evidence from the Phase II per-episode HHA PPS demonstration 
illustrated that the length of a 60-day episode captured a majority of 
the patients. Moreover, the 60-day episode would coordinate with the 
60-day physician recertification of the plan of care and with the 60-
day reassessment of the patient using the Outcomes and Assessment 
Information Set (OASIS). This would encourage physicians' involvement 
in the plan of care.
3. Split Percentage Payment Approach to the 60-Day Episode Payment 
(Periodic Interim Payments Statutorily Eliminated With PPS)
    Because the PPS system must maintain a cash flow to agencies 
accustomed to billing on 30-day cycles or receiving periodic interim 
payments, we proposed a split percentage billing for each 60-day 
episode. Under this system, an agency would receive a partial episode 
payment (50 percent) as soon as it notifies us of an admission and a 
final percentage (50 percent) payment at the close of the 60-day 
episode.
4. Partial Episode Payment Adjustment (PEP Adjustment)
    The partial episode payment adjustment (PEP adjustment) provides a 
simplified approach to the episode definition and accounts for key 
intervening events in a patient's care defined as:

--A beneficiary elected transfer, or
--A discharge and return to the same HHA that would warrant a new clock 
for purposes of payment, OASIS assessment, and physician certification 
of the new plan of care. When a new 60-day episode begins, the original 
60-day episode payment is proportionally adjusted to reflect the length 
of time the beneficiary remained under the agency's care before the 
intervening event. The proportional payment is the PEP adjustment.

    The proposed 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 before the intervening event. The PEP adjustment is calculated by 
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.
    We also proposed 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 proposed that we will not apply the PEP adjustment if the transfer 
is between organizations of common ownership.
    In addition, the discharge and return to the same HHA during the 
60-day episode period is only recognized when a beneficiary reached the 
treatment goals in the original plan of care. The original plan of care 
must be terminated with no anticipated need for additional home health 
services for the balance of the 60-day period. 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 payment made under the significant change in condition 
payment adjustment discussed below.
5. Significant Change in Condition Adjustment (SCIC Adjustment)
    We proposed 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 to be a significant change in the patient's condition. We 
proposed the significant change in condition payment adjustment (SCIC 
adjustment) as the proportional payment adjustment reflecting the time 
both before 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 
before 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 uses the span of days of the first billable service 
date through the last billable service date before 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 before 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 before 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

[[Page 41132]]

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 low utilization payment adjustment (LUPA) 
discussed below) determined at the final billing for the 60-day 
episode.
6. Low-Utilization Payment Adjustment (LUPA)
    We proposed payments for low-utilization episodes by paying those 
episodes at a standardized average per-visit amount. Episodes with four 
or fewer visits would be paid the per-visit amount times the number of 
visits actually provided during the episode. ``Savings'' from reduced 
episode payments would be redistributed to all episodes.
7. Case-Mix Methodology
    In the proposed rule, we described a home health case-mix system 
developed under a research contract with Abt Associates, Inc., of 
Cambridge, Massachusetts. The case-mix system uses selected data 
elements from the OASIS assessment instrument and an additional data 
element measuring receipt of therapy services of at least 8 hours (the 
8-hour threshold has been defined as 10 visits for purposes of case-mix 
adjustment of PPS reimbursements). The data elements are organized into 
three dimensions to capture clinical severity factors, functional 
severity factors, and services utilization factors influencing case-
mix. The process of selecting data elements for each dimension was 
described in the proposed rule. In the clinical and functional 
dimensions, each data element is assigned a score value derived from 
multiple regression analysis of the Abt research data. The score value 
measures the impact of the data element on total resource use. Scores 
are also assigned to data elements in the services utilization 
dimension. To find a patient's case-mix group, the case-mix grouper 
sums the patient's scores within each of the three dimensions. The 
resulting sum is used to assign the patient to a severity level on each 
dimension. There are four clinical severity levels, five functional 
severity levels, and four services utilization severity levels. Thus 
there are 80 possible combinations of severity levels across the three 
dimensions. Each combination defines one of the 80 groups in the case-
mix system. For example, a patient with high clinical severity, 
moderate functional severity, and low services utilization severity is 
placed in the same group with all other patients whose summed scores 
place them in the same set of severity levels for the three dimensions.
8. Outlier Payments
    Outlier payments are payments made in addition to the 60-day 
episode payments for episodes that incur unusually large costs. Outlier 
payments would be made for episodes whose estimated cost exceeds a 
threshold amount for each case-mix group. The outlier threshold for 
each case-mix group, PEP adjustment or total SCIC adjustment would be 
the episode payment amount, PEP adjustment, or total SCIC adjustment 
for that group 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 are chosen so that total 
outlier payments are estimated to be no more than 5 percent of 
estimated total payments. There is no need for a long-stay outlier 
payment because we would not be limiting the number of continuous 
episode payments in a fiscal year that may be made for Medicare covered 
home health care to eligible beneficiaries.
9. Consolidated Billing/Bundling
    Under the consolidated billing requirement, we would require that 
the HHA submit all Medicare claims for the home health services 
included in 1861(m) of the Social Security 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 proposed rule included an 
approach that was superseded by changes to the law made by the BBRA.

II. Provisions of Proposed Rule

    In the proposed rule that was published on October 28, 1999 (64 FR 
54134), we proposed a number of revisions to the regulations in order 
to implement the prospective payment system, the HHA consolidated 
billing provision, and conforming statutory changes. We proposed to 
make conforming changes in 42 CFR parts 409, 424, and 484 to 
synchronize all timeframes for the plan of care certification, OASIS 
Recertification (follow-up) assessment, and episode payments to reflect 
a 60-day period. In addition, we proposed 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 proposed to revise part 409, subpart E, and discussed the 
requirements that must be met for Medicare to make payment for home 
health services. We proposed to make a conforming change in Sec. 409.43 
regarding the plan of care requirements. Specifically, we proposed 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 proposed to revise subpart H of this part regarding 
payments of hospital insurance benefits. We proposed 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 proposed 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 proposed to make similar changes in part 410, subpart I, which 
deals with payment of benefits under Part B. We

[[Page 41133]]

proposed 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) specified 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 proposed to revise part 411 subpart A, which discusses 
excluded services. We proposed 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) specified 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 also proposed 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 proposed to add a new paragraph (h) 
to include the timeframe under which home health services will be paid 
prospectively. Paragraph (h) under this section specified 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 proposed 
to amend Sec. 413.64 concerning payments to providers. Specifically, we 
proposed 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 proposed to revise part 424, which explains the conditions 
for Medicare payment. We proposed to revise Sec. 424.22 regarding the 
certification requirements as a condition for payment. We proposed 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 proposed to make a conforming change 
at paragraph (b)(1) of this section regarding the timing of the 
recertification. Specifically, we proposed 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: ``Recertification is 
required at least every 60 days preferably 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 proposed to add a new statutory authority, section 1895 of the 
Act, to paragraph(a) of Sec. 484.200, ``Basis and scope.'' Section 
1895(a) 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 proposed to revise the regulations in 42 CFR part 484, which set 
forth the conditions that an HHA must meet in order to participate in 
Medicare. First, we proposed to revise the part heading from 
``Conditions Of Participation: Home Health Agencies'' to the more 
generic heading ``Home Health Services.'' We proposed 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 proposed 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 proposed 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 proposed to add and reserve a new subpart D, then 
add a new subpart E, ``Prospective Payment System for Home Health 
Agencies.'' This proposed subpart sets forth the regulatory framework 
of the new prospective payment system. It specifically discussed the 
development of the payment rates, associated adjustments, and related 
rules. In Sec. 484.202, ``Definitions,'' we proposed 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 discussed the 
Medicare payment to providers of services. Proposed Sec. 484.205(a) 
described the method by which the provider would receive payment. 
Specifically, Sec. 484.205(a)(1) provided 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) specified that an HHA may receive a low-
utilization payment adjustment (LUPA) of a predetermined per-visit 
rate. We proposed to determine the LUPA under the methodology set forth 
in Sec. 484.230. Paragraph (a)(3) of this section provided that an HHA 
may receive a partial episode payment (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 proposed to determine the PEP Adjustment under the methodology set 
forth in Sec. 484.235. Paragraph (a)(4) of this section specified that 
a HHA may receive a significant change in condition (SCIC) Adjustment 
due to the intervening event defined as a significant change in the 
patient's condition during an existing 60-day episode. We proposed to 
determine the SCIC adjustment under a methodology set forth in 484.237.
    Proposed paragraph (b) discussed the 60-day episode payment and 
circumstances surrounding adjustments to the payment method. This 
paragraph

[[Page 41134]]

proposed 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 as 
set forth in 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. We noted that DME provided as a home health 
service as defined in section 1861(m) of the Act would continue to be 
paid the fee schedule amount.
    In paragraph (c) of this section, we proposed 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. The low-utilization payment adjustment would be determined 
under the methodology set forth in Sec. 484.230.
    In paragraph (d), we discussed the partial episode payment 
adjustment. We describe that an HHA receives a national 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 partial episode payment adjustment reflecting the length of 
time the patient remained under its care. A partial episode payment 
adjustment would be determined under the methodology set forth in 
Sec. 484.235.
    In paragraph (e), we discussed the significant change in condition 
adjustment. We discussed that the HHA receives a national 60-day 
episode payment of a pre-determined 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 discussed 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 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. An outlier 
payment would be determined under the methodology set forth in 
Sec. 484.240.
    In proposed Sec. 484.210, we specified 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.
    Proposed Sec. 484.215, paragraphs (a) through (e) specified the 
methodology used for the calculation of the national 60-day episode 
payment. Proposed paragraph (a) specified 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 determined each HHA's costs by summing its 
allowable costs for the period. We then determined the national mean 
cost per visit.
    Proposed paragraph (b) of this section specified that in 
calculating the initial unadjusted national 60-day episode payment, we 
determined the national mean utilization for each of the six 
disciplines using home health claims data.
    Proposed paragraph (c) of this section specified that we used 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 would update the cost data 
by a factor equivalent to the annual market basket index percentage 
minus 1.1 percentage points.
    Proposed paragraph (d) regarding standardization of the data for 
variation in area wage levels and case-mix specified that we would 
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 would then standardize the cost data for geographic 
variation in wage levels using the hospital wage index. We standardized 
the cost data for HHA variation in case-mix using the case-mix indices 
and other data that indicate HHA case-mix.
    Proposed paragraph (e) of this section described how we calculated 
the unadjusted national average prospective payment amount for the 60-
day episode. Specifically, we calculated this payment amount by--
     Computing the mean standardized national cost per visit;
     Computing the national mean utilization for each 
discipline; then
     Multiplying the mean standardized national cost per visit 
by the national mean utilization summed in the aggregate for each 
discipline.
    Proposed Sec. 484.220 described how we calculated the national 
adjusted prospective 60-day episode payment rate for case-mix and area 
wage levels. This section specified that we adjusted 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 adjusted 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 explained our methods for annually 
updating the national adjusted prospective payment rates for inflation. 
We proposed to handle it 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 increased

[[Page 41135]]

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 explained the methodology we use for 
the calculation of the low-utilization payment adjustment. In this 
section, we specified 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 also specified 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 illustrated the methodology we used to 
calculate the partial episode payment adjustment. The intervening event 
of either 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 484.237 illustrated 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 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 of the 
60-day episode. The second part of the SCIC adjustment is determined by 
taking the span of days (first billable visit date through the last 
billable visit 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 part of the SCIC adjustment.
    Proposed Sec. 484.240 described the methodology we used to 
calculate the outlier payment. The methodology for the calculation of 
the outlier payment would involve 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 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 related 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 proposed to revise in the 
proposed 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) and 484.237 (methodology used for the 
calculation of the SCIC adjustment).
    Proposed Sec. 484.260 discussed the limitation for review with 
regard to our new payment system. In this section, we specified 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.

III. Analysis and Responses to Public Comments

    We received approximately 381 timely comments on the HHA 
prospective payment system proposed rule HCFA-1059-P published on 
October 28, 1999 (64 FR 58134). Comments were submitted by HHAs and 
other health care providers, national industry associations, suppliers 
and practitioners (both individually and through their respective trade 
associations), State associations, health care consulting firms, and 
private citizens. The comments centered on various aspects of the 
proposed policies governing our approach to the home health prospective 
payment system. We have considered all comments received during the 60-
day public comment period in this final rule and have set forth our 
responses to the comments and corresponding policy modifications in the 
following section.
    As noted in the proposed rule, because of the large number of items 
of correspondence we normally receive on Federal Register documents 
published for comment, we are unable to respond to them individually. 
In particular, a number of commenters on the proposed rule raised 
extremely technical and detailed questions, many of which were not 
directly related to the proposed rule, regarding OASIS, the cost 
report, RHHI systems and the billing process. These questions are of 
the nature that would more appropriately be addressed through manual 
instructions and other issuances than in these regulations. In this 
final rule, we are addressing the policy concerns raised by the 
commenters that are related to the proposed rule. Summaries of the 
major issues and our responses to those comments are set forth below.

A. 60-Day Episode Payment Definition (Sec. 484.205)

    Comment: We received several comments on our proposed definition of

[[Page 41136]]

a 60-day episode as the unit of payment under HHA PPS. The majority of 
commenters supported the 60-day episode approach. A few commenters 
suggested a shorter time period for the unit of payment.
    Response: We believe the 60-day episode definition is the most 
appropriate approach to define the unit of payment under HHA PPS. 
Public support for the 60-day episode as the unit of payment under PPS 
centered on the general consensus that HHAs and physicians predict home 
care needs over a 60-day period due to current plan of care 
requirements and OASIS assessments that basically follow a 60-day 
period. As discussed in detail in the proposed rule, research indicated 
that the 60-day episode captures the majority of stays experienced in 
the Phase II per-episode HHA PPS demonstration.
    We will continue to monitor the appropriateness of the 60-day unit 
of payment and may consider modifying our approach to the episode 
definition in subsequent years of PPS, if warranted.
    Comment: A few commenters raised concerns with the change to a 60-
day episode from the current plan of care certification and OASIS 
assessments requirements that follow a bimonthly period, that is, at 
least every 62 days. Some of the concerns centered on confusion and the 
possible burden associated with the change to a 60-day episode.
    Response: The statute requires us to establish an appropriate unit 
of payment. We believe the 60-day episode is the most suitable time 
frame upon which to base payment and to manage home care needs of 
patients. To effectively implement a payment system that is built on a 
foundation of (1) OASIS assessments for case-mix adjustment and (2) 
plan of care certifications to ensure the appropriate plan of 
treatment, all schedules for assessment, certification and payment term 
should be on a parallel track. The current schedules for OASIS 
assessment and plan of care certification basically mirror a 60-day 
episode. Thus, for purposes of payment, assessment, and care planning, 
we do not believe it is an undue burden to adjust to a 60-day episode 
from a bimonthly period.
    Comment: A few commenters recommended that we re-examine the 
language we proposed to govern the 60-day episode. The commenters 
referred specifically to the following statement in the proposed rule: 
``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 * * *'' (64 FR 58201) Commenters 
suggested that HHAs should be allowed to refuse to readmit a Medicare 
eligible beneficiary in accordance with HHA policies when the safety of 
HHA staff or the patient are threatened; when the HHA does not have the 
staff necessary to meet the patient's needs; or when the patient or 
caregiver refuses to cooperate or comply with the plan of care.
    Response: We proposed this policy to indicate that we would not 
accept a refusal to treat the beneficiary when only the HHA's economic 
interests were the cause of the refusal. It was not our intent to 
restrict the legitimate rights of an HHA that has a well-documented 
individualized situation that results in a determination to refuse 
further care of a patient. This would include threats to the safety of 
HHA staff or patients or failure of patients to cooperate in the care 
plan. As long as agencies treat all similarly situated patients 
equally, document the individualized situation, and comply with all 
Federal and State laws, they have the right to refuse to treat patients 
in certain well-documented situations.

B. Definition of Non-Routine Medical Supplies Included in the Episode 
Definition

    Comment: We received several comments regarding certain non-routine 
medical supply costs that were not included in the computation of the 
60-day national episode rate. Specifically, the commenters suggested 
that we include non-routine medical supplies both paid on the cost 
report and non-routine medical supply amounts that could have been 
unbundled to part B prior to PPS in the 60-day episode rate. Commenters 
also provided several suggestions for a revised approach to the payment 
for non-routine medical supplies under HHA PPS. Recommendations 
included the following:
     Providing for a separate payment for non-routine medical 
supplies used by a patient designated as a new designated home health 
supply payment amount separate from the prospective payment rate.
     Allowing all non-routine medical supplies to be billed 
under Part B.
     Carving out or adjusting the medical supply amount due to 
the variation in intermediary coverage guidelines.
     Adjusting the medical supply amounts to reflect the costs 
associated with wound patients, chux and diaper supply patients.
     Paying medical supplies as used because of the wide 
variation in use due to patients who sustain out-of-pocket payments.
     Carving out wound care and diabetes related medical 
supplies and re-examining the overall calculation of the non-routine 
supply costs, both bundled and non-routine supply costs that could have 
been unbundled, because commenters viewed the amounts inadequate to 
care for patients requiring supplies which then might lead to access 
issues.
    Commenters further noted problems with the 199 HCPCs codes we used 
to calculate the non-routine medical supply amounts that could have 
been unbundled to Part B before implementation of PPS. We adjusted the 
proposed rate to account for the non-routine medical supply behavior 
prior to PPS. Several commenters suggested that the inclusion of 
glucose test strips codes were inappropriate codes included in the 
original 199 code list for non-routine medical supply costs. Other 
commenters believed we inadvertently omitted certain codes in the 
original list of 199 codes. Furthermore, several commenters centered on 
consolidated billing requirements for non-routine medical supplies. We 
note that all consolidated billing comments and responses are included 
under the consolidated billing portion of this section of the 
regulation.
    Response: The goal of reviewing and calculating the non-routine 
medical supply costs that could have been unbundled to Part B was to 
ensure adequate payment for non-routine medical supplies used by a 
patient under a home health plan of care in the prospective payment 
rate. As stated in the proposed rule, we developed a list of 199 codes 
that could have possibly been unbundled to Part B before implementation 
of PPS, linked those Part B supply claims that included any of the 199 
codes to home health claims for beneficiaries under a home health plan 
of care during calendar year 1997. We have replicated the exact claims 
analysis on corresponding calendar year 1998 claims data to develop an 
updated supply amount for this final regulation. This calculation was 
performed on an adjusted list of codes based upon review of comments 
and is described below.
    As stated in the proposed rule, section 1895(b)(1) of the Act, 
which governs the development of the unit of payment under HHA PPS, 
requires all services covered and paid on a reasonable cost

[[Page 41137]]

basis as of the date of enactment of the BBA, including medical 
supplies, to be paid on the basis of a prospective payment amount under 
HHA PPS. The statutory language specifically refers to the inclusion of 
medical supplies in the prospective payment rate. We believe the 
statute requires the inclusion of costs of non-routine medical supplies 
in the episode rate. However, as stated in the proposed rule, since DME 
covered as a home health service as part of the Medicare home health 
benefit is not currently paid on a reasonable cost basis, DME will 
continue to be paid under the DME fee schedule as a separate payment 
amount from the prospective payment rates under HHA PPS.
    As mentioned above, commenters also supplied us with an additional 
79 codes that they believed should be included on our list of non-
routine medical supplies that could have been unbundled to Part B. We 
re-examined our approach to the original 199 codes used to calculate 
the amounts that could have been unbundled non-routine medical 
supplies. We found that several of the recommended codes had been 
discontinued. Further, upon re-examination of our original list, we 
found that several of the original codes were inappropriately included, 
for example, glucose test strips. These codes have subsequently been 
deleted. Our analysis results in a final list of 178 codes as listed 
below. We have provided the following analysis in order to clarify our 
revised approach.
    59 codes proposed in comments were discontinued codes as of 12/31/
96.

A4190.............................  Transparent film each
A4200.............................  Gauze pad medicated/non-med
A4202.............................  Elastic gauze roll
A4203.............................  Non-elastic gauze roll
A4204.............................  Absorptive drsg
A4205.............................  Nonabsorptive drsg
K0197.............................  Alginate drsg > 16 =48 sq in
K0198.............................  Alginate drsg > 48 sq in
K0199.............................  Alginate drsg wound filler
K0203.............................  Composite drsg = 16 sq in
K0204.............................  Composite drsg > 16 =48 sq in
K0205.............................  Composite drsg > 48 sq in
K0206.............................  Contact layer = 16 sq in
K0207.............................  Contact layer > 16 = 48 sq in
K0208.............................  Contact layer > 48 sq in
K0209.............................  Foam drg = 16 sq in w/o bdr
K0210.............................  Foam drg > 16 =48 sq in w/o b
K0211.............................  Foam drg > 48 sq in w/o brdr
K0212.............................  Foam drg = 16 sq in w/bdr
K0213.............................  Foam drg > 16 =48 sq in w/bdr
K0214.............................  Foam drg > 48 sq in w/bdr
K0215.............................  Foam dressing wound filler
K0219.............................  Gauze = 16 sq in w/bdr
K0220.............................  Gauze > 16 =48 sq in w/bdr
K0221.............................  Gauze > 48 sq in w/bdr
K0222.............................  Gauze = 16 in no w/sal w/o b
K0223.............................  Gauze > 16 =48 no w/sal w/o b
K0224.............................  Gauze > 48 in no w/sal w/o b
K0228.............................  Gauze = 16 sq in water/sal
K0229.............................  Gauze > 16 =48 sq in watr/sal
K0230.............................  Gauze > 48 sq in water/salne
K0234.............................  Hydrocolloid drg = 16 w/o bdr
K0235.............................  Hydrocolloid drg > 16 =48 w/o b
K0236.............................  Hydrocolloid drg > 48 in w/o b
K0237.............................  Hydrocolloid drg = 16 in w/bdr
K0238.............................  Hydrocolloid drg > 16 =48 w/bdr
K0239.............................  Hydrocolloid drg > 48 in w/bdr
K0240.............................  Hydrocolloid drg filler paste
K0241.............................  Hydrocolloid drg filler dry
K0242.............................  Hydrogel drg = 16 in w/o bdr
K0243.............................  Hydrogel drg > 16 =48 w/o bdr
K0244.............................  Hydrogel drg > 48 in w/o bdr
K0245.............................  Hydrogel drg = 16 in w/bdr
K0246.............................  Hydrogel drg > 16 =48 in w/b
K0247.............................  Hydrogel drg > 48 sq in w/b
K0248.............................  Hydrogel drsg gel filler
K0249.............................  Hydrogel drsg dry filler
K0251.............................  Absorpt drg = 16 sq in w/o b
K0252.............................  Absorpt drg > 16 =48 w/o bdr
K0253.............................  Absorpt drg > 48 sq in w/o b
K0254.............................  Absorpt drg = 16 sq in w/bdr
K0255.............................  Absorpt drg > 16 =48 in w/bdr
K0256.............................  Absorpt drg > 48 sq in w/bdr
K0257.............................  Transparent film = 16 sq in
K0258.............................  Transparent film > 16 =48 in
K0259.............................  Transplant filmpercent 48 sq in
K0261.............................  Wound filler gel/paste/oz
K0262.............................  Wound filler dry form/gram
K0266.............................  Impreg gauze no h20/sal/yard
 

    Seven codes included in original list should be removed because 
they are considered routine medical supplies and as such would not be 
separately billable by an HHA.

A4214.............................  30 CC sterile water/saline
K0216.............................  Non-sterile gauze = 16 sq in
K0217.............................  Non-sterile gauze > 16 = 48 sq
K0218.............................  Non-sterile gauze > 48 sq in
K0263.............................  Non-sterile elastic gauze/yd
K0264.............................  Non-sterile no elastic gauze
K0265.............................  Tape per 18 sq inches
 

    Four codes are not valid for Medicare.

A4206.............................  1 CC sterile syringe & needle
A4207.............................  2 CC sterile syringe & needle
A4208.............................  3 CC sterile syringe & needle
A4209.............................  5+ CC sterile syringe & needle
 

    Three codes are for items that are not covered under Medicare.

A4210.............................  Nonneedle injection device
K0250.............................  Skin seal protect moisturizer
K0260.............................  Wound cleanser any type/size
 

    One code is a DME Fee Schedule code and should not be included in 
accordance with the statute.

A4221.............................  Maint drug infus cath per wk
 

    One code is not separately paid by Part B.

A4211.............................  Supp for self-adm injections
 

    Three codes mentioned by commenters had already been included in 
our original list of 199 codes.

A4212.............................  Non coring needle or stylet
A4213.............................  20+ CC syringe only
A4215.............................  Sterile needle
 

    After further re-examination based upon the comments, we added the 
following code to the list:

A4554.............................  Disposable underpads
 

    Upon further review of the original 199 codes used in the proposed 
rule, the following codes were deemed inappropriate to be included in 
the definition of non-routine medical supplies and were deleted from 
the list used in this final rule:

A4206.............................  1 CC sterile syringe & needle
A4207.............................  2 CC sterile syringe & needle
A4208.............................  3 CC sterile syringe & needle
A4209.............................  5+ CC sterile syringe & needle
A4210.............................  Nonneedle injection device
A4211.............................  Supp for self-adm injections
A4214.............................  30 CC sterile water/saline
A4253.............................  Blood glucose/reagent strips
A4255.............................  Glucose monitor platforms
A4256.............................  Calibrator solution/chips
A4258.............................  Lancet device each
A4259.............................  Lancets per box
A4454.............................  Tape all types all sizes
A6216.............................  Non-sterile gauze = 16 sq in
A6217.............................  Non-sterile gauze > 16 = 48 sq
A6218.............................  Non-sterile gauze > 48 sq in
A6263.............................  Non-sterile elastic gauze/yd
A6264.............................  Non-sterile no elastic gauze
A6265.............................  Tape per 18 sq inches
K0137.............................  Skin barrier liquid per oz
K0138.............................  Skin barrier paste per oz
K0139.............................  Skin barrier powder per oz
 

    The following is the final list of 178 codes for non- Routine 
Medical Supplies that have a duplicate Part B code that could have been 
unbundled and billed under Part B before implementation of PPS. The 
following codes were used to calculate additional non-routine medical 
supply costs to the national rate. The revised rate calculation is 
found in section IV.C. of this preamble.

A4212.............................  Non coring needle or stylet
A4213.............................  20+ CC syringe only
A4215.............................  Sterile needle
A4310.............................  Insert tray w/o bag/cath
A4311.............................  Catheter w/o bag 2-way latex
A4312.............................  Cath w/o bag 2-way silicone
A4313.............................  Catheter w/bag 3-way
A4314.............................  Cath w/drainage 2-way latex
A4315.............................  Cath w/drainage 2-way silcne
A4316.............................  Cath w/drainage 3-way
A4320.............................  Irrigation tray
A4321.............................  Cath therapeutic irrig agent
A4322.............................  Irrigation syringe
A4323.............................  Saline irrigation solution
A4326.............................  Male external catheter
A4327.............................  Fem urinary collect dev cup
A4328.............................  Fem urinary collect pouch
A4329.............................  External catheter start set
A4330.............................  Stool collection pouch
A4335.............................  Incontinence supply
A4338.............................  Indwelling catheter latex
A4340.............................  Indwelling catheter special
A4344.............................  Cath indw foley 2 way silicn
A4346.............................  Cath indw foley 3 way

[[Page 41138]]

 
A4347.............................  Male external catheter
A4351.............................  Straight tip urine catheter
A4352.............................  Coude tip urinary catheter
A4353.............................  Intermittent urinary cath
A4354.............................  Cath insertion tray w/bag
A4355.............................  Bladder irrigation tubing
A4356.............................  Ext ureth clmp or compr dvc
A4357.............................  Bedside drainage bag
A4358.............................  Urinary leg bag
A4359.............................  Urinary suspensory w/o leg bag
A4361.............................  Ostomy face plate
A4362.............................  Solid skin barrier
A4363.............................  Liquid skin barrier
A4364.............................  Ostomy/cath adhesive
A4365.............................  Ostomy adhesive remover wipe
A4367.............................  Ostomy belt
A4368.............................  Ostomy filter
A4397.............................  Irrigation supply sleeve
A4398.............................  Ostomy irrigation bag
A4399.............................  Ostomy irrig cone/cath w brs
A4400.............................  Ostomy irrigation set
A4402.............................  Lubricant per ounce
A4404.............................  Ostomy ring each
A4421.............................  Ostomy supply misc
A4454.............................  Tape all types all sizes
A4455.............................  Adhesive remover per ounce
A4460.............................  Elastic compression bandage
A4462.............................  Abdmnl drssng holder/binder
A4481.............................  Tracheostoma filter
A4622.............................  Tracheostomy or larngectomy
A4623.............................  Tracheostomy inner cannula
A4625.............................  Trach care kit for new trach
A4626.............................  Tracheostomy cleaning brush
A4649.............................  Surgical supplies
A5051.............................  Pouch clsd w barr attached
A5052.............................  Clsd ostomy pouch w/o barr
A5053.............................  Clsd ostomy pouch faceplate
A5054.............................  Clsd ostomy pouch w/flange
A5055.............................  Stoma cap
A5061.............................  Pouch drainable w barrier at
A5062.............................  Drnble ostomy pouch w/o barr
A5063.............................  Drain ostomy pouch w/flange
A5071.............................  Urinary pouch w/barrier
A5072.............................  Urinary pouch w/o barrier
A5073.............................  Urinary pouch on barr w/flng
A5081.............................  Continent stoma plug
A5082.............................  Continent stoma catheter
A5093.............................  Ostomy accessory convex inse
A5102.............................  Bedside drain btl w/wo tube
A5105.............................  Urinary suspensory
A5112.............................  Urinary leg bag
A5113.............................  Latex leg strap
A5114.............................  Foam/fabric leg strap
A5119.............................  Skin barrier wipes box pr 50
A5121.............................  Solid skin barrier 6x6
A5122.............................  Solid skin barrier 8x8
A5123.............................  Skin barrier with flange
A5126.............................  Disk/foam pad +or- adhesive
A5131.............................  Appliance cleaner
A5149.............................  Incontinence/ostomy supply
A6020.............................  Collagen wound dressing
A6154.............................  Wound pouch each
A6196.............................  Alginate dressing = 16 sq in
A6197.............................  Alginate drsg > 16 = 48 sq in
A6198.............................  Alginate dressing > 48 sq in
A6199.............................  Alginate drsg wound filler
A6200.............................  Compos drsg = 16 no bdr
A6201.............................  Compos drsg > 16 =48 no bdr
A6202.............................  Compos drsg > 48 no bdr
A6203.............................  Composite drsg = 16 sq in
A6204.............................  Composite drsg > 16 =48 sq in
A6205.............................  Composite drsg > 48 sq in
A6206.............................  Contact layer = 16 sq in
A6207.............................  Contact layer > 16 = 48 sq in
A6208.............................  Contact layer > 48 sq in
A6209.............................  Foam drsg = 16 sq in w/o bdr
A6210.............................  Foam drg > 16 =48 sq in w/o b
A6211.............................  Foam drg > 48 sq in w/o brdr
A6212.............................  Foam drg = 16 sq in w/bdr
A6213.............................  Foam drg > 16 =48 sq in w/bdr
A6214.............................  Foam drg > 48 sq in w/bdr
A6215.............................  Foam dressing wound filler
A6219.............................  Gauze = 16 sq in w/bdr
A6220.............................  Gauze > 16 =48 sq in w/bdr
A6221.............................  Gauze > 48 sq in w/bdr
A6222.............................  Gauze = 16 in no w/sal w/o b
A6223.............................  Gauze > 16 = 48 no w/sal w/o b
A6224.............................  Gauze > 48 in no w/sal w/o b
A6228.............................  Gauze = 16 sq in water/sal
A6229.............................  Gauze > 16 =48 sq in watr/sal
A6230.............................  Gauze > 48 sq in water/salne
A6234.............................  Hydrocolld drg = 16 w/o bdr
A6235.............................  Hydrocolld drg > 16 = 48 w/o b
A6236.............................  Hydrocolld drg > 48 in w/o b
A6237.............................  Hydrocolld drg = 16 in w/bdr
A6238.............................  Hydrocolld drg > 16 =48 w/bdr
A6239.............................  Hydrocolld drg > 48 in w/bdr
A6240.............................  Hydrocolld drg filler paste
A6241.............................  Hydrocolloid drg filler dry
A6242.............................  Hydrogel drg = 16 in w/o bdr
A6243.............................  Hydrogel drg > 16 =48 w/o bdr
A6244.............................  Hydrogel drg > 48 in w/o bdr
A6245.............................  Hydrogel drg = 16 in w/bdr
A6246.............................  Hydrogel drg > 16 =48 in w/b
A6247.............................  Hydrogel drg > 48 sq in w/b
A6251.............................  Absorpt drg = 16 sq in w/o b
A6252.............................  Absorpt drg > 16 =48 w/o bdr
A6253.............................  Absorpt drg > 48 sq in w/o b
A6254.............................  Absorpt drg = 16 sq in w/bdr
A6255.............................  Absorpt drg > 16 =48 in w/bdr
A6256.............................  Absorpt drg > 48 sq in w/bdr
A6257.............................  Transparent film = 16 sq in
A6258.............................  Transparent film > 16 =48 in
A6259.............................  Transparent film > 48 sq in
A6261.............................  Wound filler gel/paste/oz
A6262.............................  Wound filler dry form/gram
A6266.............................  Impreg gauze no h20/sal/yard
A6402.............................  Sterile gauze = 16 sq in
A6403.............................  Sterile gauze > 16 = 48 sq in
A6404.............................  Sterile gauze > 48 sq in
A6405.............................  Sterile elastic gauze/yd
A6406.............................  Sterile non-elastic gauze/yd
K0137.............................  Skin barrier liquid per oz
K0138.............................  Skin barrier paste per oz
K0139.............................  Skin barrier powder per oz
K0277.............................  Skin barrier solid 4x4 equiv
K0278.............................  Skin barrier with flange
K0279.............................  Skin barrier extended wear
K0280.............................  Extension drainage tubing
K0281.............................  Lubricant catheter insertion
K0407.............................  Urinary cath skin attachment
K0408.............................  Urinary cath leg strap
K0409.............................  Sterile H2O irrigation solut
K0410.............................  Male ext cath w/adh coating
K0411.............................  Male ext cath w/adh strip
K0419.............................  Drainable plstic pch w fcplt
K0420.............................  Drainable rubber pch w fcplt
K0421.............................  drainable plstic pch w/o fp
K0422.............................  Drainable rubber pch w/o fp
K0423.............................  Urinary plstic pouch w fcplt
K0424.............................  Urinary rubber pouch w fcplt
K0425.............................  Urinary plstic pouch w/o fp
K0426.............................  Urinary hvy plstc pch w/o fp
K0427.............................  Urinary rubber pouch w/o fp
K0428.............................  Ostomy faceplt/silicone ring
K0429.............................  Skin barrier solid ext wear
K0430.............................  Skin barrier w flang ex wear
K0431.............................  Closed pouch w st wear bar
K0432.............................  Drainable pch w ex wear bar
K0433.............................  Drainable pch w st wear bar
K0434.............................  Drainable pch ex wear convex
K0435.............................  Urinary pouch w ex wear bar
K0436.............................  Urinary pouch w st wear bar
K0437.............................  Urine pch w ex wear bar conv
K0438.............................  Ostomy pouch liq deodorant
K0439.............................  Ostomy pouch solid deodorant
 

    We believe our revised approach to the calculation that 
incorporates both non-routine medical supplies provided under a plan of 
care and those non-routine medical supplies that could have been 
unbundled to Part B prior to the consolidated billing requirements 
results in an equitable payment methodology. As stated above, we have 
re-examined the list of non-routine medical supplies that could have 
been unbundled to Part B, recalculated the costs, and have adjusted the 
rates accordingly. We have also included any additional medical supply 
costs included in the audited cost report data from the sample that 
became available after the publication of the proposed rule.
    We have thoroughly re-examined the issue of all non-routine medical 
supplies included in the rate. The statute does not provide for an 
exception for the removal of any or all supplies for certain type of 
patients from the PPS rate. We have used the best data available to 
calculate the non-routine medical supply component of the rates. We 
will continue to monitor the issue of non-routine medical supply costs 
with implementation of PPS.
    Comment: Several commenters recommended that we re-examine the 
amount we added to adjust the LUPA per-visit amounts to account for 
non-routine medical supply costs. Many commenters suggested that the 
amount was inadequate, especially for wound care patients.
    Response: As stated above, we have re-examined the issue of the 
appropriate level of non-routine medical supply costs in terms of wound 
care supplies and all non-routine medical supplies as they relate to 
all rates in the proposed rule, including the LUPA amounts. Based on 
comments, we have decided to increase the LUPA amount by paying the 
updated, prospective per-visit amount by discipline. We believe this 
per-visit amount accurately reflects an appropriate per-visit payment 
level, including medical supplies and other services furnished during 
LUPA visits. This provision is set forth in regulations at 
Sec. 484.230. The revised LUPA approach is discussed in section IV.D. 
of this rule.

[[Page 41139]]

    Comment: Commenters requested clarification of the application of 
20 percent co-payment of non-routine medical supplies not related to 
the plan of care.
    Response: Medical supplies are specifically listed in section 
1861(m) of the Act as a covered home health service. All covered home 
health services are ordered by a physician for a patient under a plan 
of care. The 20 percent copayment does not apply to non-routine medical 
supplies covered as a home health service. There is currently no 
imposition of copayment on home health services except for DME. There 
is a 20 percent copayment on DME covered as a home health service. 
However, as stated above in section I.B. of this rule, BBRA of 1999 
removed DME covered as a home health service from the consolidated 
billing requirements.
    We note that Part B does not provide coverage of and payment for 
items termed ``non-routine medical supplies.'' DME may have a DME 
supply component, but that supply cost is related to the DME and 
included in the DME fee schedule payment. Further, the statute 
governing consolidated billing specifically refers to a patient under a 
plan of care. Providers cannot circumvent the consolidated billing 
requirements by attempting to exclude certain non-routine medical 
supplies from the plan of care by distinguishing between non-routine 
medical supplies related and unrelated to the plan of care. The comment 
may reflect concern with Part B services such as parenteral or enteral 
nutrition that are neither currently covered as home health services 
nor defined as a non-routine medical supply. Parenteral or enteral 
nutrition would therefore not be subject to the requirements governing 
home health consolidated billing because those Part B services are not 
home health services as defined in section 1861(m)of the Act. The 
applicable copayment or deductible requirements governing Medicare Part 
B outside of the Medicare home health benefit defined in section 
1861(m) of the Act are not changed by this rule.
    Comment: A few commenters stated that if a beneficiary has a 
continuing medical need for medical supplies due to a chronic illness 
unrelated to the condition the HHA is treating, the patient should be 
excluded from the PPS rate and consolidated billing.
    Response: As we indicated in the proposed rule and the response to 
the previous comment, the law is very specific regarding the inclusion 
of medical supplies in the prospective rates. The law requires all 
services covered and paid on a reasonable cost basis as of the date of 
enactment of the BBA, including medical supplies, to be paid on the 
basis of a prospective payment amount under HHA PPS. The consolidated 
billing requirements at section 1842(b)(6)(F) of the Act, as amended by 
section 305 of BBRA, specifically require ``in the case of home health 
services (including medical supplies described in section 1861(m)(5), 
but excluding durable medical equipment to the extent provided for in 
such section) furnished to an individual who (at the time the item or 
service is furnished) is under a 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).''
    The statutory language governing consolidated billing clearly 
states that the patient is under the plan of care. If the patient 
requires medical supplies that are currently covered and paid for under 
the Medicare home health benefit during a certified episode under HHA 
PPS, the billing for those medical supplies falls under the auspices of 
the HHA due to the consolidated billing requirements. As stated in 
previous comments, there is no statutory latitude for an exception or 
carve-out of medical supplies from the PPS rate for patients under a 
plan of care under HHA PPS. We have included the costs of all such 
supplies in the rates.
    Comment: A few commenters suggested that we establish clear 
guidelines so that providers of medical supplies receive adequate 
notice when items they may be furnishing to a beneficiary become 
subject to HHA PPS.
    Response: The law refers to a patient under a home health plan of 
care. All routine and non-routine medical supplies that are currently 
covered as a Medicare home health service are subject to the home 
health PPS requirements. We believe the proposed rule and this final 
rule as well as current Medicare policies governing coverage of medical 
supplies under the home health benefit provide the notice of the 
requirements governing the HHA PPS. We will be directing our carrier to 
inform suppliers of this change and will be developing efforts to 
prevent erroneous billings. Further clarification of routine and non-
routine medical supplies can be found in section 204.1 of the Medicare 
home health agency manual.
    Comment: A few commenters suggested that we review the non-routine 
medical supply coverage policies of the various RHHIs and establish a 
consistent national coverage policy. Adjustments to the medical supply 
component of the rate should be made based on the analysis of the 
coverage variations in the original data used to establish the PPS 
rates.
    Response: We have re-examined our approach to the national coverage 
policy governing non-routine medical supplies under the Medicare home 
health benefit. We do not have any indication of the existence of 
significant inconsistencies in coverage policies across RHHIs. As 
stated in previous comments, we will continue to monitor the coverage 
and utilization of non-routine medical supplies in subsequent years of 
PPS implementation.
    Comment: Commenters suggested that medical supplies should be paid 
as used due to the wide variation in supply usage across patients and 
because some patients have historically paid out-of-pocket for supplies 
although HHAs were required to furnish them.
    Response: As indicated above, the law specifically includes costs 
of medical supplies in determining the PPS rates. We are concerned that 
commenters even suggested that HHAs have historically permitted or even 
encouraged eligible Medicare beneficiaries to pay out-of-pocket for 
Medicare services that patients were not required to pay. We emphasize 
that agencies are obligated to furnish and Medicare will pay for needed 
medical supplies covered under the home health benefit.

C. Possible Inclusion of Medicare Part B Therapy Services in the 
Episode

    Comment: We received a few comments regarding certain Part B 
therapy costs that were not included in the computation of the PPS 
rates. Several commenters suggested that we collect Medicare Part B 
Claims information for all therapy services provided to patients while 
receiving home health services under the home health benefit and adjust 
the episode definition, payment rate, and budget neutrality factor 
accordingly. Commenters believed that HHAs prior to PPS, as with non-
routine medical supplies, had the option to unbundle therapy services 
outside of the home health benefit to Part B therapy providers. Because 
such services cannot be unbundled under PPS, commenters suggested that, 
based on our analysis of Part B therapy claims during a home health 
stay, an adjustment to the non-standardized amount should be made to 
account for this additional cost for therapy services.

[[Page 41140]]

    Response: Before implementation of PPS, HHAs were not clearly 
prohibited from unbundling therapies to Part B. Consistent with our 
approach to non-routine medical supplies that could have been unbundled 
to Part B prior to PPS, we again analyzed Part B therapy claims data. 
Section IV.B.3. of this rule describes our claims analysis of the Part 
B therapy claims. Based on the analysis, we have adjusted the rates 
accordingly with the methodology described in section V. of this rule.

D. Continuous Episode Recertification

    Comment: Several commenters support continuous episode 
certifications because the policy permits access to home health 
services for eligible beneficiaries. A few commenters requested 
clarification of continuous episode recertification with regard to long 
term utilizers of Medicare home health services. In addition, 
commenters requested further clarification of the definition of terms 
associated with continuous episode recertification. Some commenters 
requested specific clarification of the dates governing continuous 
episode recertification.
    Response: We proposed continuous recertifications and payment, as 
appropriate, for beneficiaries who continue to be eligible for home 
health services. The payment system set forth in this final rule will 
permit continuous episode recertification for Medicare eligible 
beneficiaries. We believe this policy negates the need for a day or 
time (length of stay) outlier because beneficiaries will continue to be 
recertified for continuous episodes as long as they remain eligible for 
the Medicare home health benefit. In order to address the needs of 
longer stay patients, we are not limiting the number of 60-day episode 
recertifications permitted in a given fiscal year assuming a patient 
remains eligible for the Medicare home health benefit.
    In response to comments, our explanation of the dates governing 
continuous episode recertification and clarification of terms 
associated with subsequent episode recertifications is given below. The 
first day of a subsequent second episode is day 61. The first day of 
all subsequent episodes, whether it is the second or third, etc. 
continuous episode, will be termed the ``subsequent episode date.'' The 
first day of a subsequent episode is not necessarily the first billable 
visit date. Unlike the initial episode, the first day of a subsequent 
episode may not occur on the first billable service date. Therefore, 
one must distinguish between the definition of the subsequent 
continuing episode date and the initial episode. Further technical 
examples of continuous care will be found in billing instructions that 
will be issued after publication of this rule.

E. Transition/Blend

    Comment: Several commenters and most national industry associations 
supported full transition to a national rate. Conversely, only one 
industry association supported a four-year blend of agency-specific and 
national PPS rates. A few commenters suggested the continuation of IPS 
for the first certification or assessment period or next discharge date 
or a blend with IPS related data. A few commenters provided other 
creative alternative blend approaches that fell out of the scope of the 
statutory authority for the transition blend.
    Response: Section 1895(b)(1) of the Act provides the option for a 
four-year transition to HHA PPS by blending agency-specific and 
national rates. We proposed full transition to the 60-day national 
episode rate. We believed blending cost based IPS with an episode rate 
was not a viable, effective option. After thorough re-examination of 
the comments and subsequent analysis, we continue to believe that full 
transition to national PPS rates without any blend of current IPS on 
October 1, 2000 is the most appropriate alternative. A blended rate 
system would be overly complex, distort the positive incentives in PPS, 
and reallocate limited resources from more efficient HHAs to less cost-
conscious providers. A national PPS system has significant advantages 
over IPS. It recognizes case-mix and provides additional payments for 
higher cost outliers.
    Comment: Several commenters objected to all HHAs being paid under 
home health PPS effective October 1, 2000. Many commented that this was 
unprecedented and recommended that the implementation date should be 
transitioned based on cost reporting year.
    Response: The law governing the effective date for home health PPS 
implementation is very specific. In fact, section 5101(c)(1)(A) of 
OCESSA amended section 1895(a) of the Act to change the effective date 
for PPS from a transition by cost reporting periods to an immediate 
start-up date for all HHAs, effective October 1, 2000. The law, as 
amended, does not provide implementation by cost reporting period.

F. Split Percentage Payment

    Comment: Current regulations require a physician signed plan of 
care before a HHA can bill Medicare for payment. Several commenters 
suggested the need to receive the initial percentage payment based on 
verbal orders. Many commenters were concerned about cash flow. Further, 
commenters believed that if we adopt a policy that permits initial 
payment based on verbal orders the need for a notice of admission would 
be eliminated.
    Response: A number of commenters expressed concerns about cash flow 
to providers under the proposed system. Many reasons centered on the 
percentage of total payment provided upfront, as opposed to the end of 
the episode and the potential delays in receiving payments as a result 
of claims processing times, documentation requirements, and medical 
review. We appreciate these issues and are very interested in ensuring 
HHAs have adequate cash flow to maintain quality services to 
beneficiaries. As a result, we have taken a number of steps in this 
final rule that include increasing the amount of the initial percentage 
payment for initial episodes and a number of adjustments detailed below 
to significantly shorten the amount of time between the submission of 
the request for anticipated payment (defined below) and the receipt of 
payment. We believe these changes will significantly lessen the time 
for the receipt of payment as opposed to the approach set forth in the 
proposed rule. We are revising our approach to the split percentage 
payment as originally set forth in our proposed rule. We view the 
initial percentage payment as a ``request for anticipated payment'' 
rather than a Medicare ``claim'' for purposes of the Act. However, a 
request for anticipated payment is a ``claim'' for purposes of Federal, 
civil, criminal, and administrative law enforcement authorities, 
including but not limited to the civil monetary penalties law (as 
defined in 42 U.S.C. 1320a-7a(i)(2)), the Civil False Claims Act (as 
defined in 31 U.S.C. 3729(c)), and the Criminal False Claims Act (18 
U.S.C. 287)). We also note that where we use the term ``claim'' in this 
final regulation, it refers to a ``Medicare claim.'' The first 
percentage payment will not require a physician signed plan of care 
before submission. The request for anticipated payment reflecting the 
initial percentage payment for the episode may be submitted based on 
verbal orders. All physician verbal orders must: (1) Be put in writing; 
(2) reflect the agreement between the home health agency and the 
physician with the appropriate detail regarding the patient's condition 
and the services to be rendered; (3) be compatible with the regulations 
governing the plan of care at

[[Page 41141]]

Sec. 409.43, Sec. 424.22, and Sec. 484.18; and (4) be signed by a 
physician prior to submission of the claim. In order to request 
anticipated payment for the initial percentage payment based on 
physician verbal orders, a copy of the plan of care with all physician 
verbal orders placed in writing and dated with the date of receipt by 
the registered nurse or qualified therapist (as defined in Sec. 484.4) 
responsible for furnishing or supervising the ordered service must be 
completed. A copy of the plan of care, which includes the verbal 
orders, must also be transmitted to the physician for his or her 
records. We believe this documentation need is consistent with current 
practice. Alternatively, the request for anticipated payment may be 
submitted if the HHA has a signed referral prescribing the physician's 
detailed orders for the services to be rendered and the patient's 
condition. Signed orders must, however, be obtained as soon as possible 
and before the submission of the claim for services is submitted for 
the final percentage payment for each episode. The final percentage 
payment including all of the utilization data for the episode is the 
Medicare claim. The claim for the residual final percentage payment 
requires a signed plan of care prior to billing for payment. Since the 
request for anticipated payment may be submitted based on verbal orders 
that are copied into the plan of care with the plan of care being 
immediately submitted to the physician and is not considered a Medicare 
claim, the request for anticipated payment will be canceled and 
recovered unless the claim for the episode is submitted within the 
greater of 60 days from the end of the episode or 60 days from the 
issuance of the anticipated payment. The request of anticipated payment 
for the initial percentage payment is a request for payment of 
anticipated services. The claim for final payment of the residual 
percentage payment constitutes the claim for services furnished. We 
believe this revised approach to split percentage payment will 
alleviate cash flow concerns raised in the public comments. We revised 
current Sec. 409.43(c) governing physician signature of the plan of 
care. Specifically, paragraph (c)(1) of this section specifies, ``If 
the physician signed plan of care is not available, the request for 
anticipated payment of the initial percentage payment must be based 
on--
     A physician's verbal order that--
    ++ Is recorded in the plan of care;
    ++ Includes a description of the patient's condition and the 
services to be provided by the home health agency;
    ++ Includes an attestation (relating to the physician's orders and 
the date received) signed and dated by the registered nurse or 
qualified therapist (as defined in 42 CFR 484.4) responsible for 
furnishing or supervising the ordered service in the plan of care; and
    ++ Is copied into the plan of care and the plan of care is 
immediately submitted to the physician; or
     A referral prescribing detailed orders for the services to 
be rendered that is signed and dated by a physician.''
    In paragraph (c)(2) of this section, we specify that ``HCFA has the 
authority to reduce or disapprove requests for anticipated payments in 
situations when protecting Medicare program integrity warrants this 
action. Since the request for anticipated payment is based on verbal 
orders as specified in paragraphs (c)(1)(i) and/or a prescribing 
referral as specified in (c)(1)(ii) of this section and is not a 
Medicare claim for purposes of the Act (although it is a ``claim'' for 
purposes of Federal, civil, criminal, and administrative law 
enforcement authorities, including but not limited to the Civil 
Monetary Penalties Law (as defined in 42 U.S.C. 1320a-7a(i)(2), and the 
Civil False Claims Act (as defined in 31 U.S.C. 3729(c), and the 
Criminal False Claims Act (18 U.S.C. 287), the request for anticipated 
payment will be canceled and recovered unless the claim is submitted 
within the greater of 60 days from the end of the episode or 60 days 
from the issuance of the request for anticipated payment.''
    Paragraph (c)(3) of this section specifies that ``The plan of care 
must be signed and dated--
     By a physician as described who meets the certification 
and recertification requirements of Sec. 424.22 of this chapter and;
     Before the claim for each episode for services is 
submitted for the final percentage payment.''
    Paragraph (c)(4) of this section specifies that ``Any changes in 
the plan must be signed and dated by a physician.''
    We agree with the commenter and believe that our revised approach 
eliminates the need for an additional notice of admission as originally 
proposed. We believe that the requests for anticipated payment of the 
initial percentage payment based on physician verbal orders responds 
directly to commenters concerns with current requirements governing 
physician signatures prior to claim submission. Commenters were 
concerned that the current signature requirements could disrupt 
necessary cash flow under PPS. We believe the request for anticipated 
payment for the initial percentage payment alleviates the cash flow 
concerns. Further, the request for anticipated payment of the initial 
percentage payment will provide appropriate cash flow to all providers 
because the requests are not subject to the current payment floor 
processing restrictions. The revised request for anticipated payment 
approach to the split percentage payment ensures adequate cash flow to 
providers who rely on Medicare resources to ensure continued quality 
care. Both the request for anticipated payment and the claim will be 
subject to medical review determinations. Subsequent payment 
withholdings may occur, as applicable. If a provider is targeted for 
medical review due to a history of excessive claim denials, it may not 
be able to submit requests for anticipated payment.
    Comment: In the proposed rule, we proposed a 50/50 split percentage 
payment approach to the 60-day episode payment. The majority of 
commenters recommended a higher initial percentage payment in order to 
recognize the front loading of administrative costs associated with 
patient admissions. Many commenters requested increasing the initial 
percentage payment on at least the first episode due to the up-front 
costs associated with new patients.
    Response: Based on comments that we have received, we believe the 
public has raised serious issues regarding cash flow under PPS. 
Therefore, we have re-evaluated our original split percentage proposal 
and have decided to revise our proposed approach to incorporate a 60/40 
split for all initial episodes in order to recognize the up-front costs 
associated with new admissions. This new split percentage payment 
approach for all initial episodes is set forth in regulations at 
Sec. 484.205(b)(1). All subsequent episodes will be paid at the 50/50 
percentage payment split. The split percentage payment approach for 
subsequent episodes is set forth in regulations at Sec. 484.205(b)(2). 
We believe our revised approach to the split percentage payment will 
provide appropriate financial relief to HHAs, adequate cash flow, and 
preserve the integrity of the Medicare trust funds. We believe our 
revised approach to the split percentage payment to include both the 
higher up-front percentage for first episodes and the submission of the 
request for anticipated payment of the initial percentage payment based 
on verbal orders, alleviates the cash flow issue for non-PIP providers 
as well as ongoing cash flow issues for PIP

[[Page 41142]]

providers. PIP providers will receive their last September PIP payments 
during October. That continuing payment flow during the transition 
combined with the ability to submit all requests for anticipated 
payment of the initial percentage payment based on verbal orders at the 
onset of PPS will ensure adequate cash flow to PIP providers. The 
ability to submit all requests for anticipated payment of the initial 
percentage payment based on physician verbal orders responds directly 
to commenters concerns with current requirements governing physician 
signatures prior to submission of the claim. Commenters were concerned 
that the current signature requirements could disrupt necessary cash 
flow under PPS. We believe the request for anticipated payment for the 
initial percentage payment alleviates the cash flow concerns. Further, 
the request for anticipated payment of the initial percentage payment 
will provide appropriate cash flow to all providers because the 
requests are not subject to the current payment floor processing 
restrictions. We plan to continue to study the up-front rate of 
utilization under PPS.

G. Statutory Elimination of Periodic Interim Payments (PIP)

    Comment: The majority of commenters recommended the reinstatement 
of PIP or a PIP-like accelerated payment under PPS to ensure adequate 
cash flow to PIP providers as well as all providers. One commenter 
specifically suggested accelerated payments for high volume HHAs.
    Response: Section 4603(b) of the BBA amended section 1815(e)(2) of 
the Act to eliminate periodic interim payments. PIP payments are a 
method to periodically pay in advance before receiving a claim. 
Accordingly, we proposed to revise Sec. 413.64(h)(1) to eliminate PIP 
for HHAs for services furnished on or after October 1, 2000. In this 
final rule, we are also removing paragraph (h)(2)(iv) of this section 
to comply with the BBA requirement that eliminates PIP for home health 
services upon implementation of PPS.
    Based on comments received, we believe the public has raised 
critical issues regarding the need to provide adequate cash flow to all 
providers and specifically to PIP providers during the transition to 
PPS. However, traditional PIP is related to cost-based payment 
reconciliations and cannot be readily adopted to PPS rates.
    As stated previously, we believe our revised approach to the split 
percentage billing to include both the higher up-front percentage for 
first episodes and the submission of the request for anticipated 
payment of the initial percentage payment based on verbal orders, that 
are copied into the plan of care with the plan of care being 
immediately submitted to the physician, eliminates the cash flow issue 
for non-PIP providers as well as ongoing cash flow issues for PIP 
providers. With regard to transition payments to PIP providers, they 
will be receiving their last September PIP payments during October. 
That continuing payment flow during transition combined with the 
ability to submit all requests for anticipated payment of the initial 
split percentage payment at the onset of PPS as of October 1, 2000, 
will also ensure adequate cash flow to PIP providers. We believe our 
revised methodology will reduce payment flow issues and meet the needs 
of all providers equitably.
    In addition, accelerated payments, as historically available, may 
be available to HHAs that are disadvantaged by delayed payments due to 
unanticipated HCFA claims processing system failures or delays to 
ensure adequate cash flow. In regulations at Sec. 413.64(g) for cost-
reimbursed providers, and in Secs. 412.116(f) and 413.350(d) for 
hospitals and skilled nursing facilities, respectively, that receive 
payment under a prospective payment system, we have provided for the 
availability of accelerated payments for non-PIP providers in certain 
situations. We do not believe that HHAs should be penalized for 
unanticipated claims processing system delays and are extending the 
availability of accelerated payments to all HHAs under PPS. Therefore, 
we are adding a new Sec. 484.245 to provide HHAs the ability to request 
accelerated payments under home health PPS if the HHA is experiencing 
financial difficulties due to delays by the intermediary in making 
payment to the HHA.

H. Low Utilization Payment Adjustment (LUPA) (Sec. 484.230)

    Comment: Commenters on the LUPA centered on such issues as the 
total elimination of the LUPA, retaining the four or fewer visit 
threshold at a minimum, the lack of recognition of additional costs 
associated with the first visit in the episode due to patient admission 
responsibilities, negative impact on rural and small providers, and the 
inadequate payment amount proposed for each standardized per-visit 
amount per-discipline. Many commenters suggested we increase the 
proposed LUPA amounts to reflect the current per-visit limits by 
discipline or cost per visit by discipline or by a percentage increase 
approach. A few commenters suggested the elimination of LUPA for the 
first episodes, but supported application of the LUPA for subsequent 
episodes.
    Response: We proposed a low utilization payment adjustment in order 
to moderate provision of minimal or negligible care, that is, to 
discourage HHAs from providing a minimal number of visits in an 
episode. We proposed episodes with four or fewer visits be paid the 
wage adjusted national standardized per-visit amount by discipline for 
each of the four or fewer visits rendered during the 60-day episode. We 
solicited comments on the most appropriate threshold and specifically 
solicited comments on the use of the higher threshold of six or fewer 
visits. We will retain the original four or fewer visit threshold as no 
commenters supported moving the threshold to six or fewer visits. In 
this final rule, we respond to the recommendation to increase the 
proposed LUPA amount by now calculating the LUPA based on a higher 
national average per-visit amount by discipline updated by the market 
basket to FY 2001. This will provide a higher level of payment and 
fully compensate HHAs for such visits. We are revising our regulations 
at Sec. 484.230 to reflect the higher per-visit amounts that will be 
used to calculate the LUPA payments. We are not adopting the comment to 
increase the payment only for the first visit to account for the front-
loading of costs in an episode because we believe the approach set 
forth in this rule will adequately account for the costs for low 
utilization episodes. We will continue to monitor the impact of the 
four or fewer visit threshold and the revised LUPA per-visit amounts on 
all types of providers under PPS. The revised LUPA methodology and rate 
tables are found in section IV. of this rule.
    Comment: Commenters suggested that we apply LUPA only to acute 
patients and not to chronic patients who require B-12 injections or 
catheter changes.
    Response: The LUPA payment approach does not distinguish between an 
acute or chronic home care patient. The goal of the LUPA is to 
appropriately pay for low utilization episodes. As stated above we have 
revised Sec. 484.230 to reflect the higher per-visit amounts that will 
be used to calculate the LUPA payments. We believe the revised approach 
to calculating the LUPA per-visit amounts by discipline will more 
adequately reflect average costs associated with low volume episodes.
    Comment: A few commenters suggested the removal of wage index 
adjustment in the LUPA payment

[[Page 41143]]

approach. Commenters also suggested that we case-mix adjust the LUPA.
    Response: The LUPAs are not case-mix adjusted because they are 
calculated using national claims data for episodes with four or fewer 
visits. The claims data is only wage adjusted, not case-mix adjusted. 
We believe it is important to adjust the labor component of the LUPA 
based on the most recent pre-floor and pre-reclassified hospital wage 
index as historically reflected in the labor portion of home health 
services.
    Comment: One commenter requested clarification of whether telephone 
contact or a telemedicine visit will count as a visit for purposes of 
the LUPA policy.
    Response: The current definition of a Medicare home health visit 
has not changed with the implementation of home health PPS. The 
definition of a visit is set forth in Sec. 409.48(c) of the regulations 
specifies that ``A visit is an episode of personal contact with the 
beneficiary by staff of the HHA or others under arrangements with the 
HHA for the purpose of providing a covered service.'' A telephone 
contact or telemedicine visit does not meet the definition of a visit 
and therefore would not count toward a LUPA visit.
    Comment: A few commenters requested clarification of the type of 
practitioner that would provide a LUPA visit.
    Response: The current personnel qualifications and coverage 
guidelines governing the provision of covered home health services are 
not changed by home health PPS. All visits provided under HHA PPS 
regardless of the provision under an episode rate or LUPA rate must 
meet current Medicare coverage guidelines.
    Comment: A few commenters requested a specific HHRG level for LUPA 
cases.
    Response: We do not believe the case-mix weight methodology as 
proposed would accommodate an HHRG specific weight for the LUPA. The 
LUPA is a wage adjusted per-visit payment. Constructing a LUPA specific 
HHRG would confuse the concept of case-mix adjustment and per-visit 
payment for LUPAs. However, we will continue to consider this proposal 
as we further refine PPS in the future.

I. Partial Episode Payment Adjustments (PEP Adjustment)

    Comment: Several commenters did not support the use of billable 
visit dates to calculate the PEP adjustment due to possible gaps in 
days that may not be recognized in the payment. Many commenters 
recommended the use of the first billable visit date through the day 
before the intervening event or discharge date as the span of time used 
to calculate the proportional payment. Many commenters did not believe 
the PEP reflected the increased costs associated with admission during 
the start of the episode. Commenters proposed eliminating the 
proportional payment aspect of the provision thus yielding a full 
episode payment for the initial HHA and a full episode payment for the 
HHA receiving the patient due to the intervening event. Several 
commenters provided alternative payment approaches to the PEP policy as 
set forth in the proposed rule.
    Response: In the October 28, 1999 proposed rule, we proposed a PEP 
Adjustment to address the key intervening events of the beneficiary 
elected transfer to another HHA and the discharge of a beneficiary who 
returns to the same HHA during the 60-day episode. We proposed to 
restart the 60-day episode clock due to the two intervening events and 
end the original episode payment with a proportional payment 
adjustment. The proportional payment adjustment would be calculated by 
using the span of billable visit dates prior to the intervening event. 
We are not adopting the commenters' suggestions to use the day before 
the intervening event or discharge date to calculate the proportional 
payment. We are retaining the use of billable service dates to 
determine the appropriate payments because of the HHAs involvement in 
decisions influencing the intervening events for a beneficiary elected 
transfer or the beneficiary is discharged and returns to the same HHA 
during the same 60-day episode period. Proportional payments based on 
billable visit dates will continue to be the payment methodology for 
the initial HHA as a result of the intervening event. We believe the 
new 60/40 percentage payment split for first episode payments as 
specified in regulations at Sec. 484.205(b)(1) will alleviate concerns 
with costs associated with new patients.
    Comment: A few commenters requested clarification of the 
calculation of the therapy hour threshold in the case of the transfer 
PEP Adjustment.
    Response: The therapy threshold will apply separately to the 
proportional portion of the first episode and the new episode that 
results from the intervening event. The initial HHA will have the 
period of time of the first billable service date through the last 
billable visit date in the original plan of care prior to the 
intervening event to reach the therapy threshold. The new episode 
resulting from the intervening event will not incorporate therapy usage 
from the prior period but will determine the therapy needs for the 
patient resulting from the new certified plan of care. Each part of the 
episode, the PEP adjusted portion and the new 60-day episode resulting 
from the intervening event is subject to separate therapy thresholds. 
The therapy threshold is not combined or prorated across episodes. Each 
episode whether full or proportionally adjusted is subject to its own 
unique therapy threshold for purposes of case-mix adjusting the payment 
for that individual patient's resource needs. This PEP approach to the 
therapy threshold applies to both intervening events of the beneficiary 
elected transfer and the discharge and return to the same HHA during 
the same 60-day episode period.
    Comment: Several commenters suggested the elimination or 
modification of the proposed policy that prevents the PEP adjustment 
when a beneficiary elects to transfer to an HHA that is under common 
ownership with the initial HHA. We proposed that transfers among HHAs 
under common ownership would be paid as an under arrangement situation. 
Commenters believed that the proposed common ownership policy should 
not apply when the transfer was made because the patient moved out of 
the first HHA's geographic service area defined by the agency's 
license. Further, commenters were concerned that if the proposed 
language regarding common ownership was not changed to conform to the 
rules currently governing related parties, it would be viewed as an 
attempt by HCFA to pierce the corporate veil and offset the liabilities 
of one corporation against payments due to another.
    Response: In response to these concerns, we are providing further 
clarification of our definition of common ownership for purposes of the 
PEP adjustment for beneficiary elected transfers. If an HHA has a 
significant ownership interest as defined in Sec. 424.22 (Requirement 
for home health services), then the PEP adjustment would not apply. 
Those situations would be considered services provided under 
arrangement on behalf of the originating HHA by the receiving HHA with 
the ownership interest until the end of the episode. The common 
ownership exception to the transfer PEP adjustment does not apply if 
the beneficiary moved out of their MSA or non-MSA during the 60-day 
episode before the transfer to the receiving HHA. The transferring HHA 
not only serves as the billing agent, but must also exercise 
professional responsibility over the

[[Page 41144]]

arranged-for services in order for the services provided under 
arrangements to be paid.
    Comment: A few commenters requested that we clarify how we apply 
our PEP policy when a home health patient elects hospice before the end 
of the episode. The comments focused on a hospice that is under common 
ownership with the HHA.
    Response: If a patient elects hospice before the end of the episode 
and the patient did not experience an intervening event of discharge 
and return to the same HHA, or transfer to another HHA during an open 
60-day episode prior to the hospice election, the HHA receives a full 
episode payment for that patient. Upon hospice election, the 
beneficiary is no longer eligible for the home health benefit. The 
common ownership restriction for the PEP adjustment applies only to the 
relationship between two HHAs providing covered home health services to 
a home health eligible beneficiary.
    Comment: A few commenters requested clarification of whether a PEP 
adjustment will apply to the initial HHA when a physician or patient-
initiated termination of home health services occurs and the treatment 
goals have not been reached. In addition, commenters further requested 
clarification of the beneficiary elected transfer PEP policy when the 
beneficiary transfers because the HHA provided minimal or negligible 
services.
    Response: To account for the situation when a patient initiates the 
termination of services for any reason and requests a transfer to 
another HHA, we developed the PEP adjustment to assure that the 
patient's freedom of choice was honored and that the Medicare Trust 
funds were protected by a policy that ensures adequate payment levels 
that reflect the time each HHA served the patient under a transfer 
situation. Unless the beneficiary refused further care or was a safety 
risk to the HHA staff, we do not envision a situation in which a 
physician would terminate care prior to the completion of treatment 
goals. However, we would focus survey or medical review resources to 
investigate complaints of minimal or negligible service delivery as a 
motivating factor for a beneficiary's election to transfer from the 
original HHA.
    Comment: A few commenters suggested that we allow the physician to 
reinstate the initial plan of care rather than requiring a new plan of 
care in the situation of discharge and return to the same HHA during 
the same 60-day episode.
    Response: We are not adopting this comment. We believe that a new 
certified plan of care is a critical feature of any episode payment, 
regardless of whether prior treatment goals were met and the patient 
was formally discharged. We do not believe that it is unduly burdensome 
because the HHA will be receiving access to an entire 60-day episode 
payment. Further, a patient that returns to the HHA for admission after 
discharge would require a new OASIS assessment and new plan of care 
under current practice guidelines.
    Comment: Some commenters asked if the PEP adjustment is applied 
when a patient dies.
    Response: A full episode payment will be paid in the event of a 
patient's death during a 60-day episode. No PEP adjustment will be 
calculated due to a patient's death during an episode.
    Comment: A few commenters argued that the PEP adjustment policy 
approach does not adequately address ``snow birds'', persons who 
seasonally migrate from one place to another.
    Response: We believe the PEP adjustment will adequately address 
this situation. As stated previously, if for any reason, a beneficiary 
elects to transfer to another HHA, the original HHA's episode payment 
would be proportionately adjusted with a PEP adjustment to reflect the 
time the HHA served the patient prior to the intervening event of the 
transfer. This would include the ``snow bird'' situation. We do not 
believe there is a need for an exception from the transfer policy 
regarding ``snow birds''. Our PEP adjustment policy governing transfers 
provides for a clean slate for a 60-day episode payment, OASIS 
assessment, and certification for the receiving HHA. We believe this is 
an equitable approach to intervening events during the 60-day episode.
    Comment: Commenters argued PEP adjustment governing discharge and 
return should not apply when there is a readmission for the same 
diagnosis. Commenters stated that the discharge and return to the same 
HHA during the 60-day episode PEP adjustment requires the goals in the 
original plan of care to be met prior to discharge. Commenters 
requested further clarification of meeting treatment goals in the 
original plan of care.
    Response: We will not provide for payment for two full episodes at 
any time during a given certified 60-day episode. If an HHA discharges 
a patient, it is assumed that the patient has met the course of 
treatment set forth in conjunction with physician orders in the 
patient's original plan of care. If the patient returns with the same 
diagnosis, it may not indicate the same plan of care. Even if the HHRG 
level did not change upon return, the patient's initial discharge 
indicated completion of the original course of treatment. The original 
episode payment would be proportionately adjusted to reflect the time 
prior to discharge with a PEP adjustment.

J. Significant Change in Condition Payment Adjustment (SCIC Adjustment) 
(Sec. 484.237)

    In the October 28, 1999 proposed rule, we proposed a significant 
change in condition adjustment to recognize the event of a significant 
change in patient condition that was not envisioned in the original 
plan of care. The SCIC adjustment is calculated as a proportional 
payment reflecting the time both before and after the patient 
experienced the significant change in condition. Billable visit dates 
are used to calculate the proportional payments.
    Comment: Some commenters did not support the use of billable visit 
dates due to the potential gaps in payment days used to calculate the 
SCIC adjustment. Commenters suggested using the dates that the patient 
received comprehensive case management or all the days in the 60-day 
episode. Many commenters suggested the restart of the 60-day episode 
clock due to the patient's significant change in condition, resulting 
in two full episode payments or a prorated payment plus a full new 
episode payment. Other commenters suggested that the admission to an 
inpatient facility should indicate close of a previous episode for 
outcome data collection, similar to the PEP proportional payment 
approach. Other SCIC comments centered on prorating payments based on 
visits or increasing the SCIC proportional payments by an equitable 
percentage increase to each proportional payment for the original 
diagnosis.
    Response: The use of billable visit dates as the boundaries for the 
payment adjustment encourages appropriate service use and supports the 
delivery of all needed care. We further believe that the current SCIC 
adjustment policy provides financial relief to HHAs who would otherwise 
be locked into a case-mix adjusted payment based on a point in time of 
the patient's condition at the beginning of the episode. We will retain 
the current SCIC adjustment policy and are not adopting the commenters' 
suggestions. The SCIC adjustment ensures HHAs will have adequate 
resources to meet the changing patient needs of its mix of patients. 
The SCIC adjustment provides HHAs with the

[[Page 41145]]

ability to meet the changing resource needs of their patients.
    Comment: Many commenters requested clarification, and others 
requested removal, of the policy set forth in the preamble of the 
proposed rule governing intervening hospital stays during a 60-day 
episode. In the proposed rule, we stated that 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. Currently, HHAs are provided the option to 
discharge patients upon transfer to an inpatient facility.
    Response: We believe that HHAs should be given the option to 
discharge the patient within the scope of their own operating policies; 
however, when an HHA discharges a patient as a result of a hospital 
admission during the 60-day episode that discharge will not be 
recognized by Medicare for payment purposes. Either an intervening 
hospital stay will result in an applicable SCIC adjustment or if the 
Resumption of Care OASIS assessment upon return to home health does not 
indicate a change in case-mix level, a full 60-day episode payment will 
be provided spanning the home health episode start of care date prior 
to the hospital admission, through and including the days of the 
hospital admission, and ending with the 59th day from the original 
start of care date of the episode.
    Comment: Commenters requested clarification that the SCIC 
adjustment will only apply in cases of deterioration, that is, 
increased payment due to a new HHRG and not improvement resulting in a 
possible decrease in payment for the second part of the SCIC 
adjustment.
    Response: We designed the SCIC adjustment to permit the HHA to 
adjust the assessment and the concomitant HHRG assignment when the 
patient's condition changes in a significant way that was unanticipated 
in the context of the initial assessment. The SCIC adjustment will 
occur in both situations of significant patient deterioration and 
improvement. Excessive use of the SCIC adjustment for patient 
deterioration will be monitored under PPS to ensure the legitimacy of 
claims for increased payment.
    Comment: A few commenters asked if there is a limit to the number 
of SCIC adjustments in one 60-day episode.
    Response: Although there is the clinical possibility of more than 
one SCIC adjustment during a given 60-day episode, we believe it will 
be a rare occurrence. While we will permit more than one SCIC per 
episode, providers who demonstrate a pattern of multiple SCIC 
adjustments will likely be subject to review to assure the validity of 
such situations.
    Comment: Several commenters suggested the use of a modified OASIS 
assessment for purposes of SCIC Adjustments. Commenters requested that 
we require only those OASIS and other items necessary for case-mix for 
the determination of a SCIC adjustment.
    Response: Totally apart from PPS, the current protocol governing 
OASIS assessment schedules, requires the complete OASIS assessment at 
points in time when the patient experiences a significant change in 
condition. Further, we believe it is necessary to have all OASIS items 
relevant for outcome measures to monitor the use of SCIC adjustments 
under PPS. We are not adopting this comment on the approach to SCIC 
adjustments. The SCIC adjustment provides an additional payment 
adjustment without which PPS would have locked the HHA and patient in a 
60-day episode payment level according to the patient's status at the 
beginning of the 60-day episode. We do not believe the completion of 
the full OASIS assessment generates a cost that outweighs the benefit 
of the SCIC adjustment from a payment and quality of care perspective.
    Comment: Commenters had additional questions regarding our policies 
governing the SCIC adjustment. Specifically, commenters asked if 
physician verbal orders would suffice to precipitate a SCIC adjustment 
or would the form 485 have to be completed.
    Response: The SCIC adjustment occurs when a beneficiary experiences 
a significant change in condition during the 60-day episode that was 
not accounted for in the original plan of care. In order to receive a 
new case-mix assignment for purposes of the SCIC adjustment payment 
during the 60-day episode, the HHA must complete an OASIS assessment 
and obtain necessary change orders reflecting the significant change in 
treatment approach in the patient's plan of care. While the physician's 
verbal order and the corresponding OASIS reassessment may precipitate 
the new case-mix level and corresponding payment grouping the HHRG for 
the balance of the 60-day episode, the SCIC adjusted episode, like any 
other episode, requires a signed plan of care prior to submission of 
the claim for the final percentage payment.
    Comment: Commenters requested clarification of whether the LUPA 
will apply in situations of the SCIC adjustment.
    Response: A SCIC adjusted episode payment could be further adjusted 
to reflect the LUPA, if applicable. However, because a LUPA payment is 
not case-mix adjusted, the SCIC would have no payment consequence on an 
episode paid at the LUPA level. This would be a limited, but not 
inconceivable, occurrence that would likely be targeted by medical 
review.

K. Case-Mix

Caregiver Variables on OASIS Not Used in Case-Mix System
    Comment: In the proposed rule we stated that caregiver variables 
would be omitted from the case-mix model. Some commenters were 
concerned that failure to consider caregiver availability may result in 
inadequate payment. One commenter stated that returning to independence 
or assuming care on a long-term basis often depends on the patient's 
support system or lack thereof. Commenters stressed that caregiver 
availability is a particularly strong factor in rural areas where 
patients have fewer community supports to make up for the lack of 
caregiver assistance in the home.
    Response: In the proposed rule, we discussed our basis for 
excluding such variables. We recognize that adjusting payment in 
response to the presence or absence of a caregiver may be seen as 
inequitable by patients and their families. To the extent the 
availability of caregiver services, particularly privately paid 
services, reflects socioeconomic status differences, reducing payment 
for patients who have caregiver assistance may be particularly 
sensitive in view of Medicare's role as an insurance program rather 
than a social welfare program. Furthermore, adjusting payment for 
caregiver factors risks introducing new and negative incentives into 
family and patient behavior. It is questionable whether Medicare should 
adopt a payment policy that could weaken informal familial supports 
currently benefiting patients at times when they are most vulnerable.
    Notwithstanding these considerations, we examined the usefulness of 
caregiver factors but found them to be only minimally helpful in 
explaining or predicting resource use. A variable on the availability 
of a caregiver had no impact on average resource cost (Abt Associates, 
Second Interim Report, September 24, 1999), and only a modest impact 
after controlling for other patient characteristics (Abt Associates, 
First Interim Report, July 1998 [Revised December 1998]). This could 
result if patients who are able to remain in the

[[Page 41146]]

home without a caregiver are inherently less impaired and more able to 
provide self-care than other home care patients. (One commenter seemed 
to confirm this hypothesis in stating that caregiver availability can 
determine whether a patient can safely live at home.) A strong 
relationship between caregiver assistance and patient health/functional 
status could make it difficult analytically to identify a cost impact 
resulting from the caregiver's lack of availability. As a technical 
matter, this problem could hinder accurate incorporation of caregiver 
availability into the case-mix system, were it deemed appropriate.
    Results from the Phase II per-episode prospective payment 
demonstration lend credence to the limited value of caregivers in 
explaining resource use under a PPS system. Evaluation of the 
demonstration indicated that reductions in service utilization among 
PPS patients were the same, regardless of whether the patient had other 
caregiving (Mathematica Policy Research, Inc., ``Per Episode 
Prospective Payment for Medicare Home Health Care Sharply Reduces 
Service Use,'' Draft Report, December 1998). The findings suggest that, 
despite intentions to rely more heavily on other caregivers as a way of 
reducing home care costs, PPS agencies did not target their service 
reductions more heavily on patients with caregivers. The reason for 
this outcome is unclear. (There was also little or no indication that 
PPS agencies tried to avoid patients without caregivers.)
    Other caregiver variables examined in the case-mix study, measuring 
frequency of assistance and caregiver health/psychosocial status, also 
exhibited a relatively modest impact on resource cost. When added to 
the existing model they added less than one point to the model's 
explanatory power (R-squared) (Abt Associates, Second Interim Report, 
September 24, 1999). These findings weaken the assertion that failure 
to adjust for caregiver factors could render payments inadequate. It 
should also be noted that, based on preliminary data, these caregiver 
variables did not have particularly strong item reliability (Abt 
Associates, Second Interim Report, September 24, 1999, Appendix G). Low 
reliability means an assessment item is prone to mis-measurement. In 
measuring case-mix for payment purposes, we wish to avoid, to the 
extent possible, items with weaker reliability. (We will continue to 
examine the reliability data as they are finalized.)
    In summary, we believe that in light of data that support our 
policy concerns surrounding caregiver variables, and their 
insignificant contribution to predicting resource use, these OASIS 
items are not appropriate for use in the case-mix adjuster.
    Comment: Several commenters urged us to continue to study the issue 
of caregiver impacts, including further study of language used in the 
caregiver items for the OASIS.
    Response: We will continue to examine OASIS caregiver variables and 
their impact as we analyze national OASIS and claims data to pursue 
refinements to the case-mix system. However, in the absence of policy 
consensus that caregiver variables are appropriate to include, it would 
not be cost-effective to commission further studies of alternative 
wording of caregiver-related assessment items.
Variables Identifying Preadmission Location in the Services Utilization 
Dimension
    In the proposed rule we set forth a services utilization dimension 
within the case-mix model. We proposed including variables indicating 
whether certain inpatient stays occurred in the 14-day period 
immediately preceding the home health episode. Not only are pre-
admission inpatient stays a traditional indication of need in clinical 
practice, but also such variables were useful correlates of resource 
cost in our analyses of the case-mix data (Abt Associates, First 
Interim Report, July 1998 [Revised December 1998], Abt Associates, 
Second Interim Report, September 24, 1999).
    Comment: Several commenters requested clarification about the 
derivation of the scores and severity grouping in the services 
utilization dimension.
    Response: Our data indicate that an acute care hospital discharge 
(without follow up post-acute inpatient stay) within the 14 days 
immediately preceding admission to home care is associated with the 
lowest costs during the 60-day episode. Other research has shown 
similar findings. For example, in the home health Phase II per-episode 
prospective payment demonstration research, multivariate analysis of 
home care utilization in the year following admission also suggested 
that pre-home-care hospital stays were associated with reduced home 
care utilization. In the case-mix data, episodes involving patients 
with no pre-admission inpatient stay had the second-lowest cost; 
episodes involving patients who had both a hospital and post-acute-care 
institutional stay (that is, skilled nursing facility (SNF) or 
rehabilitation facility) had the third-lowest cost; and episodes 
involving patients who had only a SNF or rehabilitation facility stay 
had the highest cost. The highest-cost category (SNF or rehabilitation 
stay alone, given a 14-day window) may actually be comprised 
predominantly of relatively long stays. These stays appear to be 
indicators for patients who, upon their return home, have high care 
needs during the 60 days following home health admission.
    In the case-mix data, if a patient who had a hospital stay in the 
14 days preceding admission is evaluated to need significant home 
therapy, then the resource costs increase sharply. Likewise, therapy 
utilization markedly increased resource cost for the episodes preceded 
by the other three pre-admission locations. Because the therapy 
utilization was to be considered simultaneously with the preadmission 
location in the services utilization dimension, we examined the 
resource cost according to eight categories. These eight categories are 
the four pre-admission locations (hospital stay alone, no inpatient 
hospital or SNF/rehab stay, a hospital-stay-plus-SNF/rehab-stay, or a 
SNF/rehab stay alone) with and without therapy utilization of at least 
eight hours.
    The resulting array of average resource cost indicated that among 
episodes not meeting the therapy threshold, those following a hospital 
stay, no inpatient hospital or SNF/rehab stay, or a hospital-stay-plus-
SNF/rehab-stay all had similar resource costs. We assigned increasing 
scores--zero to 2--for these groups, in accordance with the trend in 
the data overall, but ultimately grouped them into a single severity 
level reflecting their similar resource costs. Episodes not meeting the 
therapy threshold but with a SNF/rehab stay alone were effectively 
assigned a score of three (from the combination of scoring for the 
hospital stay and SNF/rehab response categories) and grouped separately 
into the second severity level, because their resource cost was 
significantly higher than patients with a score of zero to 2.
    The remaining two severity groups were for episodes that met the 
therapy threshold. Therapy-threshold patients coming from the first 
three locations were grouped together into a third severity level 
because of the similarity in their resource costs. Scoring for these 
patients again reflected the overall trend by preadmission location 
(scores of zero, one, and two for hospital stay, no inpatient hospital 
or SNF/rehab stay, or a hospital-stay-plus-SNF/rehab-stay, 
respectively) but included an additional four points to reflect the 
cost impact of the therapy. High-therapy patients from the fourth pre-
admission location (SNF/

[[Page 41147]]

rehab stay alone) had the highest costs of any group, so we placed them 
in the fourth and final severity category. Following the existing 
scoring logic, these episodes had a total score of seven based on three 
points for the preadmission location and four points for the therapy 
need.
    Comment: Some commenters stated that their own experience did not 
confirm the relationship between pre-admission institutional stays and 
resource cost as indicated in our case-mix research data. Specifically, 
commenters indicated that patients coming from the hospital are often 
more acutely ill and resource-intensive than other patients, 
particularly patients who had no preadmission institutional care. For 
example, these patients typically need more frequent visits and 
teaching. As a result, according to these comments, the case-mix system 
fosters a disincentive to admit post-acute-hospital patients.
    Response: The conclusion reached by the commenters is incorrect 
because the severity grouping (though not the scoring) is neutral with 
regard to pre-admission hospital stays. Patients with such stays, as 
well as patients without any institutional stays, and patients with 
hospital-plus-SNF/rehab care, are all grouped together in the same 
severity category. The patients who were admitted with only a SNF/rehab 
stay in the previous 14 days are grouped into a separate severity 
category. Within each of these two severity categories, the patients 
meeting the therapy threshold are split off into an analogous severity 
category reserved for therapy patients. It is the severity category 
that determines the case-mix weight. (In the services utilization 
dimension, the scoring system is simply a device to organize the 
assessment data on preadmission location and therapy threshold.)
    Comment: Several commenters suggested that the 14-day definition 
for the preadmission location on OASIS actually encompasses a 
heterogeneous group of patients, and that comparison of patients 
admitted to home care within 1 or 2 days of discharge with patients 
admitted within 5 to 14 days of discharge would reveal a cost 
difference.
    Response: While this distinction or others related to the time 
since discharge might prove useful, the OASIS assessment does not 
provide the level of detail necessary to recognize any difference. In 
analyzing the data available to us, we examined the cost separately for 
the subset of patients who experienced a SNF/rehab stay as well as an 
acute care stay (and thus were unlikely to be among the patients 
admitted to home care within one to two days of discharge). This subset 
of patients was generally about as costly as the hospital-stay-only 
patients. This suggests that in the absence of the SNF/rehab stay, the 
agency would have otherwise incurred higher resource costs by admitting 
the patient to home care directly from the acute-care-hospital. The 
timing of the home health admission is to some extent correlated with 
SNF use, which in turn may be correlated with case severity. Under 
these conditions, it may be difficult to quantify a suspected 
relationship between the timing of the admission and resource use. 
(This is similar to the comment noted earlier concerning caregiver 
variables; that is, a variable such as caregiver availability or SNF 
use may tend to offset resource cost for particularly costly patients, 
making it difficult to observe the relationship between these patients' 
severity and their presumed costliness.) We will continue to examine 
this issue in the future using claims and linked OASIS data.
    Comment: Another comment stated that paying a higher rate for 
patients experiencing a pre-episode SNF or rehab stay puts rural 
agencies at a disadvantage, because many patients elect to return 
directly home from the hospital due to a shortage of post-acute 
institutional care facilities.
    Response: As stated earlier, three pre-admission location 
categories are all grouped in the same severity level. The fourth 
category was grouped separately--patients experiencing only a SNF/rehab 
stay within the previous 14 days. As we noted in the proposed rule, 
these patients likely experienced a relatively long SNF stay, which 
appears to be an indicator for exceptionally high case severity. 
Whether such cases from rural areas systematically fail to be placed 
appropriately in post-acute-care institutions deserves further study. 
Our impact analysis suggests, however, that rural agencies will 
experience payment increases under PPS (see Table 11). Examination of 
payment-to-cost ratios in the Abt case-mix data also suggests that 
rural agencies will experience payments under the PPS system that 
exceed their historical cost levels (Second Interim Report, September 
24, 1999).
    Comment: One commenter stated that recent hospitalization affects 
the plan of care, particularly within the first 30 days. We also 
received a comment noting the costliness of care for ``chronic, long-
term'' patients coming from the community as their pre-admission 
location, but with high clinical and functional severity.
    Response: We emphasize that the resource cost used to develop the 
case-mix system was measured over the patient's first 60 days under the 
care of the HHA. Thus, it is entirely possible that patients with 
contrasting pre-admission locations could have similar total resource 
costs albeit with different care trajectories. For example, for 
relatively healthy patients who are bound for recovery from an acute 
illness, and who may therefore be discharged from home care fairly soon 
after a short, intensive period of teaching and support, the total 60-
day resource cost may be comparable to the cost for certain chronically 
ill patients who have less-intensive but more sustained needs over the 
course of the 60-day episode.
    Comment: A commenter urged us to revise the services utilization 
scoring of OASIS item M0170 because a patient coming from the community 
is similar in resource need to one coming from a rehabilitation 
hospital or SNF, but they have different scores on the services 
utilization category.
    Response: We have not revised the scoring of M0170 because the 
combination of scoring for M0170, lines 1, 2, and 3, allows for 
differentiation between SNF or rehabilitation patients with and without 
hospital discharge. This distinction is important in case-mix system 
grouping.
    Comment: Commenters also indicated concern about the accuracy of 
reporting on the OASIS for the preadmission location.
    Response: We agree that assessing clinicians may have difficulty in 
some instances obtaining accurate data on the type of institution and 
the dates of discharge. The fact that the severity levels in the 
services utilization dimension are neutral with respect to most pre-
admission location scenarios partially mitigates this concern. 
Assessing clinicians would be well-advised to confirm information with 
multiple sources (for example, the patient, family, referring 
physician, local hospital) to ensure its accuracy. The clinician may 
also ask to see the patient's discharge instructions. Virtually all 
institutional stays that require ascertainment for case-mix purposes 
are covered by Medicare. The National Claims History and other data 
bases eventually record these events, potentially affording Medicare's 
fiscal intermediaries opportunities for reviewing case-mix accuracy on 
a post-pay basis. We will instruct the fiscal intermediaries to take 
into consideration the challenges faced by agencies in accurately 
reporting the preadmission

[[Page 41148]]

location, and formulate review policies accordingly.
    Comment: A commenter expressed concern that preadmission location 
variables are a matter of timing for a service rather than a measure of 
acuity. The commenter questioned why a SNF discharge 16 days before 
would differ from one 14 days before home health admission.
    Response: The preadmission location item M0170 was originally 
included in OASIS as one of many variables useful for risk adjusting 
outcome measures. A recent institutional stay (discharge within two 
weeks) continues to be a frequent event preceding home care. The two-
week definition is unambiguous, and has proven statistical impact in 
both a case-mix and outcomes research context. Using a longer recall 
period would present measurement problems and would be less helpful in 
explaining resource use.
    Comment: A commenter stated that the OASIS item on prior location 
(M0170) creates an artificial distinction between patients who received 
care in a rehabilitation wing of an acute care hospital and patients 
who received care in a rehabilitation facility.
    Response: OASIS instructions define a rehabilitation facility as a 
freestanding rehabilitation hospital or a rehabilitation distinct part 
unit of a general acute care hospital. Therefore, a rehabilitation wing 
(that is, distinct part unit) is included in the OASIS rehabilitation 
facility definition.
    Comment: A commenter stated that the language regarding nursing 
facilities was inconsistent between Table 7 in the proposed rule and 
OASIS. A related comment suggested that we clarify the response 
categories in OASIS item number MO170 to distinguish between stays in 
skilled nursing facilities and extended care facilities.
    Response: We are revising the OASIS MO170 response categories to 
allow separate reporting of skilled nursing facility discharges within 
the previous 14 days. This change will resolve the inconsistency.
    Comment: A commenter requested clarification of Case 1 in the 
proposed rule (page 58179) and asked whether the case information or 
Table 7 is correct.
    Response: We apologize for this error in the case description. The 
Service Dimension should have read ``Service Domain=4 (therapy more 
than 8 hours).''
    Comment: A commenter stated that there should be much less emphasis 
on where the patient is located and more on the patient's clinical 
needs.
    Response: We included preadmission location information in the 
services utilization dimension because it has traditionally been 
associated with variation in home care services utilization, and in our 
case-mix research it helped to explain variation in home care resource 
use. We do not believe the case-mix system places excessive emphasis on 
this type of predictor variable. Clinical needs are addressed in the 
clinical dimension.
Variables Measuring Therapy Utilization in the Services Utilization 
Dimension
    To ensure that patients who require therapy would maintain their 
access to appropriate services under the HHA prospective payment 
system, in the proposed rule we grouped patients according to their 
therapy utilization status. Specifically, we defined a therapy 
threshold of at least eight hours of combined physical, speech, or 
occupational therapy over the 60-day episode, to identify high therapy 
cases. We proposed a threshold of eight hours of therapy based on 
clinical judgment about the level of therapy that reflects a clear need 
for rehabilitation services and that would reasonably be expected to 
result in meaningful treatment over the course of 60 days. 
Subsequently, further development and refinement of the Abt case-mix 
model assumed this threshold as part of the grouper logic.
    The 15-minute-increment billing requirement in principle allows the 
RHHI payment system to verify the case-mix therapy threshold. However, 
there is uncertainty about the completeness and accuracy of the 15-
minute reporting. This led us to propose that, pending resolution of 
this issue, the therapy threshold be expressed in a defined number of 
visits. Returning to the resource use data of the Abt study, we 
determined that on average a therapy visit lasted approximately 48 
minutes. This implies that on average eight hours of therapy would be 
exhausted in 10 visits.
    Comment: Several commenters urged us to change the conversion to 
eight visits to be consistent with current cost reporting and salary 
equivalency practice equating one visit to one hour. Commenters 
suggested that, without such a change, the proposal effectively reduces 
therapy payments. Some commenters argued that a conversion to eight 
visits (or fewer--other commenters proposed six visits and four visits) 
would compensate for excluding time spent on a case outside of the home 
from the calculation of resource cost in the Abt study. In addition, 
commenters pointed out that some patients will achieve eight or more 
hours in fewer than 10 visits, so HCFA should recognize that the 
therapy threshold has been met as soon as the eight hours are achieved.
    Response: We see no reason to associate the cost reporting and 
salary equivalency practices with the independent, congressionally 
mandated 15-minute-increment reporting requirement. The origin of this 
requirement was Congress's intent that adequate data be available to 
both develop and refine the HHA prospective payment system. We see 
these data potentially as key resources for improving the case-mix 
system in the future. Upon linking the claims with the OASIS 
assessments, a data resource comparable to the Abt case-mix study data 
will be available for research purposes. This resource promises to 
improve upon the Abt data by virtue of the large sample sizes it would 
provide. Many suggestions from commenters for improvements that need 
study can be pursued once these data are assembled. We believe there 
are advantages to the continued gathering of 15-minute billing 
information. We urge home health agencies to continue their diligent 
collection of these data so that eventually the therapy threshold can 
be used as originally defined--in terms of time spent in the home, not 
visits.
    The PPS pricer developed for the first year of PPS will determine 
the case-mix adjustment based on the 10-visit threshold without 
consideration of the 15-minute-increment billing data on the claim. 
Upon analysis of national claims data under PPS, we will determine 
whether the pricer should be changed to take into account information 
from the 15-minute-increment reporting. We are concerned that counting 
visits rather than hours to satisfy the therapy threshold in the case-
mix groupings could become a source of potential abuse. Therefore, if 
we identify providers whose therapy visits are systematically and 
significantly shorter than the 48-minute standard, yet meet the 10-
visit threshold, we will examine such cases and reduce the case-mix 
assignment if evidence documents that therapy hours were well below the 
8-hour threshold.
    The commenters' suggestion that we compensate for excluded time 
spent outside the home by adopting a lower therapy threshold does not 
resolve a significant issue that requires further study. The 
commenters' proposal can result in diminished payment accuracy, because 
the relative weights are based on groups defined from the 8-hour 
threshold. If, over time, the composition of the therapy groups shifts 
to lower-cost patients, the relative weights would need to be adjusted 
accordingly.

[[Page 41149]]

    If we adopted a lower therapy threshold or a graduated threshold, 
as some commenters suggested, we believe the result would be an 
increase in the incentive to maximize payment by manipulating the 
delivery of therapy. Comments proposing that Medicare prorate the 
therapy factor in transfer or in cases where the therapy utilization is 
spread over more than one episode, present problems for this reason as 
well. The comment suggesting that the therapy factor be prorated when 
utilization is spread over more than one episode appears to reflect a 
misunderstanding of our intent to have the therapy threshold, as 
applied within the 60-day episode, target patients with significant 
therapy needs. The rationale for recognizing a therapy utilization 
factor is to ensure that agencies will be adequately compensated for 
delivering this high-cost service, thus preserving access for patients 
with therapy needs. It is the same rationale that underlies case-mix 
adjustment itself. Payment weights for groups containing patients whose 
therapy utilization is spread over multiple episodes reflect the 
reduced resource costs of these patients per each 60-day episode. As 
discussed previously, in a PEP situation (for example, a transfer), the 
therapy threshold is separately measured for the proportional episode 
and the new episode resulting from the beneficiary elected transfer. In 
the SCIC situation, the therapy threshold applies to the total therapy 
visits provided to the beneficiary during the episode both before and 
after the significant change in condition occurred.
    Further suggestions that skilled nursing time as well as aide time 
be measured and treated the same as therapy hours would also seem to 
reinforce these undesirable incentives, as skilled nursing visits make 
up the single largest discipline category in home health care, and aide 
visits the second largest, with both far outweighing therapy visits.
    Comment: Several commenters questioned the decision to use a 
therapy threshold in the case-mix adjustment system.
    Response: We recognize that, as we indicated in the proposed rule, 
using a utilization variable such as the therapy measure is susceptible 
to manipulation. However, currently our best available data requires us 
to rely in part on the therapy measure. Without it, we cannot achieve 
the preferred level of payment accuracy, notwithstanding its potential 
susceptibility to manipulation. We note that the case-mix system for 
home health is similar to the other major Medicare case-mix systems, in 
that these others also use measures of treatment planned or received. 
We will continue to review the use of a utilization variable in this 
system over the long term.
    Comment: We received several suggestions from commenters that 
amounted to changing the group assignment for certain types of patients 
so that the payment weights for these patients would be comparable to 
or even higher than the existing therapy-group weights. For example, 
one suggestion was to award points to the services utilization 
dimension when the patient is assessed at the highest level of the 
clinical and functional dimensions. Another suggestion was to add 
points to the services utilization dimension when the patient is a user 
of multiple therapies, perhaps by defining a fifth severity level 
within the services utilization dimension.
    Response: We appreciate these comments as they will aid us as we 
further refine the case-mix model. At this time, however, it is not 
clear that such changes would provide a satisfactory remedy for the 
problems the commenters have raised. In deciding on the basic 
structural characteristics of the case-mix system, we had to balance 
clinical acceptability, complexity, and technical issues, such as the 
feasibility of estimating payment weights from varying group sample 
sizes. Thus, suggestions that imply a larger number of groups must be 
evaluated in terms of their potential to impact the accuracy of the 
payment weights, the system's clinical logic add to, not lessen, the 
complexity of administering the system. Any grouping changes 
potentially affect the entire array of payment weights because they are 
relative values.
    Comment: One commenter stated that it will be very difficult for 
agencies to comply with the requirement to project the number of 
therapy hours at the start of care, because physicians' orders in the 
plan of care do not typically indicate the number of anticipated 
therapy hours or visits.
    Response: The Home Health Certification and Plan of Care (HCFA 485) 
requires the physician orders to specify the amount, frequency, and 
duration for disciplines and treatments. We expect agencies to make the 
projection from these orders.
    Comment: A commenter sought confirmation that the reconciliation of 
projected therapy use with actual therapy services furnished during the 
60-day episode has the potential to either decrease or increase final 
payment.
    Response: The commenter is correct. The final payment may increase 
or decrease in response to a difference between the therapy projected 
at the start of care and the therapy received by the patient by the end 
of the 60-day episode.
    Comment: A commenter stated that the Phase II per-episode 
prospective payment demonstration research indicated barriers to 
occupational therapy (OT) services under PPS. The commenter recommended 
that we consider a more interdisciplinary approach to OASIS so 
occupational therapy would not be underutilized.
    Response: The therapy threshold in the case-mix adjuster is based 
on all three therapy disciplines combined. The design of the 
demonstration did not include a case-mix adjuster with a therapy 
threshold of any sort. It does not necessarily follow that the national 
PPS would introduce a barrier to OT services.
    Comment: A commenter recommended that therapists should assess the 
patient's functional status to minimize errors in measurement. In 
addition, the commenter believes monitoring will be needed to prevent 
payment incentives from distorting functional assessment measurements.
    Response: We expect that agencies will measure functional status as 
accurately as possible, consistent with incentives for efficiency in 
the prospective payment system. We have no authority to mandate 
functional status assessment by a particular discipline. We agree that 
medical review activities should include review of functional 
assessment results.
    Comment: A commenter stated that, as a result of the therapy 
threshold, the case-mix system will divert utilization of the home 
health benefit away from the frail elderly and in favor of the short-
term patient.
    Response: It is not our intention to change access under the home 
health benefit through a case-mix adjusted prospective payment system. 
Moreover, the payment for continuous 60-day episodes of care under PPS 
will be more conducive to the care of longer stay patients than the 
current interim payment system. We expect that evaluations of the 
system's impact will study the question raised by this commenter.
    Comment: A commenter recommended standardizing therapy visits in 
hours or 15-minute increments to meet the current statutory 
requirements of section 4603 of the BBA that specify that home health 
visits are reported in 15-minute increments.
    Response: We have not accepted this recommendation. We believe this 
would

[[Page 41150]]

restrict agencies' ability to manage care efficiently.
    Comment: One commenter was concerned about the high relative 
payment weight associated with therapy-threshold case-mix groups, and 
because of this concern, questioned whether the Abt Associates sample 
was representative of agencies in the industry offering therapy 
programs.
    Response: The Abt Associates sample used to develop the case-mix 
groups was selected to be representative of national service delivery 
patterns. The 90 participating agencies were selected from all four 
census regions of the country, from among different ownership 
categories (freestanding for-profit, freestanding voluntary/private 
nonprofit; hospital-based; and government), from both urban and rural 
areas, and from among agencies with high, medium, or low practice 
patterns (as measured by the number of visits per-episode in 1995). As 
we note elsewhere in this rule, in our subsequent analysis of OASIS 
data and utilization data for the nation as a whole, we have found that 
these agencies on average appear to resemble the nation closely. We 
have no reason to believe that their therapy service delivery is 
unusual and would result in an inaccurate relative weight for therapy-
threshold cases.
Wound Care Patients
    Comment: Many commenters argued that services for many wound 
patients would be inadequately reimbursed under the proposed case-mix 
system. One often cited reason was the high cost of wound supplies for 
some patients. Some commenters recommended that wound supplies costs 
should be directly reimbursed, rather than being bundled into the 
episode payment.
    Response: We have not adopted this recommendation. We have no 
statutory authority to unbundle the wound supplies costs. All supplies 
costs are now in the base costs used in determining the payment amount. 
As we note in our response to comments on omission of time spent 
outside the home from the calculation of resource costs, the current 
system of relative weights assumes that the omitted costs are directly 
proportional to time spent in the home. We will consider methods for 
testing this assumption, including the impact on wound care 
reimbursement. Case-mix model revisions, adopted in response to 
comments concerning wound care patients, have resulted in increased 
payments for wound care patients. These are described below and in the 
section on changes to the case-mix model.
    Comment: Several commenters noted that the clinical dimension does 
not address wounds from trauma.
    Response: In response to this comment, we have added a variable to 
identify trauma and burn patients who have wounds. This variable is now 
included in the clinical dimension. If a patient has a primary 
diagnosis of trauma or burns and OASIS item M0440 indicates that there 
is a wound, the clinical score is increased by 21 points.
    Comment: A commenter recommended that the scoring for pressure 
ulcers in the clinical dimension should take into account their number, 
size, condition, or complexity.
    Response: The clinical dimension in the proposed rule took into 
account the stage of the most problematic observable pressure ulcer, if 
any. OASIS does not record the size of pressure ulcers. The assessment 
covers the number of pressure ulcers at each stage. The status of the 
most problematic observable pressure ulcer is also reported. These 
stage and status measures are intended to measure the condition and 
complexity of the pressure ulcers.
    In accordance with the comments on pressure ulcers, we re-examined 
the impact of the pressure ulcer stage and status variables, and the 
number of pressure ulcers by stage, in the Abt data. We analyzed a 
newly available larger learning sample of 11,503 episodes. As a result 
of these analyses, we identified a statistically significant score to 
add to the clinical dimension score if the number of pressure ulcers at 
stage three or four is two or more. This variable is now included in 
addition to the original variable measuring the stage of the most 
problematic pressure ulcer. It adds 17 points to the clinical score. As 
in our earlier investigations, the status of the most problematic 
observable pressure ulcer did not contribute significantly to the model 
after the other variables were included. As we continue to study 
revisions to OASIS, we will consider including additional data on such 
factors as the size of pressure ulcers.
    Comment: Several commenters indicated that wound variables should 
be more detailed to provide better reimbursement for wound patients who 
score low on the clinical dimension but nevertheless incur high costs. 
For example, a commenter stated that if a stasis ulcer status is early/
partial granulation, no points are given, but this does not make sense 
if the goal is to heal the wound. Another commenter recommended that 
early/partially granulating stasis ulcers should be given 24 points to 
make the case-mix system's treatment of stasis ulcers consistent with 
its treatment of surgical wounds.
    Response: In addition to analyses on pressure ulcers (described 
above), we re-examined the definition of the case-mix variables for the 
status of stasis ulcers and surgical wounds. We used the newly 
available larger learning sample of 11,503 episodes. As a result, we 
have identified separate score values to add to the clinical dimension 
for early/partial granulation. These scores are 14 and 7 for the early/
partially granulating most problematic stasis ulcer and early/partially 
granulating most problematic surgical wound, respectively. Revised 
scores for the most problematic nonhealing stasis ulcer and most 
problematic nonhealing surgical wound are 22 and 15, respectively.
    In further attempts to more accurately measure the severity of 
wound patients, we investigated interactions between wound severity and 
several comorbidities (for example, diabetes) and immobility, but 
statistical results generally did not support including such 
interactions as additional score-bearing variables. In future work 
refining the case-mix model, we plan to use national claims and OASIS 
data to continue investigating comorbidities. Agencies could assist 
such efforts by reporting diagnosis codes on OASIS at the complete 
four-digit or five-digit level, as recommended by the official coding 
guidelines.
    Comment: One commenter reasoned that costly wound patients, 
especially severe pressure ulcer patients, often may receive additional 
points in the clinical dimension for other problems (for example, 
diabetes or vision problems), but there is no recognition in the case-
mix system for a sum of clinical points exceeding 27. In a similar 
vein, another commenter recommended creating a fifth severity level in 
the clinical dimension to increase payments for severe wound patients.
    Response: In addition to refining measures for pressure ulcers, 
stasis ulcers, and surgical wounds, in a further effort to improve 
payment accuracy for wound patients, we have revised the case-mix 
system by re-defining the clinical severity score intervals. The 
revised score intervals are as follows: minimal severity: 0-7; low 
severity: 8-19; moderate severity: 20-40; high severity: 41+. The 
relative frequencies in the Abt sample for the revised clinical 
severity levels are 30 percent, 36 percent, 28 percent, and 6 percent, 
for minimal, low, moderate, and high clinical severity, respectively. 
(In the proposed rule, the corresponding percentages were 30 percent, 
30 percent, 23 percent, 17 percent) This change has

[[Page 41151]]

generally resulted in higher case-mix relative weights for the case-mix 
groups involving moderate and high clinical severity. It has also 
resulted in a wider range of weights for therapy-threshold case-mix 
groups and non-therapy-threshold case-mix groups. We have not added a 
fifth level of clinical severity. Given the array of the clinical 
scores in the sample, the amount of sample data available, and our 
objective of administrative feasibility, at this time we believe that 
four clinical severity levels is an appropriate structure for the case-
mix model.
    Comment: In commenting on the status of wound care patients under 
the case-mix system, several commenters specifically stated that 
services for daily care wound patients would be inadequately reimbursed 
under the proposed rule. Some commenters recommended that we add a 
variable to the services utilization dimension that recognizes skilled 
nursing hours, analogous to our use of therapy hours in the services 
utilization score. They suggested that this would be a way to remedy 
inadequate payment for daily wound care patients while recognizing the 
skilled wound treatments that contribute to their higher costs.
    Response: The wound care patient must be deemed eligible for the 
Medicare Home Health Benefit which dictates that the skilled nursing 
care be provided on an ``intermittent'' basis, as required by sections 
1814(a)(2)(C) and 1835(a)(2)(A). The ``intermittent'' skilled care 
provided must be either provided or needed on fewer than 7 days each 
week or less than 8 hours of each day for periods of 21 days or less 
(with extensions in exceptional circumstances when the need for 
additional care is finite and predictable). The need for skilled 
nursing care for a wound care patient on a continuing basis is 
contingent upon evidence documented in the patient's record that the 
wound is improving in response to the wound care provided. It is 
neither reasonable nor medically necessary to continue a given type of 
wound care if evidence of wound improvement cannot be shown.
    For the following reasons, we are not accepting the recommendation 
that skilled nursing hours be treated comparably with therapy hours in 
order to address the needs of costly wound care patients. First, as 
described previously concerning changes to the case-mix system, we have 
made additions and modifications to the clinical dimension in an 
attempt to better capture variations in clinical severity associated 
with wound care patients. Second, we are concerned that adopting an 
additional utilization-based measure strongly compromises the intention 
of home health payment reform to move away from a cost-based system. 
Finally, we are also concerned that in some instances extended wound 
care episodes may reflect inattention to the statutory eligibility 
requirement regarding ``finite and predictable'' need, and to our 
policy that continuing wound care must be efficacious. We will, 
however, continue reviewing the OASIS wound measures and the case-mix 
system's ability to adequately reflect the needs of wound care 
patients.
Daily Insulin Injection Patients
    Comment: Many commenters identified diabetic patients requiring 
daily insulin injection as a group similar to daily wound care patients 
in terms of their extraordinary costs. They maintained that such 
patients might experience access barriers because the case-mix system 
does not account for their extraordinary care needs. They further 
indicated that the proposed outlier payment methodology would not 
necessarily result in payments adequate to compensate agencies for the 
cost of these patients.
    Response: The OASIS does not provide information allowing accurate 
identification of these diabetic patients. Daily insulin patients 
appear to be a heterogeneous group, some of whom can be taught self-
injection. There are no variables on the OASIS assessment that clearly 
distinguish such patients from others unable or unwilling to self-
inject. As the outlier payment is intended to compensate for 
difficulties in case-mix measures, we have determined that daily 
insulin injection patients are likely candidates for outlier payments. 
We assume that daily injection visits tend to be low-cost visits, so it 
is likely that outlier payments will be adequate for many daily insulin 
patients.
Diagnoses Included and Excluded From the Clinical Dimension
    Comment: The case-mix system discussed in the proposed rule 
recognized three diagnostic categories in the clinical dimension. These 
were certain orthopedic and neurological diagnoses, and diabetes. 
Diagnoses in these groups are assigned a score to help determine the 
patient's clinical dimension total score when the diagnoses appear in 
the OASIS primary home care diagnosis field (M0230A). A commenter 
suggested that we classify all diagnoses. Other commenters stated that 
the three categories proposed do not include all high-acuity diagnoses.
    Response: From our work with the Abt Associates sample, we 
concluded that a complete classification of all diagnoses would not 
necessarily make the case-mix system appreciably more accurate, but it 
would make the grouping system more complex. In developing the clinical 
dimension, we studied the effect of placing every patient in one of 
several defined groups of diagnoses (such as orthopedic, 
cardiovascular/pulmonary, psychiatric). We investigated how this 
classification contributed to explaining resource use in home care. The 
three groups in the proposed rule stood out as accounting for 
significantly higher costs on average than other groups we defined. 
Adding the other groups to the model did not appreciably raise the 
explanatory power of the case-mix adjuster. Consequently, we believe 
that restricting recognition in the clinical dimension to the 
orthopedic, neurological, and diabetes groups balances our payment 
policy objectives of payment accuracy and administrative feasibility. 
We have not added any diagnoses to these three groups published in the 
proposed rule. However, we have added a variable to identify certain 
wound patients. This variable uses selected diagnoses codes from the 
primary diagnosis (OASIS item M0230, line a). We added this new 
variable to respond to comments we received about wound patients.
    We are continuing to study a variation of the case-mix system that 
recognizes more diagnostic groups, but it would be a more complicated 
system with a substantially larger number of groups. We would require 
any such system to explain significantly more variation in resource 
cost than does the current model, in order to justify the added 
administrative complexity.
    Currently, the OASIS instructions do not require complete four-
digit and five-digit coding of the primary and secondary home care 
diagnoses. Three-digit coding of the category code is allowed, although 
agencies may voluntarily report complete four and five-digit coding. In 
the interests of future case-mix refinement, we will consider requiring 
that all agencies report the complete code. Such a requirement would 
conform OASIS with existing coding guidelines in the Medicare program 
and nationally.
    Comment: One commenter pointed out that we did not list all 
diagnoses in the three groups in the clinical dimension, and requested 
confirmation that this was an error.
    Response: The list of code categories presented in the proposed 
rule was complete. We omitted certain code categories based on clinical 
judgment and knowledge of coding practices in the community. We believe 
that

[[Page 41152]]

including these codes would reduce the explanatory power of the model, 
because they are likely to consist of heterogeneous or low-cost cases. 
When we examined the resource cost of orthopedic diagnoses omitted from 
the orthopedic group, we found indications that confirmed our decision.
    Comment: Several commenters indicated that they believed the list 
should not exclude common diagnoses.
    Response: Some of the diagnoses cited by commenters are frequently 
encountered in home care. It was not our objective to identify common 
diagnoses, but to pinpoint conditions that were associated with 
variations in resource cost. Some common diagnoses are associated with 
widely varying needs for home care services, which would tend to make 
them poor predictors statistically.
    Comment: Some commenters suggested that the case-mix system 
recognize certain diagnoses in addition to those listed. Several 
commenters mentioned cardiac, respiratory, cardiopulmonary, and ``other 
circulatory'' diagnoses.
    Response: As noted previously, cardiac, vascular, and respiratory 
diagnoses were a category studied during development of the clinical 
dimension, but the category did not demonstrate a contribution to the 
model sufficient to justify its inclusion, after we accounted for 
existing elements such as dyspnea and wound problems. We will continue 
to study this group of diagnoses.
    Comment: We received various comments suggesting that we should 
have included psychiatric, mental health, or behavioral diagnoses. A 
commenter stated that three points for mental health conditions is 
inadequate, citing the additional credentials Medicare requires for 
psychiatric nurses as a reason for higher costs of psychiatric 
patients. Another commenter noted that depression, common among many 
elderly patients with health problems, negatively affects response to 
treatment. One commenter suggested the addition of ``780 (alteration of 
consciousness)'', in order to ensure access for psychiatric patients.
    Response: In the clinical dimension, we included MO610 on 
behavioral problems to capture both cognitive and behavioral factors 
affecting resource cost. If the assessing clinician checks one or more 
of the response categories, three points are added to the clinical 
dimension. During case-mix system development, we examined diagnoses 
and various OASIS assessment items relating to mental health, sensory, 
and cognitive status. Specific to mental health, we looked at the 
relationship between home health resource use and mental health 
diagnoses (psychoses, drug psychoses, and neurotic disorders). We found 
that this group of conditions did not greatly contribute to explaining 
variation in resource use in home care after including functional, 
clinical, and service factors in the case-mix model.
    However, we do not interpret our statistical results as necessarily 
indicating that mental health issues are unimportant in home care. One 
reason our statistical findings do not support including further 
information specific to mental health status is that the remaining 
functional and service factors in the case-mix system already capture 
the costliness of these patients. Thus, the impact of behavioral health 
issues is being recognized in factors other than diagnosis-specific 
elements. Other possible reasons for our statistical findings may stem 
from the extreme impairment of many psychiatric patients, which can 
lead to periods of institutional care and extensive informal support in 
the home. Such factors may tend to reduce the measured resource cost.
    In future review of the case-mix system, we will continue to study 
case-mix measures for mental health patients.
    Comment: A few commenters suggested that we include cancer 
diagnoses in the list of diagnoses for clinical dimension scoring.
    Response: Several cancer diagnosis code categories appear in the 
orthopedic and neurological lists used in the case-mix model. We found 
no evidence during case-mix development activities that cancer 
diagnoses should be a separate group in the clinical dimension. We 
believe that part of the reason is that care needs for certain cancer 
patients (for example, functional assistance, wound care, pain 
management) are already accounted for in the case-mix model. Therefore, 
we have not added any more cancer diagnoses to the final regulation.
    Comment: A commenter suggested that we include terminal cancer 
patients as a diagnosis group. Another commenter stated that end-stage 
cardiac/respiratory disease cases should be included.
    Response: We have not added terminal cancer patients or end-stage 
cardiac/respiratory cases as a special diagnostic category. There are 
no OASIS items directly identifying these cases. In developing the 
case-mix model, we considered including OASIS items assessing overall 
prognosis and life expectancy, which potentially have a use in 
identifying terminal cancer patients. However, we concluded that these 
items are inappropriate elements for payment policy because of their 
inherent subjectivity and vulnerability to gaming. Moreover, 
statistical analyses have suggested the life expectancy item has poor 
scientific reliability.
    Comment: A commenter suggested that we add category code 438, 
``late effects of cerebrovascular disease'', to the list of 
neurological diagnostic categories because it is extremely common in 
home care and is the correct code assignment following hospitalization 
for an acute cerebrovascular accident (codes 434 and 436). The 
commenter added that we should delete codes 434 and 436 because coding 
guidelines reserve them for hospital coding.
    Response: We have not adopted this suggestion. Codes 434 and 436 
are being used in home care, notwithstanding the coding guidelines. In 
the Abt case-mix data, episodes coded with 436 are about nine times as 
common as episodes coded with 438. Code 434 is also used, but appears 
only about one-third as often as 438. The definition of 438 encompasses 
sequelae whose lags may be of any length. For this reason, we believe 
that including 438 presents significant risks of inappropriate payment. 
We will continue to examine the applicability of code 438 in future 
work.
    Comment: A few commenters suggested that we include joint 
replacement diagnoses in the orthopedic diagnosis group.
    Response: Joint replacement diagnoses are V-codes, which are not 
used on the OASIS assessment. Therefore, we did not study or specify 
including such codes in the case-mix system. However, care needs of 
many joint replacement patients are addressed in the therapy-threshold 
variable of the services utilization dimension and in the functional 
dimension. In setting the therapy threshold, based primarily on 
clinical judgment, we had in mind the treatment needs of the many joint 
replacement patients covered by the Medicare home health benefit.
    Comment: Several commenters requested clarification about the 
omission of certain orthopedic diagnosis codes from the orthopedic 
group. These comprised 715 (osteoarthrosis and allied disorders), 719 
(other and unspecified disorders of joint), 726 (peripheral 
enthesopathies and allied syndromes), 727 (other disorders of synovium, 
tendon and bursa), and 729 (other disorders of soft tissues).
    Response: The exclusion of these diagnoses was intentional, based 
on clinical judgment that they are often

[[Page 41153]]

reflective of low case severity, and therefore unsuitable for the 
purposes of the groups defined in the proposed rule. Statistical 
information supports this judgment. In the Abt data, the average 
resource cost of the omitted diagnoses was 85 percent of the average 
resource cost of the included diagnoses, an indication that the 
excluded codes' cost impact is significantly lower. We also found 
statistical evidence that including these code categories in the 
current orthopedic diagnosis group does not improve, and may slightly 
reduce, the predictive value of the diagnosis groups included in the 
clinical dimension.
    Comment: A commenter recommended that we add category code 733, 
``other disorders of bone and cartilage'', to the orthopedic group 
because this category includes pathological fractures. The commenter 
added that requiring greater specificity in code assignment, beyond the 
three-digit category code, would allow inclusion of the pathological 
fracture codes without inclusion of other diagnoses in category 733.
    Response: We disagree. We did not add 733 because the range of 
severity in this category may be very wide. For example, this code 
category includes osteoporosis, a very common condition in the elderly 
population. On the other hand, 733 also contains aseptic necrosis of 
bones, and aseptic necrosis of the femoral head is an indication for 
hip joint replacement. Without more information about the specific 
frequency of diagnoses, we expect that the osteoporosis cases would be 
much more common. We believe that adding this category code to the 
orthopedic group increases the risks of inappropriate payment. We will 
continue to study the excluded diagnosis codes. We agree that greater 
specificity in coding could solve this problem. Agencies can assist our 
efforts to develop information about the usefulness of specific codes 
in case-mix models by reporting diagnoses at the complete four-digit 
and five-digit code level.
    Comment: One commenter suggested that we add diagnosis code 
category 707 (chronic ulcers) to the orthopedic category because these 
patients may present high costs for such services as debridement and 
dressing changes.
    Response: The orthopedic group is not an appropriate placement for 
this code. However, as noted elsewhere in this rule, we have added 
assessment items to the clinical dimension in an attempt to strengthen 
the case-mix measurement for wound patients.
    Comment: A commenter stated that we should include the diagnosis 
severity index on OASIS in the clinical dimension scoring.
    Response: We did not include this assessment item because we 
believe its inherent subjectivity and vulnerability to gaming make it 
unsuitable for use in the case-mix model. Preliminary statistical 
analysis suggests the scientific reliability of the index is low for 
orthopedic and neurological diagnoses.
    Comment: One commenter stated that the categories included in the 
diagnosis groups were unrealistic and unrelated to the need for home 
care services in an elderly population.
    Response: Our statistical information indicates otherwise. The 
statistical results are shown in Abt Associates, Second Interim Report, 
September 24, 1999, Appendix H. They indicate that the incremental cost 
associated with each of the diagnosis groups is large and highly 
statistically significant.
    Comment: We received various general and specific comments 
suggesting the use of secondary or multiple diagnoses in the clinical 
dimension. Some commenters stated that comorbidities are important in 
determining patient needs, and therefore they should be recognized in 
the case-mix system. A commenter suggested that, to improve the 
accuracy of the clinical dimension score, patients with multiple 
diagnoses from the existing groups should be credited with additional 
points in their clinical dimension measurement. One commenter suggested 
considering the first three diagnoses in order of importance. A couple 
of commenters mentioned diabetes as a secondary diagnosis that may 
appear in conjunction with wound care as a primary diagnosis, a 
situation that, if accounted for in scoring, might improve payment 
accuracy.
    Response: Although we agree that multiple diagnoses and 
comorbidities warrant consideration, we have not used any of these 
suggestions because data and time constraints do not allow adequate 
evaluation of their contribution and impact on resource cost. To 
conduct an orderly exploration of the impact on case-mix measurement, 
and to assign a valid score in such cases, would require more 
observations than the Abt data set contains. We did test the impact of 
diabetes on severe wound patients, but the results suggested that some 
of the most severe wound patients would be paid inappropriately if the 
clinical score was increased. Further analysis of these suggestions to 
fully understand the implications can be undertaken with appropriate 
resources. We intend to use national claims data linked to OASIS to 
investigate multiple diagnoses/comorbidity issues in future case-mix 
analyses. We believe that such an effort would be significantly aided 
by complete four-digit and five-digit diagnosis coding on the OASIS 
record.
    Comment: Commenters suggested that we credit the points published 
in the proposed rule for the neurological, orthopedic, or diabetes 
groups to the patient's clinical dimension score whether the diagnosis 
is primary or secondary.
    Response: We believe such suggestions should be tested empirically 
to derive an appropriate score as there is more than one way to 
implement this suggestion. These are subjects for study when larger 
data resources become available.
    Comment: Two commenters stated that the adjuster's use of a limited 
number of diagnosis groups will lead to more coding of the specified 
diagnoses as the primary diagnosis, distorting national data that would 
be used to make refinements of the system.
    Response: We believe such practices would be counterproductive. 
Payment-motivated coding can eventually lower the predictive ability of 
a case-mix measure, and result in less differentiation among case-mix 
groups. We will continue to examine the accuracy of the case-mix model 
and the reliability of the data used for determining payments. If 
necessary, we would adjust the case-mix weights in response to those 
studies. As stated in the proposed rule, we intend to revise the case-
mix weights over time 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.
    Comment: A commenter expressed concern that the quality of the 
diagnosis codes reported for home care are of such poor quality that 
they would be of no value in the development of the prospective payment 
system.
    Response: We recognize the commenter's position, but we believe 
diagnoses are still useful in developing a case-mix model. The three 
diagnosis code categories in the model are the strongest contributors 
of all the diagnosis groups we defined in conducting our analyses on 
the Abt sample. We will continue to study the usefulness of diagnoses, 
and believe that agencies can assist our efforts by reporting diagnoses 
at the complete four-digit and five-digit code level.
    Comment: One commenter urged us to clearly define ``primary home 
care diagnosis'' to prevent inappropriate upcoding.

[[Page 41154]]

    Response: The OASIS implementation manual suggests strategies for 
the assessor to use in identifying the diagnoses for the diagnosis 
reporting items (M0230 and M0240). There is no specific guidance on 
differentiating the primary from secondary diagnoses. However, a 
definition for the primary diagnosis on the physician certification and 
plan of care (HCFA form 485) is discussed in the Medicare Home Health 
Agency Manual. We believe agencies are very familiar with the 
instructions in the Manual. The diagnosis guidance in the Manual is 
consistent with the language used in the OASIS instructions. (One 
difference, however, is that the Manual allows V-codes and the OASIS 
does not.) Nonetheless, we agree that it might be desirable to expand 
the instructions on the OASIS in the future. We will consider this in 
modifications to the OASIS form.
    Comment: One commenter stated that the OASIS diagnosis reporting 
requirement that allows only three-digit ICD-9-CM category codes to be 
reported has a severe adverse impact on clinical severity data and, 
thus, adversely impacts the design of the home health classification 
system. The commenter noted that this practice violates official coding 
guidelines.
    Response: We agree that a lack of specificity in code assignment 
somewhat diminishes accurate case-mix development and ascertainment. To 
help rectify the situation, we urge agencies to voluntarily code to the 
complete four-digit or five-digit code level.
    Comment: A commenter expressed concern that the OASIS reporting 
requirements do not allow V-codes, in contrast to official coding 
guidelines approved by HCFA which accept V-codes as potentially the 
most appropriate codes in some circumstances in the home health 
setting. The commenter cited the distinction between acute fracture 
codes in the hospital setting and aftercare codes in the home health 
setting. According to the commenter, this conflict with the official 
coding guidelines threatens the consistency and uniformity of national 
health care data, resulting in data that are of poor quality and little 
value.
    Response: The OASIS instructions state that instead of V-codes the 
agency should list the relevant diagnosis. This requirement was 
installed to serve the needs of OASIS as it was originally designed--as 
a quality assurance tool. We have adopted OASIS as a valuable quality 
assurance tool. Therefore, any changes in coding policy on OASIS would 
have to balance the quality assurance objectives with the consistency 
and uniformity objectives articulated by the commenter. At this time we 
do not believe that adopting V-codes is consistent with the needs of 
either OASIS or the case-mix system. Regarding case-mix, one of our 
objectives is to classify patients with minimal reliance on treatments 
planned or received. Given that objective, there is little clear 
benefit from adopting the applicable V-codes intended to indicate 
aftercare services.
    Comment: A commenter stated that certain category codes in the 
three diagnosis groups to be identified from the OASIS primary 
diagnosis field (M0230) should never be reported as primary diagnoses, 
according to ICD-9-CM coding rules and official coding guidelines. 
These diagnoses must be used with a higher-coded diagnosis that 
indicates the etiology. The affected ICD-9-CM category codes are 711, 
712, 713, 720, 730, 731, 320, 321, 323, 330, 331, 334, 336, 337, 357, 
and 358.
    Response: In accordance with this comment, we have listed the 
affected codes (not code categories) in Table 8 as either primary or 
secondary diagnoses at the applicable four- or five-digit level. We 
will recognize these diagnosis codes in the case-mix adjuster only if 
the following conditions are met: (1) Manifestation codes (that is, 
codes that can never be used as the primary diagnosis) must appear as 
the first secondary diagnosis (line b, under ``other diagnoses'' in 
OASIS M0240) and must appear with all digits required by ICD-9-CM 
coding rules. (2) Remaining codes from the affected categories must 
appear as the primary diagnosis (line a, under OASIS M0230) and must 
appear with all digits required by ICD-9-CM coding rules. The 
requirement to report manifestation codes as the first secondary 
diagnosis is consistent with our intention to recognize the primary 
diagnosis for case-mix purposes. In this circumstance, the primary 
diagnosis is indicated by the combination of the manifestation code 
preceded by the underlying disease code in the primary field.
Structure of the Case-Mix System
    Comment: Several commenters suggested adding a fifth level of 
severity to the clinical dimension, in view of the large score range in 
the fourth and highest severity level. In contrast, other commenters 
suggested that 80 groups was too large a number; they recommended 
greatly reducing the number of groups. A related question was why some 
groups with a small incidence of episodes warranted establishment of an 
HHRG.
    Response: At this time, we have not changed the basic structure 
resulting in 80 groups. Adding a fifth clinical severity level would 
increase the number of groups to 100. Reducing the number of groups may 
obfuscate the clinical logic we used to help shape the system. Also, we 
feel it is prudent at this early stage of the model's application to 
avoid imposing additional structural streamlining before larger data 
sets become available allowing exploration of refinements to the model.
    Comment: A commenter stated that the case-mix system should have as 
many episodes at the high end of the scale as the low end.
    Response: We disagree. It is more important for the structure of 
the groups to differentiate episodes with similar severity and 
costliness. Severity and costliness are not evenly distributed in the 
population of episodes. The most resource intensive episodes are 
infrequently encountered.
    Comment: A commenter criticized the use of a scoring range from 27 
to 160 for the highest level of severity in the clinical dimension, 
saying it is too broad.
    Response: In response to several comments on the adequacy of 
payment for severe wound cases, we have revised the severity score 
intervals along with making additions to elements in the clinical 
dimension. We discuss changes to the case-mix system in section IV.G.1.
    Comment: It was suggested that the case-mix assignment be made at 
the end of the episode, because of difficulties agencies may have in 
obtaining accurate information about patient status early in the 
episode.
    Response: OASIS data collected as part of the comprehensive 
assessment must be collected within 5 days of the start of care. After 
collection, agencies have 7 days to ``lock'' the assessment. Therefore, 
agencies have a maximum of 12 days to establish the case-mix 
assignment. We think this time period is adequate to resolve 
uncertainties about the health and functional status items on the 
OASIS. Further, the therapy threshold used in the case-mix system is 
projected at the start of care, and is updated by the end of the 
episode to determine the final case-mix adjusted payment.
Omission of Time Spent Outside the Home From the Calculation of 
Resource Costs
    Comment: We received comments faulting the case-mix adjuster for 
limiting the measurement of resource costs to time spent in the home. 
Commenters argued that time spent

[[Page 41155]]

outside of the home, travel time, and resource costs of equipment and 
supplies should be included. One commenter maintained that failure to 
account for medical supplies leads to two inconsistent reimbursement 
methodologies, one for services and the other for supplies. In the case 
of wound patients using very expensive dressings and supplies, 
commenters argued the resource cost is seriously underestimated.
    Response: We acknowledge the underlying concern from the commenter 
but we are limited in our ability to address this comment in the near 
term. Variation in costs other than visit time is a subject for careful 
empirical study that will take time. Were we to adopt imprecise 
estimates in a hasty attempt to rectify perceived errors in the payment 
weights, we would risk introducing other errors and potential 
inequities into the payment system. The model as developed to date 
assumes that the omitted resource costs are directly proportional to 
time spent in the home. In future years, we plan to consider methods 
for testing this assumption. Studies to directly account for costs 
beyond time spent in the home pose significant challenges in terms of 
their feasibility, cost, and reliability. The Abt study did not attempt 
to measure non-home resource costs because it was believed the 
complexity of the necessary measurement procedures would jeopardize 
agency recruitment and data accuracy.
Use of OASIS Data To Validate the Case-Mix System
    Comment: Several commenters advised us against using early OASIS 
data to validate the case-mix grouping system. They believe that the 
data are flawed because agency personnel are still learning how to 
conduct assessments. A couple of commenters sought confirmation that we 
validated the system, and requested information about how we validated 
the system.
    Response: It is not possible to use the OASIS data for complete 
system validation, because validation requires information about 
resource cost as well as patient characteristics. OASIS data provide 
only patient characteristics. However, as discussed in the proposed 
rule, we did validate the case-mix grouping system using a split sample 
methodology with the Abt case-mix data (see Abt Associates, Second 
Interim Report, September 24, 1999).
    Our primary purpose for using the OASIS data was for payment 
allocation during the first year of PPS. Specifically, we hoped the 
OASIS data could be used to estimate the distribution of case-mix in 
the population, which is information needed to accurately establish the 
standardized payment amount. As described elsewhere in this regulation, 
we used OASIS data to achieve this purpose.
    Comment: A few commenters recommended allowing therapy assistant 
services and rehabilitation nurse services to count towards the therapy 
threshold.
    Response: We do not believe that any changes to the current 
coverage rules governing the coverage of physical therapy, occupational 
therapy, and speech-language pathology services under the Medicare home 
health benefit is warranted at this time. If we believe coverage 
revisions are necessary for future refinements to the HHA PPS, we may 
consider revisiting the coverage guidelines at that later time. Under 
the case mix methodology, patients with intense therapeutic needs are 
classified in higher payment groups. A physical therapist, occupational 
therapist or speech-language pathologist would have to diagnose the 
therapeutic needs of the patient. If significant assistant substitution 
occurs under PPS, we may focus medical review efforts or reprice the 
case-mix groups. Rehabilitation nurses have never met the personnel 
qualifications or coverage criteria for physical therapy, occupational 
therapy or speech-language pathology services under the Medicare home 
health benefit.
Other Comments
    Comment: A commenter stated that we should add more variables to 
the case-mix system to increase the R-squared.
    Response: In an effort to better capture resource cost for severe 
wound patients, we have added several more variables as explained in 
the discussion of changes to the case-mix system in section IV.G. The 
R-squared has increased. Future refinement activities may result in 
more additions and better ways to use existing variables.
    Comment: A few commenters asserted that an R-squared (proportion of 
variation explained) of .32 for the case-mix system is too low, and one 
asked whether the system was validated.
    Response: We used a split sample methodology to validate the case-
mix system. The R-squared for the validation sample changed little. The 
R-squared for the initial case-mix system is comparable to that for 
other case-mix systems in their early stages. We should expect future 
research, using better data (such as improved diagnosis coding) and 
more observations, to result in higher predictive power.
    Comment: Some commenters recommended that we add to the case-mix 
model OASIS items measuring such nonclinical factors as safety hazards 
and other environmental variables, and socioeconomic status variables.
    Response: OASIS includes these variables to use as risk factors in 
analyses of the outcomes of home health care. But as we discussed in 
the proposed rule, we do not believe they are appropriate factors in 
determining payment.
    Comment: Some commenters disagreed with our decision to exclude 
items dealing with signs and symptoms such as fluid retention and diet, 
on the grounds that these are important clinical changes with a direct 
relationship to care quality and outcomes.
    Response: As we noted in the proposed rule, we are concerned about 
the vulnerability to manipulation for payment maximization of some 
possibly transient clinical items. Our statistical analysis also 
suggests weakness in their scientific reliability. Moreover, inclusion 
of these items would require a change to the OASIS data collection 
procedure, causing additional burden on home health agencies. Lastly, 
after all other elements are included in the model, they do not make 
any independent contribution to explaining variation in resource use.
    Comment: A commenter stated that patients with low or moderate 
scores who need to be observed and assessed, and taught how to manage 
their medication and diagnosis, would not receive adequate 
reimbursement. A couple of other commenters suggested adding variables 
concerning multiple medications.
    Response: During the early phases of model development, there were 
indications that a variable measuring multiple medications would be 
useful, but as it was not an OASIS variable we sought to substitute 
similar OASIS items. We found substitutes in the two OASIS variables 
measuring the patient's ability to manage oral and injectable 
medications. Statistical results suggest only one of these variables 
(injectable medications management) contributes independently to 
explaining resource variation after accounting for the other variables 
in the case-mix model. However, we believe using this variable makes 
the case-mix system vulnerable to manipulation, and have decided 
against including it at this time. As we refine the case-mix system, we 
will continue to look for ways to capture nursing functions mentioned 
in the comment.
    Comment: Two commenters responded critically to the absence of

[[Page 41156]]

respiratory treatments from the clinical dimension.
    Response: This variable was excluded from the model because it was 
statistically insignificant and inversely related to resource cost.
    Comment: Several commenters stated that the system should 
specifically allocate points for limitations affecting medication 
management, meal preparation, feeding, and the ability to structure 
time.
    Response: Measures of medication administration, meal preparation, 
and feeding dependence were tested but did not contribute significantly 
to explaining home health resource use. We note the case-mix system 
recognizes patients with memory deficit, impaired decision-making and 
behavior problems.
    Comment: Stating that patients with multiple treatments at home 
(intravenous infusion, parenteral/enteral therapies, OASIS M0250) are 
often observed in home care, a commenter asked why these patients are 
not assigned the sum of scores for each treatment.
    Response: At this time the case-mix model does not assign the sum 
of two scores when patients are receiving multiple treatments. In terms 
of care quality, we are concerned about the potential incentive to make 
patients' care more complex if scores for this OASIS item are additive. 
Currently, patients who receive both intravenous infusion and enteral 
nutrition, the most plausible combination, would receive 24 points for 
enteral nutrition, the highest score possible among the three 
treatments and the second-highest single score in the clinical 
dimension. Given our understanding of the needs these patients may 
present, this score seems appropriate pending further review of data 
for multiple-treatment patients. The Abt sample did not contain any 
patients receiving more than one of these treatments. As these 
treatments do not appear to produce additive work, we believe it is 
prudent to wait until more-reliable scores for multiple-treatment 
patients can be developed during refinement activities using larger 
data sets.
    Comment: Commenters also criticized us for omitting types of 
specific OASIS items or response categories that indicate lower 
severity than items/categories currently in the case-mix model. For 
example, one commenter stated, the presence of ``any pain'' would 
affect the plan of care. The pain response categories that are 
allocated points are ``daily but not constantly'' and ``all of the 
time'.
    Response: We understand the commenter's recommendation for more 
specificity in the case-mix system. We note that generally, the case-
mix model captures levels of severity that were reliably associated 
with variations in resource use. Constructing variables for the model 
involved both statistically based decisions as well as judgments about 
how many grades of distinction are desirable from clinical, policy, and 
structural points of view. For example, in response to comments about 
wound care patients, we have elaborated certain wound variables to 
capture finer distinctions in wound status, while retaining statistical 
reliability for the clinical dimension. We have traded off some 
structural parsimony for slightly increased accuracy. As larger data 
sets become available to refine the case-mix system, we may have an 
opportunity to incorporate still more detailed variable levels, but we 
will continue to evaluate them in light of their clinical, policy, and 
structural implications.
    Comment: A commenter wondered whether listing M0530 (when does 
urinary incontinence occur?) rather than M0520 (urinary incontinence or 
urinary catheter presence) in the clinical dimension was a 
typographical error.
    Response: No, it is not. As we noted in the proposed rule, we 
avoided M0520 because of concern that using it might promote negative 
practice patterns. M0530 is a stronger measure of the impact of 
incontinence on home care because it takes timed voiding into account.
    Comment: A couple of commenters stated that the case-mix adjuster 
should identify patients with urostomy because services and teaching 
requirements exceed those for bowel ostomy patients.
    Response: OASIS does not currently allow identification of urostomy 
patients. We will consider this suggestion for future OASIS studies.
    Comment: A commenter asked why hearing status is not included, 
while vision status is.
    Response: We tested hearing problems as part of a set of 
neurological, cognitive, sensory, and behavioral impairments during our 
development of the case-mix system. Few of these variables contributed 
meaningfully to the case-mix model, and for some types of clinically 
severe patients these impairments were inversely related to resource 
cost. We were ultimately able to include both vision problems (M0390) 
and behavioral problems (M0610) in the clinical dimension as 
statistically significant variables positively related to resource 
cost.
    Comment: One commenter suggested that we change OASIS item M0390 on 
vision status to identify patients who have difficulty accommodating to 
distance.
    Response: We will consider testing this change in research on 
modifications to OASIS.
    Comment: A commenter requested clarification of the definition in 
the vision status item (M0390).
    Response: All OASIS items, including this item, are discussed in 
the OASIS Implementation Manual available on the HCFA Web site.
    Comment: A commenter stated that OASIS functional items are not 
sensitive to patient progression, so that the patient who improves is 
still rated at the same level after improvement. The commenter cited 
the case of the patient who is dependent in bathing in bed, and 
progresses to independent in bathing in bed.
    Response: This comment appears to address the use of OASIS items 
for outcome measurement. During the testing of outcome measures for use 
in home health care, it was necessary to balance several competing 
demands. One of these demands was for sufficient ``rigor'' in the 
outcome measures and data items, including the data item's likelihood 
of consistent application by the clinicians making the assessment. 
Another demand was a more practical one--would the home health agency's 
staff be able to use the item in its day-to-day functioning? Because 
every OASIS item that now has several levels of a scale could most 
likely be expanded to many more scale levels, several questions must be 
asked as part of the evaluation of OASIS items. For example, would the 
item be perceived as practical for use by clinicians? Would the 
resulting outcome measures be valuable in evaluating quality of care 
across agencies? Would the item have a high incidence of consistent 
application? These are among the evaluation criteria we would apply as 
the outcome measures and the OASIS items continue to evolve over time.
    Comment: A commenter said the system should recognize medically 
underserved patients.
    Response: The OASIS assessment does not clearly identify medically 
underserved patients. However, a variable relating to Medicaid status 
is reported on the OASIS assessment and can be considered a proxy 
indicator. During our system development work on the Abt sample we 
tested the Medicaid variable (which indicates whether Medicaid was 
among the patient's payment sources). We found that it did not 
contribute to explaining variation in resource use.

[[Page 41157]]

    Comment: A commenter stated that home health aide supervisory 
visits should be included in the case rates, and the agency should be 
able to bill for those visits.
    Response: Time spent in the home, including time spent on 
supervisory visits, was recorded in the visit log data submitted to Abt 
Associates by agencies participating in the case-mix research. This 
means that the case-mix relative weights should reflect any case-mix 
group differences in supervisory time. Supervisory visits are also in 
the cost base for the average cost per-visit computations used in the 
PPS episode rates. We are making no changes in payment policy regarding 
billing for supervisory visits.
    Comment: A commenter, stating that the case-mix system inadequately 
accounts for costs of behavioral patients, asked how well such patients 
were represented in the Abt sample.
    Response: We believe these patients were adequately represented. 
Approximately 4.5 percent of the Abt sample had a primary diagnosis 
code of a mental disorder. Approximately 2.6 percent received 
psychiatric nursing services at home. About 14 percent were 
classifiable as having chronic cognitive, mental, or behavioral 
problems. Approximately one-quarter of the sample had current problems 
due to one or more of the behaviors listed in OASIS M0610.
    Comment: A commenter suggested that refinement activities include 
examining outliers to see whether the case-mix categories involved are 
improperly weighted.
    Response: We plan to examine the data as suggested.
    Comment: One commenter questioned whether we examined the validity 
of the relative weights. A related recommendation was to validate the 
relative weights on a large national data set after the first year of 
PPS.
    Response: We examined various measures of fit of the case-mix model 
to episode-cost data to judge the model's performance and, by 
implication, the validity of the relative case-mix weights derived from 
it. Most of these fit measures are reported and discussed in the Abt 
Associates Second Interim Report (September 24, 1999). As explained in 
the proposed rule, we derived the relative weights from a 
straightforward regression equation that estimates the average addition 
to resource cost due to each severity level above the lowest-severity 
case-mix group (C0F0S0). This regression equation, estimated from the 
Abt sample data, performed well. We used case-mix-group means estimated 
from the coefficients of the regression equation to compute the 
relative case-mix weights. We plan to re-examine the accuracy of the 
relative weights periodically.
    Comment: A commenter asked whether the mean or median was used to 
calculate the relative case-mix weights.
    Response: We used the mean estimated from the regression equation 
described in the previous response.
    Comment: A commenter requested that we disclose the computations 
for independent review.
    Response: In the section of the rule regarding the calculation of 
the case-mix relative weights, we show the regression equation 
coefficients and the mean resource cost calculated for each case-mix 
group from the regression coefficients.
    Comment: A commenter stated that we should release data showing the 
incidence of cases in the groups used to define the relative weights.
    Response: Appendix C in the Abt Associates Second Interim Report 
(available on the HCFA website) shows the incidence of cases in each 
case-mix group in the sample.
    Comment: A commenter questioned whether hospital-based agencies 
were adequately represented in the sample used to develop the case-mix 
system.
    Response: We believe that hospital-based agencies were adequately 
represented in the sample. About one-third of the 90 agencies 
participating in the Abt study were hospital-based and one-third of the 
episodes in the Abt analytic sample came from hospital-based agencies. 
The hospital-based agencies were distributed across the four census 
regions, urban and rural locations, and represented varying practice 
patterns. The total development sample included more than 9,000 
episodes (Abt Associates Second Interim Report, September 24, 1999). 
The sample for deriving case-mix weights in the final rule included 
more than 26,500 episodes.
Phase II Per-Episode PPS Demonstration
    Comment: One commenter asked whether demonstration agencies 
deliberately avoided higher-acuity patients while participating in the 
demonstration project.
    Response: The demonstration evaluation study examined this 
question. Analyses suggested that PPS agencies were no less likely than 
non-PPS agencies to admit a patient with a serious medical condition, 
limitations in activities of daily living, or other conditions 
predictive of higher-than-average service needs. Furthermore, the 
demonstration did not appear to affect the admission of patients 
expected to have relatively high costs per visit.
    Comment: A commenter wanted to know why data on pages 58143 and 
58150 in the proposed rule showed different percentages of discharges 
at 60 days and 120 days. Page 58143 cites completion rates of 60 
percent and 73 percent in 60 and 120 days, respectively. Page 58150 
cites completion rates of 46 percent and 62 percent, respectively.
    Response: Data cited on page 58143 were completion rates for 39 
agencies paid prospectively under the Phase II per-episode prospective 
payment demonstration in the first year of the demonstration (1995-96). 
Data cited on page 58150 are national averages from an episode file 
constructed from 1997 paid claims. Research would suggest that the 
differences stem mainly from the incentives of prospective payment.

L. Episode Rate Methodology

    Comment: Several commenters suggested that we include the amounts 
for new billing and financial systems in the PPS episode rate.
    Response: We do not foresee any major changes to the billing and 
financial systems for home health agencies that would justify an 
increase in the rate amount. Home health agencies will still use and 
submit the same claim forms that are currently being used under IPS. 
With only minimal changes in bill content we will be furnishing free 
grouping software to all HHAs. If an HHA elects to purchase different 
or more deluxe software from its vendors, that would be an individual 
business decision of the HHA. It is primarily the fiscal intermediaries 
systems that will require changes in order to process home health 
claims under PPS. We will not reimburse agencies for modifications to 
their internal billing and financial systems beyond what is already 
included as overhead costs reported on the cost report.
    Comment: Several commenters requested that we not use the most 
current data for developing the home health PPS episode rates in order 
to avoid incorporating the effects of IPS.
    Response: In developing the final PPS episode payment rate, the 
primary influence for the final amount is the budget neutrality target. 
The statute requires that the total amounts payable under HHA PPS be 
equal to the total amount that would have been made if HHA PPS had not 
been in effect. This numeric value is based on actuarial estimates of 
future home health spending and utilization in the aggregate. Since the 
projected spending

[[Page 41158]]

is based on historical trends derived using the most recent data 
available, IPS cannot be ignored. Using data prior to the 
implementation of IPS would not reflect current home health utilization 
and spending.
    Comment: One commenter suggested that we revise the computations of 
the average cost per visit to only apply the cost limit adjustment 
factor to those disciplines that were over the per-visit cost limits.
    Response: The per-visit cost limit has been applied on an aggregate 
basis, not on a per-discipline basis. Separating the disciplines proved 
too difficult to achieve and would be of questionable worth. The cost 
limit adjustment factor was determined by dividing the aggregate cost 
limit amount by the aggregate reasonable cost amount. If the factor was 
less that 1.0, then the factor was applied across all disciplines. If 
we had only applied it to the disciplines that were over the limits, 
then we would not have recognized the actual impact of the cost limits.

M. Audited Cost Report Sample

    Comment: Several commenters questioned the accuracy and use of the 
statutorily required most current audited cost report data available to 
the Secretary to calculate the PPS rates. Commenters questioned whether 
better, more accurate data may exist than the 1997 audited cost report 
data set forth in the proposed rule.
    Response: For the proposed rule, data from audited cost reports 
received by an HCFA determined deadline date were used for the 
calculation of the proposed HHA PPS rates. Even though all audited cost 
reports were not available (for reasons such as, suspensions, 
investigations, natural disasters, etc.), HCFA had to set a cut-off 
date to meet the stringent time constraints for completing the proposed 
rule. Any additional audited cost report data files that were received 
by HCFA Central Office (CO) beyond the deadline were not included in 
the rate calculations for the proposed rule. Since then, audited cost 
reports from the sample may have been appealed, reopened, and revised 
resulting in an updated version of the cost report data available for 
calculation of the rates for the final rule. Even after the publication 
of the proposed rule, we required fiscal intermediaries to resubmit any 
reopened audited cost reports and have that more recent, accurate data 
available for final rule calculations through the first week of 
January, 2000. This process resulted in an additional seven providers 
for which we now have audited cost reports for FY 1997. Additionally, 
during the above-described additional time period, we received 23 
reopened audited cost reports with newer and more accurate data for use 
in the final rule calculations.
    Comment: Commenters were concerned with pre-IPS cost data being 
used and that 1997 data may not be an adequate time period to reflect 
the cost of providing care today.
    Response: HCFA is required, in its development of a PPS for home 
health agencies, to use the most current audited cost report data 
available. At present, 1997 audited cost reports are the most current 
audited cost reports available of a representative sample of HHAs. The 
1997 audited cost data is updated by the market basket in order to make 
it more reflective of the cost of providing care today.
    Comment: Commenters were concerned that not all types of HHAs, with 
respect to their being considered large, small, urban, rural, for 
profit, not-for-profit, for example, were adequately represented in the 
audited cost report sample used to construct the PPS rates.
    Response: The sample was designed to be representative of the home 
health industry, including census region, urban versus rural location, 
and large versus small agencies. The sample included each provider type 
(freestanding not-for-profit, freestanding for-profit, freestanding 
governmental, and provider-based), which are referred to as strata in 
sampling terms. The design of the sample then took into account the 
number of providers and the variation in cost and beneficiaries in each 
stratum, resulting in a representative sample of the home health 
industry.
    Comment: A few commenters were concerned with the sample design 
which excluded ``very small'' agencies.
    Response: Agencies with fewer than 50 Medicare beneficiaries were 
excluded from the sample list of agencies for development of the home 
health PPS. These agencies were judged to be atypical in their costs 
and utilization. This would particularly be the case if the agency is a 
large agency that happens to have only a small Medicare business. Prior 
PPS demonstrations also excluded these low-volume providers from 
participation for similar reasons.
    Comment: Commenters raised concern about rebasing for FY 2002 based 
on a 100 percent sample of cost reports. Commenters further recommended 
that if the future PPS data varies from the FY 2001 base year or their 
proposed revised approach to rebase for FY 2002, that adjustments be 
made to the standards on which the system is based.
    Response: HCFA has no statutory authority to rebase the home health 
PPS on 100 percent cost report data. We will continue to monitor the 
effects of the policies governing the PPS system.

N. Cost Outlier Payments

    Comment: Commenters generally supported the outlier policy but 
often disagreed with specific aspects of the proposed policy. Many 
commenters stated that protection from the financial risk of 
catastrophic cases was important. These commenters frequently 
identified severe wound care patients and non-self injecting diabetics 
as the types of patients that pose the greatest financial risk because 
of the concern that the HHRG system may not adequately recognize their 
costs. In addition, commenters tended to support greater financial 
protection against large losses, favoring a greater concentration of 
outlier payments on the most expensive cases, which can be accomplished 
by using a higher fixed dollar loss amount and a higher loss sharing 
ratio. Several commenters wanted provisions totally incompatible with 
the statutory constraint that total outlier payments be no greater than 
5 percent of total payments including outliers, such as no fixed dollar 
loss and a higher loss sharing ratio, or even full cost reimbursement 
of outlier cases. However, several commenters argued that if greater 
catastrophic protection could not be provided, 5 percent higher episode 
payments for all episodes would be preferable to the proposed outlier 
policy.
    Response: As stated in the proposed rule, the provision for outlier 
payments is optional under section 1895(b)(5) of the Act. However, if 
outlier payments are included in the PPS, the statute requires that 
total outlier payments be no more than 5 percent of total payments, 
including outlier payments. Section 1895(b)(3)(C) of the Act also 
requires that the episode payment amounts be adjusted to effectively 
pay for outlier payments within the same level of estimated total 
spending. These statutory requirements place rather strict limits upon 
the additional payments that can be directed to unusually expensive 
cases.
    Before deciding to exercise our discretionary authority to include 
a home health PPS outlier policy in this final rule, we carefully 
considered the arguments presented in the public comments. We have 
decided that the benefit to the home health community of adopting an 
outlier policy consistent with the statute outweighs no outlier policy. 
However, based on the majority of public comments, we have decided to

[[Page 41159]]

increase the loss sharing ratio from the 60 percent set forth in the 
proposed rule to 80 percent, the same ratio that is used in the 
inpatient hospital PPS.
    Accordingly, the fixed dollar loss amount has also been changed. 
Our preliminary estimates reported in the proposed rule indicated that 
a loss-sharing ratio of .80 was consistent with a fixed dollar loss 
amount equal to 1.35 times the standard episode amount. However, 
estimates based on the most recent data indicate that the fixed dollar 
loss amount should be changed to 1.13 times the standard episode 
amount. Among the commenters supporting a higher loss sharing ratio, 
while no one suggested a loss sharing ratio lower than .75; some stated 
that the ratio should be the same as in the inpatient hospital PPS 
(.80), and others stated that the ratio should be .80 or even .90.
    Comment: Several commenters argued that the proposed outlier policy 
was not sufficient to cover the costs of patients with intensive 
service needs and would result in inadequate home care being provided 
to patients with the greatest needs. Some commenters cited the effects 
of the fixed dollar loss and the loss sharing ratio in severely 
limiting the additional payment that would be made to outlier cases. 
Another commenter stated that the outlier threshold should be based on 
medical necessity without any qualifying financial loss being suffered 
by the provider, and others stated, in effect, that there should be no 
fixed dollar loss. Yet another commenter questioned the sufficiency of 
5 percent for these types of cases.
    Response: As noted above, section 1895(b)(5) of the Act limits the 
total amount of outlier payments that can be targeted to outlier cases 
to no more than 5 percent of estimated total payments. It is impossible 
to eliminate the fixed dollar loss and to pay the full estimated cost 
in excess of the episode payment. To do so would result in outlier 
payments far in excess of the 5 percent allowed by the statute. It is 
also inconsistent with a basic premise of the episode based payment, 
which is based on average episode costs, and anticipates that 
``underpayment'' of some episodes will tend to be balanced by 
``overpayment'' of other episodes.
    Given the constraint on total outlier payments, we were presented 
with determining how to beneficially distribute the limited amount of 
additional payments among the expensive cases. If only the very most 
expensive of the costly cases qualify for outlier payments, a higher 
proportion of the total costs of those cases can be paid. 
Alternatively, if a larger number of costly cases qualify for outlier 
payments, it is necessary to pay a lower proportion of their total 
costs. If the fixed dollar loss were eliminated, so that all cases 
whose estimated costs exceeded the episode amount qualified for outlier 
payments, the amount of the outlier payment per case would of necessity 
be so small that there would be little or no benefit for the expensive 
cases.
    As discussed in another comment, we have chosen a loss-sharing 
ratio of .80 for the final rule instead of the .60 set forth in the 
proposed rule. We believe that a loss-sharing ratio of 1.00 would go 
too far in concentrating outlier payments on the most expensive cases. 
It would further limit the number of cases that could receive any 
outlier payment and would provide no incentive for agencies to attempt 
to provide care cost-effectively for outlier cases.
    Comment: A number of commenters raised concerns regarding the 
method used to estimate the cost of an episode in determining outlier 
payments. Several commenters stated that the ``outlier-standardized 
per-visit rates'' do not reflect the real cost of visits. Another 
commenter appeared to misunderstand that we would use per-visit costs 
for each of the six home health disciplines.
    Response: In this final rule, we are revising proposed Sec. 484.240 
to modify the per-visit rate used to estimate per-visit costs. We will 
now use the average cost per visit from the PPS audit sample including 
the average cost for nonroutine medical supplies and the average OASIS 
adjustment costs. The only standardization applied to these per-visit 
costs will be the wage index standardization factor. See Table 6 of the 
proposed rule (64 FR 58169) and Table 6 in section IV.C. of this final 
rule.
    The wage index standardization factor is included in the per-visit 
cost because the estimated episode cost will be adjusted by the wage 
index, just as is the episode payment amount. As a result of these 
changes from the proposed rule, our estimated cost of an episode will 
be higher, and more episodes will qualify for higher outlier payments 
than would have occurred under the originally proposed method. This 
change in cost methodology will require increasing the fixed dollar 
loss in order to stay within the 5 percent constraint.
    The estimated cost of an episode will be calculated by multiplying 
the per-visit cost of each discipline by the number of visits in the 
discipline and computing the total cost for all disciplines.
    We understand that the estimated cost will not necessarily 
accurately measure the actual cost of any individual episode or the 
actual costs of any single agency. Our method of cost estimation will 
measure differences among episodes in three factors: the total number 
of visits, the skill mix of those visits, and the wage costs of the 
geographical area where the care was provided. This methodology will 
assume an equitable and timely application of outlier payments among 
HHAs without introducing the complex and idiosyncratic elements of 
individual agency cost finding using cost report analysis.
    Comment: Several commenters suggested that we consider reimbursing 
reasonable costs for outlier cases. Other commenters stated that the 
estimated cost does not include the cost of non-routine medical 
supplies provided during each outlier episode, and that if we estimated 
costs in the same manner that is used in the inpatient hospital PPS, we 
could include the costs of non-routine medical supplies.
    Response: It is correct that while the total costs of non-routine 
medical supplies were included in the episode payment amount, the non-
routine medical supplies of an individual episode are not accounted for 
in calculating the payment for an episode or in outlier calculations. 
In the inpatient hospital PPS, costs of outlier cases are estimated by 
multiplying total charges for the services provided during the hospital 
stay by a hospital-specific cost-to-charge ratio that is determined 
from the Medicare hospital cost report. Applying this method to the 
home health PPS would provide a means of including the cost of non-
routine medical supplies in the estimated cost of an episode. However, 
there are two major reasons why we believe that using the estimated 
visit cost method is necessary. First, we do not have charges for non-
routine medical supplies or agency cost-to-charge ratios in the Abt 
case-mix data that we are using to estimate the outlier policy for the 
first year of the PPS. Therefore, we are unable to use the cost-to-
charge ratio method at this time. Second, we would like to avoid making 
the Medicare cost report a necessary part of determining an agency's 
payments under the home health PPS. In particular, we would like to 
make the new system independent of the burdensome and idiosyncratic 
cost-finding process of the previous, reasonable cost-based payment 
system.
    Comment: Some commenters indicated a misunderstanding about the 
application of the wage index in calculating outlier payments. The

[[Page 41160]]

confusion was whether the fixed dollar loss was adjusted by the wage 
index.
    Response: The fixed dollar loss amount is wage-adjusted in exactly 
the same manner that the standard episode payment is wage-adjusted. As 
a result, the fixed dollar loss will be the same proportion of the 
episode payment in all wage index areas. In nominal dollars, the 
outlier threshold for an episode in a low wage index area is lower than 
the outlier threshold for an episode in the same HHRG in a high wage 
index area. The outlier payment is also wage-adjusted. Hence, the 
outlier payment for an episode will be the same proportion of the total 
payment for that episode whether the episode of care is provided in a 
low or a high wage index area.
    Comment: Several commenters asked operational questions about the 
outlier policy and how outlier payments would actually be made. For 
example, one commenter asked us to clarify how and when outlier 
payments would be made. Another asked who initiates an outlier request 
and whether it would be automated. Others asked how the 5 percent would 
be determined and how information on outlier payments would be 
communicated to agencies. Another commenter asked what our policy would 
be if total outlier payments are significantly different than the 5 
percent amount. Another commenter asked how outlier payments would be 
tracked and capped nationally and how agencies would know when the 
outlier pool had been exhausted. Finally, there was the question 
whether the 5 percent applied to individual agencies or all agencies in 
the aggregate.
    Response: Outlier payments will be made automatically by RHHI 
through the normal claims processing system. When the RHHI determines 
the final episode payment based on the claim submitted by the agency, 
as part of determining the appropriate payment for the episode, the 
RHHI system estimates the imputed cost of the episode under the outlier 
methodology. If the cost exceeds the outlier threshold for the HHRG to 
which the episode is assigned, then an outlier payment will 
automatically be calculated for the episode. The agency will know when 
it receives an outlier payment for an episode because it will be part 
of the final payment for the episode and noted on the remittance 
advice.
    It is important to understand that, according to section 1895(b)(5) 
of the Act, the 5 percent constraint applies to estimated total 
payments, not actual total payments. Each year, we will establish, the 
loss-sharing ratio and the fixed dollar loss values that will be used 
throughout the next fiscal year to calculate outlier payments. There 
will be no reconciliation of actual outlier payments to the 5 percent 
target either during a current fiscal year or in any subsequent fiscal 
years. If actual outlier payments during a given year exceed 5 percent 
of actual total payments, there will be no attempt to recoup the 
difference. Similarly, if total outlier payments in a year fall short 
of 5 percent of actual total payments, there will be no additional 
payments made to agencies. Such information will, however, be part of 
the analysis conducted for setting the appropriate threshold in 
subsequent years.
    Finally, there is no direct relationship between the 5 percent 
limit on total outlier payments and the percent of outlier payments 
that an individual agency may receive. Depending on the agency's 
caseload during the year, the percentage of outlier payment to its 
total payments as outlier payments will likely vary. The 5 percent 
constraint applies to all agencies in the aggregate and not to 
individual agencies.
    Comment: One commenter questioned why we have no outlier policy for 
LUPA episodes.
    Response: No additional payments will be made for LUPA episodes 
beyond the LUPA payment. However, it should be noted that in this final 
rule, we have changed the per-visit costs to be used in computing the 
LUPA payment so that the same per-visit amounts will be used for the 
LUPA payment as that used in estimating the cost of a regular 60-day 
episode.
    Comment: A commenter stated that we should implement a payment 
ceiling for outlier cases (such as 175 percent of the HHRG payment) and 
use a 15 percent adjustment to fund the outlier pool.
    Response: Since a basic objective of outlier payments is to 
increase payments to the most costly cases, we do not think that 
outlier payments should be limited to some percent of the HHRG payment. 
The effect of such a ceiling would be to allow other less costly cases 
to receive higher relative outlier payments. As to the latter comment, 
a 15 percent outlier adjustment is not permitted by the statute, which 
sets 5 percent of total estimated payments as the maximum amount of 
outlier payments.
    Comment: One commenter suggested that we eliminate outliers and 
recalculate the case-mix to include long stay cases as part of the HHRG 
system.
    Response: ``Long stay'' cases are as much a part of the HHRG system 
as shorter term cases, and will not necessarily become outlier cases. 
As the system provides for unlimited 60-day periods, provided that 
patients continue to be eligible for Medicare home health services for 
each 60-day period, HHAs will receive additional episode payments based 
on the assigned HHRG for each episode. Thus, length of stay is not a 
factor leading to underpayments. The purpose of the outlier policy is 
to provide additional payments to cases requiring unusually intensive 
services within a 60-day episode.
    Comment: One commenter stated that a transition policy would be a 
preferable alternative to the proposed outlier policy.
    Response: As discussed previously, we have decided against 
implementing a transition policy. However, we note that a transition 
policy could serve some of the same purposes as an outlier policy early 
in system implementation. For example, a transition policy bases a 
proportion of the episode payment on the estimated cost (using the same 
method as we apply in the outlier policy) and the rest of the episode 
payment on the case-mix and wage adjusted episode amount. Such a policy 
could provide higher total payments to episodes whose estimated cost 
exceeds the episode payment. However, for all cases whose estimated 
cost is less than the episode payment, this blended payment would be 
lower than the episode payment. Because it would potentially change the 
payment to all episodes, a transition policy has a greater impact on 
total payments than that of the outlier policy. Whereas the outlier 
policy is self-financing under the terms of the statute, a broader 
transition policy would require a different and possibly greater 
adjustment for budget neutrality. Finally, a transition policy is, as 
the name indicates, intended to be temporary, and intended to allow 
providers time to adjust to a new system. In contrast, we intend the 
outlier policy to be a permanent feature of the payment system.
    Comment: One commenter urged us to carefully monitor the impact of 
the outlier policy and stressed the importance of maintaining an 
appropriate balance between the total number of outlier patients and 
the payment per outlier case. Another commenter expressed a preference 
for refinement of the case-mix system as an alternative to the outlier 
policy.
    Response: We fully agree with the suggestion of both commenters. We 
will monitor the impact of the outlier policy with the intention of 
refining it where possible. We will also explore case-mix refinements 
as we gather the data needed to support the necessary analyses. We are 
also hopeful that, over time, case-mix refinement may reduce

[[Page 41161]]

the need for an outlier policy. We will examine the issue in the future 
when more information is available.
    Comment: Three commenters raised concern about the impact of 
outliers on specific types of home health agencies. They expressed 
concern for financial losses that would be incurred by rural agencies, 
a provider of ``last resort'' whose cases are in need of intensive 
services, and agencies in States where there are no other publicly 
funded home and community based services. In addition, a commenter 
stated that the wage adjusted per-visit costs would be significantly 
less than the actual per-visit costs in a particular geographical area.
    Response: These comments suggest that the outlier policy might be 
tailored to increase outlier payments for specific agencies on the 
basis of their location or case-mix. The outlier policy set forth in 
this rule provides greater compensation for agencies based on the 
imputed cost of an agency's episodes. There is no data available to us 
which objectively identifies providers for whom, on some basis, 
additional payments would be warranted. We believe the PPS system with 
its various adjustments provides a sound basis for distributing payment 
in accordance with patient need.
    Comment: Some commenters suggested that we apply different outlier 
criteria to different types of cases. For example, one commenter stated 
that the outlier payments should be restricted to the 40 non-therapy 
HHRGs.
    Response: We believe that estimated total cost is the best measure 
we have for identifying outlier cases. The fact that the fixed dollar 
loss is the same for all cases means that the estimated loss that must 
be incurred is the same for all cases and thus achieves equity. Even 
though a therapy case receives a higher episode payment than a non-
therapy case, the estimated loss that must be incurred before it 
qualifies for outlier payments will be the same.
    Comment: One commenter recommended a lower fixed dollar loss for 
wound care cases than for other outlier cases.
    Response: We note that a lower fixed dollar loss for wound care 
cases than for other cases would direct a greater proportion of outlier 
payments to wound care cases. We have decided against adopting such a 
policy at this time. As indicated in a previous response, we believe 
that it is more equitable to let the estimated cost of each episode 
determine the amount of outlier payments without singling out specific 
types of cases for special treatment.
    Comment: One commenter seemed to argue that a fixed dollar loss 
equal to or greater than the episode payment amount was impossible 
empirically and resulted from assumptions we made about episode costs 
and payments.
    Response: This commenter seemed to misunderstand the method we used 
to estimate the fixed dollar loss amount and the loss-sharing ratio. 
The estimates of fixed dollar loss amounts and loss-sharing ratios 
presented in the proposed rule and in this final rule were not based on 
any assumptions about internal data relationships. As described in the 
proposed rule, the estimates were derived from modeling simulated 
payments and estimated costs for the episodes included in the Abt case-
mix data set. For this final rule, we conducted the simulations again 
using an updated Abt data set. We were unable to perform simulations 
using early OASIS data from the OASIS national repository, because data 
lags prevented us from linking OASIS data to claims such that they 
could be included in this final rule. However, we were able to perform 
a variety of case-mix comparisons between the national OASIS data and 
the Abt sample data. These comparisons indicated a high degree of 
conformity between the two data sources. Further, we were able to 
compare the 1998 episode file developed from Medicare claims and the 
Abt data to determine how well the distribution of expensive cases 
matched in the two files. This analysis also supported the use of the 
Abt data.

O. Budget Neutrality

    Comment: A number of commenters raised concerns regarding the 
budget neutrality target. A few commenters were concerned about the 
budget target of IPS limits reduced by 15 percent. Another felt 
expenditures should be based on the Congressional Budget Office 
projection of expenditures.
    Response: Section 302 of BBRA of 1999 amended the statute to delay 
the 15 percent reduction in spending until one year after the 
implementation of PPS and further requires the Secretary to report to 
Congress within 6 months after implementation of PPS on the need for 
the 15 percent reduction. The statute also requires the budget target 
to be based on the Secretary's estimate of spending in FY 2001, not the 
Congressional Budget Office estimate.
    Comment: Some commenters asked if we intend to re-evaluate the 
budget neutrality factor in the future.
    Response: Re-evaluating the experience over the next few years and 
adjusting the rates accordingly could be beneficial. However, the 
statute does not provide for any adjustment in the budget neutrality 
factor nor an adjustment to change the program budget target.
    Comment: Several commenters were concerned about our projection of 
the number of episodes in FY 2001. Some mentioned specific reasons for 
declining episodes such as the changes in venipuncture rules.
    Response: Since the time we published the preliminary notice, we 
have obtained more meaningful data about home health spending and 
utilization changes. We now have two consecutive year's episode files 
and have clarified issues related to spending projections such as 
unsubmitted claims and sequential billing. We are no longer projecting 
the same number of episodes as we had in CY 1997. Utilization has 
dropped substantially since that time. However, the reasons for the 
drop, such as venipuncture changes, cannot be quantified. We have a 
two-year comparison relating the drop in episodes to the drop in visits 
within an episode. Based upon the most recent data, we are dropping the 
projected number of episodes substantially.
    Comment: Several commenters took issue with the data to be used as 
the basis for the rate setting. They felt that we should not use the 
1998 data to establish rates as the low utilization associated with IPS 
would be built into this analysis.
    Response: Because the law requires us to establish a PPS that is 
budget neutral to what would have been paid under IPS, we need the most 
recent data to help us develop a model of what would have happened 
under IPS in 2001. Since utilization did drop so dramatically, we feel 
that it is important to know how the mix of services changed. Use of 
1997 data or 1998 data does not necessarily have a direct effect on the 
level of payment because of the budget neutrality requirement. For 
example, using 1998 data, with a lower number of visits in an episode 
than 1997 data, will result in less of an adjustment to obtain budget 
neutrality to reach projected FY 2001 spending.
    Comment: Some commenters suggested that we increase the budget 
target to reflect the cost of Part B therapies that were provided 
outside the home health benefit that will now be covered by the PPS 
rate.
    Response: We determined how much of this type of therapy is being 
provided to current beneficiaries receiving home health services. We 
added this amount to the target for spending.
    Comment: One commenter believed that we should have performed an 
impact study for rural areas because

[[Page 41162]]

such an analysis would have shown the need for separate budget 
neutrality factors for rural versus urban areas.
    Response: We did look at costs per visits in several different 
types of rural areas versus urban areas. There was no significant 
difference, therefore we did not create distinct rates for urban versus 
rural.
    Comment: Several commenters argued that we did not provide support 
for the behavioral adjustment assumed about the percentage of LUPA 
payments.
    Response: Analysis of the 1998 episode file showed that when home 
health services were broken into 60-day blocks, for 16 percent of the 
time either a beneficiary had 1 to 4 visits extending outside a 
continuous period of service or that a beneficiary simply had only 1 to 
4 visits within a 60-day period. Of this 16 percent, only 26 percent or 
4 percent of the total were cases where only 1 to 4 visits were 
provided in a single 60-day, non-contiguous period. This four percent 
would clearly classify as LUPA episodes. It is not clear that those 
visits simply falling outside the 60 days would, under PPS, qualify as 
an episode. A plan of care would probably simply include those 
straggler visits with the preceding episode in many cases. The episode 
file was created to help us determine the average number of visits and 
the mix of visits in an episode. The file was not meant to fully 
reflect a system where payments are made prospectively. The incentives 
and the management of care under the prospective system we have 
designed have many differences from a cost-based reimbursement system. 
Our assumption about the percentage of LUPA episodes is not so much a 
reflection of a behavioral change but a clarification of how the 
episode file was constructed. It would not be reasonable to assume that 
the distribution of visits under PPS will replicate that of IPS. Our 
assumption that 5 percent of episodes will be LUPA is based on the 
actuaries' best estimate of what will actually happen under PPS.
    Comment: One commenter suggested that we include appropriate 
assumptions regarding the PEP in the budget neutrality adjustment.
    Response: We developed the PEP and the SCIC to benefit both 
agencies and beneficiaries. The SCIC was created so that beneficiaries 
whose condition had changed since the start of the episode could 
continue to be cared for by the same agency. There is a cost to the 
payment system in allowing this change in condition. Because we do not 
have adequate data to estimate this cost, our rate setting assumptions 
could not incorporate the increased cost of changing to a higher case-
mix mid-episode. There are some slight savings from using an end date 
to the PEP which does not equal the start date of the next episode. 
Again, we did not specifically account for this in determining the 
budget neutrality factor because as in the case of the SCIC, we do not 
have concrete data on which to base any cost estimate. We feel that the 
cost of the SCIC will outweigh any savings from the PEP. This being the 
case, the rates are not lower than they should be because of 
assumptions about the PEP.

P. Discharge Issues

    Comment: Several commenters raised concern over possible impacts of 
discharge policies under the new PPS. Commenters requested 
clarification of our policy governing the situations of patients who 
are discharged because they are no longer homebound and therefore 
ineligible for the Medicare home health benefit during the 60-day 
episode, the patient refuses services or is discharged because of 
safety, abuse, non-compliance concerns, or dies.
    Response: We believe the documented and legitimate event of a 
patient's death would result in a full episode payment for the HHA. 
Therefore, if a patient dies on day 35 of an episode, the HHA would 
receive a full episode payment for that individual. There would be no 
proportional payment adjustments to the full episode payment. If a 
patient is discharged because he or she becomes no longer homebound and 
therefore ineligible for the home health benefit, refuses services, or 
becomes a documented safety, abuse or non-compliance discharge during 
the 60-day episode, the HHA would receive a full 60-day episode payment 
unless the patient became subsequently eligible for the home health 
benefit during the same 60-day episode and later transferred to another 
HHA or returned to the same HHA, then the latter situation would result 
in a PEP adjustment.
    Comment: Commenters requested clarification of discharge policies 
governing an intervening hospital, SNF or hospice admission.
    Response: We believe that HHAs should be given the option to 
discharge the patient within the scope of its own operating policies; 
however, an HHA discharging a patient as a result of hospital admission 
during the 60-day episode will not be recognized by Medicare as a 
discharge for billing and payment purposes. An intervening hospital 
stay will result in either an applicable SCIC adjustment or, if the 
Resumption of Care OASIS assessment upon return to home health does not 
indicate a change in case-mix level, a full 60-day episode payment will 
be provided spanning the home health episode start of care date prior 
to the hospital admission, through and including the days of the 
hospital admission, and ending with the 59th day from the original 
start of care date.
    Comment: Several commenters asked whether a patient could be 
discharged before the end of the 60-day episode and whether the final 
bill could be submitted upon discharge before the end of the 60-day 
episode.
    Response: The claim may be submitted upon discharge before the end 
of the 60-day episode. However, subsequent adjustments to any payment 
based on the claim may be made due to an intervening event resulting in 
a PEP adjustment, such as a transfer to another HHA prior to the end of 
the 60-day episode or discharge and return to the same HHA prior to the 
end of the 60-day episode.
    Comment: A commenter requested clarification of the situation where 
an HMO fails to notify the HHA of a transfer of coverage, asking 
whether the HHA would be responsible for that portion of the PPS 
payment deducted by Medicare.
    Response: The common working file data base includes enrollment 
data that should inform the HHA of the enrollment status of patients 
under a home health plan of care with their agency. If the beneficiary 
becomes HMO eligible mid-episode, the 60-day episode payment will be 
proportionally adjusted with a PEP adjustment. The episode payment will 
be proportionally adjusted using the span of days based on the billable 
visit date that the beneficiary was under the care of the HHA prior to 
the beneficiary transfer to an HMO.

Q. Consolidated Billing

    Comment: Several commenters requested clarification of the services 
governed by the statutorily required consolidated billing requirements 
under sections 1842(b)(6)(F) and 1862(a) of the Act as amended by 
section 305 of BBRA. Some commenters were concerned with possible False 
Claims Act violations.
    Response: Section 1842(b)(6)(F) of the Act, enacted by the BBA , 
and amended by the BBRA, requires the consolidated billing of all 
covered home health services listed in section 1861(m) of the Act, 
except for DME covered as a Medicare home health service. Section 305 
of BBRA revised the statute to exclude DME covered under the Medicare 
home health benefit from the consolidated billing requirements. Under 
PPS, HHAs will be required to bill and receive payment for all covered

[[Page 41163]]

home health services listed in section 1861(m) of the Act, except DME 
during the 60-day episode. Under the current system, issues concerning 
the False Claims Act are within the purview of the Inspector General 
who will review any possible claims violation.
    Comment: Commenters requested reassurance that parenteral and 
enteral nutrition was not included in the consolidated billing 
requirements governing home health PPS.
    Response: Perenteral and enteral nutrition services are currently 
not a covered home health service. Therefore, perenteral and enteral 
nutrition services are not subject to the consolidated billing 
requirements and are not included in the PPS episode rate.
    Comment: Several commenters requested the elimination of non-
routine medical supplies, osteoporosis drugs and the therapies from the 
consolidated billing requirements governing PPS.
    Response: The statute requires all covered home health services 
listed in section 1861(m) of the Act, except for DME, to be governed by 
the consolidated billing requirements. HHAs cannot unbundle non-routine 
medical supplies that are currently covered as a Medicare home health 
service that may coincidentally have a duplicate Part B payment code 
for payment. In addition, HHAs cannot unbundle the osteoporosis drug or 
therapies covered under the Medicare home health benefit. Although the 
osteoporosis drug covered under the Medicare home health benefit is not 
included in the PPS rate, it is still governed by the statutorily 
required consolidated billing requirements.
    Comment: Commenters suggested that we remove the requirement for 
consolidated billing of intern and resident services unless it is a 
choice of the hospital and the HHAs. Commenters suggested a separate 
payment amount to those HHAs that will bill for their intern and 
resident services.
    Response: To the extent these services were paid on a reasonable 
cost basis and covered under the home health benefit, there cannot be 
separate payment for these services under home health PPS. These 
services will be subject to the consolidated billing requirements. 
However, the HHA PPS rates and consolidated billing requirements do not 
affect Medicare payments to hospitals for graduate medical education or 
billing requirements.
    Comment: Commenters suggested that we establish, at a minimum, a 
partial episode payment to a nonprimary HHA that can demonstrate they 
followed the recommended Common Working File (CWF) procedures for CWF 
verification of home health status before providing care, but received 
incorrect information about the episode status of the beneficiary.
    Response: We believe that HCFA systems will provide the appropriate 
information in a timely manner so that HHAs may establish primacy for 
purposes of consolidated billing and corresponding payment. In future 
refinements to the system we will certainly not rule out the 
feasibility of this proposal if the data shows that this situation 
occurs frequently.
    Comment: Commenters requested clarification of the procedures HHAs 
and other providers will follow to communicate the necessary charges of 
DME and the osteoporosis drug.
    Response: The current communication level that is necessary to 
effectively meet the DME and osteoporosis drug needs of home health 
patients will continue under PPS. Both DME and the osteoporosis drug 
are paid outside of the PPS rates. As DME covered as a home health 
service, is no longer subject to the consolidated billing requirements 
governing home health PPS, the status quo for the provision of DME will 
continue under PPS. The osteoporosis drug is subject to the 
consolidated billing provisions although it is paid outside of the PPS 
rates. HHAs will no longer be able to unbundle the osteoporosis drug to 
a Part B supplier. The HHA will have to bill Medicare directly for the 
osteoporosis drug and any applicable supplier will have to look to the 
HHA for payment.
    Comment: Commenters requested clarification of consolidated billing 
requirements governing billings and payments for services at hospitals, 
skilled nursing facilities, and rehabilitation centers when they 
include equipment too cumbersome to bring to the home.
    Response: Payments for services at hospitals, SNFs, and 
rehabilitation centers when they include equipment too cumbersome to 
bring to the home have been incorporated into the baseline cost data 
used to develop the PPS rates and are included in those rates. Those 
services are also subject to the consolidated billing requirements. 
Therefore, the HHA cannot unbundle the services to a Part B supplier. 
The HHA must provide the services either directly or under arrangement 
and bill Medicare directly for payment.

R. Physician Certification of the HHRG (Sec. 484.22)

    Comment: Several commenters requested the elimination of the 
proposed requirement governing physician certification of the HHRG. In 
general, commenters objected to the burden associated with this 
requirement and questioned its logic. Commenters also argued that 
physicians would not be able to comply with the requirement of 
certification of the HHRG.
    Response: We proposed to require the physician to certify the 
appropriate case-mix weight/HHRG as part of the required physician 
certification of the plan of care. This was an attempt to have the 
physician more involved in the decentralized delivery of home health 
services. However, based on the number of negative responses from 
commenters and our reevaluation of this issue, we have decided to 
eliminate this requirement and focus our attention on physician 
certification efforts and education in order to better involve the 
physician in the delivery of home health services. In this final rule, 
we are deleting proposed Sec. 424.22(a)(1)(v) to remove this 
requirement from our regulations.

S. Small Rural Providers

    Comment: Several commenters suggested that we recognize several 
small rural exceptions to the national episode payment rate and LUPA 
policy that would more appropriately recognize the special needs of 
small rural providers. Commenters suggested that the payment rates are 
inadequate to meet the special travel needs and potential economy of 
scale challenges that commenters believe small rural HHAs encounter. 
Commenters believed the data used to develop the PPS did not include or 
adequately reflect the behavior of small rural HHAs, and therefore 
believed it would be difficult to predict the impact of PPS on small 
rural HHAs. Conversely, other commenters specifically recommended no 
exception for small rural HHAs.
    Response: In our re-examination of the small rural impact issue, we 
did not find data to support the rural differentiation suggested in the 
comments submitted. Our analysis included the subcategorization of data 
into increasing degrees of rural remoteness. As demonstrated in the 
analysis below, the subcategories did not yield a significant 
differentiation in costs associated with resource needs and service 
delivery in rural areas. We do not believe that rural providers will be 
disadvantaged under HHA PPS. However, we will continue to look at 
alternatives regarding beneficiary access to Medicare home health 
services in remote areas. We will continue to analyze this complex 
issue with new data under HHA PPS. If and when an adjustment is 
justified, we will refine the system accordingly.

[[Page 41164]]



                                        Rural Continuum Code Status Table
----------------------------------------------------------------------------------------------------------------
                                                                                   Average cost    Average cost
                                                                  Continuum code        per             per
                          Provider type                                 \1\         beneficiary     beneficiary
                                                                                     1997 \2\        2001 \3\
----------------------------------------------------------------------------------------------------------------
Free Standing For Profit Agencies...............................               0          $6,622          $4,079
Free Standing For Profit Agencies...............................               1          12,632           3,939
Free Standing For Profit Agencies...............................               2           7,367           5,397
Free Standing For Profit Agencies...............................               3           7,965           6,577
Free Standing For Profit Agencies...............................               4           6,400           5,330
Free Standing For Profit Agencies...............................               5           7,014           5,997
Free Standing For Profit Agencies...............................               6           6,367           4,230
Free Standing For Profit Agencies...............................               7           7,671           4,333
Free Standing For Profit Agencies...............................               8           5,838           4,971
Free Standing For Profit Agencies...............................               9           4,871           4,266
Free Standing Governmental Agencies.............................               0           3,758           2,589
Free Standing Governmental Agencies.............................               1           2,325           2,370
Free Standing Governmental Agencies.............................               2           4,117           2,938
Free Standing Governmental Agencies.............................               3           4,054           3,407
Free Standing Governmental Agencies.............................               4           3,683           2,975
Free Standing Governmental Agencies.............................               5           4,459           3,495
Free Standing Governmental Agencies.............................               6           3,204           2,375
Free Standing Governmental Agencies.............................               7           3,905           3,253
Free Standing Governmental Agencies.............................               8           3,046           2,572
Free Standing Governmental Agencies.............................               9           3,170           2,477
Free Standing Non-Profit Agencies...............................               0           5,341           3,035
Free Standing Non-Profit Agencies...............................               1           4,258           3,871
Free Standing Non-Profit Agencies...............................               2           4,897           2,991
Free Standing Non-Profit Agencies...............................               3           4,069           3,162
Free Standing Non-Profit Agencies...............................               4           3,279           2,810
Free Standing Non-Profit Agencies...............................               5           6,124           4,630
Free Standing Non-Profit Agencies...............................               6           5,730           3,320
Free Standing Non-Profit Agencies...............................               7           5,146           3,638
Free Standing Non-Profit Agencies...............................               8           3,620           3,692
Free Standing Non-Profit Agencies...............................               9           6,546           4,899
Provider Based Agencies.........................................               0           5,488           3,233
Provider Based Agencies.........................................               1           4,049           3,498
Provider Based Agencies.........................................               2           4,553           3,845
Provider Based Agencies.........................................               3           4,418           3,015
Provider Based Agencies.........................................               4           2,834           2,757
Provider Based Agencies.........................................               5           4,358           3,322
Provider Based Agencies.........................................               6           3,973           3,212
Provider Based Agencies.........................................               7           4,221           2,938
Provider Based Agencies.........................................               8           2,355           1,496
Provider Based Agencies.........................................               9           4,553          3,580
----------------------------------------------------------------------------------------------------------------
\1\ Source: Bureau of Census' urban and rural classification of populations.
\2\ Source: Audited Cost Report Sample Data.
\3\ Source: Audited Cost Report Sample Data updated to FY 2001.
 
 CODE DEFINITIONS*
0  Central counties of metro areas of 1 million population or more
1  Fringe counties of metro areas of 1 million population or more
2  Counties in metro areas of 250,000 to 1 million population
3  Counties in metro areas of fewer than 250,000 population
4  Urban population of 20,000 or more, adjacent to a metro area
5  Urban population of 20,000 or more, not adjacent to a metro area
6  Urban population of 2,500 to 19,999, adjacent to a metro area
7  Urban population of 2,500 to 19,999, not adjacent to a metro area
8  Completely rural or fewer than 2,500 urban population, adjacent to a metro area
9  Completely rural or fewer than 2,500 urban population, not adjacent to a metro area


[[Page 41165]]


                                           Rural Frontier Status Table
----------------------------------------------------------------------------------------------------------------
                                                                                   Average cost    Average cost
                                                                                        per             per
                Provider type                         Frontier  status \1\          beneficiary     beneficiary
                                                                                     1997 \2\        2001 \3\
----------------------------------------------------------------------------------------------------------------
Free Standing For Profit Agencies............  No...............................          $6,858          $4,664
Free Standing For Profit Agencies............  Yes..............................           4,179           4,620
Free Standing Governmental Agencies..........  No...............................           3,579           2,803
Free Standing Governmental Agencies..........  Yes..............................           2,450           1,758
Free Standing Non-Profit Agencies............  No...............................           4,921           3,118
Free Standing Non-Profit Agencies............  Yes..............................           6,926           2,785
Provider Based Agencies......................  No...............................           4,500           3,344
Provider Based Agencies......................  Yes..............................           3,999          2,942
----------------------------------------------------------------------------------------------------------------
\1\ Frontier Status is defined as 6 or fewer persons per square mile.
Source: ``Definitions of Rural: A Handbook for Health Policy Makers and Researchers (HRSA).''
\2\ Source: Audited Cost Report Sample Data.
\3\ Source: Audited Cost Report Sample Data updated to FY 2001.

T. Wage Index

    Comment: We received several comments regarding the wage index that 
is used to standardize and adjust the rates. The commenters suggested 
that the hospital wage index might not adequately represent wages paid 
by HHAs. Many commenters suggested the development of a home health 
specific wage index. Several of the commenters that suggested the home 
health specific wage index believed the hospital wage index did not 
adequately represent the cost of rural wages. A few commenters 
expressed concern with our proposed approach that continues to apply 
the wage index adjustment based on the site of service of beneficiaries 
rather than the location of the parent office. Several commenters 
suggested that a few wage index values included in Table 4 of the 
proposed rule were incorrect. A commenter suggested the application of 
the latest hospital wage index with exclusion of physician and resident 
costs and hours from the calculation. Several commenters were concerned 
with the application of the wage index when the patient transfers mid-
episode or relocates during the episode.
    Response: As indicated in the proposed rule, we are using the 
latest pre-floor and pre-reclassified hospital wage index. We used the 
latest pre-floor and pre-reclassified hospital wage index that was 
available at the time of publication of the proposed rule.
    While we appreciate the intent of a home health specific wage 
index, we want to point out that our previous efforts in developing 
such an index resulted in weights that the industry immediately 
repudiated because it was viewed less favorable than the pre-floor and 
pre-reclassified hospital wage index. The industry had concerns with 
the methodology used to develop a home health specific wage index. 
These concerns coupled with our lack of applicable home health specific 
data resulted in our adoption of the hospital wage index in our 
approach to adjusting the labor portion of the formulas. In future 
refinements to the PPS we will certainly not rule out the feasibility 
of this recommendation.
    We have decided to continue basing the application of the wage 
index on the site of service of the beneficiary under PPS. We believe 
this is the most equitable recognition of the wage component for 
service delivery. Based on commenters concerns with incorrect values 
included in Table 4 of the proposed rule, we re-examined our data. 
Based on the data available at the time of publication of the proposed 
rule, both Tables 4A and B in the proposed rule are correct. We use, 
and will continue to use the pre-floor and pre-reclassified hospital 
wage index values which are not published in the annual inpatient 
hospital PPS notice. We believe this may be the source of some 
confusion reflected in the comments.
    If there is a PEP adjustment, whether it is a transfer or discharge 
and return to the same HHA during the 60-day episode, the patients site 
of service is the location of application of the appropriate wage index 
value. The wage index based on the beneficiary site of service adjusts 
the labor portion of the original proportional payment and will also 
adjust the labor portion of the new 60-day episode payment resulting 
from the intervening event. The PEP adjustment is viewed as two 
discrete situations: (1) The labor adjustment of the original 
proportional payment and (2) the labor adjustment of the new 60-day 
episode payment resulting from the intervening event. If a beneficiary 
changes locations during the episode (for example, moves in with a 
family member), then the MSA or non-MSA at the start of the episode 
governs the labor adjustment of the episode payment for the balance of 
the episode. The new MSA or non-MSA corresponding to the new location 
would begin with the subsequent episode.

U. Market Basket

    Comment: One commenter requested further clarification of the 
market basket used to update the cost data for inflation.
    Response: We believe the market basket update was adequately 
described in the proposed rule (64 FR 58149). See section IV.B.2. of 
this rule for further clarification on the home health market basket. 
We are available to answer specific questions any commenters may have 
on an individual basis.

V. Alternative Methods of Care

    Comment: Some commenters suggested the need to recognize 
alternative methods of care under PPS such as telemedicine or other 
innovations. Commenters recommended such alternative methods as a way 
to improve service delivery to patients and promote efficiencies.
    Response: While we appreciate the intent of this comment, at this 
point the modality of telemedicine has not been adequately defined nor 
are there established safety and effectiveness standards across the 
continuum of products. Thus, we do not intend to change the current 
definition of a visit governed by Sec. 409.48(c) which states, ``A 
visit is an episode of personal contact with the beneficiary by staff 
of the HHA or others under arrangements with the HHA for the purpose of 
providing a covered service.'' There is nothing to preclude an HHA from 
adopting telemedicine or other technologies that they believe promote 
efficiencies, but those untested technologies will not be specifically 
recognized and reimbursed by Medicare under the home health benefit.

W. Discrimination

    Comment: A few commenters argued that the PPS as proposed 
discriminates

[[Page 41166]]

against States, provider types, classes of patients, and the 
impoverished and poorly educated due to their disproportionate numbers 
in certain States and regions of the country.
    Response: The PPS was developed based on national norms and is 
intended to eliminate previous patterns of care that never related to 
patient need. We believe the case-mix methodology, significant change 
in condition adjustment, and cost outlier payments as developed in the 
system, treats all patients across the country equitably in relation to 
their condition.

X. Other Federal Requirements

    Comment: A few commenters suggested that HHAs should not be 
required to comply with new Occupational Safety and Health 
Administration standards or any other new Federal requirements prior to 
PPS implementation.
    Response: While we appreciate the concerns of the commenters, it is 
beyond the scope of our authority to place a moratorium on the 
application of regulations from other Federal agencies or other 
statutory Medicare requirements.

Y. OASIS Assessment and Plan of Care Certification Transition Concerns

    Comment: Several commenters requested clarification of requirements 
governing OASIS assessments and plan of care certifications for 
implementation October 1, 2000. Commenters raised concerns regarding 
burden and costs associated with complying with the requirement that 
all patients be grouped into appropriate case-mix classifications and 
plan of care certifications for the October 1, 2000 implementation 
date.
    Response: We addressed this concern in the proposed rule. We 
proposed to provide a one-time grace period in order to ease the 
transition to PPS for patients under an established OASIS assessment 
and certified plan of care prior to PPS implementation on October 1, 
2000. We proposed if a beneficiary is under a home health plan of care 
before October 1, 2000 and the HHA has completed a Start of Care or 
Follow-Up OASIS assessment earlier than September 1, 2000, the HHA must 
complete a one-time additional Follow-up OASIS assessment using the 
modified OASIS B-1(8/2000) at least 5 days before October 1, 2000 for 
purposes of case-mix classification. The modified OASIS B-1(8/2000) is 
available on the HCFA Internet site at: http://www.hcfa.gov. 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 assessment using the modified OASIS data set B-1(8/2000) 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 the earlier OASIS assessment.
    We proposed a similar one-month grace period for physician 
certifications of the plan of care. In the October 28, 1999 proposed 
rule (64 FR 58195), we proposed, ``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.'' We believe it is important to allow a one 
time grace period for plan of care certifications to ease transition 
concerns.
    A beneficiary under an established plan of care as of September 1, 
2000, may have a one-time implementation grace period for the plan of 
care certification requirements for a maximum period of up to 90 days 
(September 1, 2000 through and including November 29, 2000). This one-
time grace period to alleviate implementation burden must be done in 
conjunction with a certifying physician. The regulatory requirements 
governing the Medicare home health benefit before implementation of PPS 
would apply to the certification period up to and including September 
30, 2000. Home health agencies in conjunction with a certifying 
physician will have to document a break in ordered services for the 
pre-PPS physician ordered services (September 1, 2000 through and 
including September 30, 2000) and all post-PPS physician ordered 
services as of PPS implementation on October 1, 2000. The documented 
break in services during the one-time implementation grace period for 
the plan of care certification requirements for a maximum period of up 
to 90 days is required in order to ensure the alignment of all 
certified episodes and OASIS assessments as of PPS implementation on 
October 1, 2000.
    For example, a Medicare home health eligible patient is under a 
physician's plan of care and the first billable visit date/start of 
care date in the plan of care is September 15, 2000. The one-time 
implementation grace period would reflect a plan of care that specifies 
physician orders for services furnished both before and after 
implementation of HHA PPS. The physician orders in the plan of care 
would reflect services from September 15, 2000 through and including 
September 30, 2000. All current coverage and payment rules would apply 
to the services provided on September 15, 2000 through and including 
September 30, 2000. The plan of care would also specify any services 
ordered on October 1, 2000 through and including November 29, 2000. The 
plan of care would reflect the break in services both before and after 
implementation of HHA PPS. The start of care date/first billable visit 
date for this patient under PPS in the plan of care is October 1, 2000. 
The one-time implementation grace period would require the 
documentation of services in the plan of care that were furnished both 
before and after implementation of HHA PPS and the documentation of the 
new PPS start of care date under PPS.
    Many commenters raised concern about the potential burden 
associated with patients who are under a plan of care prior to October 
1, 2000, but due to timing, their OASIS schedule did not fall in the 
post September 1, 2000 grace period time frame. These patients would 
require OASIS reassessment during the last 5 days of September in order 
to group the patients for purposes of case-mix classification for the 
October 1, 2000 PPS effective date. For some HHAs, this could 
potentially pose a significant implementation burden. Thus, we are 
revising our proposed approach to permit the completion of the next 
scheduled OASIS follow-up assessment for those patients under an 
established home health plan of care prior to September 1, 2000, but on 
or after August 1, 2000, to be completed at the HHA's discretion during 
the month of September. Therefore, if the patient is under a home 
health plan of care that overlaps the month of August 2000, the HHA 
will have the discretion to complete the next scheduled Follow-Up OASIS 
Assessment during the month of September. Under the one-time transition 
grace period, we are not requiring that the OASIS assessment be 
completed during the required time frame during the last 5 days of the 
episode certification requirement for August and September 2000. The 
requirement that the OASIS assessment must be completed during the last 
5 days of the certification period in order to case-mix adjust the 
patient for a subsequent episode certification will resume with PPS 
implementation effective October 1, 2000. If the patient is under an 
established certified home health plan of care as of August 1, 2000 
through and including August 31, 2000, then the HHA may complete the 
next

[[Page 41167]]

scheduled OASIS follow-up assessment anytime during the month of 
September 2000. For patients under an established home health plan of 
care on September 1, 2000 through and including September 30, 2000, 
then the HHA may use the most recent start of care or follow-up 
assessment on file for the month of September 2000 to group patients 
for purposes of case-mix PPS implementation on October 1, 2000.

Z. Billing Issues

    Comment: Several commenters requested clarification regarding the 
billing instructions governing the new PPS.
    Response: Due to the highly technical nature of these comments, we 
will not address those comments in this final rule. However, we will 
release operational billing instructions to accompany the publication 
of this final rule.

AA. Cost Reporting Under PPS

    Comment: Several commenters recommended that the requirement for an 
HHA cost report end with PPS implementation.
    Response: Cost reporting requirements for HHAs will not end with 
PPS. As with all other PPS systems there is continued demand for this 
data. Importantly, the data may be used to monitor, refine, and improve 
PPS in the future.
    Comment: Several commenters requested clarification of the cost 
reporting requirements governing the October 1, 2000 PPS implementation 
date. Commenters were concerned with cost reporting periods that do not 
parallel the implementation date of PPS, October 1, 2000.
    Response: All providers will file a full 12-month cost report 
regardless of their specific cost reporting year. There will be a 
statistical break in the cost report based on Medicare statistics up 
through and including September 30, 2000. Under PPS, the cost report 
will capture all statistical data for both costs and statistics for all 
subsequent periods. A provider's cost reporting year will not be 
affected by the implementation of PPS. We will provide more detailed 
instructions on PPS cost reporting instructions in subsequent program 
instructions and revisions to the Provider Reimbursement Manual.
    Comment: Commenters requested clarification of the application of 
the interim payment system cost limits for the period of a cost 
reporting period that may overlap the date of implementation of PPS. 
Commenters wanted clarification on whether or not the interim payment 
system cost limits will be prorated.
    Response: The interim payment system cost limits (per-visit limit 
and per-beneficiary limit) will not be prorated. Full application of 
the limits will apply to the cost reporting year subject to the interim 
payment system limits.
    Comment: A commenter suggested a cost reporting mechanism for the 
identification of nontraditional home health services and their costs.
    Response: Currently, there is no cost reporting mechanism for the 
separate identification of non-traditional Medicare costs. At their own 
option, providers may accumulate detailed statistics within their own 
accounting system.

BB. OASIS Data and Grouper Issues

    Many of the OASIS comments were highly technical or not within the 
parameters of this final rule. Interested parties can get assistance 
with their queries on an individual basis as well as through the RHHIs 
and on HCFA's home page. We have provided general responses to the 
following OASIS data comments:
    Comment: A few commenters reported that State OASIS personnel are 
stating that payments to HHAs under PPS will be based upon actual bills 
submitted.
    Response: This information is incorrect. We have provided State 
OASIS Educational Coordinators (OEC) with the authority and 
responsibility to educate HHA providers about the implementation of the 
clinical aspects of the OASIS data set in their agency, and with the 
reporting and transmission requirements of the data set needed to go 
from the agency to the State system. They are not trained to answer 
questions about reimbursement. The RHHIs have the background and 
knowledge to educate HHA providers on the reimbursement aspect of HHA 
PPS. HHAs are free to contact their RHHI on questions concerning 
reimbursement under HHA PPS.
    Comment: One commenter requested that we use the criteria of 
hospitalization as an indicator for a PEP adjustment due to concerns 
with the impact on outcome tracking.
    Response: As discussed previously in our response to comments 
concerning the PEP adjustment, we have re-examined our approach due to 
intervening hospitalizations and potential discharge concerns. We have 
provided consistency to the extent possible to ensure adequate payment 
levels and corresponding outcome tracking for quality purposes.
    Comment: A few commenters requested clarification of the payment 
approach for pre- and post-partum Medicare disability patients who are 
not required to have an OASIS assessment.
    Response: While the OASIS data set was not designed for the 
assessment of the clinical needs of the maternity patient, and the 
maternity patient is excluded by regulation from the collection of the 
data set, the reimbursement system will require a home health resource 
group (HHRG) to be submitted on the claim. In the rare case of a pre-or 
post-partum Medicare maternity patient, the HHA will need to complete 
the comprehensive assessments at the specified time points, which are 
required for production of the HHRG. The HHA can place that HHRG group 
case-mix number on the claim to receive payment. The HHA is not 
required to transmit the assessments to the State Agency, but must 
include those assessments in the clinical record at the agency.
    We believe the majority of this type of maternity patient will be 
held at the LUPA level. If, in the rare instance the patient requires 
more than four visits, we would suggest the HHA complete an OASIS in 
order to ensure adequate payment levels. We believe this would be true 
for the Medicare disabled population under 18. If the patient was at 
the LUPA level, in all likelihood he or she would be classified into 
the lowest HHRG level and ultimately paid at the LUPA level at the end 
of the episode.
    Comment: A few commenters requested clarification on the proper 
OASIS schedule that should be used for a private pay or Medicaid 
patient who is in a current OASIS assessment period that becomes 
eligible for Medicare home health benefits during that period.
    Response: All Medicare cases require a new Start of Care OASIS 
assessment to group the patient for payment purposes and assess the 
patient for care planning at the time the patient becomes Medicare 
eligible.
    Comment: Several commenters requested access to the grouper prior 
to the publication of the final rule.
    Response: We provided draft grouper software on the HHA PPS HCFA 
website during the comment period of the proposed rule. Providers could 
download the grouper software in a PC EXCEL format. We plan to also 
provide the final grouper on the HCFA HHA PPS website.
    Comment: Some commenters questioned the affect untimely reporting 
of OASIS date or the absence of it would have on payment.

[[Page 41168]]

    Response: An HHRG cannot be generated without a completed OASIS. 
The RHHI will not accept a billed HHRG unless the OASIS that supports 
the billed case-mix classification is encoded by the agency, 
electronically transmitted and accepted by the State's OASIS 
repository.
    Comment: A few commenters were concerned with potential 
implementation costs associated with the OASIS schedules used to group 
patients for case-mix purposes.
    Response: In section IV.C. of this rule, we set forth the payment 
methodology for the first year of PPS one-time adjustment reflecting 
implementation costs associated with revised OASIS schedules needed to 
classify patients into appropriate categories for payment. We have 
provided clarification of the proper OASIS assessment schedule used to 
group patients for case-mix based on the patient's episode status. 
Further clarification will be provided in subsequent program 
instructions.

------------------------------------------------------------------------
                                         OASIS assessment: M0100 & M0825
     Type of episode or adjustment              response selection
------------------------------------------------------------------------
1. Initial, whether first or new 60-day  Start of Care:
 episode resulting from PEP Adjustment.  (M0100) RFA 1 and (M0825)
                                          select 0--No or 1--Yes *
2. SCIC with intervening Hospital Stay   Resumption of Care:
 during current episode.                 (M0100) RFA 3 and (M0825) is 0--
                                          No or 1--Yes *
                                         If a patient was transferred to
                                          the hospital without agency
                                          discharge during the current
                                          episode, the required
                                          assessment upon return to home
                                          is the Resumption of Care
                                          assessment (RFA 3). The
                                          Resumption of Care assessment
                                          is required within 48 hours of
                                          the patient's return from the
                                          inpatient facility. The
                                          Resumption of Care assessment
                                          (RFA 3) also serves to
                                          determine the appropriate new
                                          case-mix assignment for the
                                          SCIC adjustment.
3. SCIC with intervening Hospital Stay   Resumption of Care:
 at the end of an episode.               (M0100) RFA 3 and (M0825) is 0--
                                          No or 1--Yes *
                                         and Follow up (M0100) RFA4 and
                                          (M0825) is 0--No or 1--Yes *
                                         If a patient was transferred to
                                          the hospital without agency
                                          discharge, the required
                                          assessment upon return to home
                                          is the Resumption of Care
                                          assessment (RFA 3). The
                                          Resumption of Care assessment
                                          is required within 48 hours of
                                          the patient's return from the
                                          inpatient facility. The
                                          recertification (Follow-up,
                                          RFA 4) comprehensive
                                          assessment is required in the
                                          last five days of the
                                          certification period; for
                                          payment purposes, this
                                          assessment is used to
                                          determine the case-mix
                                          assignment for the subsequent
                                          60-day period. If the second
                                          part of the SCIC adjustment
                                          occurs in the last five days
                                          of the certification period,
                                          two comprehensive assessments
                                          are required. One assessment
                                          will be done for the
                                          resumption of care (RFA 3) and
                                          (M0825) select 0--No or 1--
                                          Yes; the other will be done
                                          for the recertification
                                          (Follow-up) assessment (RFA4)
                                          and (M0825) select 0--No or 1--
                                          Yes.* The reason two
                                          assessments are required is
                                          that therapy need must be
                                          predicted and reported on the
                                          OASIS record for each discrete
                                          60 day episode.
4. SCIC without intervening Hospital     Other Follow-Up Assessment:
 Stay.                                   (M0100) RFA 5 and (M0825)
                                          select 0--No or 1--Yes *
5. Subsequent 60-day episode due to the  Recertification (Follow-up):
 need for continuous home health care    (M0100) RFA 4 and (M0825)
 after an initial 60-day episode.         select 0--No or 1--Yes *
------------------------------------------------------------------------
* (M0825) = NA is applicable only when response (M0150)--response 1
  (traditional Medicare fee-for-service) is not selected.

CC. Medical Review Under PPS

    Comment: A number of commenters expressed concerns pertaining to 
the initiation of medical review activities for home health claims 
under the prospective payment system and suggested there should be a 
moratorium on or a delay of medical review. Others proposed a limit on 
the amount of and/or the kind of medical review performed.
    Response: We believe it is important to implement medical review 
activities at the start-up of the new prospective payment system. As 
problems with specific home health claims are identified, contractors 
will be able to educate the home health agencies to prevent future 
billing errors. We have been working hard to develop an effective 
medical review strategy that will guard against program vulnerabilities 
unique to the PPS environment, be fair to home health providers, and 
meet the goal of paying claims correctly.
    Comment: Commenters asked that we clarify the medical review 
process. One commenter asked if the RHHIs will change the case-mix 
assignment based on the medical review determination, and if so, asked 
what appeals process will be available to the agencies.
    Response: For the most part, medical reviewers will continue to 
perform the same types of reviews that were conducted prior to 
implementation of PPS. For example, they will review to ensure that the 
beneficiary meets the requirements for Medicare home health coverage, 
and that services provided were reasonable and necessary and 
appropriately documented. One additional aspect of the review strategy 
will focus on the OASIS information and whether it is supported by 
documentation in the medical record. If the RHHI determines that a 
case-mix assignment is not appropriate, they will adjust the case-mix 
group accordingly. Agencies will continue to have all appeal rights 
currently associated with home health claims.
    Comment: A commenter suggested that we impose time limits on 
contractors to complete medical review activities within a prescribed 
amount of time after receiving requested medical documentation.
    Response: We have not prescribed specific contractor medical review 
time frames. We agree that this may be an issue that warrants further 
consideration; however, it is beyond the scope of this regulation and 
we will revisit this issue if warranted.
    Comment: Several commenters expressed concerns about cash flow

[[Page 41169]]

issues if providers are placed on focused medical review and 
recommended that we prohibit sequential billing. Other commenters asked 
how medical review of an episode would affect subsequent episodes.
    Response: We are sensitive to provider cash flow concerns and 
desires to balance legitimate provider concerns with Medicare's 
stewardship responsibilities. Sequential billing is not a requirement 
in the home health PPS, therefore medical review of one episode will 
not automatically delay payment for subsequent episodes. However, we 
may reduce or disapprove requests for anticipated payments in those 
situations in which protecting Medicare program integrity warrants 
these actions.
    Comment: Several commenters expressed concerns about 
vulnerabilities presented by the prospective payment system.
    Response: We recognize that there are unique program 
vulnerabilities related to the prospective payment environment. 
However, we believe we have identified possible vulnerabilities and 
random review will assist us in assessing vulnerabilities and problems 
on an ongoing basis. We are working with the RHHIs and home health 
providers to address them as we develop the medical review strategy.
    Comment: A commenter recommended that RHHIs review the patient's 
plan of care (POC) and all visit documentation before determining 
whether or not patients qualify for full episode payments or therapy 
thresholds.
    Response: We agree, and for claims selected for medical review, 
RHHIs will consider all available information from the agency for the 
episode billed in determining payment. That information may include all 
visit information such as nursing and therapy notes, treatment and flow 
charts, and vital sign records, weight charts, and medication records. 
In addition, the solicited information may also include the OASIS, the 
patient's POC, physician orders, hospital discharge summaries and 
transfer forms.
    Comment: One commenter asked if HCFA expects significant changes in 
the numbers of denials under PPS.
    Response: It is our goal to reduce payment errors. Because this is 
a new payment methodology, it is difficult to predict whether there 
will be changes in the denial rate for home health claims. We believe 
that education and early intervention is key to ensure proper billing 
under the new payment methodology, and can help reduce both denials and 
errors by increasing compliance.

DD. Quality Under PPS

    Comment: We received a few comments requesting clarification of the 
quality improvement approach proposed under PPS.
    Response: Efforts are currently underway to develop systems to 
generate outcome based quality improvement reports based on the OASIS 
that can be used to assess the quality of care at home health agencies, 
assist the States in their survey and certification responsibility, and 
provide information to home health agencies to assist them in ongoing 
quality improvement. Part of this effort is the implementation of the 
Home Health Outcome Based Quality Improvement System pilot project 
where the Peer Review Organizations (PROs) will act in a supportive 
role to assess and support quality improvement efforts in home health 
agencies. The Home Health Outcome Based Quality Improvement (HH OBQI) 
System is being implemented as a pilot project in five States through 
the PRO program. The HH OBQI system will explore the feasibility of 
providing assistance to HHAs in their efforts to implement and manage 
new programs for quality improvement. After a competitive solicitation 
to all PROs, HCFA selected the Maryland PRO, the Delmarva Foundation 
for Medical Care, Inc., as the lead or Home Health PRO (HH PRO). As the 
HH PRO, Delmarva will oversee the implementation of the project, 
coordinate the efforts of the four pilot PROs, and also serve as the 
fifth pilot PRO. The PROs for Michigan, New York, Rhode Island, and 
Virginia have also been selected as pilot PROs. The HH PRO will 
distribute information and guidance to the pilot PROs based on OASIS 
outcome reports, and its own analysis of OASIS data obtained from the 
national OASIS repository. The pilot PROs will, in turn, provide 
education and consultation to home health agencies to assist them in 
developing and managing their outcome based quality improvement 
programs. The pilot PROs will also provide consultation to State 
agencies, RHHIs and HCFA components in interpreting and using the 
outcome reports to assess home health quality.

EE. Medicare Secondary Payor (MSP) Under PPS

    Comment: A few commenters raised concerns regarding the treatment 
of MSP under home health PPS.
    Response: The statute governing home health PPS was silent 
regarding the treatment of MSP. The current requirements governing MSP 
will continue under the home health PPS environment. If warranted, 
further technical clarification will be provided in operational program 
instructions.

FF. Appeal Rights Under PPS

    Comment: Several commenters requested clarification of provider 
appeal rights under home health PPS.
    Response: Under the home health PPS, HHAs will have appeal rights 
comparable to the current environment. They will not be able to appeal 
the request for anticipated payment of the initial percentage payment 
for the episode, but they will be able to appeal a denial or down-
coding by the intermediary where items or services were found as to be 
noncovered custodial care or were not reasonable and necessary AND 
where the intermediary finds that the beneficiary or provider should 
have known that they were excluded from coverage under the program (42 
CFR Sec. 405.704(c)).
    Comment: Some commenters asked about beneficiary appeal rights 
under home health PPS, specifically demand billing procedures.
    Response: We are currently reviewing demand billing procedures to 
determine whether they must be modified to take into account 
differences between HHA reasonable cost billing and the HHA PPS.

GG. Suggestions for HCFA

    Comment: Several commenters sent comments on other regulations that 
were outside the scope of this rule. In addition, some commenters 
requested changes to the current statutorily required eligibility 
requirements, plan of care certification requirements, other coverage 
requirements that were not set forth in the proposed rule and the 
request to publish aspects of the final regulation on a faster 
publication track.
    Response: These comments cannot be addressed in this rule, as this 
rule does not pertain to current law governing eligibility or plan of 
care certification requirements and therefore, we cannot amend these 
requirements as requested by the commenters. Due to tight timeframes 
for publication of this rule, we were unable to publish any portion of 
this rule in a separate rule under a quicker timeframe.
    Comment: Several commenters recommended that we review all 
regulations and manual instructions for consistency.
    Response: We have reviewed and will continue to review all current 
instructions and provide corresponding manual revisions and operational

[[Page 41170]]

instructions that reflect the final policies set forth in this rule.
    Comment: Several commenters suggested the need for formal quarterly 
meetings with industry representatives or other industry groups to 
develop the final rule and provide a forum of open communication.
    Response: We will continue to strive to keep the lines of 
communication open with our external environment. There are several 
requirements that govern the rulemaking process that inhibit 
consultation with outside groups. However, we will continue to ensure 
that we are available to clarify concerns and listen to our 
stakeholders throughout the process.

IV. Overview of Final Regulation

    This final 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 final 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.

A. Costs and Services Covered by the Payment

    The 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 (except 
osteoporosis drugs as defined in 1861(kk) which are paid outside PPS) 
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 of the 
Medicare home health benefit will continue to be paid under the DME fee 
schedule. 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. Although the covered 
osteoporosis drug under the home health benefit is currently paid on a 
reasonable cost basis, section 4603(c)(2)(A) of the BBA amended section 
1833(a)(2)(A) of the Act to specifically exclude it from the 
prospective payment rate. In addition, unlike DME which is now excluded 
from the statutorily required consolidated billing requirement, the 
osteoporosis drug is included in the consolidated billing requirements.

B. Data Sources Used for the Development of the Payment

1. Audited Cost Report Data
    Audit Sample Methodology: As discussed in the response to comments 
section, we provided an additional time period for intermediaries 
serving providers in the audited sample to resubmit audited cost 
reports ending in FY 1997 if the cost reports had been appealed and 
reopened. This provided us with the opportunity to include revised data 
in the calculation of the final rates if any of the audited cost 
reports in the original sample had been appealed, reopened or revised 
as of January 2000. The result was that we added an additional seven 
providers from whom we have audited cost report data for FY 1997, 
resulting in a total of 574 cost reports that have been used in the 
final rate calculations in this rule. The ``window of opportunity'' 
resulted in an additional seven audited cost reports. Although the new 
total number of audited cost reports increased to 574, however, we used 
only 563 of the 574 providers in the developing of the impacts. From 
1997 to 1998, 11 of the 574 providers either closed or merged with 
another provider. As stated above, we are using CY 1998 utilization 
data in the PPS rate calculation. There was not 1998 utilization data 
to match to the audited cost report data for the 11 providers that 
closed or merged.
     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 ending September 
30, 2001. Therefore, we multiplied the total costs for each provider by 
the appropriate inflation factor shown in the table below. See section 
IV.B.2. 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 non-routine 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 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 Per-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 on 
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 the 
total Medicare costs. For those providers who were not impacted by the 
visit limit, (that is, those subject to their actual reasonable costs) 
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 non-standardized, updated, weighted, and visit limit adjusted 
average cost per visit by discipline.
2. Home Health Agency Market Basket Index
    The data used to develop the HHA PPS payments were adjusted using 
the latest available market basket factors to reflect expected cost 
increases occurring between 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........................................    1.15736  .........
November 30.......................................    1.15468  .........
December 31.......................................    1.15203  .........
January 31........................................  .........    1.14946
February 28.......................................  .........    1.14697
March 31..........................................  .........    1.14451
April 30..........................................  .........    1.14203
May 31............................................  .........    1.13952
June 30...........................................  .........    1.13693
July 31...........................................  .........    1.13420
August 31.........................................  .........    1.13132
September 30......................................  .........    1.12841
------------------------------------------------------------------------

    For each of fiscal years 2002 and 2003, section 1895(b)(3)(B)(ii) 
of the Act

[[Page 41171]]

requires 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 that the rates be increased by the applicable home health 
market basket index change.
3. Claims Data
    We also conducted analysis on an episode database created from the 
1997 and 1998 National Claims History Files using 60-day episodes to 
define episode lengths. These data were based on use of home health 
services under the current system. We built a CY 1998 episode data base 
parallel to the construction of the CY 1997 episode data base set forth 
in the proposed rule at 64 FR 58149.
    Table 1 illustrates the comparison of the distribution of 
consecutive 60-day episodes that occurred in calendar years 1997 and 
1998.

 
------------------------------------------------------------------------
                                       Distribution       Distribution
                                    based on only 60-  based on only 60-
Total number of consecutive 60-day  day episodes that  day episodes that
             episodes                 occurred in the    occurred in the
                                      CY 1997 period     CY 1998 period
                                        (percent)          (percent)
------------------------------------------------------------------------
1.................................                 51               59.5
2.................................                 18               19.3
3.................................                  8                7.7
4.................................                  5                4.1
5.................................                  4                2.5
6.................................                  3                1.7
7.................................                 10                5.2
------------------------------------------------------------------------

    Table 2 is a comparison of the average number of visits per episode 
for each discipline for CY 1997 and CY 1998 and Episodes in CY 1997 and 
CY 1998 with five or more visits.

----------------------------------------------------------------------------------------------------------------
                                                                   Average based                   Average based
                                                   Average based  on only 60-day   Average based  on only 60-day
                                                  on only 60-day   episodes that  on only 60-day   episodes that
     Average number of visits by discipline        episodes that   fell into the   episodes that   fell into the
                                                   fell into the  CY 1997 period   fell into the  CY 1998 period
                                                  CY 1997 period   with visit >4  CY 1998 period   with visit >4
----------------------------------------------------------------------------------------------------------------
Skilled Nursing Services........................           12.55           14.69           12.1            14.08
Physical Therapy Services.......................            2.35            2.74            2.59            3.05
Occupational Therapy Services...................            0.41            0.48            0.45            0.53
Speech Pathology Services.......................            0.15            0.18            0.15            0.18
Medical Social Services.........................            0.31            0.36            0.28            0.32
Home Health Aide Services.......................           14.59           17.59           11.28           13.4
Total for all Disciplines.......................           30.36           36.04           26.85           31.56
----------------------------------------------------------------------------------------------------------------

    Table 3 provides analysis of the distribution of disciplines across 
a series of 60-day episodes in CY 1998.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Episode
                                                                 number     Percent of   Percent of   Percent of    Percent of   Percent of   Percent of
                                                                 within      skilled    home health  occupational     speech      medical      physical
               Total number of 60-day episodes                 series of     nursing        aide        therapy     pathology      social      therapy
                                                                 60-day      services     services     services      services     services     services
                                                                episodes
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................................            1           50           24             3            1            2           20
2...........................................................            1           46           34             3            1            1           15
2...........................................................            2           46           37             2            1            1           13
3...........................................................            1           46           38             2            1            1           11
3...........................................................            2           45           41             2            1            1           10
3...........................................................            3           46           42             2            1            1            9
4...........................................................            1           45           43             2            1            1            8
4...........................................................            2           45           46             1            1            1            7
4...........................................................            3           45           46             1            0            1            7
4...........................................................            4           46           45             1            0            1            6
5...........................................................            1           45           46             1            0            1            6
5...........................................................            2           44           48             1            0            1            5
5...........................................................            3           44           49             1            0            1            5
5...........................................................            4           44           49             1            0            1            5
5...........................................................            5           45           47             1            0            1            5
6...........................................................            1           44           48             1            0            1            6

[[Page 41172]]

 
6...........................................................            2           43           50             1            0            1            5
6...........................................................            3           43           51             1            0            1            4
6...........................................................            4           43           51             1            0            1            4
6...........................................................            5           44           50             1            0            1            4
6...........................................................            6           45           49             1            0            1            4
7...........................................................            1           40           56             1            0            1            3
7...........................................................            2           41           55             0            0            1            3
7...........................................................            3           41           56             0            0            1            3
7...........................................................            4           41           56             0            0            1            2
7...........................................................            5           41           55             0            0            1            2
7...........................................................            6           42           55             0            0            1            2
7...........................................................            7           42           55             0            0            0            2
8...........................................................            1           42           53             1            0            1            4
8...........................................................            2           42           54             1            0            1            3
8...........................................................            3           42           53             0            0            1            3
8...........................................................            4           43           54             0            0            1            3
8...........................................................            5           43           54             0            0            0            3
8...........................................................            6           43           53             0            0            0            3
8...........................................................            7           44           53             0            0            0            3
8...........................................................            8           44           52             0            0            0            3
--------------------------------------------------------------------------------------------------------------------------------------------------------

    National Part B Claims History File--Medical Supplies. Nonroutine 
medical supplies are also a covered home health service listed in 
section 1861(m)(5) of the Act. The law governing PPS requires medical 
supplies to be included in the prospective payment rate and to be 
subject to the consolidated billing requirements. As discussed in the 
proposed rule, before PPS implementation, HHAs were not required to 
bundle all home health services. Specifically, nonroutine medical 
supplies that have a duplicate Part B code could have been furnished by 
a supplier rather than the HHA and paid under Part B prior to PPS. 
Under the current IPS, some HHAs may have chosen to unbundle those non-
routine medical supplies that had a corresponding Part B payment. In 
order to determine the scope of the non-routine medical supplies that 
could have been unbundled under the current system, we identified 199 
HCPCs codes representing those items that would fall into the possible 
``unbundled nonroutine medical supply'' category.
    As discussed in the response to comment section of this rule, based 
on several comments we re-examined our approach to the original list of 
199 codes. Our analysis yielded a payment approach to non-routine 
medical supplies included in the PPS rates that uses 178 Part B codes 
that could have possibly been unbundled to Part B before PPS. We 
performed the same data analysis on the CY 1998 claims data and the 
revised list of 178 Part B codes to develop the appropriate payment 
adjustment amount for non-routine medical supplies that could possibly 
be unbundled to Part B before PPS that is added to the non-standardized 
episode payment.
    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 the 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 for both CY 1997 and CY 1998 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 178 HCPCs codes that was billed during the same 60-day episode, we 
identified the item as related to the home health stay. We proposed an 
additional payment amount of $6.08 to 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.
    National Part B Claims History File--Therapies. As discussed above 
in section III. of this final rule. Analysis and Responses to Public 
Comments, we conducted a parallel analysis of Part B therapy claims 
that could possibly be related to a home health stay during CY 1997 and 
CY 1998. Prior to consolidated billing requirements governing PPS, HHAs 
may have unbundled therapy services to Part B. We believe that this was 
a rare occurrence. Under PPS, HHAs will be responsible for providing 
physical therapy, speech language pathology services and occupational 
therapy either directly or under arrangement. Under subsequent 
analysis, based upon comments received, we believe that there is a need 
to recognize these therapy services that could have been unbundled to 
Part B before PPS in the PPS rates. We conducted claims analysis 
similar to our approach to identify those non-routine medical supplies 
that could have been unbundled to Part B. We identified the three 
therapy services in both Part B outpatient and Part B physician/
supplier claims data.
    HCFA identified 54 HCPCs codes that represent those services that 
could fall into the possible ``unbundled therapy related services'' 
category under Part B Physician/Supplier claims for patients under a 
home health plan of care before implementation of PPS. We also 
identified under Part B, therapy services that could have been 
unbundled and provided in an hospital outpatient setting to patients 
under a home health plan of care before implementation of PPS. We 
identified the 17 revenue center code ranges for physical, 
occupational, and speech therapy services that could have been billed 
under Part B in a hospital outpatient setting for patients under a home 
health plan of care before implementation of PPS. HCFA pulled all 
claims from the Part B Physician/Supplier claims with the corresponding 
54 codes above and all claims from the Part B hospital outpatient 
claims with the corresponding 17 revenue center code ranges. As with 
our analysis of nonroutine medical supplies that could have been 
unbundled to Part B before implementation of PPS, HCFA matched

[[Page 41173]]

claims for a beneficiary receiving home health services under a home 
health plan of care by linking the Part B claims to home health 
episodes from our 1998 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 either one of 
the 54 HCPCs or a revenue center code within one of the 17 revenue 
center code ranges for therapy services, we identified the Part B 
service as related to the home health stay.
    As a result of our therapy analysis, we are recognizing an 
additional adjustment to the 60-day non-standardized episode amount for 
therapy services that could have been unbundled to Part B before 
implementation of PPS. The per episode possible unbundled therapy 
related service amounts billed under Part B included in the PPS rate 
were calculated by summing the allowed charges for the 54 HCPCs for 
physician/supplier and the costs for the 17 therapy revenue center code 
ranges for hospital outpatient in calendar year 1998 for beneficiaries 
under a home health plan of care. That total was divided by the total 
number of episodes in calendar year 1998 from the episode database. The 
methodology for the adjustment is set forth in section IV.C. of this 
regulation.
4. Hospital Wage Index
    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 health services and to provide appropriate adjustments to 
the episode payment amounts under 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 wage index adjustment under the 
current interim payment system, we proposed and will retain applying 
the appropriate wage index value to the labor portion of the PPS rates 
based on 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 PPS 
payment amount for wage levels among different HHAs in a budget-neutral 
manner. The wage index adjustment to the PPS rates must be made in a 
manner that does not result in aggregate payments that are greater or 
less than those that would have otherwise been made if the PPS rates 
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 final HHA PPS rates, 
we used the most recent pre-floor and pre-reclassified hospital wage 
index without regard to whether these hospitals have been classified to 
a new geographic area by the Medicare Geographic Reclassification 
Board. As stated in the response to comments, we believe the use of the 
pre-floor and pre-reclassified hospital wage index data results in an 
appropriate adjustment to the labor portion of costs as required by 
law.

    Table 4A.--FY 2000 Wage Index for Rural Areas--Pre-Floor and Pre-
                              Reclassified
------------------------------------------------------------------------
                                                                  Wage
                         Nonurban area                            Index
------------------------------------------------------------------------
Alabama.......................................................    0.7391
Alaska........................................................    1.2058
Arizona.......................................................    0.8545
Arkansas......................................................    0.7236
California....................................................    0.9952
Colorado......................................................    0.8814
Connecticut...................................................    1.2414
Delaware......................................................    0.9167
Florida.......................................................    0.8987
Georgia.......................................................    0.8095
Guam..........................................................    0.7268
Hawaii........................................................    1.0728
Idaho.........................................................    0.8652
Illinois......................................................    0.8048
Indiana.......................................................    0.8397
Iowa..........................................................    0.7927
Kansas........................................................    0.7461
Kentucky......................................................    0.8043
Louisiana.....................................................    0.7382
Maine.........................................................    0.8640
Maryland......................................................    0.8632
Massachusetts.................................................    1.1370
Michigan......................................................    0.8815
Minnesota.....................................................    0.8670
Mississippi...................................................    0.7307
Missouri......................................................    0.7724
Montana.......................................................    0.8396
Nebraska......................................................    0.8008
Nevada........................................................    0.9098
New Hampshire.................................................    0.9906
New Jersey \1\................................................  ........
New Mexico....................................................    0.8379
New York......................................................    0.8637
North Carolina................................................    0.8290
North Dakota..................................................    0.7648
Ohio..........................................................    0.8650
Oklahoma......................................................    0.7256
Oregon........................................................    0.9868
Pennsylvania..................................................    0.8525
Puerto Rico...................................................    0.4249
Rhode Island \1\..............................................  ........
South Carolina................................................    0.8264
South Dakota..................................................    0.7577
Tennessee.....................................................    0.7651
Texas.........................................................    0.7471
Utah..........................................................    0.8907
Vermont.......................................................    0.9408
Virginia......................................................    0.7904
Virgin Islands................................................    0.6389
Washington....................................................    1.0447
West Virginia.................................................    0.8069
Wisconsin.....................................................    0.8760
Wyoming.......................................................   0.8860
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.


    Table 4B.--Wage Index for Urban Areas--FY 2000 Pre-Floor and Pre-
                              Reclassified
------------------------------------------------------------------------
                                  Urban area  (constituent        Wage
             MSA                          counties)               index
------------------------------------------------------------------------
0040........................  Abilene, TX.....................    0.8180
                              Taylor, TX
0060........................  Aguadilla, PR...................    0.3814
                              Aguada, PR
                              Aguadilla, PR
                              Moca, PR
0080........................  Akron, OH.......................    1.0164
                              Portage, OH
                              Summit, OH
0120........................  Albany, GA......................    1.0373
                              Dougherty, GA
                              Lee, GA
0160........................  Albany-Schenectady-Troy, NY.....    0.8755
                              Albany, NY
                              Montgomery, NY
                              Rensselaer, NY
                              Saratoga, NY
                              Schenectady, NY
                              Schoharie, NY
0200........................  Albuquerque, NM.................    0.8500
                              Bernalillo, NM
                              Sandoval, NM
                              Valencia, NM
0220........................  Alexandria, LA..................    0.7870
                              Rapides, LA
0240........................  Allentown-Bethlehem-Easton, PA..    1.0228
                              Carbon, PA
                              Lehigh, PA
                              Northampton, PA
0280........................  Altoona, PA.....................    0.9343
                              Blair, PA
0320........................  Amarillo, TX....................    0.8381
                              Potter, TX
                              Randall, TX
0380........................  Anchorage, AK...................    1.2860
                              Anchorage, AK
0440........................  Ann Arbor, MI...................    1.1484
                              Lenawee, MI
                              Livingston, MI
                              Washtenaw, MI
0450........................  Anniston, AL....................    0.8463
                              Calhoun, AL
0460........................  Appleton-Oshkosh-Neenah, WI.....    0.8913

[[Page 41174]]

 
                              Calumet, WI
                              Outagamie, WI
                              Winnebago, WI
0470........................  Arecibo, PR.....................    0.4815
                              Arecibo, PR
                              Camuy, PR
                              Hatillo, PR
0480........................  Asheville, NC...................    0.8885
                              Buncombe, NC
                              Madison, NC
0500........................  Athens, GA......................    0.9705
                              Clarke, GA
                              Madison, GA
                              Oconee, GA
0520........................  Atlanta, GA.....................    1.0051
                              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...........    1.1311
                              Atlantic, NJ
                              Cape May, NJ
0580........................  Auburn-Opelka, AL...............    0.9619
                              Lee, AL
0600........................  Augusta-Aiken, GA-SC............    0.9014
                              Columbia, GA
                              McDuffie, GA
                              Richmond, GA
                              Aiken, SC
                              Edgefield, SC
0640........................  Austin-San Marcos, TX...........    0.9082
                              Bastrop, TX
                              Caldwell, TX
                              Hays, TX
                              Travis, TX
                              Williamson, TX
0680........................  Bakersfield, CA.................    0.9531
                              Kern, CA
0720........................  Baltimore, MD...................    0.9892
                              Anne Arundel, MD
                              Baltimore, MD
                              Baltimore City, MD
                              Carroll, MD
                              Harford, MD
                              Howard, MD
                              Queen Anne's, MD
0733........................  Bangor, ME......................    0.9610
                              Penobscot, ME
0743........................  Barnstable-Yarmouth, MA.........    1.3303
                              Barnstable, MA
0760........................  Baton Rouge, LA.................    0.8708
                              Ascension, LA
                              East Baton Rouge, LA
                              Livingston, LA
                              West Baton Rouge, LA
0840........................  Beaumont-Port Arthur, TX........    0.8624
                              Hardin, TX
                              Jefferson, TX
                              Orange, TX
0860........................  Bellingham, WA..................    1.1395
                              Whatcom, WA
0870........................  Benton Harbor, MI...............    0.8458
                              Berrien, MI
0875........................  Bergen-Passaic, NJ..............    1.2029
                              Bergen, NJ
                              Passaic, NJ
0880........................  Billings, MT....................    1.0039
                              Yellowstone, MT
0920........................  Biloxi-Gulfport-Pascagoula, MS..    0.7868
                              Hancock, MS
                              Harrison, MS
                              Jackson, MS
0960........................  Binghamton, NY..................    0.8751
                              Broome, NY
                              Tioga, NY
1000........................  Birmingham, AL..................    0.8995
                              Blount, AL
                              Jefferson, AL
                              St. Clair, AL
                              Shelby, AL
1010........................  Bismarck, ND....................    0.7759
                              Burleigh, ND
                              Morton, ND
1020........................  Bloomington, IN.................    0.8593
                              Monroe, IN
1040........................  Bloomington-Normal, IL..........    0.8994
                              McLean, IL
1080........................  Boise City, ID..................    0.9060
                              Ada, ID
                              Canyon, ID
1123........................  Boston-Worcester-Lawrence-Lowell-   1.1359
                               Brockton, MA-NH.
                              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............    0.9945
                              Boulder, CO
1145........................  Brazoria, TX....................    0.8517
                              Brazoria, TX
1150........................  Bremerton, WA...................    1.1012
                              Kitsap, WA
1240........................  Brownsville-Harlingen-San           0.9213
                               Benito, TX.
                              Cameron, TX
1260........................  Bryan-College Station, TX.......    0.8510
                              Brazos, TX
1280........................  Buffalo-Niagara Falls, NY.......    0.9605
                              Erie, NY
                              Niagara, NY
1303........................  Burlington, VT..................    1.0559
                              Chittenden, VT
                              Franklin, VT
                              Grand Isle, VT
1310........................  Caguas, PR......................    0.4561
                              Caguas, PR
                              Cayey, PR
                              Cidra, PR
                              Gurabo, PR
                              San Lorenzo, PR
1320........................  Canton-Massillon, OH............    0.8772
                              Carroll, OH
                              Stark, OH
1350........................  Casper, WY......................    0.9200
                              Natrona, WY
1360........................  Cedar Rapids, IA................    0.9019
                              Linn, IA
1400........................  Champaign-Urbana, IL............    0.9164
                              Champaign, IL
1440........................  Charleston-North Charleston, SC.    0.8989
                              Berkeley, SC
                              Charleston, SC
                              Dorchester, SC
1480........................  Charleston, WV..................    0.9096
                              Kanawha, WV
                              Putnam, WV
1520........................  Charlotte-Gastonia-Rock Hill, NC-   0.9434
                               SC.
                              Cabarrus, NC
                              Gaston, NC
                              Lincoln, NC
                              Mecklenburg, NC
                              Rowan, NC
                              Stanly, NC
                              Union, NC
                              York, SC
1540........................  Charlottesville, VA.............    1.0575
                              Albemarle, VA
                              Charlottesville City, VA
                              Fluvanna, VA
                              Greene, VA
1560........................  Chattanooga, TN-GA..............    0.9732
                              Catoosa, GA
                              Dade, GA
                              Walker, GA
                              Hamilton, TN
                              Marion, TN
1580........................  Cheyenne, WY....................    0.8176
                              Laramie, WY
1600........................  Chicago, IL.....................    1.0874
                              Cook, IL
                              DeKalb, IL
                              DuPage, IL
                              Grundy, IL
                              Kane, IL
                              Kendall, IL
                              Lake, IL
                              McHenry, IL
                              Will, IL
1620........................  Chico-Paradise, CA..............    1.0391
                              Butte, CA
1640........................  Cincinnati, OH-KY-IN............    0.9419
                              Dearborn, IN
                              Ohio, IN
                              Boone, KY
                              Campbell, KY
                              Gallatin, KY

[[Page 41175]]

 
                              Grant, KY
                              Kenton, KY
                              Pendleton, KY
                              Brown, OH
                              Clermont, OH
                              Hamilton, OH
                              Warren, OH
1660........................  Clarksville-Hopkinsville, TN-KY.    0.8090
                              Christian, KY
                              Montgomery, TN
1680........................  Cleveland-Lorain-Elyria, OH.....    0.9689
                              Ashtabula, OH
                              Cuyahoga, OH
                              Geauga, OH
                              Lake, OH
                              Lorain, OH
                              Medina, OH
1720........................  Colorado Springs, CO............    0.9218
                              El Paso, CO
1740........................  Columbia, MO....................    0.8905
                              Boone, MO
1760........................  Columbia, SC....................    0.9358
                              Lexington, SC
                              Richland, SC
1800........................  Columbus, GA-AL.................    0.8511
                               Russell, AL
                              Chattahoochee, GA
                              Harris, GA
                              Muscogee, GA
1840........................  Columbus, OH....................    0.9908
                              Delaware, OH
                              Fairfield, OH
                              Franklin, OH
                              Licking, OH
                              Madison, OH
                              Pickaway, OH
1880........................  Corpus Christi, TX..............    0.8702
                              Nueces, TX
                              San Patricio, TX
1890........................  Corvallis, OR...................    1.1088
                              Benton, OR
1900........................  Cumberland, MD-WV...............    0.8802
                              Allegany, MD
                              Mineral, WV
1920........................  Dallas, TX......................    0.9607
                              Collin, TX
                              Dallas, TX
                              Denton, TX
                              Ellis, TX
                              Henderson, TX
                              Hunt, TX
                              Kaufman, TX
                              Rockwall, TX
1950........................  Danville, VA....................    0.9062
                              Danville City, VA
                              Pittsylvania, VA
1960........................  Davenport-Moline-Rock Island, IA-   0.8707
                               IL.
                              Scott, IA
                              Henry, IL
                              Rock Island, IL
2000........................  Dayton-Springfield, OH..........    0.9461
                              Clark, OH
                              Greene, OH
                              Miami, OH
                              Montgomery, OH
2020........................  Daytona Beach, FL...............    0.8988
                              Flagler, FL
                              Volusia, FL
2030........................  Decatur, AL.....................    0.8680
                              Lawrence, AL
                              Morgan, AL
2040........................  Decatur, IL.....................    0.8322
                              Macon, IL
2080........................  Denver, CO......................    1.0190
                              Adams, CO
                              Arapahoe, CO
                              Denver, CO
                              Douglas, CO
                              Jefferson, CO
2120........................  Des Moines, IA..................    0.8755
                              Dallas, IA
                              Polk, IA
                              Warren, IA
2160........................  Detroit, MI.....................    1.0422
                              Lapeer, MI
                              Macomb, MI
                              Monroe, MI
                              Oakland, MI
                              St. Clair, MI
                              Wayne, MI
2180........................  Dothan, AL......................    0.7799
                              Dale, AL
                              Houston, AL
2190........................  Dover, DE.......................    0.9336
                              Kent, DE
2200........................  Dubuque, IA.....................    0.8521
                              Dubuque, IA
2240........................  Duluth-Superior, MN-WI..........    1.0166
                              St. Louis, MN
                              Douglas, WI
2281........................  Dutchess County, NY.............    1.0553
                              Dutchess, NY
2290........................  Eau Claire, WI..................    0.8958
                              Chippewa, WI
                              Eau Claire, WI
2320........................  El Paso, TX.....................    0.8948
                              El Paso, TX
2330........................  Elkhart-Goshen, IN..............    0.9380
                              Elkhart, IN
2335........................  Elmira, NY......................    0.8534
                              Chemung, NY
2340........................  Enid, OK........................    0.7954
                              Garfield, OK
2360........................  Erie, PA........................    0.9024
                              Erie, PA
2400........................  Eugene-Springfield, OR..........    1.0604
                              Lane, OR
2440........................  Evansville-Henderson, IN-KY.....    0.8304
                              Posey, IN
                              Vanderburgh, IN
                              Warrick, IN
                              Henderson, KY
2520........................  Fargo-Moorhead, ND-MN...........    0.8621
                              Clay, MN
                              Cass, ND
2560........................  Fayetteville, NC................    0.8495
                              Cumberland, NC
2580........................  Fayetteville-Springdale-Rogers,     0.7774
                               AR.
                              Benton, AR
                              Washington, AR
2620........................  Flagstaff, AZ-UT................    1.0349
                              Coconino, AZ
                              Kane, UT
2640........................  Flint, MI.......................    1.1021
                              Genesee, MI
2650........................  Florence, AL....................    0.7928
                              Colbert, AL
                              Lauderdale, AL
2655........................  Florence, SC....................    0.8619
                              Florence, SC
2670........................  Fort Collins-Loveland, CO.......    1.0303
                              Larimer, CO
2680........................  Ft. Lauderdale, FL..............    1.0173
                              Broward, FL
2700........................  Fort Myers-Cape Coral, FL.......    0.8951
                              Lee, FL
2710........................  Fort Pierce-Port St. Lucie, FL..    0.9999
                              Martin, FL
                              St. Lucie, FL
2720........................  Fort Smith, AR-OK...............    0.7844
                              Crawford, AR
                              Sebastian, AR
                              Sequoyah, OK
2750........................  Fort Walton Beach, FL...........    0.8714
                              Okaloosa, FL
2760........................  Fort Wayne, IN..................    0.9097
                              Adams, IN
                              Allen, IN
                              DeKalb, IN
                              Huntington, IN
                              Wells, IN
                              Whitley, IN
2800........................  Forth Worth-Arlington, TX.......    0.9836
                              Hood, TX
                              Johnson, TX
                              Parker, TX
                              Tarrant, TX
2840........................  Fresno, CA......................    1.0263
                              Fresno, CA
                              Madera, CA
2880........................  Gadsden, AL.....................    0.8689
                              Etowah, AL
2900........................  Gainesville, FL.................    1.0103
                              Alachua, FL
2920........................  Galveston-Texas City, TX........    0.9733
                              Galveston, TX
2960........................  Gary, IN........................    0.9391
                              Lake, IN
                              Porter, IN
2975........................  Glens Falls, NY.................    0.8607
                              Warren, NY
                              Washington, NY
2980........................  Goldsboro, NC...................    0.8334
                              Wayne, NC
2985........................  Grand Forks, ND-MN..............    0.9098
                              Polk, MN
                              Grand Forks, ND
2995........................  Grand Junction, CO..............    0.9189
                              Mesa, CO
3000........................  Grand Rapids-Muskegon-Holland,      1.0136
                               MI.
                              Allegan, MI
                              Kent, MI
                              Muskegon, MI
                              Ottawa, MI
3040........................  Great Falls, MT.................    1.0460

[[Page 41176]]

 
                              Cascade, MT
3060........................  Greeley, CO.....................    0.9723
                              Weld, CO
3080........................  Green Bay, WI...................    0.9133
                              Brown, WI
3120........................  Greensboro-Winston-Salem-High       0.9038
                               Point, NC.
                              Alamance, NC
                              Davidson, NC
                              Davie, NC
                              Forsyth, NC
                              Guilford, NC
                              Randolph, NC
                              Stokes, NC
                              Yadkin, NC
3150........................  Greenville, NC..................    0.9501
                              Pitt, NC
3160........................  Greenville-Spartanburg-Anderson,    0.9189
                               SC.
                              Anderson, SC
                              Cherokee, SC
                              Greenville, SC
                              Pickens, SC
                              Spartanburg, SC
3180........................  Hagerstown, MD..................    0.8843
                              Washington, MD
3200........................  Hamilton-Middletown, OH.........    0.8947
                              Butler, OH
3240........................  Harrisburg-Lebanon-Carlisle, PA.    0.9918
                              Cumberland, PA
                              Dauphin, PA
                              Lebanon, PA
                              Perry, PA
3283........................  Hartford, CT \1\ \2\............    1.1716
                              Hartford, CT
                              Litchfield, CT
                              Middlesex, CT
                              Tolland, CT
3285........................  Hattiesburg, MS.................    0.7634
                              Forrest, MS
                              Lamar, MS
3290........................  Hickory-Morganton-Lenoir, NC....    0.9113
                              Alexander, NC
                              Burke, NC
                              Caldwell, NC
                              Catawba, NC
3320........................  Honolulu, HI....................    1.1477
                              Honolulu, HI
3350........................  Houma, LA.......................    0.7837
                              Lafourche, LA
                              Terrebonne, LA
3360........................  Houston, TX.....................    0.9388
                              Chambers, TX
                              Fort Bend, TX
                              Harris, TX
                              Liberty, TX
                              Montgomery, TX
                              Waller, TX
3400........................  Huntington-Ashland, WV-KY-OH....    0.9758
                              Boyd, KY
                              Carter, KY
                              Greenup, KY
                              Lawrence, OH
                              Cabell, WV
                              Wayne, WV
3440........................  Huntsville, AL..................    0.8823
                              Limestone, AL
                              Madison, AL
3480........................  Indianapolis, IN................    0.9793
                              Boone, IN
                              Hamilton, IN
                              Hancock, IN
                              Hendricks, IN
                              Johnson, IN
                              Madison, IN
                              Marion, IN
                              Morgan, IN
                              Shelby, IN
3500........................  Iowa City, IA...................    0.9608
                              Johnson, IA
3520........................  Jackson, MI.....................    0.8841
                              Jackson, MI
3560........................  Jackson, MS.....................    0.8387
                              Hinds, MS
                              Madison, MS
                              Rankin, MS
3580........................  Jackson, TN.....................    0.8601
                              Madison, TN
                              Chester, TN
3600........................  Jacksonville, FL................    0.8958
                              Clay, FL
                              Duval, FL
                              Nassau, FL
                              St. Johns, FL
3605........................  Jacksonville, NC................    0.7853
                              Onslow, NC
3610........................  Jamestown, NY...................    0.7858
                              Chautauqua, NY
3620........................  Janesville-Beloit, WI...........    0.9657
                              Rock, WI
3640........................  Jersey City, NJ.................    1.1676
                              Hudson, NJ
3660........................  Johnson City-Kingsport-Bristol,     0.8854
                               TN-VA.
                               Carter, TN
                               Hawkins, TN
                               Sullivan, TN
                               Unicoi, TN
                               Washington, TN
                               Bristol City, VA
                               Scott, VA
                               Washington, VA
3680........................  Johnstown, PA...................    0.8641
                               Cambria, PA
                               Somerset, PA
3700........................  Jonesboro, AR...................    0.7232
                               Craighead, AR
3710........................  Joplin, MO......................    0.7679
                               Jasper, MO
                               Newton, MO
3720........................  Kalamazoo-Battlecreek, MI.......    0.9982
                               Calhoun, MI
                               Kalamazoo, MI
                               Van Buren, MI
3740........................  Kankakee, IL....................    0.8599
                               Kankakee, IL
3760........................  Kansas City, KS-MO..............    0.9322
                               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.....................    0.9034
                               Kenosha, WI
3810........................  Killeen-Temple, TX..............    0.9933
                               Bell, TX
                               Coryell, TX
3840........................  Knoxville, TN...................    0.9200
                               Anderson, TN
                               Blount, TN
                               Knox, TN
                               Loudon, TN
                               Sevier, TN
                               Union, TN
3850........................  Kokomo, IN......................    0.8919
                               Howard, IN
                               Tipton, IN
3870........................  La Crosse, WI-MN................    0.8934
                               Houston, MN
                               La Crosse, WI
3880........................  Lafayette, LA...................    0.8340
                               Acadia, LA
                               Lafayette, LA
                               St. Landry, LA
                               St. Martin, LA
3920........................  Lafayette, IN...................    0.8810
                               Clinton, IN
                               Tippecanoe, IN
3960........................  Lake Charles, LA................    0.7967
                               Calcasieu, LA
3980........................  Lakeland-Winter Haven, FL.......    0.8816
                               Polk, FL
4000........................  Lancaster, PA...................    0.9256
                               Lancaster, PA
4040........................  Lansing-East Lansing, MI........    0.9978
                               Clinton, MI
                               Eaton, MI
                               Ingham, MI
4080........................  Laredo, TX......................    0.8323
                               Webb, TX
4100........................  Las Cruces, NM..................    0.8591
                               Dona Ana, NM
4120........................  Las Vegas, NV-AZ................    1.1259
                               Mohave, AZ
                               Clark, NV
                               Nye, NV
4150........................  Lawrence, KS....................    0.8900
                               Douglas, KS
4200........................  Lawton, OK......................     09533
                               Comanche, OK
4243  ......................  Lewiston-Auburn, ME.............    0.8900
                               Androscoggin, ME
4280........................  Lexington, KY...................    0.8532
                               Bourbon, KY
                               Clark, KY
                               Fayette, KY
                               Jessamine, KY
                               Madison, KY
                               Scott, KY
                               Woodford, KY
4320........................  Lima, OH........................    0.8906
                               Allen, OH
                               Auglaize, OH
4360........................  Lincoln, NE.....................    0.9671

[[Page 41177]]

 
                               Lancaster, NE
4400........................  Little Rock-North Little Rock,      0.8615
                               AR.
                               Faulkner, AR
                               Lonoke, AR
                               Pulaski, AR
                               Saline, AR
4420........................  Longview-Marshall, TX...........    0.8739
                               Gregg, TX
                               Harrison, TX
                               Upshur, TX
4480........................  Los Angeles-Long Beach, CA......    1.2052
                               Los Angeles, CA
4520........................  Louisville, KY-IN...............    0.9382
                              Clark, IN
                              Floyd, IN
                              Harrison, IN
                              Scott, IN
                              Bullitt, KY
                              Jefferson, KY
                              Oldham, KY
4600........................  Lubbock, TX.....................    0.8412
                               Lubbock, TX
4640........................  Lynchburg, VA...................    0.8815
                              Amherst, VA
                              Bedford, VA
                              Bedford City, VA
                              Campbell, VA
                              Lynchburg City, VA
4680........................  Macon, GA.......................    0.8531
                              Bibb, GA
                               Houston, GA
                              Jones, GA
                              Peach, GA
                              Twiggs, GA
4720........................  Madison, WI.....................    0.9730
                              Dane, WI
4800........................  Mansfield, OH...................    0.8476
                              Crawford, OH
                              Richland, OH
4840........................  Mayaguez, PR....................    0.4675
                              Anasco, PR
                              Cabo Rojo, PR
                              Hormigueros, PR
                              Mayaguez, PR
                              Sabana Grande, PR
                               San German, PR
4880........................  McAllen-Edinburg-Mission, TX....    0.8121
                              Hidalgo, TX
4890........................  Medford-Ashland, OR.............    1.0493
                              Jackson, OR
4900........................  Melbourne-Titusville-Palm Bay,      0.9297
                               FL.
                              Brevard, FL
4920........................  Memphis, TN-AR-MS...............    0.8245
                              Crittenden, AR
                              DeSoto, MS
                              Fayette, TN
                              Shelby, TN
                              Tipton, TN
4940........................  Merced, CA......................    1.0278
                              Merced, CA
5000........................  Miami, FL.......................    1.0234
                              Dade, FL
5015........................  Middlesex-Somerset-Hunterdon, NJ    1.1123
                              Hunterdon, NJ
                              Middlesex, NJ
                              Somerset, NJ
5080........................  Milwaukee-Waukesha, WI..........    0.9846
                              Milwaukee, WI
                              Ozaukee, WI
                              Washington, WI
                              Waukesha, WI
5120........................  Minneapolis-St. Paul, MN-WI.....    1.0930
                              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....................    0.9086
                              Missoula, MT
5160........................  Mobile, AL......................    0.8268
                              Baldwin, AL
                              Mobile, AL
5170........................  Modesto, CA.....................    1.0112
                              Stanislaus, CA
5190........................  Monmouth-Ocean, NJ..............    1.1259
                              Monmouth, NJ
                              Ocean, NJ
5200........................  Monroe, LA......................    0.8222
                              Ouachita, LA
5240........................  Montgomery, AL..................    0.7704
                              Autauga, AL
                              Elmore, AL
                              Montgomery, AL
5280........................  Muncie, IN......................    1.0835
                              Delaware, IN
5330........................  Myrtle Beach, SC................    0.8530
                              Horry, SC
5345........................  Naples, FL......................    0.9840
                              Collier, FL
5360........................  Nashville, TN...................    0.9450
                              Cheatham, TN
                              Davidson, TN
                              Dickson, TN
                              Robertson, TN
                              Rutherford, TN
                              Sumner, TN
                              Williamson, TN
                              Wilson, TN
5380........................  Nassau-Suffolk, NY..............    1.4076
                              Nassau, NY
                              Suffolk, NY
5483........................  New Haven-Bridgeport-Stamford-      1.2357
                               Waterbury-Danbury, CT.
                              Fairfield, CT
                              New Haven, CT
5523........................  New London-Norwich, CT..........    1.2429
                              New London, CT
5560........................  New Orleans, LA.................    0.9090
                              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....................    1.4519
                               Bronx, NY
                               Kings, NY
                               New York, NY
                               Putnam, NY
                               Queens, NY
                               Richmond, NY
                               Rockland, NY
                               Westchester, NY
5640........................  Newark, NJ......................    1.1647
                               Essex, NJ
                               Morris, NJ
                              Sussex, NJ
                              Union, NJ
                               Warren, NJ
5660........................  Newburgh, NY-PA.................    1.0910
                               Orange, NY
                               Pike, PA
5720........................  Norfolk-Virginia Beach-Newport      0.8441
                               News, VA-NC.
                               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.....................    1.5059
                               Alameda, CA
                               Contra Costa, CA
5790........................  Ocala, FL.......................    0.9616
                               Marion, FL
5800........................  Odessa-Midland, TX..............    0.8874
                               Ector, TX
                               Midland, TX
5880........................  Oklahoma City, OK...............    0.8588
                               Canadian, OK
                               Cleveland, OK
                               Logan, OK
                               McClain, OK
                               Oklahoma, OK
                               Pottawatomie, OK
5910........................  Olympia, WA.....................    1.0933
                              Thurston, WA
5920........................  Omaha, NE-IA....................    1.0456
                               Pottawattamie, IA
                               Cass, NE
                               Douglas, NE
                               Sarpy, NE
                               Washington, NE
5945........................  Orange County, CA...............    1.1591
                               Orange, CA
5960........................  Orlando, FL.....................    0.9796
                               Lake, FL
                               Orange, FL

[[Page 41178]]

 
                               Osceola, FL
                               Seminole, FL
5990........................  Owensboro, KY...................    0.8105
                               Daviess, KY
6015........................  Panama City, FL.................    0.9170
                              Bay, FL
6020........................  Parkersburg-Marietta, WV-OH.....    0.8415
                               Washington, OH
                               Wood, WV
6080........................  Pensacola, FL...................    0.8443
                               Escambia, FL
                               Santa Rosa, FL
6120........................  Peoria-Pekin, IL................    0.8350
                               Peoria, IL
                               Tazewell, IL
                               Woodford, IL
6160........................  Philadelphia, PA-NJ.............    1.1161
                               Burlington, NJ
                               Camden, NJ
                               Gloucester, NJ
                               Salem, NJ
                               Bucks, PA
                               Chester, PA
                               Delaware, PA
                               Montgomery, PA
                               Philadelphia, PA
6200........................  Phoenix-Mesa, AZ................    0.9465
                               Maricopa, AZ
                               Pinal, AZ
6240........................  Pine Bluff, AR..................    0.7698
                               Jefferson, AR
6280........................  Pittsburgh, PA..................    0.9635
                              Allegheny, PA
                              Beaver, PA
                              Butler, PA
                              Fayette, PA
                              Washington, PA
                              Westmoreland, PA
6323........................  Pittsfield, MA..................    1.0256
                              Berkshire, MA
6340........................  Pocatello, ID...................    0.8974
                              Bannock, ID
6360........................  Ponce, PR.......................    0.4971
                              Guayanilla, PR
                              Juana Diaz, PR
                              Penuelas, PR
                              Ponce, PR
                              Villalba, PR
                              Yauco, PR
6403........................  Portland, ME....................    0.9476
                              Cumberland, ME
                              Sagadahoc, ME
                              York, ME
6440........................  Portland-Vancouver, OR-WA.......    1.0976
                              Clackamas, OR
                              Columbia, OR
                              Multnomah, OR
                              Washington, OR
                              Yamhill, OR
                              Clark, WA
6483........................  Providence-Warwick-Pawtucket, RI    1.0691
                              Bristol, RI
                              Kent, RI
                              Newport, RI
                              Providence, RI
                              Washington, RI
6520........................  Provo-Orem, UT..................    0.9819
                              Utah, UT
6560........................  Pueblo, CO......................    0.8854
                              Pueblo, CO
6580........................  Punta Gorda, FL.................    0.9509
                              Charlotte, FL
6600........................  Racine, WI......................    0.9217
                              Racine, WI
6640........................  Raleigh-Durham-Chapel Hill, NC..    0.9545
                              Chatham, NC
                              Durham, NC
                              Franklin, NC
                              Johnston, NC
                              Orange, NC
                              Wake, NC
6660........................  Rapid City, SD..................    0.8364
                              Pennington, SD
6680........................  Reading, PA.....................    0.9537
                              Berks, PA
6690........................  Redding, CA.....................    1.1265
                              Shasta, CA
6720........................  Reno, NV........................    1.0656
                              Washoe, NV
6740........................  Richland-Kennewick-Pasco, WA....    1.1225
                              Benton, WA
                              Franklin, WA
6760........................  Richmond-Petersburg, VA.........    0.9546
                              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....    1.1211
                              Riverside, CA
                              San Bernardino, CA
6800........................  Roanoke, VA.....................    0.8139
                              Botetourt, VA
                              Roanoke, VA
                              Roanoke City, VA
                              Salem City, VA
6820........................  Rochester, MN...................    1.1430
                              Olmsted, MN
6840........................  Rochester, NY...................    0.9185
                              Genesee, NY
                              Livingston, NY
                              Monroe, NY
                              Ontario, NY
                              Orleans, NY
                              Wayne, NY
6880........................  Rockford, IL....................    0.8784
                              Boone, IL
                              Ogle, IL
                              Winnebago, IL
6895........................  Rocky Mount, NC.................    0.8735
                              Edgecombe, NC
                              Nash, NC
6920........................  Sacramento, CA..................    1.2285
                              El Dorado, CA
                              Placer, CA
                              Sacramento, CA
6960........................  Saginaw-Bay City-Midland, MI....    0.9287
                              Bay, MI
                              Midland, MI
                              Saginaw, MI
6980........................  St. Cloud, MN...................    0.9422
                              Benton, MN
                              Stearns, MN
7000........................  St. Joseph, MO..................    0.8944
                              Andrew, MO
                              Buchanan, MO
7040........................  St. Louis, MO-IL................    0.9053
                              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.......................    0.9950
                              Marion, OR
                              Polk, OR
7120........................  Salinas, CA.....................    1.4711
                              Monterey, CA
7160........................  Salt Lake City-Ogden, UT........    0.8855
                               Davis, UT
                               Salt Lake, UT
                               Weber, UT
7200........................  San Angelo, TX..................    0.7846
                               Tom Green, TX
7240........................  San Antonio, TX.................    0.8318
                               Bexar, TX
                               Comal, TX
                               Guadalupe, TX
                               Wilson, TX
7320........................  San Diego, CA...................    1.1931
                               San Diego, CA
7360........................  San Francisco, CA...............    1.4002
                               Marin, CA
                               San Francisco, CA
                               San Mateo, CA
7400........................  San Jose, CA....................    1.3610
                               Santa Clara, CA
7440........................  San Juan-Bayamon, PR............    0.4658
                               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
                               Juncos, PR

[[Page 41179]]

 
                               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     1.0471
                               Robles, CA.
                               San Luis Obispo, CA
7480........................  Santa Barbara-Santa Maria-          1.0820
                               Lompoc, CA.
                               Santa Barbara, CA
7485........................  Santa Cruz-Watsonville, CA......    1.3929
                               Santa Cruz, CA
7490........................  Santa Fe, NM....................    1.0438
                               Los Alamos, NM
                               Santa Fe, NM
7500........................  Santa Rosa, CA..................    1.3001
                               Sonoma, CA
7510........................  Sarasota-Bradenton, FL..........    0.9906
                               Manatee, FL
                               Sarasota, FL
7520........................  Savannah, GA....................    0.9954
                               Bryan, GA
                               Chatham, GA
                               Effingham, GA
7560........................  Scranton--Wilkes-Barre--            0.8373
                               Hazleton, PA.
                               Columbia, PA
                               Lackawanna, PA
                               Luzerne, PA
                               Wyoming, PA
7600........................  Seattle-Bellevue-Everett, WA....    1.1291
                               Island, WA
                               King, WA
                               Snohomish, WA
7610........................  Sharon, PA......................    0.8284
                               Mercer, PA
7620........................  Sheboygan, WI...................    0.8203
                               Sheboygan, WI
7640........................  Sherman-Denison, TX.............    0.9330
                               Grayson, TX
7680........................  Shreveport-Bossier City, LA.....    0.9050
                               Bossier, LA
                               Caddo, LA
                               Webster, LA
7720........................  Sioux City, IA-NE...............    0.8549
                               Woodbury, IA
                               Dakota, NE
7760........................  Sioux Falls, SD.................    0.8777
                               Lincoln, SD
                               Minnehaha, SD
7800........................  South Bend, IN..................    0.9794
                               St. Joseph, IN
7840........................  Spokane, WA.....................    1.0800
                               Spokane, WA
7880........................  Springfield, IL.................    0.8689
                              Menard, IL
                              Sangamon, IL
7920........................  Springfield, MO.................    0.7992
                              Christian, MO
                              Greene, MO
                              Webster, MO
8003........................  Springfield, MA.................    1.0678
                              Hampden, MA
                              Hampshire, MA
8050........................  State College, PA...............    0.9139
                              Centre, PA
8080........................  Steubenville-Weirton, OH-WV.....    0.8815
                              Jefferson, OH
                              Brooke, WV
                              Hancock, WV
8120........................  Stockton-Lodi, CA...............    1.0519
                              San Joaquin, CA
8140........................  Sumter, SC......................    0.8239
                              Sumter, SC
8160........................  Syracuse, NY....................    0.9413
                              Cayuga, NY
                              Madison, NY
                              Onondaga, NY
                              Oswego, NY
8200........................   Tacoma, WA.....................    1.1479
                              Pierce, WA
8240........................  Tallahassee, FL.................    0.8485
                              Gadsden, FL
                              Leon, FL
8280........................  Tampa-St. Petersburg-Clearwater,    0.9045
                               FL.
                              Hernando, FL
                              Hillsborough, FL
                              Pasco, FL
                              Pinellas, FL
8320........................  Terre Haute, IN.................    0.8571
                              Clay, IN
                              Vermillion, IN
                              Vigo, IN
8360........................  Texarkana, AR-Texarkana, TX.....    0.8136
                              Miller, AR
                              Bowie, TX
8400........................  Toledo, OH......................    0.9816
                              Fulton, OH
                              Lucas, OH
                              Wood, OH
8440........................  Topeka, KS......................    0.9327
                              Shawnee, KS
8480........................  Trenton, NJ.....................    1.0103
                              Mercer, NJ
8520........................  Tucson, AZ......................    0.8743
                              Pima, AZ
8560........................  Tulsa, OK.......................    0.8087
                              Creek, OK
                              Osage, OK
                              Rogers, OK
                              Tulsa, OK
                              Wagoner, OK
8600........................  Tuscaloosa, AL..................    0.8065
                              Tuscaloosa, AL
8640........................  Tyler, TX.......................    0.9370
                              Smith, TX
8680........................  Utica-Rome, NY..................    0.8299
                              Herkimer, NY
                              Oneida, NY
8720........................  Vallejo-Fairfield-Napa, CA......    1.3347
                              Napa, CA
                              Solano, CA
8735........................  Ventura, CA.....................    1.1456
                              Ventura, CA
8750........................  Victoria, TX....................    0.8379
                              Victoria, TX
8760........................  Vineland-Millville-Bridgeton, NJ    1.0518
                              Cumberland, NJ
8780........................  Visalia-Tulare-Porterville, CA..    1.0412
                              Tulare, CA
8800........................  Waco, TX........................    0.8076
                              McLennan, TX
8840........................  Washington, DC-MD-VA-WV.........    1.1055
                              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........    0.8518
                              Black Hawk, IA
8940........................  Wausau, WI......................    0.9446
                              Marathon, WI
8960........................  West Palm Beach-Boca Raton, FL..    1.0013
                              Palm Beach, FL
9000........................  Wheeling, WV-OH.................    0.7644
                              Belmont, OH
                              Marshall, WV
                              Ohio, WV
9040........................  Wichita, KS.....................    0.9422
                              Butler, KS
                              Harvey, KS
                              Sedgwick, KS
9080........................  Wichita Falls, TX...............    0.7653
                              Archer, TX
                              Wichita, TX
9140........................  Williamsport, PA................    0.8450
                              Lycoming, PA
9160........................  Wilmington-Newark, DE-MD........    1.1275
                              New Castle, DE
                              Cecil, MD
9200........................  Wilmington, NC..................    0.9708
                              New Hanover, NC

[[Page 41180]]

 
                              Brunswick, NC
9260........................  Yakima, WA......................    1.0333
                              Yakima, WA
9270........................  Yolo, CA........................    0.9720
                              Yolo, CA
9280........................  York, PA........................    0.9310
                              York, PA
9320........................  Youngstown-Warren, OH...........    0.9997
                              Columbiana, OH
                              Mahoning, OH
                              Trumbull, OH
9340........................  Yuba City, CA...................    1.0663
                              Sutter, CA
                              Yuba, CA
9360........................  Yuma, AZ........................    0.9925
                              Yuma, AZ
------------------------------------------------------------------------

C. 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, section 1895(b)(3)(A)(i) 
of the Act requires that--(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 be standardized to eliminate the effects of 
case-mix and wage levels among HHAs. The budget neutrality provision, 
with the 15-percent reduction and contingency reduction to IPS, 
originated from the BBA, was delayed by OCESAA, and further amended by 
BBRA to delay the 15 percent reduction by one year, while eliminating 
the contingency reduction to IPS. 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:
     We multiply 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 the national mean utilization for each of the six 
disciplines in a 60-day episode summed in the aggregate. We add to the 
figure derived from the above calculation, amounts for--
    ++ Nonroutine medical supplies paid on a reasonable-cost basis 
under a home health plan of care;
    ++ Nonroutine medical supplies that could have been unbundled to 
Part B that will be included under the PPS rate;
    ++ Therapy services that could have been unbundled to Part B that 
will be included under the PPS rate;
    ++ An OASIS adjustment to pay HHAs for estimated ongoing OASIS 
assessment reporting costs; and
    ++ A one-time implementation adjustment to pay HHAs for estimated 
costs associated with implementing the revisions to the OASIS 
assessment schedules in order to classify patients into the appropriate 
case-mix categories for payment for the first year of PPS.
     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 revised 178 HCPCs codes (described 
in sections II.B and IV.) in calendar year 1998 for beneficiaries under 
a home health plan of care. That total was divided by the total number 
of episodes in calendar year 1998 from the episode database.
     Possible unbundled therapies billed to Part B that will be 
included under the PPS Rate. As discussed in the response to comments 
and section III. of this regulation, prior to consolidated billing 
requirements governing PPS, HHAs may have been unbundled therapy 
services to Part B. Although this was a rare occurrence, we re-examined 
our approach to calculating the PPS rate. There is an additional 
therapy adjustment to the nonstandardized 60-day episode. For further 
detail, see section IV.B.3. The rate methodology is provided in Table 5 
below.
     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 that 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

[[Page 41181]]

years. Similarly, 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 (five), 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.

                                        Continuous Oasis Adjustment: Base
                                              [For data reporting]
----------------------------------------------------------------------------------------------------------------
                                                                                                       Cost per
            Type of adjustment                        Source                      Formula               visit
----------------------------------------------------------------------------------------------------------------
Audits to ensure data accuracy...........  University of Colorado       (((((10 records per month *      $.02542
                                            (CHPR), BLS Occupational     12 months)) * .25 hrs) *
                                            Employment Survey (1996),    $25.42) / 30,000 avg
                                            1994 & 1995 HCFA Cost        visits)...professional
                                            Report Data.                 staff.
Data entry, editing, & auditing..........  University of                ((((8.5 hrs per month * 12)      .059667
                                            Colorado(CHPR), Estimated    + (5 hrs per month * 12) +
                                            average salary for           (1 hr per month * 12) + (5
                                            clerical staff, 1994 &       hrs per year)) * $10 per
                                            1995 HCFA Cost Report Data.  hour) / 30,000 avg visits).
Supplies.................................  HCFA-3006-IFC OASIS          $250 avg cost / 30,000 avg       .008333
                                            Reporting (64 FR 3748),      visits.
                                            1994 & 1995 HCFA Cost
                                            Report Data.
Ongoing telephone costs..................  Bell Atlantic, 1994 & 1995   (((($13.14 per month, per        .007808
                                            HCFA Cost Report Data (for   line) + ($ 6.38 per month
                                            average size HHA).           subscriber fee)) * 12
                                                                         months) / 30,000 avg
                                                                         visits).
                                                                                                    ------------
    Total................................  ...........................  ...........................      .101228
----------------------------------------------------------------------------------------------------------------


                           Continuous Oasis Adjustment: 5 Year Depreciation Averaging
                                              [For data reporting]
----------------------------------------------------------------------------------------------------------------
                                                                                                       Cost per
            Type of adjustment                        Source                      Formula               visit
----------------------------------------------------------------------------------------------------------------
Computer Hardware........................   American Hospital
                                            Association's, Health Data
                                            & Coding Standards
                                            Group's, Estimated Useful
                                            Lives of Depreciable
                                            Hospital Assets {revised
                                            1998}.
    Computer.............................  Average cost for PC with     $2050 computer depreciated      $.022778
                                            minimal acceptable           over 3 years (($2050/3) /
                                            standards 1994 & 1995 HCFA   30,000 avg visits.
                                            Cost Report Data.
    Printer..............................  Average cost for printer     $600 printer cost                   .004
                                            with minimal acceptable      depreciated over 5 years
                                            standards 1994 & 1995 HCFA   (($600/5) / 30,000 avg
                                            Cost Report Data.            visits.
                                           First 3 Year's Adjustment..  *Note: computer & printer        .026778
                                                                         depreciation.
                                           Next 2 Year's Adjustment...  *Note: printer ONLY                 .004
                                                                         depreciation.
                                           5-Year Average Adjustment..  ((($.026777 * 3) + ($.004 *      .017667
                                                                         2)) / 5).
----------------------------------------------------------------------------------------------------------------


                                    Personal Computer Minimal Specifications
----------------------------------------------------------------------------------------------------------------
           Description                                         Minimal specifications
----------------------------------------------------------------------------------------------------------------
Warranty.........................  Minimum 3 year.
Processor........................  Pentium II Processor running at 400 MHz w/512 Cache.
Operating System.................  32-bit operating system with Graphical User Interface.
Hard Drive.......................  3 Gb Hard drive minimum.
Memory...........................  32 MB minimum.
CD ROM...........................  14-32 X, IDE, integrated sound.
Floppy Drive.....................  3.5" 1.44 MB diskette drive.
Fax Modem........................  56K v.90 Data/Fax.
Monitor..........................  17" Color Monitor.
Graphics.........................  MB AGP.

[[Page 41182]]

 
Mouse............................  Wheel mouse.
Keyboard.........................  104 key ergonomic keyboard.
Anti Virus.......................  Anti Virus Software.
Management Software..............  System management client software/license.
Printer..........................  600 dpi Laser printer with cable.
----------------------------------------------------------------------------------------------------------------


                                         Oasis Adjustment: ``One-Time''
                                              [For data reporting]
----------------------------------------------------------------------------------------------------------------
                                                                                                       Cost per
            Type of adjustment                        Source                      Formula               visit
----------------------------------------------------------------------------------------------------------------
Training of Data Entry Staff.............  BLS Employer Provided        (24 hrs * $10)/30,000 avg          $.008
                                            Training (Hrs of Training    visits.
                                            1995) & an estimated
                                            average salary for
                                            clerical personnel 1994 &
                                            1995 HCFA Cost Report Data.
Telephone installation...................  Bell Atlantic..............  ($28 processing fee).......      .002266
                                           Bell Atlantic 1994 & 1995    +..........................
                                            HCFA Cost Report Data.      ($40 per line connect fee)/
                                                                         30,000 avg visits..
                                                                                                    ------------
    Total One Time Adjustment............  ...........................  ...........................      .010266
----------------------------------------------------------------------------------------------------------------

     First Year of PPS One-Time Adjustment Reflecting 
Implementation Costs Associated with Revised OASIS Assessment Schedules 
needed to Classify Patients into Appropriate Case-Mix Categories for 
Payment.
    As set forth in the home health PPS proposed rule published in the 
Federal Register on October 28, 1999, (64 FR 58134) all data necessary 
to classify a patient to one of the 80 HHRG categories are contained in 
the OASIS-B supplemented, as applicable, by one additional item 
regarding projected therapy use in a given 60-day episode. Under PPS, 
HHAs are required to use the collection and reporting requirements for 
the OASIS data elements published in the Federal Register on January 
25, 1999, supplemented by one additional therapy item as applicable. We 
set forth the proposed changes to the OASIS schedules in the home 
health PPS proposed rule. We also stated that we expect that the 
software programs, called grouper software, that use the OASIS-B 
supplemented by the projected therapy variable and assign patients to 
the appropriate groups, will be available from many software vendors. 
The version we use will be available at no cost from our HCFA website 
on PPS. We proposed the option to build the grouper logic into the 
HAVEN software, which is currently used for the transmission of OASIS 
data for purposes of quality via the State system.
    As stated in the Interim Payment System Notice published in the 
Federal Register on August 11, 1998, (63 FR 42912) we set forth the 
methodology for the one-time offset adjustment for the implementation 
of the home health OASIS. The one-time offset adjustment methodology 
provided financial relief to HHAs for costs associated with integrating 
the OASIS collection into their overall approach to comprehensive 
assessment of patients. The costs recognized in the one-time offset 
adjustment methodology included three types of costs associated with 
training staff, increases in assessment time during the initial 
implementation, and staff to revise assessment forms and integrate 
OASIS elements.
    In response to commenters concern with costs associated with 
implementing the OASIS-based case-mix methodology, we believe there 
will be a modified one-time adjustment for HHAs to implement the 
revised schedules for the start of care and follow up assessments for 
PPS implementation. We are providing a refined methodology for the one-
time adjustment for OASIS scheduling changes required by the case-mix 
adjustment methodology for the first year of PPS implementation. This 
is a one-time one year implementation adjustment. This methodology is a 
refined version of the offset adjustment set forth in the August 11, 
1998 Interim Payment System Notice. The total offset adjustment 
described in the August 11, 1998 notice was applied by--
     First, multiplying the labor portion of the per-visit 
limitation for skilled nursing, physical therapy, speech language 
pathology, and occupational therapy by the factor of 1.003513 for 
training and forms revision;
     Secondly, adding the non-labor portion to the adjusted 
labor portion; and
     Thirdly, adding one cent for printing costs.
    Under PPS, we are applying the same formula to the non-standardized 
average number and average cost per-visit amounts for episodes 
containing 5 or more visits for skilled nursing services, physical 
therapy services, speech-language pathology services, and occupational 
therapy services. That aggregate non-standardized amount will then be 
adjusted by an OASIS scheduling adjustment factor.
    As part of the formal OMB clearance process (see section VI. of 
this regulation for OMB approval number), we requested the following 
modifications to the current Version Start of Care/Resumption of Care 
Version Form HCFA-R245A approved 6/99, Follow-Up Version Form HCFA-
R245B approved 6/99 for purposes of case-mix adjusting patients under 
home health PPS.
     Modification to the Version Start of Care/Resumption of 
Care Version Form HCFA-R245A approved 6/99.

(1) New Therapy Threshold Question discussed in the background section 
of this package.
MO825 Therapy Need: Does the care plan of the Medicare payment period 
for which this assessment will define a case-mix group indicate a need 
for therapy (physical, occupational, or speech

[[Page 41183]]

therapy) that meets the threshold for a Medicare high-therapy case-mix 
group?

    0--No
    1--Yes
    NA--not applicable

     Modification to the Follow-Up Version Form HCFA-R245B 
approved 6/99.

(1) Must add the following already approved OASIS items to the Follow-
Up schedule:

MO230 Home Care Diagnosis
M0240 Other Diagnosis
MO390 Vision

(2) Must modify and add the current approved OASIS item MO170 regarding 
hospital discharge or nursing home care discharge within the past 14 
days.
(3) Must add the therapy threshold variable (M0825) to the Follow-Up 
OASIS Form and Schedule.

    We believe there will be a modified one-time adjustment for HHAs to 
implement the revised schedules for the start of care and follow up 
assessments as follows:

----------------------------------------------------------------------------------------------------------------
                                                         Average number of   Average cost per   Aggregate total
                  Visit by discipline                       visits  (A)         visit  (B)        ((A) * (B))
----------------------------------------------------------------------------------------------------------------
SK Nursing............................................               14.08             $94.96          $1,337.04
PT....................................................                3.05             104.05             317.35
SPL...................................................                 .18             113.26              20.39
OT....................................................                 .53             104.76              55.52
                                                                                              ------------------
    Total.............................................  ..................  .................            1730.30
----------------------------------------------------------------------------------------------------------------

Approach:
    (1) Total = $1730.30
    (2) Labor Portion = 1730.30  x  .77668 = 1343.89, Non-Labor Portion 
= 1730.30  x  .22332 = 386.41
    (3) Adjusted Labor Portion = 1343.89  x  1.003513 = 1348.61
    (4) Adjusted Labor Portion 1348.61 + Non-Labor Portion 386.41 = 
1735.02
    (5) .01 for printing + 1735.02 = $1735.03
    (6) 1735.03/80 (80 OASIS items) = $21.69
    (7) 21.69/4 (4 types of OASIS Schedules) = $5.42
    (8) We believe $5.42 reflects the cost for a new item added to a 
new schedule. Therefore, $5.42 is the figure used to reflect the need 
to add the new therapy variable to Start of Care/Resumption of Care 
Assessment Schedules to case-mix adjust the initial episodes as part of 
the implementation adjustment to the 60-day non-standardized episode 
amount.

    We must then add the cost of adding the new therapy variable to the 
Follow-Up Assessment Schedule as well as three already approved OASIS 
items. As set forth in the approach on the previous page, adding the 
new therapy variable to an assessment schedule is projected to cost 
$5.42 for the first year of implementation. In addition to the new 
therapy variable, three of the already approved OASIS items need to be 
added to the Follow-up OASIS. We estimated that adding a new item to 
the OASIS schedule would cost $5.42. We are applying an adjustment 
factor to that amount to account for the three additional already 
approved OASIS items to the Follow-Up Assessment schedule. We multiply 
the 5.42 for the new therapy variable by 3/80 (3 of the total 80 OASIS 
items). (We are applying a scheduling adjustment factor of 3/80 to the 
$5.42 amount to recognize that the three OASIS items are already 
approved and are only added to a new assessment schedule.) The Follow-
Up Assessment schedule will now include the new therapy variable 
($5.42) and the three already approved OASIS items ($5.42 * 3/80). The 
formula for the costs associated with the one-time first year 
implementation of the Scheduling Changes to the Follow-Up Assessment is 
as follows: $5.42 for the new therapy variable plus an additional $0.20 
($ 5.42  x  .0375 or (3/80)) = $5.62 per patient per Follow-Up 
assessment used to case-mix adjust subsequent episodes for continuing 
home health care.
    The non-standardized 60-day episode amount for each Start of Care 
60-day episode will be adjusted to offset the one-time implementation 
cost and burden associated with the OASIS scheduling modifications 
required to implement the case-mix methodology for the first year of 
HHA PPS. The non-standardized 60-day episode amount for each follow-up 
assessment used to case-mix adjust subsequent episodes will also be 
adjusted. These adjustments will be combined and reflected as 
proportional adjustments.
    Our research upon which we are basing the national PPS rate 
indicates that about 60 percent of episodes are completed within 60-
days. We are using the following approach to reflect the one time 
transition:
    Start of Care Assessments used for initial episodes (.60  x  $5.42) 
+ Follow-Up Assessments used for subsequent episodes (.40  x  $5.62) = 
an adjustment of $5.50 for each non-standardized 60-day episode for the 
first year of PPS.
    The nonstandardized average prospective payment amount must be then 
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 IV.C.4 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 IV.C.5 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. Table 5 illustrates the home health 
prospective payment calculation.

[[Page 41184]]



                              Table 5.--Home Health Prospective Payment Calculation
----------------------------------------------------------------------------------------------------------------
                                 Total costs for
                                all providers in   Total visits                   Average number
                                  the PPS audit       for all      Average cost    of visits for
                                     sample        providers in   per visit from   episodes with    Home health
  Home health discipline type      (weighted,      the PPS audit   the PPS audit  >4 visits from    prospective
                                  updated to FY       sample          sample        the CY 1998    payment rate
                                 2001, and visit    (weighted)                     episode file
                                 limit adjusted)
----------------------------------------------------------------------------------------------------------------
Home Health Aide Services.....     5,915,395,602     141,682,907          $41.75            13.4         $559.45
Medical Social Services.......       458,571,353       2,985,588          153.59             .32           49.15
Occupational Therapy Services.       444,691,130       4,244,901          104.76             .53           55.52
Physical Therapy Services.....     2,456,109,303      23,605,011          104.05            3.05          317.35
Skilled Nursing Services......    12,108,884,714     127,515,950           94.96           14.08        1,337.04
Speech Pathology Services.....       223,173,331       1,970,399          113.26             .18           20.39


------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total Non Standardized Prospective Payment Amount Per 60-       2,338.90
 Day Episode For FY 2001................................
Average Cost per Episode for Non Routine Medical                   43.54
 Supplies included in the home health benefit and
 reported as costs on the Cost Report...................
Average Payment per Episode for Non Routine Medical                 6.08
 Supplies possibly unbundled and billed separately to
 Part B.................................................
Average Payment per Episode for Part B Therapies........           17.67
Average Payment per Episode for OASIS One Time                      5.50
 Adjustment for form changes............................
Average Payment per Episode for Ongoing OASIS Adjustment            4.32
 Costs..................................................
Total Non Standardized Prospective Payment Amount Per 60-       2,416.01
 Day Episode For FY 2001 Plus Medical Supplies & Ongoing
 OASIS..................................................
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                                Final
                                                            standardized
  Total non                                                  and budget
 standardized  Standardization                                 neutral
 prospective   factor for wage     Budget        Outlier     prospective
   payment     index and case-   neutrality    adjustment      payment
amount per 60-     mix \1\       factor \2\    factor \3\    amount per
 day episode                                                   60-day
 for FY 2001                                                 episode for
                                                               FY 2001
------------------------------------------------------------------------
   $2,416.01          .96184         .88423          1.05     $2115.30
------------------------------------------------------------------------
\1\ (Based on 100% episode wage indicies with therapy/nontherapy factors
  based on ABT data).
\2\ (Budget neutral to current IPS).
\3\ (Adjustment to PPS rate to account for 5% of total payments to
  outlier episodes).


Calculation for Non Routine Medical Supplies Per Episode Amount Included
                       in the Home Health Benefit
------------------------------------------------------------------------
                               Average cost                 Average cost
 Non routine                   per episode                   per episode
   medical                       for non                       for non
   supplies     Total number     routine                       routine
 included in    of episodes      medical                       medical
   the home      for those       supplies    Market basket    supplies
    health      providers in   included in   update factor   included in
 benefit and    the audited      the home      to FY 2001     the home
 reported as    cost report       health          \3\          health
 costs on the    sample \2\    benefit and                   benefit and
 cost report                   reported as                   reported as
     \1\                       costs on the                 costs on the
                               cost report                   cost report
------------------------------------------------------------------------
$234,547,615      5,733,010         $40.91         1.0643       $43.54
------------------------------------------------------------------------
\1\ Source: Audited Cost Report Data from the audit sample updated to FY
  2001 and weighted to National Totals.
\2\ Source: Calendar Year 1998 Episode file.
\3\ Cumulative Market Basket Update Factor for years 1999-2001.


             Calculation for Non Routine Medical Supplies Possibly Unbundled and Billed Under Part B
----------------------------------------------------------------------------------------------------------------
                          Total number of
 Non routine medical      episodes for all     Average payment per                             Updated average
  supplies possibly       providers in the       episode for non                             payment per episode
 unbundled and billed    calendar year 1998      routine medical        DME fee schedule       for non routine
 separately to part B    file adjusted for      supplies possibly    update to FY 2001 \3\    medical supplies
and reimbursed on the     estimated total      unbundled and billed                          possibly unbundled
   fee schedule \1\     episodes in FY 2001    separately to part B                              and billed
                                \2\                                                         separately to part B
----------------------------------------------------------------------------------------------------------------
     $37,526,132.26              6,170,887                  $6.08                    1.0                $6.08
----------------------------------------------------------------------------------------------------------------
\1\ Source: 1998 National Claims History Part B file extract for 178 codes matched to the 60-day episode file by
  beneficiary and dates of service.
\2\ Source: Calendar Year 1998 Episode file.
\3\ There exists no update to the DME Fee Schedule affecting Non Routine Medical Supplies for years 1999-2001.


                  Calculation for the Part B Therapies
------------------------------------------------------------------------
                Total number
                of episodes
                  for all
   Therapy      providers in     Average                       Updated
   services     the calendar   payment per   Physician fee     average
    billed       year 1998     episode for      schedule     payment per
separately to  file adjusted      part B     updates to FY   episode for
    part B     for estimated    therapies       2001 \3\       part B
                   total                                      therapies
                episodes in
                FY 2001 \2\
------------------------------------------------------------------------
$94,200,316.0     6,170,887         $15.27          1.157       $17.67
            8
------------------------------------------------------------------------
\1\ Source: 1998 National Claims History Part B extract file for 57 CPT
  therapy codes for Physician/Supplier claims and for the physical
  therapy, occupational therapy, and speech therapy revenue center codes
  matched to the 60 Day episode file by beneficiary and dates of
  service.

[[Page 41185]]

 
\2\ Source: Calendar Year 1998 Episode file.
\3\ Cumulative Update Factor for Part B Therapies based on Physician Fee
  Schedule Updates for years 1999-2001.

    Each component of the methodology is discussed below.
1. Cost Data--60-Day Episode Payment
    The audited cost data is discussed above in detail in section IV. 
of this 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 III. this regulation.
2. 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.
3. 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 each of fiscal years 2002 and 
2003, section 1895(b)(3)(B)(ii) of the Act requires 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 further 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 IV.B.2. of the 
regulation.
4. 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 pre-floor and 
pre-reclassified FY 2000 hospital wage index, which is based on FY 1996 
hospital wage data. For application of the wage index, the statute 
allows us to use the service area or any other area we specify. As 
noted in the proposed rule, 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. The best source of data on wage-index variation among 60-day 
episodes that was available for standardization was the episode data 
set that we constructed from 1998 Medicare home health claims.
    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 final rule, we were 
able to examine more data on case-mix variation than was available for 
the proposed rule. For the proposed rule, the only available data on 
episodes classified by HHRG was the Abt data set that was used to 
develop the HHRG case-mix classification system. For the final rule, we 
had access to an updated (and larger) Abt data set, early data from the 
OASIS national repository, and the 1998 episode file constructed from 
Medicare claims to which we were able to assign average therapy and 
non-therapy HHRG weights.
    We first compared the Abt data to the data from the OASIS national 
repository. We compared the distributions of the responses to the OASIS 
items used in constructing the HHRGs. In addition, we compared the 
distributions of the HHRGs for both of these data sets. This comparison 
had to be made using only 40 of the 80 HHRGs as therapy assignments 
could not be made from the national OASIS data. (Time lags in the 
receipt of claims for episodes corresponding to the OASIS from the 
national repository prevented us from making therapy assignments for 
the national OASIS data.) Despite this limitation, the comparisons we 
were able to make showed a high degree of similarity between the two 
data sources and increased our confidence that the Abt data set is 
representative of national case-mix variation.
    We next compared the Abt data to the 1998 episode data set derived 
from Medicare claims. In particular, we compared the distributions of 
estimated cost for the two data sets. Cost was estimated by multiplying 
the national per-visit costs for each discipline by the number of 
visits in each discipline and summing the total. Cost distributions 
were constructed for the Abt data using both samples, with and without 
applying the population weights described in the proposed rule. We 
found that the cost distribution of the unweighted Abt data matched the 
1998 episode data much more closely than did the weighted Abt data. 
From this analysis, we concluded that the unweighted Abt data provided 
a good basis for comparison of standardization factors.
    To make full use of the available data, we developed the following 
strategy for standardizing the episode amount:
     First, we estimated three standardization factors using 
the Abt data set. The first one accounts only for variation in wage 
index values; the second accounts for wage index and case-mix 
variation, using all 80 HHRGs; the third accounts for wage index and 
case-mix variation, using HHRG weights collapsed to therapy and non-
therapy averages. All three Abt standardization factors are very 
similar: .97510, .97945, and .97888, respectively.
     Then, we estimated two standardization factors using the 
1998 national claims episode data: a wage-only factor and a wage and 
two case-mix groups factor. The wage-only standardization factor was 
.95808, compared to .97510 for the

[[Page 41186]]

corresponding factor using the Abt data. The wage index and two case-
mix groups standardization factor was .96183, compared to .97887 for 
the corresponding factor from the Abt data.
    For several reasons, we decided to use the wage index and two case-
mix groups factor from the 1998 national claims data as the final 
standardization factor for this rule.
     First, the national claims data provides the most reliable 
estimate of the effects of wage index variation;
     Second, there was hardly any difference in the wage and 
case-mix standardization factors based on the Abt data using either 80 
HHRGs or the collapsed two-groups;
     Third, overall there was a high degree of similarity of 
values obtained from all of the various methods.
    Each of the 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 
(.77668) and added to the nonlabor-related proportion (.22332) 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.
5. Budget-Neutrality Factor
    To determine the budget neutrality adjustment, we use our most 
current estimate of incurred costs for home health expenditures in FY 
2001 under the interim payment system (IPS). Under the President's FY 
2001 Budget assumptions, we are projecting this amount to be $11,273 
million. This amount includes the medical supplies which were billed 
separately under IPS but will be bundled under PPS. Our best estimate 
of what would be spent in FY 2001 on Part B therapies not currently 
included in the home health benefit but which will be covered by the 
benefit under PPS is $109 million. We did not include this in the home 
health spending for the FY 2001 budget because we had not yet 
determined it needed to be added to the spending target. We are adding 
$109 million to the $11,273 million to determine the total spending 
target for home health PPS spending, $11,382 million. We are estimating 
that there would have been 137,271,000 visits incurred in FY 2001. The 
following table outlines the variables used to determine the 
adjustment:

----------------------------------------------------------------------------------------------------------------
             Period  (1)                     Visits  (2)        Visits/per episode  (3)  Number of episodes  (4)
----------------------------------------------------------------------------------------------------------------
CY 1997..............................              280,569,000                    30.99                9,054,000
CY 1998..............................              163,208,000                    26.88                6,072,000
FY 2001..............................              137,271,000  .......................  .......................
----------------------------------------------------------------------------------------------------------------

    Column (2) represents the actuaries' best estimate of the number of 
visits incurred in each of the time periods. These numbers differ from 
the number of visits in the episode files. The episode files were 
created to analyze visits per episode and were not meant to be the 
basis for the actual number of visits incurred in calendar years 1997 
and 1998.
    Column (3) was determined from the episode files we had created. 
Column (4) was determined by dividing Column (2) by Column (3) and 
rounding to the nearest thousand. From these numbers we need to 
determine the number of visits per episodes we would have if we had an 
episode file created for 2001. This would then allow us to determine 
the number of episodes there will be in 2001.
    From the table, we can see that the number of visits declined by 
about 42 percent from CY 1997 to CY 1998. The episode file analysis 
showed that one-third of this decline was due to a decline in the 
number of visits per episode. Between CY 1998 and FY 2001, we are 
projecting a further 16 percent decline in the number of visits. We are 
assuming that one-third of this decline will be attributable to the 
decline in the number of visits per episode. This results in number of 
visits per episode of 25.5. Dividing 137,271,000 visits by 25.5 results 
in 5,383,000 episodes. This would be the number of expected episodes if 
episodes were not all starting on October 1, 2001. Because all patients 
being served at the beginning of the fiscal year will be starting a new 
episode on October 1, we will be making more episode payments in that 
first year. We will be paying for an increased number of episodes in FY 
2001 compared to what would have been paid if patients entered PPS only 
after their current period of home health care ended. To account for 
this first-year anomaly, we increased the number of episodes by 3.66 
percent over the 5,383,000 determined above. This results in a 
projected number of episodes of 5,580,000 incurred in FY 2001. In 
fiscal years 2002 and later we will be adding $79 to the episode 
payment since this anomaly will no longer exist in those years.
    These 5,580,000 episodes need to be split into full episodes and 
LUPA episodes since our current number of projected visits includes 
both. We estimate that 5 percent of episodes will be ones with four or 
fewer visits. Therefore, 95 percent will receive a full episode 
payment. The 1998 episode file showed that 16 percent of episodes would 
have received a LUPA payment. Of this 16 percent, only 26 percent or 4 
percent of the total were cases where only 1 to 4 visits were provided 
in a single 60-day, non-contiguous period. These cases would clearly 
receive LUPA payments under PPS. Twelve percent of total episodes have 
less than five visits but were episodes which fell at the end of a 
series of prior episodes. Under a plan of care established for PPS 
these ``episode end'' visits may not exist. Because of the nature of 
how the episode file created LUPA episodes, we

[[Page 41187]]

feel that LUPA payments will make up a smaller portion of payments than 
was shown in the episode file. The determination of this adjustment 
factor to the episode payment is as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                                 Average full
      Number of LUPA episodes           Average LUPA      Number of full episodes (non-LUPA)  episode (non-LUPA)
                                           payment                                                  payment
----------------------------------------------------------------------------------------------------------------
    5,580,000  x  .05 = 279,000             $205.20        5,580,000  x  .95 = 5,301,000           $2,416.01
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                         LUPA            Full episode
------------------------------------------------------------------------
Projected Payments Before          (279,000  x  $205.20) + (5,301,000  x
 Neutrality                                     $2,416.01)
                                ----------------------------------------
                                   = $57.25 million    = $12,807 million
------------------------------------------------------------------------


 
                                 Projected Incurred Spending in FY 2001: $11,382
                                                     million
                             ------------------------------------------------------
                              Budget Neutrality Adjustment Factor = (11,382-57.25)/
                                                 12,807 = 0.88423
----------------------------------------------------------------------------------------------------------------
 

    After applying this adjustment to the full episode payments, we 
expect to have the following incurred payments in FY 2001: $57.25 
million for LUPA payments plus 5,301  x  $2,416.01  x  .88423 = $11,325 
million in full episode payments, totaling $11,382 million.

D. 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, PEP adjustment or the SCIC adjustment 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, (3) a per-
visit ongoing OASIS reporting adjustment as discussed above, and (4) a 
one-time one year adjustment reflecting costs associated with OASIS 
assessment schedule refinements needed to implement the case-mix 
methodology in section IV.G. of this regulation. We did not add a per-
visit rate adjustment for therapies possibly unbundled to Part B as we 
did for the per-episode payments. Based on the analysis of the Part B 
therapy date, we found that blending the higher and lower therapy per-
visit amounts creates an anomalous result. We know the per-visit 
amounts provided in Table 6 are appropriate. These per-visit ``prices'' 
would be updated in the same manner as the standard episode amount. 
However, as discussed in the responses to comment section, we have 
revised our approach to the calculation of the amount paid for each 
visit price per discipline. We are retaining the four or fewer visit 
threshold for the LUPA, but are increasing the proposed amount by using 
the standardized wage adjusted national average cost per visit by 
discipline amounts updated by the market basket to FY 2001. See the 
response to comment in section III. of this rule for further 
clarification.
    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 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    visit for
                                                            cost per       non
                                                            visit for    routine                                                             Final wage
                                                 Average       non       medical     Average    Ave cost per                                standardized
                                                cost per     routine    supplies    cost per   visit for one-                                 per visit
                                               visit from    medical    possibly    visit for    time OASIS    Standardization    Outlier      payment
         Home health discipline type             the PPS    supplies    unbundled    ongoing     scheduling    factor for wage  adjustment   amounts per
                                                  audit     reported   and billed     OASIS    implementation     index \1\     factor \2\     60-day
                                                 sample     as costs   separately  adjustment      change                                    episode for
                                                             on the     to part B   costs \3\                                                  FY 2001
                                                              cost         and
                                                             report    reimbursed
                                                                       on the fee
                                                                        schedule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Home Health Aide Services....................      $41.75       $1.71       $0.23       $0.12          $.21           .96674          1.05       $43.37
Medical Social Services......................      153.59        1.71        0.23        0.12           .21           .96674          1.05       153.55
Occupational Therapy. Services...............      104.76        1.71        0.23        0.12           .21           .96674          1.05       105.44

[[Page 41188]]

 
Physical Therapy Services....................      104.05        1.71        0.23        0.12           .21           .96674          1.05       104.74
Skilled Nursing Services.....................       94.96        1.71        0.23        0.12           .21           .96674          1.05        95.79
Speech Pathology Services....................      113.26        1.71        0.23        0.12           .21           .96674          1.05       113.81
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ (Based on 100% episode for episodes with 4 or fewer visits and wage index only standardization factor)
\2\ (Adjustment to PPS rate to account for 5% of total payments to outlier episodes)
\3\ (See Section II.A.3 for description of calculation of OASIS Adjustment cost)


 Calculation for Non Routine Medical Supplies Per-Visit Amount Included
                       in the Home Health Benefit
------------------------------------------------------------------------
                                                               Updated
                               Average cost                 average cost
 Non routine                  per visit for                   per visit
   medical                     non routine                     for non
   supplies     Total number     medical                       routine
 included in   of visits for     supplies                      medical
   the home        those       included in   Market basket    supplies
    health      providers in     the home    update factor   included in
 benefit and    the audited       health       to FY 2001     the home
 reported as    cost report    benefit and        \3\          health
 costs on the    sample \2\    reported as                   benefit and
 cost report                   costs on the                  reported as
     \1\                       cost report                  costs on the
                                                             cost report
------------------------------------------------------------------------
$234,547,615    145,658,396          $1.61         1.0643        $1.71
------------------------------------------------------------------------
\1\ Source: Audited Cost Report Data from the audit sample updated to FY
  2001 and weighted to National Totals.
\2\ Source: Calendar Year 1998 Episode file.
\3\ Cumulative Market Basked Update Factor for years 1999-2001.


 Calculation for Non Routine Medical Supplies Per-Visit Amount Possibly
                    Unbundled and Billed Under Part B
------------------------------------------------------------------------
                                                               Updated
 Non routine                     Average                       average
   medical                     payment per                   payment per
   supplies     Total number    visits for                   visits for
   possibly    of visits for   non routine      DME fee      non routine
unbundled and  all providers     medical        schedule       medical
    billed         in the        supplies     update to FY    supplies
separately to  calendar year     possibly       2001 \3\      possibly
  part B and   1998 file \2\  unbundled and                   unbundled
reimbursed on                     billed                     and billed
   the fee                    separately to                  separately
 schedule \1\                     part B                      to part B
------------------------------------------------------------------------
$37,526,132.2   163,208,000          $0.23            1.0        $0.23
            6
------------------------------------------------------------------------
\1\ Source: 1998 National Claims History Part B file extract for 178
  codes matched to the 60-day episode file by beneficiary and dates of
  service.
\2\ Source: Calendar Year 1998 Episode file.
\3\ There exists no update to the DME Fee Schedule affecting Non Routine
  Medical Supplies for years 1999-2001.


    Calculation for One-Time OASIS Scheduling Implementation for Form
                                 Changes
------------------------------------------------------------------------
                                                    Average payment per
  Total cost for OASIS    Total number of visits     visits for part B
       scheduling          for all providers in     therapies possibly
 implementation change    the calendar year 1998   unbundled and billed
          \1\                    file \2\          separately to part B
                                                    physician/supplier
------------------------------------------------------------------------
     $33,939,878 .50              163,208,000                  $0.21
------------------------------------------------------------------------
\1\ Episode Rate for OASIS Scheduling Implementation Change ($5.50) /
  the total number of episodes in 1998 (6,170,887).
\2\ Calendar year 1998 Episode File.

E. Methodology Used for Outlier Payments

    As discussed above, while we are not statutorily required to make 
provisions for outlier payments, we are establishing 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 are 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 are 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 the 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 
the fixed dollar loss. The outlier threshold for the SCIC adjustment

[[Page 41189]]

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 
wage adjusted estimated costs beyond the wage adjusted threshold. The 
threshold amount is the sum of the wage and case-mix adjusted PPS 
episode amount and the wage-adjusted fixed dollar loss amount. 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.
    We initially proposed a loss sharing ratio of .60 and a fixed 
dollar loss of 1.07 times the national standard episode payment amount. 
For the proposed rule, we estimated that with these variables, 7.5 
percent of total episodes would have qualified for an outlier payment 
while holding total outlier outlays at 5 percent of outlays in a given 
fiscal year. In response to comments, we are increasing the loss 
sharing ratio from 0.60 to 0.80 to provide greater compensation for the 
episodes that qualify for outlier payments. We believe that this change 
is appropriate and will continue to monitor the impacts of the outlier 
policy under PPS implementation.
    The simulations conducted for the proposed rule found that a loss 
sharing ratio of 0.80 would require a fixed dollar loss ratio of 1.35. 
We have rerun these simulations using the expanded and updated Abt data 
and are making some refinements in our simulation methods.
    The new simulations also reflect the refinements for wound cases 
that have been incorporated into the case-mix system. The results of 
the new simulations indicate that a fixed dollar loss ratio of 1.13 is 
consistent with a loss sharing ratio of 0.80. With these parameters, we 
estimate that about 6.8 percent of episodes would qualify for outlier 
payments with total outlier outlays equal to the required 5 percent.
    In estimating the final outlier policy parameters, we examined 
OASIS data from the national repository, an episode data set created 
from 1998 Medicare home health claims, and an updated and expanded data 
set from the Abt case-mix study. As noted in our discussion of 
standardization, we compared the OASIS and the Abt data in terms of the 
responses to the 18 OASIS items used for case-mix classification and in 
terms of the distribution of episodes across the HHRGs. We also 
compared the Abt and the 1998 episode data and found that the estimated 
cost distribution based on the pattern of visits within episodes was 
very similar in both sets of data. These comparisons increased our 
confidence in using the Abt data to simulate the outlier policy 
parameters. In addition, the Abt data is the most complete data 
currently available for estimating outlier policy variables. It 
contains information on all 80 HHRGs and a measure of resource cost for 
each episode. The Abt data set used for the final outlier policy is 
about 15 percent larger than the data set that was used for the 
estimates in the proposed rule.
    The fixed dollar loss estimate was based on simulations that 
calculated PPS payments and costs for each episode in the data set. 
Payments were calculated twice, once for a PPS without outlier payments 
and again for a PPS with outlier payments. For the payment system with 
outlier payments, the LUPA and episode payment amounts were deflated by 
1.05. Using a loss sharing ratio of 0.80, the simulation was repeated 
until a fixed dollar loss ratio was found that resulted in (1) equal 
total payments for the PPS with and without outlier payments, and (2) 
total outlier payments equal to 5 percent of total payments, including 
outlier payments. In addition, payment amounts were set to equate total 
payments and total costs. Because the Abt data does not represent all 
wage areas of the country, the simulations did not apply the wage index 
adjustments that will be applied to actual outlier payments. It was not 
possible to account for PEP or SCIC adjustments in the simulations.
    Simulations were performed to obtain the most reasonable estimates 
possible of the fixed dollar loss ratio consistent with the 5 percent 
outlier payment target. Based on the experience of the Phase II per-
episode prospective payment demonstration and the interim payment 
system, we were concerned that agencies may reduce utilization for 
high-cost episodes in response to the budget neutral episode payment 
rate. If our simulations failed to account for such reductions, the 
simulations might overestimate agencies' losses and lead us to set the 
fixed dollar loss amount higher than necessary to meet the 5 percent 
target. We incorporated estimates of cost reduction into our 
simulations that resulted in a lower fixed dollar loss ratio lower than 
would have been chosen otherwise. In general, we assumed that any 
reduction in payment rates below the level of the mean cost would be 
matched by a cost reduction of equal percentage.
    Simulations were also performed to test the sensitivity of the 
fixed dollar loss to alternative proportions of LUPA episodes. LUPAs 
can affect the fixed dollar loss ratio consistent with a 0.8 loss 
sharing ratio. Because they are paid much less than regular episodes, 
substantial differences in their frequency can affect estimated total 
payments. Due to the asymmetric impacts on outlier and total payments, 
variations in the frequency of LUPAs could potentially lead to either 
overestimation or underestimation of the 5 percent outlier target.
    LUPAs comprise 11.6 percent of the episodes in the Abt data used 
for the outlier simulations. Given the incentives under the PPS to 
obtain the 60-day episode payment rather than the LUPA payment, we 
believe that 11.6 percent overestimates the frequency of LUPAs that are 
likely to occur under PPS. As a result, we simulated the outlier policy 
under alternative percentage of LUPA episodes.
    It is also worth noting that the case-mix refinements for wound 
cases improved regular episode payments and reduced the need for 
outlier payments for these cases.
    The following is a case for illustrative purposes only. An HHA 
serves a Medicare beneficiary in State College PA. The HHA determines 
the patient is in HHRG C2F2S2. The patient had physician orders for and 
received 55 skilled nursing visits and 40 home health aide visits 
during the 60-day episode.
1. Calculation of the Wage-Adjusted Outlier Threshold
    The Wage-Adjusted Outlier Threshold Amount is the sum of the Wage 
and Case-Mix Adjusted 60-Day Episode Amount and the Wage-Adjusted Fixed 
Dollar Loss Amount.

a. Calculate Case-Mix and Wage-Adjusted Episode = $3,855.31
Case-Mix Weight = 1.9532

[[Page 41190]]

Standard 60-Day Prospective Episode Payment Amount = $2,115.30
Calculate the Case-Mix Adjusted Episode Payment
Multiply the Standard 60-Day Prospective Episode Payment Amount by the 
Applicable Case-Mix Weight = (1.9532 * $2,115.30) = $4,131.60
Divide the Case-Mix Adjusted Episode Payment into the Labor and Non-
Labor Portions
Labor Portion = (.77668 * $4131.60) = $3,208.93
Wage-Adjust the Labor Portion by Multiplying the Labor Portion by the 
Wage Index Factor (.9139 * $3,208.93) = $2,932.64
Calculate Non-Labor Portion = (.22332 * $4,131.60) = $922.67
Add Wage-Adjusted Labor Portion to Non-Labor Portion to Calculate the 
Total Case-Mix and Wage-Adjusted Episode Payment = (2,932.64 + $922.67) 
= $3,855.31
b. Calculate Wage-Adjusted Fixed Dollar Loss Amount = $2,230.45
Fixed Dollar Loss Amount = Standard 60-Day Episode Payment Multiplied 
by 1.13 ($2115.30 * 1.13) = $2,390.29
Divide Fixed Dollar Loss Amount into Labor and Non Labor Portions:
Calculate Labor Portion of Fixed Dollar Loss Amount = (.77668 * 
$2,390.29) = $1,856.49
Wage Adjust the Labor Portion by Multiplying the Labor Portion of the 
Fixed Dollar Loss by Multiplying the Labor Portion of the Fixed Dollar 
Loss Amount by the Wage Index (.9139 * $1,856.49) = $1,696.65
Calculate Non-Labor Portion of Fixed Dollar Loss Amount = (.22332 * 
$2,390.29) = $533.80
Calculate Total Wage Adjusted Fixed Dollar Loss Amount by adding the 
wage adjusted portion of the fixed dollar loss amount to the non labor 
portion of the fixed dollar loss amount ($1,696.65 + $533.80) = 
$2,230.45
Wage-Adjusted Outlier Threshold = Case-Mix and Wage-Adjusted Episode 
Amount + Wage Adjusted Fixed Dollar Loss Amount = ($3,855.31 + 
$2,230.45) = $6,085.76
2. Calculate the Wage-Adjusted Imputed Cost of the Episode
Multiply the total number of visits by the national average per-visit 
amounts listed in Table 6.
55 skilled nursing visits * $95.79 (national average per skilled 
nursing visit cost) = $5,268.45
40 home health aide visits * $43.37 (national average per home health 
aide visit cost) = $1,734.80
Calculate the wage-adjusted labor and non-labor portions for the 
imputed skilled nursing visit costs
Labor Portion = ($5,268.45* .77668) = $4,091.90
Adjust the labor portion by the wage index
Wage Adjusted Skilled Nursing Labor Portion = ($4,091.90 * .9139) = 
$3,739.59
Wage Adjusted Skilled Nursing Labor Portion = $3,739.59
Calculate the Skilled Nursing Non-Labor Portion
Non-Labor Portion = ($5,268.45 * .22332) = $1,176.55
Non-Labor Skilled Nursing Portion = $1,176.55
Total Wage Adjusted Imputed Costs for Skilled Nursing Visits = 
$4,916.14
(Wage Adjusted Skilled Nursing Labor Portion of $3,739.59 + Non-Labor 
Skilled Nursing Portion of $1,176.55) = $ 4,916.14
Calculate the wage adjusted labor and non-labor portions for the 
imputed home health aide visit costs
Labor Portion = ($1,734.80 * .77668) = $1,347.38
Adjust the labor portion by the wage index
Wage Adjusted Home Health Aide Labor Portion = ($1,347.38 * .9139) = 
$1,231.37
Wage Adjusted Home Health Aide Labor Portion = $1,231.37
Calculate the Home Health Aide Non-Labor Portion
Non-Labor Portion = ($1,734.80 * .22332) = $387.42
Non-Labor Home Health Aide Portion = $387.42
Total Wage Adjusted Imputed Costs for Home Health Aide Visits = 
$1,618.79
(Wage Adjusted Home Health Aide Labor Portion of $1,231.37 + Non-Labor 
Home Health Aide Portion of $387.42) = $ 1,618.79
Total Wage Adjusted Imputed Costs for Skilled Nursing and Home Health 
Visits During the 60 Day Episode = ($4,916.14 + $1,618.79) = $ 6,534.93
3. Calculate the Amount Absorbed by the HHA in Excess of the Outlier 
Threshold Subtract the Outlier Threshold from the Total Wage Adjusted 
Imputed Per-Visit Costs for the Episode
$6534.93 (Total Imputed Wage Adjusted Per-Visit Costs)--$6,085.76 
(Outlier Threshold) = $449.17
Imputed Amount in Excess of the Outlier Threshold = $449.17
4. Calculate Outlier Payment by Multiplying the Imputed Amount in 
Excess of the Outlier Threshold Absorbed by the HHA By the Loss Sharing 
Ratio (80%)
($449.17 (Imputed Amount in Excess of the Outlier Threshold Absorbed by 
the HHA * .80 (Risk Sharing Ratio) = $359.34
Outlier Payment = $359.34
The HHA in this illustrative example would receive the total case-mix 
and wage adjusted 60-day episode payment of $3,855.31 plus the 
additional outlier payment of $359.34
Total Payment (Episode & Outlier Payment) = ($3,855.31 + 359.34) = 
$4,214.65

F. 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 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                                   1.9532
 case-mix group................
Standardized Prospective                                       $2,115.30
 Payment Rate for FY 2001......

[[Page 41191]]

 
Calculate the Case-Mix adjusted     (1.9532 * $2,115.30)       $4,131.60
 Prospective Payment Rate for
 FY 2001.......................
Calculate the Labor portion of      (.77668 * $4,131.60)       $3,208.93
 the Prospective Payment Rate
 for FY 2001...................
Apply wage index factor from        (0.9139 * $3,208.93)       $2,932.64
 Table 4B for patient in State
 College, PA...................
Calculate the Non-Labor portion     (.22332 * $4,131.60)         $922.67
 of the Prospective Payment
 Rate for FY 2001..............
Calculate Total Prospective        ($2,932.64 + $922.67)       $3,855.31
 Payment Rate for FY 2001 by
 adding the labor and non labor
 portion of the case-mix and
 wage index amounts............
------------------------------------------------------------------------

    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                                   2.2360
 case-mix group................
Standardized Prospective                                       $2,115.30
 Payment Rate for FY 2001......
Calculate the Case-Mix adjusted     (2.2360 * $2,115.30)       $4,729.81
 Prospective Payment Rate for
 FY 2001.......................
Calculate the Labor portion of      (.77668 * $4,729.81)       $3,673.55
 the Prospective Payment Rate
 for FY 2001...................
Apply wage index factor from        (0.8637 * $3,673.55)       $3,172.85
 Table 4A for patient in Lake
 Placid, NY....................
Calculate the Nonlabor portion      (.22332 * $4,729.81)       $1,056.26
 of the Prospective Payment
 Rate for FY 2001..............
Calculate Total Prospective      ($3,172.85 + $1,056.26)       $4,229.11
 Payment Rate for FY 2001 by
 adding the labor and nonlabor
 portion of the case-mix and
 wage index amounts............
------------------------------------------------------------------------

    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                                   1.1973
 case-mix group................
Standardized Prospective                                       $2,115.30
 Payment Rate for FY 2001......
Calculate the Case-Mix adjusted     (1.1973 * $2,115.30)       $2,532.65
 Prospective Payment Rate for
 FY 2001.......................
Calculate the Labor portion of      (.77668 * $2,532.65)       $1,967.06
 the Prospective Payment Rate
 for FY 2001...................
Apply wage index factor from        (1.0303 * $1,967.06)       $2,026.66
 Table 4B for patient in Fort
 Collins, CO...................
Calculate the Non-Labor portion     (.22332 * $2,532.65)         $565.59
 of the Prospective Payment
 Rate for FY 2001..............
Calculate Total Prospective        ($2,026.66 + $565.59)       $2,592.25
 Payment Rate for FY 2001 by
 adding the labor and non labor
 portion of the case-mix and
 wage index amounts............
------------------------------------------------------------------------

    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                                    .8438
 case-mix group................
Standardized Prospective                                       $2,115.30
 Payment Rate for FY 2001......
Calculate the Case-Mix adjusted      (.8438 * $2,115.30)       $1,784.89
 Prospective Payment Rate for
 FY 2001.......................
Calculate the Labor portion of      (.77668 * $1,784.89)       $1,386.29
 the Prospective Payment Rate
 for FY 2001...................
Apply wage index factor from        (0.9098 * $1,386.29)       $1,261.25
 Table 4B for patient in Grand
 Forks, ND.....................
Calculate the Non-Labor portion     (.22332 * $1,784.89)         $398.60
 of the Prospective Payment
 Rate for FY 2001..............
Calculate Total Prospective        ($1,261.25 + $398.60)       $1,659.85
 Payment Rate for FY 2001 by
 adding the labor and non labor
 portion of the case-mix and
 wage index amounts............
------------------------------------------------------------------------

    Example 5. An HHA in Baltimore, MD assigns a patient to an HHRG at 
the start of a 60-day episode. The 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 request 
for advance 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 FY 2001
----------------------------------------------------------------\1\-----
1  Skilled Nursing Visit................................         $95.791
2  Home Health Aide Visit...............................         43.371
------------------------------------------------------------------------
\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.


[[Page 41192]]


------------------------------------------------------------------------
 
------------------------------------------------------------------------
Calculate the labor portion of         (.77668 * $95.79)          $74.40
 the Standardized Budget
 Neutral Per-Visit Payment
 Amount for 1 Skilled Nursing
 Visit.........................
Apply wage index factor from            (.9892 * $74.40)           73.60
 Table 4B for Baltimore, MD....
Calculate the non-labor portion        (.22332 * $95.79)           21.39
 of the Standardized Budget
 Neutral Per-Visit Payment
 Amount for 1 Skilled Nursing
 Visit.........................
SUBTOTAL--Low Utilization              ($73.60 + $21.39)           94.99
 Payment for 1 Wage Adjusted
 Skilled Nursing Visit rendered
 in a 60-day episode...........
Calculate the labor portion of         (.77668 * $43.37)           33.69
 the Standardized Budget
 Neutral Per-Visit Payment
 Amount for 1 home health aide
 visit.........................
Apply wage index factor from              (.9892*$33.69)           33.33
 Table 4B for Baltimore, MD....
Calculate the non-labor portion        (.22332 * $43.37)            9.69
 of the Standardized Budget
 Neutral Per-Visit Payment
 Amount for 1 home health aide
 visit.........................
SUBTOTAL--Low Utilization               ($33.33 + $9.69)           43.02
 Payment for 1 wage adjusted
 home health aide visit
 rendered in a 60-day episode..
Calculate Total Low Utilization        ($94.99 + $43.02)          138.01
 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.............
------------------------------------------------------------------------

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

1. Revisions to the Case-Mix Classification System
    In the proposed rule, we described a home health case-mix system 
developed under a research contract with Abt Associates, Inc., of 
Cambridge, Massachusetts. The case-mix system uses selected data 
elements from the OASIS assessment instrument and an additional data 
element measuring receipt of at least 10 visits for therapy services. 
The data elements are organized into three dimensions to capture 
clinical severity factors, functional severity factors, and services 
utilization factors influencing case-mix. In the clinical and 
functional dimensions, each data element is assigned a score value 
derived from multiple regression analysis of the Abt research data. The 
score value measures the impact of the data element on total resource 
use. Scores are also assigned to data elements in the services 
utilization dimension. To find a patient's case-mix group, the case-mix 
grouper sums the patient's scores within each of the three dimensions. 
The resulting sum is used to assign the patient to a severity level on 
each dimension. There are four clinical severity levels, five 
functional severity levels, and four services utilization severity 
levels. Thus, there are 80 possible combinations of severity levels 
across the three dimensions. Each combination defines one of the 80 
groups in the case-mix system. For example, a patient with high 
clinical severity, moderate functional severity, and low services 
utilization severity is placed in the same group with all other 
patients whose summed scores place them in the same set of severity 
levels for the three dimensions.
    The initial Abt Associates sample used to develop the system 
described in the proposed rule was subsequently augmented for a first 
round of refinements, as described in the proposed rule. Following 
publication of the proposed rule, we augmented the Abt Associates 
sample with the remaining outstanding data from the 90 participating 
agencies, with the intention of re-estimating the case-mix relative 
weights based on the latest, most complete data available. We also 
pursued another round of refinements to the system using the augmented 
data, in response to public comments we received. The sample for this 
phase of refinements consisted of 19,204 initial episodes from the 90 
agency participants.
    The public comments on case-mix are summarized with our responses 
elsewhere in the rule. Below we describe the process we used to revise 
the case-mix system and the results. The revised case-mix model and 
scoring system are summarized in Table 7, ``Home Health Resource Group 
Case-mix Classification Decision Tree Logic.''
    Test of newly added data. Before pursuing statistical modeling in 
response to comments, we checked the data newly added from the 
participating agencies for consistency with the previous data base. 
This involved re-estimating the regression equations that determined 
the scores, adding observations from the augmented, final sample. The 
results were consistent with the scores in the proposed rule. 
Additionally, we retested a short list of variables that were 
eliminated from the case-mix model at the end of the first round of 
refinements because of statistical insignificance. Upon retesting, they 
were still found to be statistically insignificant.
    Investigation of wound-related variables. In response to comments 
from the public, indicating that certain wound care patients had costs 
higher than predicted by the case-mix model, we returned to the wound-
related variables available on the OASIS for re-investigation. We used 
the learning subsample from the final, augmented sample. We tested 
three types of changes: Re-defining wound variables, adding more wound-
related variables, and adding variables to represent interactions of 
wound variables with other variables. Interactions capture additional 
potential sources of severity or cost impact associated with certain 
types of wound patients. For example, patients who have certain 
diagnoses may be more susceptible to slow-healing wounds.
    The statistical results suggested we could make meaningful score 
distinctions and create additional levels for the variables measuring 
the status of stasis ulcers and surgical wounds. In the proposed rule, 
the clinical dimension distinguished two statuses for the most 
problematic observable stasis ulcer--not healing (score=24) and all 
other statuses including no ulcer (score=0). The refined definition 
defines three statuses--early/partial granulation (score=14), not 
healing (score=22), and all other statuses including no observable 
ulcer (score=0). The proposed rule defined two statuses for the most 
problematic observable surgical wound--early/partial granulation or not 
healing (score=10) and all other statuses including no observable 
surgical wound (score=0). The refined definition defines three 
statuses--early/partial granulation (score=7), not healing (score=15), 
and all other statuses including no observable surgical wound 
(score=0).
    We also retested the variables measuring pressure ulcers. We found 
no contribution to the model from adding variables measuring the status 
of pressure ulcers when the stage of the most problematic observable 
pressure ulcer was already in the model. We also determined that 
defining status levels beyond the three included in the proposed rule 
did not produce meaningful differences in the scores.

[[Page 41193]]

Therefore, the final rule model continues to define three levels: stage 
1 or 2 (score=15), stage 3 or 4 (score=36), and all other (including no 
pressure ulcer and no observable pressure ulcer) (score=0). In 
addition, we tested whether the number of pressure ulcers made an 
independent contribution to explaining resource use. We found that 
having more than one pressure ulcer was a significant predictor of 
resource use when the multiple ulcers were stage 3 or 4. Therefore, the 
model in the final rule includes a variable adding 17 points if the 
patient has two or more stage 3 or 4 pressure ulcers.
    We tested a general variable that measured the presence of any kind 
of open wound, decubitus ulcer, stasis ulcer, or surgical wound, based 
on an affirmative answer to M0445 (does patient have a pressure 
ulcer?), M0468 (does patient have a stasis ulcer?), M0482 (does patient 
have a surgical wound), or reporting of wound diagnosis codes in M0230 
(primary home care diagnosis). This variable did not contribute 
statistically significant explanatory power when added to the model 
containing the other wound variables. However, we also tested 
separately a variable identifying burn or trauma patients with skin 
lesions or open wounds, identified from M0230 (primary diagnosis) and 
M0440 (does this patient have a skin lesion or an open wound?). This 
variable did contribute significantly and has been added to the model. 
The score for this variable is 21. The burn and trauma diagnosis code 
categories are shown in Table 8B.
    In addition, we examined the impact of selected diagnoses that may 
be associated with difficult-to-heal wounds, including diabetes, 
atherosclerosis, peripheral vascular disease, and heart failure. We 
tested whether patients with these diagnoses should be assigned a 
higher score for their wound severity. Most results were not 
statistically significant. A few results were inconsistent across 
measures of wound severity. We also tested a variable measuring whether 
limited mobility results in higher cost impact for severe pressure 
ulcers, but this variable did not contribute significantly to the model 
after all other variables were included. The reasons for the weak 
results and inconsistency are unclear, and we did not make any of these 
changes to the clinical dimension. We will continue to study these 
types of issues during further refinement work on larger samples with 
more detailed diagnostic data.
    Differences between the clinical dimension scores in the proposed 
rule and the final rule are generally small. Differences that do exist 
are attributable to our use of an augmented sample and the use of new 
variables related to wounds. In our model-building methodology, the 
scores in the functional dimension depend on results of the regression 
for deriving the clinical dimension scores. New scores for the 
functional dimension are very similar to the proposed-rule functional 
scores. Differences that do exist are attributable to the above-
mentioned changes to the clinical dimension. The changes in functional 
scoring lead to a slightly different set of severity-score level 
intervals compared to the functional scoring in the proposed rule. The 
functional severity-score intervals are now minimal severity: 0-2; low 
severity: 3-15; moderate severity: 16-23; high severity: 24-29; maximum 
severity: 30+. The frequency distribution of the sample observations 
across the functional severity levels is essentially unchanged.
    We validated the revised scoring for the clinical and functional 
dimensions using the validation subsample of the final, augmented 
sample. The results supported the scoring system developed with the 
learning subsample.
    Re-examination of severity levels in clinical dimension. In 
response to several comments on wound-care patients, we refined the 
severity-score intervals in the clinical dimension to better 
differentiate patients who are clinically most severe from remaining 
patients. The revised score intervals are as follows: minimal severity: 
0-7; low severity: 8-19; moderate severity: 20-40; high severity: 41+. 
To determine the refined severity-score intervals, we used the same 
process we followed in developing the case-mix system initially. We 
examined the array of scores for natural clustering and the impact of 
alternative sets of intervals on the proportion of variation explained 
by the model (R-squared). We also considered increases in the imbalance 
of the population across severity levels. The refined severity score 
intervals do result in more imbalance. The relative frequencies in the 
Abt sample for the revised clinical severity levels are 30 percent, 36 
percent, 28 percent, 6 percent, for minimal, low, moderate, and high 
clinical severity, respectively. In contrast, the previous model's 
corresponding percentages were 30 percent, 30 percent, 23 percent, 17 
percent. However, this change has also generally resulted in higher 
case-mix relative weights for the case-mix groups involving moderate 
and high clinical severity, where the most severe wound patients are 
likely to be found. It has also resulted in a wider range of weights 
for therapy-threshold case-mix groups and non-therapy-threshold case-
mix groups.
    Comparison with the earlier model. All combined, the refinements 
made to the case-mix model cause a modest improvement in explanatory 
power. The proportion of variation explained (R-squared) is now .34, 
compared to .32 for the model in the proposed rule. The model now 
provides for more adequate payment for wound care patients. Some of 
these high-cost patients would have been assigned to a different group 
under the model we presented in the proposed rule. Their removal from 
those earlier groups potentially results in a lower average cost, and 
lower case-mix weight, for those groups. We examined the impact on the 
array of relative case-mix weights across the case-mix groups. For the 
most part, we find generally small changes in the individual weights 
other than the weights for groups involving the moderate and high 
clinical severity levels.
    The case-mix system will continue to be studied and refined in 
future years. Larger and better data resources, and information 
accumulated from users like those who commented, will both contribute 
to the evolution of the system.
2. Diagnosis Coding Changes in the Revised Case-Mix Model
    When we published the proposed rule, we listed ICD-9-CM three-digit 
diagnosis category codes to identify orthopedic, neurologic, and 
diabetes diagnoses recognized in the clinical dimension. The scores 
associated with these diagnoses were based on analysis of the OASIS 
primary diagnosis item (M0230). A commenter pointed out that certain 
diagnoses within the category codes we listed should never be reported 
as primary diagnoses, according to ICD-9-CM coding rules and official 
coding guidelines. These diagnoses must be used with a higher-coded 
diagnosis that indicates the underlying disease. The affected category 
codes are 711, 712, 713, 720, 730, 731, 320, 321, 323, 330, 331, 334, 
336, 337, 357, 358.
    Accordingly, we have revised the diagnosis coding list. The revised 
list shows the complete code for the affected category codes, and is 
divided into two sections, one for primary diagnoses and one for 
secondary diagnoses (see Table 8A). The case-mix system will recognize 
the appropriate score for a diagnosis that should never be reported as 
a primary diagnosis, provided that the diagnosis appears as the first 
OASIS secondary diagnosis

[[Page 41194]]

(line b, under OASIS M0240) and that the code shows all digits required 
by ICD-9-CM coding guidelines. Remaining diagnoses from the affected 
categories must appear as the primary diagnosis (line a, under OASIS 
M0230) and the code must show all digits required by ICD-9-CM coding 
rules. The case-mix system will not recognize remaining diagnoses from 
the affected categories if they appear as a secondary diagnosis on the 
OASIS record. Nor will it recognize diagnoses that must never be 
reported as primary if they are placed on the primary diagnosis line 
(line a, M0230).
    The refined case-mix system recognizes burns and trauma primary 
diagnoses, if the OASIS item M0440 shows the patient has a skin lesion 
or open wound. The diagnosis code categories for burns and trauma 
diagnoses included in the case-mix system are shown in Table 8B.
    A lack of specificity in diagnosis code assignment may be a 
hindrance to case-mix refinement. Agencies that voluntarily code all 
diagnoses to the complete four- or five-digit level in accordance with 
ICD-9-CM coding rules would help us in subsequent review and 
examination of the case-mix methodology.

                Table 7.--Home Health Resource Group Case-Mix Classification Decision Tree Logic
----------------------------------------------------------------------------------------------------------------
                                            Clinical severity domain
-----------------------------------------------------------------------------------------------------------------
          OASIS+ Item                Description                    Value                         Scoring
----------------------------------------------------------------------------------------------------------------
M0230/M0240....................  Primary home care   --credit only the single highest     Min = 0-7
                                  diagnosis (or       value:                              Low = 8-19
                                  initial secondary  If Orthopedic diagnostic group       Mod = 20-40
                                  diagnosis ONLY      (DG)*, add 11 to score              High = 41+
                                  for selected ICD-  If Diabetes DG*, add 17 to score
                                  9 manifestation    If Neurological DG*, add 20 to
                                  codes).             score
M0250..........................  IV/Infusion/        --credit only the single highest
                                  Parenteral/         value:
                                  Enteral Therapies. If box 1, add 14 to score
                                                     If box 2, add 20 to score
                                                     If box 3, add 24 to score
M0390..........................  Vision............  If box 1 or 2, add 6 to score
M0420..........................  Pain..............  If box 2 or 3, add 5 to score
M0440..........................  Wound/Lesion......  If box 1 and M0230 is Burn/Trauma
                                                      DG*, add 21 to score
M0450..........................  Multiple pressure   If 2 or more stage 3 or 4 pressure
                                  ulcers.             ulcers, add 17 to score
M0460..........................  Most problematic    If box 1 or 2, add 15 to score
                                  pressure ulcer     If box 3 or 4, add 36 to score
                                  stage.
M0476..........................  Stasis ulcer        If box 2, add 14 to score
                                  status.            If box 3, add 22 to score
M0488..........................  Surgical wound      If box 2, add 7 to score
                                  status.            If box 3, add 15 to score
M0490..........................  Dyspnea...........  If box 2, 3 or 4, add 5 to score
M0530..........................  Urinary             If box 1 or 2, add 6 to score
                                  incontinence.
M0540..........................  Bowel incontinence  If box 2-5, add 9 to score
M0550..........................  Bowel ostomy......  If box 1 or 2, add 10 to score
M0610..........................  Behavioral          If box 1-6, add 3 to score
                                  Problems.
----------------------------------------------------------------------------------------------------------------
*See table for ICD9-CM codes included in each diagnosis group (DG)


----------------------------------------------------------------------------------------------------------------
                                            Functional status domain
-----------------------------------------------------------------------------------------------------------------
          OASIS+ Item                Description                    Value                         Scoring
----------------------------------------------------------------------------------------------------------------
M0650 (current)................  Dressing..........  If M0650 = box 1, 2 or 3             Min = 0-2
M0660 (current)................                          Or                   <3-ln }>    Low = 3-15
                                                      add 4 to score                      Mod = 16-23
                                                     M0660 = box 1, 2 or 3
M0670 (current)................  Bathing...........  If box 2, 3, 4 or 5 add 8 to score   High = 24-29
M0680 (current)................  Toileting.........  If box 2-4, add 3 to score           Max = 30+
M0690 (current)................  Transferring......  If box 1, add 3 to score
                                                     If box 2-5, add 6 to score
M0700 (current)................  Locomotion........  If box 1 or 2, add 6 to score
                                 ..................  If box 3-5, add 9 to score
----------------------------------------------------------------------------------------------------------------


 
                                           Service utilization domain
-----------------------------------------------------------------------------------------------------------------
            Variable                 Description                    Value                         Scoring
----------------------------------------------------------------------------------------------------------------
M0170--line 1..................  No Hospital         If box 1 IS BLANK, add 1 to score    Min = 0-2
                                  discharge past 14
                                  days.
M0170--line 2 or 3.............  Inpatient rehab/    If box 2 or 3, add 2 to score        Low = 3
                                  SNF discharge
                                  past 14 days.
Receipt of Therapy.............  10 or more therapy  If yes, add 4 to score               Mod = 4-6
                                  visits.                                                 High = 7
----------------------------------------------------------------------------------------------------------------


[[Page 41195]]


                              Table 8A.--Diagnosis Groups in the Clinical Dimension
 [Note: Codes shown at the 3-digit level include all the related 4- and 5-digit codes. Diagnoses coded with 4 or
                 5 digits must be coded as shown to receive a score in the clinical dimension.]
----------------------------------------------------------------------------------------------------------------
        Diagnosis group           ICD-9-CM Code                             Description
----------------------------------------------------------------------------------------------------------------
                                                Primary Diagnoses
----------------------------------------------------------------------------------------------------------------
DM.............................       250         DIABETES MELLITUS
NEURO..........................       013         CNS TUBERCULOSIS
NEURO..........................       045         ACUTE POLIOMYELITIS
NEURO..........................       046         CNS SLOW VIRUS INFECTION
NEURO..........................       047         ENTEROVIRAL MENINGITIS
NEURO..........................       048         OTH ENTEROVIRAL CNS DIS
NEURO..........................       049         OTH NONARTHROPOD CNS VIR
NEURO..........................       191         MALIGNANT NEOPLASM BRAIN
NEURO..........................       192         MAL NEO NERVE NEC/NOS
NEURO..........................       225         BENIGN NEO NERVOUS SYST
NEURO..........................       320.0       HEMOPHILUS MENINGITIS
NEURO..........................       320.1       PNEUMOCOCCAL MENINGITIS
NEURO..........................       320.2       STREPTOCOCCAL MENINGITI
NEURO..........................       320.3       STAPHYLOCOCC MENINGITIS
NEURO..........................       320.81      ANAEROBIC MENINGITIS
NEURO..........................       320.82      MNINGTS GRAM-NEG BCT NEC
NEURO..........................       320.89      MENINGITIS OTH SPCF BAC
NEURO..........................       320.9       BACTERIAL MENINGITIS NOS
NEURO..........................       322         MENINGITIS, UNSPECIFIED
NEURO..........................       323.5       POSTIMMUNIZAT ENCEPHALI
NEURO..........................       323.8       ENCEPHALITIS NEC
NEURO..........................       323.9       ENCEPHALITIS NOS
NEURO..........................       324         CNS ABSCESS
NEURO..........................       325         PHLEBITIS INTRCRAN SINU
NEURO..........................       326         LATE EFF CNS ABSCESS
NEURO..........................       330.0       LEUKODYSTROPHY
NEURO..........................       330.1       CEREBRAL LIPIDOSES
NEURO..........................       330.8       CEREB DEGEN IN CHILD NEC
NEURO..........................       330.9       CEREB DEGEN IN CHILD NOS
NEURO..........................       331.0       ALZHEIMER'S DISEASE
NEURO..........................       331.1       PICK'S DISEASE
NEURO..........................       331.2       SENILE DEGENERAT BRAIN
NEURO..........................       331.3       COMMUNICAT HYDROCEPHALU
NEURO..........................       331.4       OBSTRUCTIV HYDROCEPHALU
NEURO..........................       331.81      REYE'S SYNDROME
NEURO..........................       331.89      CEREB DEGENERATION NEC
NEURO..........................       331.9       CEREB DEGENERATION NOS
NEURO..........................       332         PARKINSON'S DISEASE
NEURO..........................       333         EXTRAPYRAMIDAL DIS NEC
NEURO..........................       334.0       FRIEDREICH'S ATAXIA
NEURO..........................       334.1       HERED SPASTIC PARAPLEGI
NEURO..........................       334.2       PRIMARY CEREBELLAR DEGE
NEURO..........................       334.3       CEREBELLAR ATAXIA NEC
NEURO..........................       334.8       SPINOCEREBELLAR DIS NEC
NEURO..........................       334.9       SPINOCEREBELLAR DIS NOS
NEURO..........................       335         ANT HORN CELL DISEASE
NEURO..........................       336.0       SYRINGOMYELIA
NEURO..........................       336.1       VASCULAR MYELOPATHIES
NEURO..........................       336.8       MYELOPATHY NEC
NEURO..........................       336.9       SPINAL CORD DISEASE NOS
NEURO..........................       337.0       IDIOPATH AUTO NEUROPATH
NEURO..........................       337.20      UNSP RFLX SYMPTH DYSTRP
NEURO..........................       337.21      RFLX SYM DYSTRPH UP LIM
NEURO..........................       337.22      RFLX SYM DYSTRPH LWR LM
NEURO..........................       337.29      RFLX SYM DYSTRPH OTH ST
NEURO..........................       337.3       AUTONOMIC DYSREFLEXIA
NEURO..........................       337.9       AUTONOMIC NERVE DIS NEC
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..........................       357.0       AC INFECT POLYNEURITIS

[[Page 41196]]

 
NEURO..........................       357.5       ALCOHOLIC POLYNEUROPATH
NEURO..........................       357.6       NEUROPATHY DUE TO DRUGS
NEURO..........................       357.7       NEURPTHY TOXIC AGENT NEC
NEURO..........................       357.8       INFLAM/TOX NEUROPTHY NEC
NEURO..........................       357.9       INFLAM/TOX NEUROPTHY NOS
NEURO..........................       358.0       MYASTHENIA GRAVIS
NEURO..........................       358.2       TOXIC MYONEURAL DISORDE
NEURO..........................       358.8       MYONEURAL DISORDERS NEC
NEURO..........................       358.9       MYONEURAL DISORDERS NOS
NEURO..........................       392         RHEUMATIC CHOREA
NEURO..........................       430         SUBARACHNOID HEMORRHAGE
NEURO..........................       431         INTRACEREBRAL HEMORRHAG
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
NEURO..........................       954         INJURY OTH TRUNK NERVE
NEURO..........................       955         INJ PERIPH NERV SHLD/ARM
NEURO..........................       956         INJ PERIPH NERV PELV/LEG
ORTHO..........................       170         MAL NEO BONE/ARTIC CART
ORTHO..........................       171         MAL NEO SOFT TISSUE
ORTHO..........................       213         BEN NEO BONE/ARTIC CART
ORTHO..........................       274         GOUT
ORTHO..........................       710         DIFF CONNECTIVE TISS DIS
ORTHO..........................       711.00      PYOGEN ARTHRITIS--UNSPEC
ORTHO..........................       711.01      PYOGEN ARTHRITIS--SHLDER
ORTHO..........................       711.02      PYOGEN ARTHRITIS--UP/ARM
ORTHO..........................       711.03      PYOGEN ARTHRITIS--FOREAR
ORTHO..........................       711.04      PYOGEN ARTHRITIS--HAND
ORTHO..........................       711.05      PYOGEN ARTHRITIS--PELVIS
ORTHO..........................       711.06      PYOGEN ARTHRITIS--L/LEG
ORTHO..........................       711.07      PYOGEN ARTHRITIS--ANKLE
ORTHO..........................       711.08      PYOGEN ARTHRITIS NEC
ORTHO..........................       711.09      PYOGEN ARTHRITIS--MULT
ORTHO..........................       711.90      INF ARTHRITIS NOS--UNSPE
ORTHO..........................       711.91      INF ARTHRITIS NOS--SHLDE
ORTHO..........................       711.92      INF ARTHRITIS NOS--UP/AR
ORTHO..........................       711.93      INF ARTHRIT NOS--FOREARM
ORTHO..........................       711.94      INF ARTHRIT NOS--HAND
ORTHO..........................       711.95      INF ARTHRIT NOS--PELVIS
ORTHO..........................       711.96      INF ARTHRIT NOS--L/LEG
ORTHO..........................       711.97      INF ARTHRIT NOS--ANKLE
ORTHO..........................       711.98      INF ARTHRIT NOS--OTH SIT
ORTHO..........................       711.99      INF ARTHRITIS NOS--MULT
ORTHO..........................       712.80      CRYST ARTHROP NEC--UNSPE
ORTHO..........................       712.81      CRYST ARTHROP NEC--SHLDE
ORTHO..........................       712.82      CRYST ARTHROP NEC--UP/AR
ORTHO..........................       712.83      CRYS ARTHROP NEC--FOREAR
ORTHO..........................       712.84      CRYST ARTHROP NEC--HAND
ORTHO..........................       712.85      CRYST ARTHROP NEC--PELVI
ORTHO..........................       712.86      CRYST ARTHROP NEC--L/LEG
ORTHO..........................       712.87      CRYST ARTHROP NEC--ANKLE
ORTHO..........................       712.88      CRY ARTHROP NEC--OTH SIT
ORTHO..........................       712.89      CRYST ARTHROP NEC--MULT
ORTHO..........................       712.90      CRYST ARTHROP NOS--UNSPE
ORTHO..........................       712.91      CRYST ARTHROP NOS--SHLDR
ORTHO..........................       712.92      CRYST ARTHROP NOS--UP/AR

[[Page 41197]]

 
ORTHO..........................       712.93      CRYS ARTHROP NOS--FOREAR
ORTHO..........................       712.94      CRYST ARTHROP NOS--HAND
ORTHO..........................       712.95      CRYST ARTHROP NOS--PELVI
ORTHO..........................       712.96      CRYST ARTHROP NOS--L/LEG
ORTHO..........................       712.97      CRYST ARTHROP NOS--ANKLE
ORTHO..........................       712.98      CRY ARTHROP NOS--OTH SIT
ORTHO..........................       712.99      CRYST ARTHROP NOS--MULT
ORTHO..........................       714         OTH INFLAMM POLYARTHROP
ORTHO..........................       716         ARTHROPATHIES NEC/NOS
ORTHO..........................       717         INTERNAL DERANGEMNT KNEE
ORTHO..........................       718         OTHER JOINT DERANGEMENT
ORTHO..........................       720.0       ANKYLOSING SPONDYLITIS
ORTHO..........................       720.1       SPINAL ENTHESOPATHY
ORTHO..........................       720.2       SACROILIITIS NEC
ORTHO..........................       720.89      INFLAM SPONDYLOPATHY NEC
ORTHO..........................       720.9       INFLAM SPONDYLOPATHY NOS
ORTHO..........................       721         SPONDYLOSIS ET AL
ORTHO..........................       722         INTERVERTEBRAL DISC DIS
ORTHO..........................       723         OTHER CERVICAL SPINE DIS
ORTHO..........................       724         BACK DISORDER NEC & NOS
ORTHO..........................       725         POLYMYALGIA RHEUMATICA
ORTHO..........................       728         DIS OF MUSCLE/LIG/FASCIA
ORTHO..........................       730.00      AC OSTEOMYELITIS--UNSP
ORTHO..........................       730.01      AC OSTEOMYELITIS--SHLDER
ORTHO..........................       730.02      AC OSTEOMYELITIS--UP/ARM
ORTHO..........................       730.03      AC OSTEOMYELITIS--FOREAR
ORTHO..........................       730.04      AC OSTEOMYELITIS--HAND
ORTHO..........................       730.05      AC OSTEOMYELITIS--PELVIS
ORTHO..........................       730.06      AC OSTEOMYELITIS--L/LEG
ORTHO..........................       730.07      AC OSTEOMYELITIS--ANKLE
ORTHO..........................       730.08      AC OSTEOMYELITIS NEC
ORTHO..........................       730.09      AC OSTEOMYELITIS--MULT
ORTHO..........................       730.10      CHR OSTEOMYELITIS--UNSP
ORTHO..........................       730.11      CHR OSTEOMYELIT--SHLDER
ORTHO..........................       730.12      CHR OSTEOMYELIT--UP/ARM
ORTHO..........................       730.13      CHR OSTEOMYELIT--FOREARM
ORTHO..........................       730.14      CHR OSTEOMYELIT--HAND
ORTHO..........................       730.15      CHR OSTEOMYELIT--PELVIS
ORTHO..........................       730.16      CHR OSTEOMYELIT--L/LEG
ORTHO..........................       730.17      CHR OSTEOMYELIT--ANKLE
ORTHO..........................       730.18      CHR OSTEOMYELIT NEC
ORTHO..........................       730.19      CHR OSTEOMYELIT--MULT
ORTHO..........................       730.20      OSTEOMYELITIS NOS--UNSPE
ORTHO..........................       730.21      OSTEOMYELITIS NOS--SHLDE
ORTHO..........................       730.22      OSTEOMYELITIS NOS--UP/AR
ORTHO..........................       730.23      OSTEOMYELIT NOS--FOREARM
ORTHO..........................       730.24      OSTEOMYELITIS NOS--HAND
ORTHO..........................       730.25      OSTEOMYELITIS NOS--PELVI
ORTHO..........................       730.26      OSTEOMYELITIS NOS--L/LEG
ORTHO..........................       730.27      OSTEOMYELITIS NOS--ANKLE
ORTHO..........................       730.28      OSTEOMYELIT NOS--OTH SIT
ORTHO..........................       730.29      OSTEOMYELITIS NOS--MULT
ORTHO..........................       730.30      PERIOSTITIS--UNSPEC
ORTHO..........................       730.31      PERIOSTITIS--SHLDER
ORTHO..........................       730.32      PERIOSTITIS--UP/ARM
ORTHO..........................       730.33      PERIOSTITIS--FOREARM
ORTHO..........................       730.34      PERIOSTITIS--HAND
ORTHO..........................       730.35      PERIOSTITIS--PELVIS
ORTHO..........................       730.36      PERIOSTITIS--L/LEG
ORTHO..........................       730.37      PERIOSTITIS--ANKLE
ORTHO..........................       730.38      PERIOSTITIS NEC
ORTHO..........................       730.39      PERIOSTITIS--MULT
ORTHO..........................       730.90      BONE INFEC NOS--UNSP SIT
ORTHO..........................       730.91      BONE INFECT NOS--SHLDER
ORTHO..........................       730.92      BONE INFECT NOS--UP/ARM
ORTHO..........................       730.93      BONE INFECT NOS--FOREARM
ORTHO..........................       730.94      BONE INFECT NOS--HAND
ORTHO..........................       730.95      BONE INFECT NOS--PELVIS
ORTHO..........................       730.96      BONE INFECT NOS--L/LEG
ORTHO..........................       730.97      BONE INFECT NOS--ANKLE

[[Page 41198]]

 
ORTHO..........................       730.98      BONE INFECT NOS--OTH SIT
ORTHO..........................       730.99      BONE INFECT NOS--MULT
ORTHO..........................       731.0       OSTEITIS DEFORMANS NOS
ORTHO..........................       731.2       HYPERTROPH OSTEOARTHROP
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 TRUNK 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
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..........................       887         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
----------------------------------------------------------------------------------------------------------------
                                               Secondary Diagnoses
 
  The following diagnoses should never be used as primary diagnoses, according to ICD-9-CM coding guidelines.
The case-mix system will recognize them in the clinical dimension if they appear as the first secondary
diagnosis (line b, M0240 on the OASIS record). Diagnoses coded with 4 or 5 digits must be coded as shown to be
recognized in the clinical dimension.
----------------------------------------------------------------------------------------------------------------
NEURO..........................       320.7       MENINGITIS IN OTH BAC
NEURO..........................       321.0       CRYPTOCOCCAL MENINGITIS
NEURO..........................       321.1       MENING IN OTH FUNGAL DI
NEURO..........................       321.2       MENING IN OTH VIRAL DIS
NEURO..........................       321.3       TRYPANOSOMIASIS MENINGI
NEURO..........................       321.4       MENINGIT D/T SARCOIDOSI
NEURO..........................       321.8       MENING IN OTH NONBAC DI
NEURO..........................       323.0       ENCEPHALIT IN VIRAL DIS
NEURO..........................       323.1       RICKETTSIAL ENCEPHALITI
NEURO..........................       323.2       PROTOZOAL ENCEPHALITIS
NEURO..........................       323.4       OTH ENCEPHALIT D/T INFE
NEURO..........................       323.6       POSTINFECT ENCEPHALITIS
NEURO..........................       323.7       TOXIC ENCEPHALITIS
NEURO..........................       330.2       CEREB DEGEN IN LIPIDOSI
NEURO..........................       330.3       CERB DEG CHLD IN OTH DI

[[Page 41199]]

 
NEURO..........................       331.7       CEREB DEGEN IN OTH DIS
NEURO..........................       334.4       CEREBEL ATAX IN OTH DIS
NEURO..........................       336.2       COMB DEG CORD IN OTH DI
NEURO..........................       336.3       MYELOPATHY IN OTH DIS
NEURO..........................       337.1       AUT NEUROPTHY IN OTH DI
NEURO..........................       357.1       NEURPTHY IN COL VASC DI
NEURO..........................       357.2       NEUROPATHY IN DIABETES
NEURO..........................       357.3       NEUROPATHY IN MALIG DIS
NEURO..........................       357.4       NEUROPATHY IN OTHER DIS
NEURO..........................       358.1       MYASTHENIA IN OTH DIS
ORTHO..........................       711.10      REITER ARTHRITIS--UNSPEC
ORTHO..........................       711.11      REITER ARTHRITIS--SHLDER
ORTHO..........................       711.12      REITER ARTHRITIS--UP/ARM
ORTHO..........................       711.13      REITER ARTHRITIS--FOREAR
ORTHO..........................       711.14      REITER ARTHRITIS--HAND
ORTHO..........................       711.15      REITER ARTHRITIS--PELVIS
ORTHO..........................       711.16      REITER ARTHRITIS--L/LEG
ORTHO..........................       711.17      REITER ARTHRITIS--ANKLE
ORTHO..........................       711.18      REITER ARTHRITIS NEC
ORTHO..........................       711.19      REITER ARTHRITIS--MULT
ORTHO..........................       711.20      BEHCET ARTHRITIS--UNSPEC
ORTHO..........................       711.21      BEHCET ARTHRITIS--SHLDER
ORTHO..........................       711.22      BEHCET ARTHRITIS--UP/ARM
ORTHO..........................       711.23      BEHCET ARTHRITIS--FOREAR
ORTHO..........................       711.24      BEHCET ARTHRITIS--HAND
ORTHO..........................       711.25      BEHCET ARTHRITIS--PELVIS
ORTHO..........................       711.26      BEHCET ARTHRITIS--L/LEG
ORTHO..........................       711.27      BEHCET ARTHRITIS--ANKLE
ORTHO..........................       711.28      BEHCET ARTHRITIS NEC
ORTHO..........................       711.29      BEHCET ARTHRITIS--MULT
ORTHO..........................       711.30      DYSENTER ARTHRIT--UNSPEC
ORTHO..........................       711.31      DYSENTER ARTHRIT--SHLDER
ORTHO..........................       711.32      DYSENTER ARTHRIT--UP/ARM
ORTHO..........................       711.33      DYSENTER ARTHRIT--FOREAR
ORTHO..........................       711.34      DYSENTER ARTHRIT--HAND
ORTHO..........................       711.35      DYSENTER ARTHRIT--PELVIS
ORTHO..........................       711.36      DYSENTER ARTHRIT--L/LEG
ORTHO..........................       711.37      DYSENTER ARTHRIT--ANKLE
ORTHO..........................       711.38      DYSENTER ARTHRIT NEC
ORTHO..........................       711.39      DYSENTER ARTHRIT--MULT
ORTHO..........................       711.40      BACT ARTHRITIS--UNSPEC
ORTHO..........................       711.41      BACT ARTHRITIS--SHLDER
ORTHO..........................       711.42      BACT ARTHRITIS--UP/ARM
ORTHO..........................       711.43      BACT ARTHRITIS--FOREARM
ORTHO..........................       711.44      BACT ARTHRITIS--HAND
ORTHO..........................       711.45      BACT ARTHRITIS--PELVIS
ORTHO..........................       711.46      BACT ARTHRITIS--L/LEG
ORTHO..........................       711.47      BACT ARTHRITIS--ANKLE
ORTHO..........................       711.48      BACT ARTHRITIS NEC
ORTHO..........................       711.49      BACT ARTHRITIS--MULT
ORTHO..........................       711.50      VIRAL ARTHRITIS--UNSPEC
ORTHO..........................       711.51      VIRAL ARTHRITIS--SHLDER
ORTHO..........................       711.52      VIRAL ARTHRITIS--UP/ARM
ORTHO..........................       711.53      VIRAL ARTHRITIS--FOREARM
ORTHO..........................       711.54      VIRAL ARTHRITIS--HAND
ORTHO..........................       711.55      VIRAL ARTHRITIS--PELVIS
ORTHO..........................       711.56      VIRAL ARTHRITIS--L/LEG
ORTHO..........................       711.57      VIRAL ARTHRITIS--ANKLE
ORTHO..........................       711.58      VIRAL ARTHRITIS NEC
ORTHO..........................       711.59      VIRAL ARTHRITIS--MULT
ORTHO..........................       711.60      MYCOTIC ARTHRITIS--UNSPE
ORTHO..........................       711.61      MYCOTIC ARTHRITIS--SHLDE
ORTHO..........................       711.62      MYCOTIC ARTHRITIS--UP/AR
ORTHO..........................       711.63      MYCOTIC ARTHRIT--FOREARM
ORTHO..........................       711.64      MYCOTIC ARTHRITIS--HAND
ORTHO..........................       711.65      MYCOTIC ARTHRITIS--PELVI
ORTHO..........................       711.66      MYCOTIC ARTHRITIS--L/LEG
ORTHO..........................       711.67      MYCOTIC ARTHRITIS--ANKLE
ORTHO..........................       711.68      MYCOTIC ARTHRITIS NEC
ORTHO..........................       711.69      MYCOTIC ARTHRITIS--MULT

[[Page 41200]]

 
ORTHO..........................       711.70      HELMINTH ARTHRIT--UNSPEC
ORTHO..........................       711.71      HELMINTH ARTHRIT--SHLDER
ORTHO..........................       711.72      HELMINTH ARTHRIT--UP/ARM
ORTHO..........................       711.73      HELMINTH ARTHRIT--FOREAR
ORTHO..........................       711.74      HELMINTH ARTHRIT--HAND
ORTHO..........................       711.75      HELMINTH ARTHRIT--PELVIS
ORTHO..........................       711.76      HELMINTH ARTHRIT--L/LEG
ORTHO..........................       711.77      HELMINTH ARTHRIT--ANKLE
ORTHO..........................       711.78      HELMINTH ARTHRIT NEC
ORTHO..........................       711.79      HELMINTH ARTHRIT--MULT
ORTHO..........................       711.80      INF ARTHRITIS NEC--UNSPE
ORTHO..........................       711.81      INF ARTHRITIS NEC--SHLDE
ORTHO..........................       711.82      INF ARTHRITIS NEC--UP/AR
ORTHO..........................       711.83      INF ARTHRIT NEC--FOREARM
ORTHO..........................       711.84      INF ARTHRITIS NEC--HAND
ORTHO..........................       711.85      INF ARTHRITIS NEC--PELVI
ORTHO..........................       711.86      INF ARTHRITIS NEC--L/LEG
ORTHO..........................       711.87      INF ARTHRITIS NEC--ANKLE
ORTHO..........................       711.88      INF ARTHRIT NEC--OTH SIT
ORTHO..........................       711.89      INF ARTHRITIS NEC--MULT
ORTHO..........................       712.10      DICALC PHOS CRYST--UNSPE
ORTHO..........................       712.11      DICALC PHOS CRYST--SHLDE
ORTHO..........................       712.12      DICALC PHOS CRYST--UP/AR
ORTHO..........................       712.13      DICALC PHOS CRYS--FOREAR
ORTHO..........................       712.14      DICALC PHOS CRYST--HAND
ORTHO..........................       712.15      DICALC PHOS CRYST--PELVI
ORTHO..........................       712.16      DICALC PHOS CRYST--L/LEG
ORTHO..........................       712.17      DICALC PHOS CRYST--ANKLE
ORTHO..........................       712.18      DICALC PHOS CRY--SITE NE
ORTHO..........................       712.19      DICALC PHOS CRYST--MULT
ORTHO..........................       712.20      PYROPHOSPH CRYST--UNSPEC
ORTHO..........................       712.21      PYROPHOSPH CRYST--SHLDER
ORTHO..........................       712.22      PYROPHOSPH CRYST--UP/ARM
ORTHO..........................       712.23      PYROPHOSPH CRYST--FOREAR
ORTHO..........................       712.24      PYROPHOSPH CRYST--HAND
ORTHO..........................       712.25      PYROPHOSPH CRYST--PELVIS
ORTHO..........................       712.26      PYROPHOSPH CRYST--L/LEG
ORTHO..........................       712.27      PYROPHOSPH CRYST--ANKLE
ORTHO..........................       712.28      PYROPHOS CRYST--SITE NEC
ORTHO..........................       712.29      PYROPHOS CRYST--MULT
ORTHO..........................       712.30      CHONDROCALCIN NOS--UNSPE
ORTHO..........................       712.31      CHONDROCALCIN NOS--SHLDE
ORTHO..........................       712.32      CHONDROCALCIN NOS--UP/AR
ORTHO..........................       712.33      CHONDROCALC NOS--FOREARM
ORTHO..........................       712.34      CHONDROCALCIN NOS--HAND
ORTHO..........................       712.35      CHONDROCALCIN NOS--PELVI
ORTHO..........................       712.36      CHONDROCALCIN NOS--L/LEG
ORTHO..........................       712.37      CHONDROCALCIN NOS--ANKLE
ORTHO..........................       712.38      CHONDROCALC NOS--OTH SIT
ORTHO..........................       712.39      CHONDROCALCIN NOS--MULT
ORTHO..........................       713.0       ARTHROP W ENDOCR/MET DI
ORTHO..........................       713.1       ARTHROP W NONINF GI DIS
ORTHO..........................       713.2       ARTHROPATH W HEMATOL DI
ORTHO..........................       713.3       ARTHROPATHY W SKIN DIS
ORTHO..........................       713.4       ARTHROPATHY W RESP DIS
ORTHO..........................       713.5       ARTHROPATHY W NERVE DIS
ORTHO..........................       713.6       ARTHROP W HYPERSEN REAC
ORTHO..........................       713.7       ARTHROP W SYSTEM DIS NE
ORTHO..........................       713.8       ARTHROP W OTH DIS NEC
ORTHO..........................       720.81      SPONDYLOPATHY IN OTH DI
ORTHO..........................       730.70      POLIO OSTEOPATHY--UNSPEC
ORTHO..........................       730.71      POLIO OSTEOPATHY--SHLDER
ORTHO..........................       730.72      POLIO OSTEOPATHY--UP/ARM
ORTHO..........................       730.73      POLIO OSTEOPATHY--FOREAR
ORTHO..........................       730.74      POLIO OSTEOPATHY--HAND
ORTHO..........................       730.75      POLIO OSTEOPATHY--PELVIS
ORTHO..........................       730.76      POLIO OSTEOPATHY--L/LEG
ORTHO..........................       730.77      POLIO OSTEOPATHY--ANKLE
ORTHO..........................       730.78      POLIO OSTEOPATHY NEC
ORTHO..........................       730.79      POLIO OSTEOPATHY--MULT

[[Page 41201]]

 
ORTHO..........................       730.80      BONE INFECT NEC--UNSPEC
ORTHO..........................       730.81      BONE INFECT NEC--SHLDER
ORTHO..........................       730.82      BONE INFECT NEC--UP/ARM
ORTHO..........................       730.83      BONE INFECT NEC--FOREARM
ORTHO..........................       730.84      BONE INFECT NEC--HAND
ORTHO..........................       730.85      BONE INFECT NEC--PELVIS
ORTHO..........................       730.86      BONE INFECT NEC--L/LEG
ORTHO..........................       730.87      BONE INFECT NEC--ANKLE
ORTHO..........................       730.88      BONE INFECT NEC--OTH SIT
ORTHO..........................       730.89      BONE INFECT NEC--MULT
ORTHO..........................       731.1       OSTEITIS DEF IN OTH DIS
ORTHO..........................       731.8       BONE INVOLV IN OTH DIS
----------------------------------------------------------------------------------------------------------------


                  Table 8B.--Burns and Trauma Diagnoses
  [Note: Codes shown at the 3-digit level include all of the related 4-
    and 5-digit codes. Burns and trauma diagnoses are included in the
 clinical dimension if the diagnosis is the primary diagnosis and if box
                 1 of the OASIS item M0440 is checked.]
------------------------------------------------------------------------
           ICD-9-CM code                         Description
------------------------------------------------------------------------
870...............................  OCULAR ADNEXA OPEN WOUND
872...............................  OPEN WOUND OF EAR
873...............................  OTHER OPEN WOUND OF HEAD
874...............................  OPEN WOUND OF NECK
875...............................  OPEN WOUND OF CHEST
876...............................  OPEN WOUND OF BACK
877...............................  OPEN WOUND OF BUTTOCK
878...............................  OPEN WOUND GENITAL ORGAN
879...............................  OPEN WOUND SITE NEC
880...............................  OPN WND SHOULDR/UPPR ARM
881...............................  OPEN WOUND OF LOWER ARM
882...............................  OPEN WOUND OF HAND
883...............................  OPEN WOUND OF FINGER
884...............................  OPEN WOUND ARM MULT/NOS
885...............................  TRAUM AMPUTATION THUMB
886...............................  TRAUM AMPUTATION FINGER
890...............................  OPEN WOUND OF HIP/THIGH
891...............................  OPEN WND KNEE/LEG/ANKLE
892...............................  OPEN WOUND OF FOOT
893...............................  OPEN WOUND OF TOE
894...............................  OPEN WOUND OF LEG NEC
895...............................  TRAUMATIC AMPUTATION TOE
941...............................  BURN OF HEAD/FACE/NECK
942...............................  BURN OF TRUNK
943...............................  BURN OF ARM
944...............................  BURN OF HAND & WRIST
945...............................  BURN OF LEG
946...............................  BURN OF MULTIPLE SITE
948...............................  BURN BY % BODY SURFACE
949...............................  BURN UNSPECIFIED
------------------------------------------------------------------------

3. Determining the Case-Mix Indices
    Calculation of the case-mix relative weights. We derived the 
relative weights for the case-mix groups from a straightforward 
multiple regression analysis. The data for the regression came from the 
Abt sample episodes with more than four visits (the same sample used to 
develop and validate the case-mix model).
    The coefficients that resulted from the regression equation are 
shown below. The multiple regression coefficients are estimates of the 
average addition to resource cost due to each severity level above the 
lowest-severity case-mix group (C0F0S0). For each case-mix group, the 
average resource cost is calculated from the sum of the appropriate 
regression coefficients. In the example below, the average resource 
cost for case-mix group C3F0S3 is the sum of the average resource cost 
for the base group (C0F0S0) plus the average additional cost due to C3 
plus the average additional cost due to S3. We then used the computed 
case-mix-group average resource costs to find the relative case-mix 
weights. Specifically, the case-mix group averages (that is, sum of 
appropriate regression coefficients) are divided by the overall average 
resource cost. The case-mix weights are shown in Table 9.
    The methodology for calculating the case-mix weights is the same 
one we used to find the case-mix weights in the proposed rule, except 
that we did not use weighted regression for the final rule. We 
determined that the distribution of the unweighted Abt Associates data 
better resembled the 1998 episode file distribution than did the 
weighted Abt Associates data. Thus, unweighted regression was the 
appropriate methodology. As stated in the proposed rule, we plan to 
refine 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.

Regression Coefficients for Calculating Case-Mix Relative Weights

Intercept*--$1,271.95
    C1--$230.98
    C2--$652.42
    C3--$1,620.75
    F1--$229.14
    F2--$479.30
    F3--$571.20
    F4--$976.08
    S1--$195.53
    S2--$2,315.15
    S3--$2,923.22
---------------------------------------------------------------------------

    * Intercept value is the average resource cost for the base 
group, C0F0S0.
---------------------------------------------------------------------------

Example:
Calculate case-mix relative weight for group C3F0S3
Overall average resource cost (scaled to national average episode 
cost): $2,416.00
Relative weight = average resource cost for group C3F0S3 divided by 
overall average resource cost = (base group cost +C3 increment +S3 
increment)/overall average resource cost = (1271.95 + 1620.75 + 
2923.22)/2416.00 = 2.4073

    Below we show the average resource cost calculated from the 
regression coefficients for each case-mix group.

------------------------------------------------------------------------
                                                              Average
                 Regression coefficient                    resource cost
------------------------------------------------------------------------
C0F0S0..................................................       $1,271.95
C0F0S1..................................................        1,467.48
C0F0S2..................................................        3,587.10
C0F0S3..................................................        4,195.17
C0F1S0..................................................        1,501.09
C0F1S1..................................................        1,696.62
C0F1S2..................................................        3,816.24
C0F1S3..................................................        4,424.31
C0F2S0..................................................        1,751.25
C0F2S1..................................................        1,946.77
C0F2S2..................................................        4,066.40
C0F2S3..................................................        4,674.46
C0F3S0..................................................        1,843.15
C0F3S1..................................................        2,038.68
C0F3S2..................................................        4,158.30

[[Page 41202]]

 
C0F3S3..................................................        4,766.37
C0F4S0..................................................        2,248.03
C0F4S1..................................................        2,443.56
C0F4S2..................................................        4,563.18
C0F4S3..................................................        5,171.25
C1F0S0..................................................        1,502.93
C1F0S1..................................................        1,698.46
C1F0S2..................................................        3,818.08
C1F0S3..................................................        4,426.15
C1F1S0..................................................        1,732.07
C1F1S1..................................................        1,927.60
C1F1S2..................................................        4,047.22
C1F1S3..................................................        4,655.29
C1F2S0..................................................        1,982.23
C1F2S1..................................................        2,177.75
C1F2S2..................................................        4,297.38
C1F2S3..................................................        4,905.45
C1F3S0..................................................        2,074.13
C1F3S1..................................................        2,269.66
C1F3S2..................................................        4,389.28
C1F3S3..................................................        4,997.35
C1F4S0..................................................        2,479.01
C1F4S1..................................................        2,674.54
C1F4S2..................................................        4,794.16
C1F4S3..................................................        5,402.23
C2F0S0..................................................        1,924.37
C2F0S1..................................................        2,119.90
C2F0S2..................................................        4,239.52
C2F0S3..................................................        4,847.59
C2F1S0..................................................        2,153.51
C2F1S1..................................................        2,349.04
C2F1S2..................................................        4,468.66
C2F1S3..................................................        5,076.73
C2F2S0..................................................        2,403.67
C2F2S1..................................................        2,599.19
C2F2S2..................................................        4,718.82
C2F2S3..................................................        5,326.89
C2F3S0..................................................        2,495.57
C2F3S1..................................................        2,691.10
C2F3S2..................................................        4,810.72
C2F3S3..................................................        5,418.79
C2F4S0..................................................        2,900.45
C2F4S1..................................................        3,095.98
C2F4S2..................................................        5,215.61
C2F4S3..................................................        5,823.67
C3F0S0..................................................        2,892.70
C3F0S1..................................................        3,088.23
C3F0S2..................................................        5,207.85
C3F0S3..................................................        5,815.92
C3F1S0..................................................        3,121.84
C3F1S1..................................................        3,317.37
C3F1S2..................................................        5,436.99
C3F1S3..................................................        6,045.06
C3F2S0..................................................        3,372.00
C3F2S1..................................................        3,567.52
C3F2S2..................................................        5,687.15
C3F2S3..................................................        6,295.22
C3F3S0..................................................        3,463.91
C3F3S1..................................................        3,659.43
C3F3S2..................................................        5,779.06
C3F3S3..................................................        6,387.12
C3F4S0..................................................        3,868.79
C3F4S1..................................................        4,064.31
C3F4S2..................................................        6,183.94
C3F4S3..................................................        6,792.00
------------------------------------------------------------------------

Construction of the Relative Weights for the HHRGs

    Table 9.--Relative Case-Mix Weights Corresponding to Home Health
                             Resource Groups
------------------------------------------------------------------------
                                                               Case-mix
            HHRG group                 HHRG description         weight
------------------------------------------------------------------------
C0F0S0...........................  ``Clinical=Min,                0.5265
                                    Functional=Min,
                                    Service=Min''.
C0F0S1...........................  ``Clinical=Min,                0.6074
                                    Functional=Min,
                                    Service=Low''.
C0F0S2...........................  ``Clinical=Min,                1.4847
                                    Functional=Min,
                                    Service=Mod''.
C0F0S3...........................  ``Clinical=Min,                1.7364
                                    Functional=Min,
                                    Service=High''.
C0F1S0...........................  ``Clinical=Min,                0.6213
                                    Functional=Low,
                                    Service=Min''.
C0F1S1...........................  ``Clinical=Min,                0.7022
                                    Functional=Low,
                                    Service=Low''.
C0F1S2...........................  ``Clinical=Min,                1.5796
                                    Functional=Low,
                                    Service=Mod''.
C0F1S3...........................  ``Clinical=Min,                1.8313
                                    Functional=Low,
                                    Service=High''.
C0F2S0...........................  ``Clinical=Min,                0.7249
                                    Functional=Mod,
                                    Service=Min''.
C0F2S1...........................  ``Clinical=Min,                0.8058
                                    Functional=Mod,
                                    Service=Low''.
C0F2S2...........................  ``Clinical=Min,                1.6831
                                    Functional=Mod,
                                    Service=Mod''.
C0F2S3...........................  ``Clinical=Min,                1.9348
                                    Functional=Mod,
                                    Service=High''.
C0F3S0...........................  ``Clinical=Min,                0.7629
                                    Functional=High,
                                    Service=Min''.
C0F3S1...........................  ``Clinical=Min,                0.8438
                                    Functional=High,
                                    Service=Low''.
C0F3S2...........................  ``Clinical=Min,                1.7212
                                    Functional=High,
                                    Service=Mod''.
C0F3S3...........................  ``Clinical=Min,                1.9728
                                    Functional=High,
                                    Service=High''.
C0F4S0...........................  ``Clinical=Min,                0.9305
                                    Functional=Max,
                                    Service=Min''.
C0F4S1...........................  ``Clinical=Min,                1.0114
                                    Functional=Max,
                                    Service=Low''.
C0F4S2...........................  ``Clinical=Min,                1.8887
                                    Functional=Max,
                                    Service=Mod''.
C0F4S3...........................  ``Clinical=Min,                2.1404
                                    Functional=Max,
                                    Service=High''.
C1F0S0...........................  ``Clinical=Low,                0.6221
                                    Functional=Min,
                                    Service=Min''.
C1F0S1...........................  ``Clinical=Low,                0.7030
                                    Functional=Min,
                                    Service=Low''.
C1F0S2...........................  ``Clinical=Low,                1.5803
                                    Functional=Min,
                                    Service=Mod''.
C1F0S3...........................  ``Clinical=Low,                1.8320
                                    Functional=Min,
                                    Service=High''.
C1F1S0...........................  ``Clinical=Low,                0.7169
                                    Functional=Low,
                                    Service=Min''.
C1F1S1...........................  ``Clinical=Low,                0.7978
                                    Functional=Low,
                                    Service=Low''.
C1F1S2...........................  ``Clinical=Low,                1.6752
                                    Functional=Low,
                                    Service=Mod''.
C1F1S3...........................  ``Clinical=Low,                1.9269
                                    Functional=Low,
                                    Service=High''.
C1F2S0...........................  ``Clinical=Low,                0.8205
                                    Functional=Mod,
                                    Service=Min''.
C1F2S1...........................  ``Clinical=Low,                0.9014
                                    Functional=Mod,
                                    Service=Low''.
C1F2S2...........................  ``Clinical=Low,                1.7787
                                    Functional=Mod,
                                    Service=Mod''.
C1F2S3...........................  ``Clinical=Low,                2.0304
                                    Functional=Mod,
                                    Service=High''.
C1F3S0...........................  ``Clinical=Low,                0.8585
                                    Functional=High,
                                    Service=Min''.
C1F3S1...........................  ``Clinical=Low,                0.9394
                                    Functional=High,
                                    Service=Low''.
C1F3S2...........................  ``Clinical=Low,                1.8168
                                    Functional=High,
                                    Service=Mod''.
C1F3S3...........................  ``Clinical=Low,                2.0684
                                    Functional=High,
                                    Service=High''.
C1F4S0...........................  ``Clinical=Low,                1.0261
                                    Functional=Max,
                                    Service=Min''.
C1F4S1...........................  ``Clinical=Low,                1.1070
                                    Functional=Max,
                                    Service=Low''.
C1F4S2...........................  ``Clinical=Low,                1.9843
                                    Functional=Max,
                                    Service=Mod''.
C1F4S3...........................  ``Clinical=Low,                2.2360
                                    Functional=Max,
                                    Service=High''.
C2F0S0...........................  ``Clinical=Mod,                0.7965
                                    Functional=Min,
                                    Service=Min''.
C2F0S1...........................  ``Clinical=Mod,                0.8774
                                    Functional=Min,
                                    Service=Low''.
C2F0S2...........................  ``Clinical=Mod,                1.7548
                                    Functional=Min,
                                    Service=Mod''.
C2F0S3...........................  ``Clinical=Mod,                2.0065
                                    Functional=Min,
                                    Service=High''.
C2F1S0...........................  ``Clinical=Mod,                0.8914
                                    Functional=Low,
                                    Service=Min''.

[[Page 41203]]

 
C2F1S1...........................  ``Clinical=Mod,                0.9723
                                    Functional=Low,
                                    Service=Low''.
C2F1S2...........................  ``Clinical=Mod,                1.8496
                                    Functional=Low,
                                    Service=Mod''.
C2F1S3...........................  ``Clinical=Mod,                2.1013
                                    Functional=Low,
                                    Service=High''.
C2F2S0...........................  ``Clinical=Mod,                0.9949
                                    Functional=Mod,
                                    Service=Min''.
C2F2S1...........................  ``Clinical=Mod,                1.0758
                                    Functional=Mod,
                                    Service=Low''.
C2F2S2...........................  ``Clinical=Mod,                1.9532
                                    Functional=Mod,
                                    Service=Mod''.
C2F2S3...........................  ``Clinical=Mod,                2.2048
                                    Functional=Mod,
                                    Service=High''.
C2F3S0...........................  ``Clinical=Mod,                1.0329
                                    Functional=High,
                                    Service=Min''.
C2F3S1...........................  ``Clinical=Mod,                1.1139
                                    Functional=High,
                                    Service=Low''.
C2F3S2...........................  ``Clinical=Mod,                1.9912
                                    Functional=High,
                                    Service=Mod''.
C2F3S3...........................  ``Clinical=Mod,                2.2429
                                    Functional=High,
                                    Service=High''.
C2F4S0...........................  ``Clinical=Mod,                1.2005
                                    Functional=Max,
                                    Service=Min''.
C2F4S1...........................  ``Clinical=Mod,                1.2814
                                    Functional=Max,
                                    Service=Low''.
C2F4S2...........................  ``Clinical=Mod,                2.1588
                                    Functional=Max,
                                    Service=Mod''.
C2F4S3...........................  ``Clinical=Mod,                2.4105
                                    Functional=Max,
                                    Service=High''.
C3F0S0...........................  ``Clinical=High,               1.1973
                                    Functional=Min,
                                    Service=Min''.
C3F0S1...........................  ``Clinical=High,               1.2782
                                    Functional=Min,
                                    Service=Low''.
C3F0S2...........................  ``Clinical=High,               2.1556
                                    Functional=Min,
                                    Service=Mod''.
C3F0S3...........................  ``Clinical=High,               2.4073
                                    Functional=Min,
                                    Service=High''.
C3F1S0...........................  ``Clinical=High,               1.2922
                                    Functional=Low,
                                    Service=Min''.
C3F1S1...........................  ``Clinical=High,               1.3731
                                    Functional=Low,
                                    Service=Low''.
C3F1S2...........................  ``Clinical=High,               2.2504
                                    Functional=Low,
                                    Service=Mod''.
C3F1S3...........................  ``Clinical=High,               2.5021
                                    Functional=Low,
                                    Service=High''.
C3F2S0...........................  ``Clinical=High,               1.3957
                                    Functional=Mod,
                                    Service=Min''.
C3F2S1...........................  ``Clinical=High,               1.4766
                                    Functional=Mod,
                                    Service=Low''.
C3F2S2...........................  ``Clinical=High,               2.3540
                                    Functional=Mod,
                                    Service=Mod''.
C3F2S3...........................  ``Clinical=High,               2.6056
                                    Functional=Mod,
                                    Service=High''.
C3F3S0...........................  ``Clinical=High,               1.4337
                                    Functional=High,
                                    Service=Min''.
C3F3S1...........................  ``Clinical=High,               1.5147
                                    Functional=High,
                                    Service=Low''.
C3F3S2...........................  ``Clinical=High,               2.3920
                                    Functional=High,
                                    Service=Mod''.
C3F3S3...........................  ``Clinical=High,               2.6437
                                    Functional=High,
                                    Service=High''.
C3F4S0...........................  ``Clinical=High,               1.6013
                                    Functional=Max,
                                    Service=Min''.
C3F4S1...........................  ``Clinical=High,               1.6822
                                    Functional=Max,
                                    Service=Low''.
C3F4S2...........................  ``Clinical=High,               2.5596
                                    Functional=Max,
                                    Service=Mod''.
C3F4S3...........................  ``Clinical=High,               2.8113
                                    Functional=Max,
                                    Service=High''.
------------------------------------------------------------------------

H. Consolidated Billing

1. 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. Section 305 of BBRA of 
1999 amended the consolidated billing language governing home health 
PPS by eliminating DME covered as a home health service from the 
consolidated billing requirements.
2. 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. As stated above, section 305 of BBRA of 1999 excludes DME 
covered as a home health service from the consolidated billing 
requirements.
    Specifically, the law requires, ``in the case of home health 
services (including medical supplies described in section 1861(m)(5), 
but excluding durable medical equipment to the extent provided for in 
such section) 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).''
    Moreover, there will be separate payment for DME items and services 
provided under the home health benefit, which are under the DME fee 
schedule. As discussed previously, 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 and will also be 
excluded from the consolidated billing requirements. In addition to the 
prospective payment amount for home health services a separate payment 
amount will be made for DME currently covered as a home health service 
under the PPS.
3. 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 all home health services included 
in section 1861(m) of the Act (including medical supplies described in 
section 1861(m)(5)) of the Act, but excluding DME to the extent 
provided for in such section), while the beneficiary is under the home 
health plan of care established by a physician and 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.

[[Page 41204]]

     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).
     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.
4. 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 (except DME) either directly or under an arrangement with an 
outside supplier in which the HHA itself, rather than the supplier, 
bills Medicare. With the exception of DME, the outside supplier must 
look to the HHA rather than to Medicare Part B for payment. 
Beneficiaries receiving DME prior to establishment of a home health 
plan of care, can continue the relationship with that same DME 
supplier. 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, (including 
medical supplies described in section 1861(m)(5) of the Act, but 
excluding DME to the extent provided in such section) ordered in the 
patient's plan of care must be billed by the HHA.
    As discussed in the proposed rule published on October 28, 1999, 
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 section 1861(m) of the Act, including 
medical supplies described in section 1861(m)(5) of the Act, but 
excluding DME as a home health service 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 Medicare home health benefit (except 
DME). 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 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). Furthermore, 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 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.
5. Effective Date for Consolidated Billing
    The effective date for consolidated billing is October 1, 2000.

V. Provisions of the Final Rule

    We are adopting the provisions of the proposed rule with the 
following revisions:

Section 409.43

    We revised paragraph (c) to clarify that the request for 
anticipated payment for the initial percentage payment is not a 
Medicare claim under the Act and subject to the requirement that the 
physician sign the plan of care before the HHA bills for the initial 
percentage payment. The request for anticipated payment for the initial 
percentage episode payment may be based on verbal orders that are 
copied into the plan of care with the plan of care being immediately 
submitted to the physician. However, the requests for anticipated 
payments may be modified or withheld in order to protect Medicare 
program integrity. However, the final percentage payment is a claim 
subject to the current physician signature requirements. We revised 
current paragraph (c) governing physician signature of the plan of 
care. Specifically, paragraph (c)(1) of this section specifies, ``If 
the physician signed plan of care is not available, the request for 
anticipated payment of the initial percentage payment must be based 
on--
     A physician's verbal order that--
    ++ Is recorded in the plan of care;
    ++ Includes a description of the patient's condition and the 
services to be provided by the home health agency;
    ++ Includes an attestation (relating to the physician's orders and 
the date received) signed and dated by the registered nurse or 
qualified therapist (as defined in 42 CFR 484.4) responsible for 
furnishing or supervising the ordered service in the plan of care; and
    ++ Is copied into the plan of care and the plan of care is 
immediately submitted to the physician; or
     A referral prescribing detailed orders for the services to 
be provided that is signed and dated by a physician.''
    In paragraph (c)(2) of this section, we specify that ``HCFA has the 
authority to reduce or disapprove requests for anticipated payments in 
situations when protecting Medicare program integrity warrants this 
action. Since the request for anticipated payment is based on verbal 
orders as specified in paragraphs (c)(1)(i) and/or a prescribing 
referral as specified in (c)(1)(ii) of this section and is not a 
Medicare claim for purposes of the Act (although it is a ``claim'' for 
purposes of Federal, civil, criminal, and administrative law 
enforcement authorities, including but not limited to the Civil 
Monetary Penalties Law (as defined in 42 U.S.C. 1320a-7a (i) (2)), the 
Civil False Claims Act (as defined in 31 U.S.C. 3729(c)), and the 
Criminal False Claims Act (18 U.S.C. 287)), the request for anticipated 
payment will be canceled and recovered unless the claim is submitted 
within the greater of 60 days from the end of the episode or 60 days 
from the issuance of the request for anticipated payment.''
    Paragraph (c)(3) of this section specifies that ``The plan of care 
must be signed and dated--
     By a physician as described who meets the certification 
and recertification requirements of Sec. 424.22 of this chapter and;

[[Page 41205]]

     Before the claim for each episode for services is 
submitted for the final percentage payment.''
    Paragraph (c)(4) of this section specifies that ``Any changes in 
the plan must be signed and dated by a physician.''

Section 409.43

    We revised the paragraph (e) of this section to clarify that the 
plan of care must be reviewed by the physician at least every 60 days 
or more frequently when there is a beneficiary elected transfer, 
significant change in condition, or discharge and return to the same 
HHA during the same 60-day episode.
    We also made a conforming change in paragraph (f) of this section 
regarding the termination of the plan of care by replacing ``62-day'' 
with ``60-day.'' We amended this paragraph to specify that if specific 
services are not provided to the beneficiary at least once every 60-
days, the plan of care is terminated unless the physician documents 
that the interval without this care is appropriate to the treatment of 
the beneficiary's condition.

Sections 409.100(a)(2), 410.150(b)(19), and 411.15(q)

    We revised the regulations at Secs. 409.100(a)(2), 410.150(b)(19), 
and 411.15(q) to conform to the BBRA revisions that eliminate DME from 
the consolidated billing requirements.

Section 413.64

    We revised Sec. 413.1(h) to clarify that durable medical equipment 
and the covered osteoporosis drug as defined in section 1861(m) of the 
Act are not included in the HHA PPS rate.
    We deleted Sec. 413.64(h)(2)(iv). This corresponds to our revision 
in the proposed rule to remove Part A and Part B home health services 
from Sec. 413.64(h)(1). PIP is eliminated for home health services upon 
implementation of PPS.

Section 424.22

    We are not adopting proposed paragraph (a)(1)(v) that would have 
required the physician to certify the correct HHRG.

Section 484.1(a)

    We amended this section by adding a new paragraph (3) to include 
the provision under the Act that provides the basis for establishing 
the new prospective payment system for home health services covered 
under Medicare.

Section 484.18

    We revised the paragraph (b) to clarify that the plan of care must 
be reviewed by the physician at least every 60 days or more frequently 
when there is a beneficiary elected transfer, significant change in 
condition, or discharge and return to the same HHA during the same 60-
day episode.

Section 484.55

    We revised paragraph (d)(1) to specify that the update to the 
comprehensive assessment is required the last five days of every 60 
days beginning with the start of care date unless there is an 
applicable payment adjustment. This clarification parallels the current 
OASIS requirements governing the timeframe of the update.

Section 484.202

    We amended this section by removing the term ``clinical model'' 
from the list of definitions because we did not use the term in this 
subpart.

Section 484.205

    We revised paragraph (a)(1) and (b) to clarify that the PPS 
payments are based on a predetermined rate for a home health service 
previously paid on a reasonable cost basis and that the osteoporosis 
drug covered under the home health benefit is the only home health 
service listed in section 1861(m) of the Act that continues to be paid 
on a reasonable cost basis under PPS. The revised language will read, 
``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 (except the osteoporosis drug listed in section 
1861(m) of the Act as defined in section 1861(kk) of the Act) as of 
August 5, 1997 * * *''
    We also clarify in paragraph (b) that all payments under this 
system must be subject to a medical review adjustment reflecting 
beneficiary eligibility, medical necessity determinations, and the HHRG 
assignment.
    We added paragraphs (b)(1) and (b)(2) that provides for the 
requirements governing the final split percentage payment approach. New 
paragraph (b)(1) governs the split percentage payment approach for 
initial episodes. The initial percentage payment for initial episodes 
is paid at 60 percent of the case-mix and wage adjusted 60 day episode 
rate. The residual final payment for initial episodes is paid at 40 
percent of the case-mix and wage adjusted 60 day episode rate. New 
paragraph (b)(2) governs the split percentage payment approach for 
subsequent episodes. The initial percentage payment for subsequent 
episodes is paid at 50 percent of the case-mix and wage adjusted 60 day 
episode rate. The residual final payment for subsequent episodes is 
paid at 50 percent of the case-mix and wage adjusted 60 day episode 
rate.
    We revised paragraph (d) of this section to clarify that PEP 
adjustments do not apply in situations of transfer among HHAs of common 
ownership as defined in Sec. 424.22. Those situations would be 
considered services provided under arrangement on behalf of the 
originating HHA by the receiving HHA with the common ownership interest 
for the balance of the 60-day episode. The common ownership exception 
to the transfer PEP adjustment does not apply if the beneficiary moves 
to a different MSA or Non-MSA during the 60-day episode before the 
transfer to the receiving HHA. The transferring HHA in situations of 
transfers among HHAs of common ownership not only serves as a billing 
agent, but must also exercise professional responsibility over the 
arranged-for services in order for services provided for under 
arrangements to be paid.

Section 484.215

    We renamed the heading of section 484.215 to clarify that the 
calculation reflects the initial establishment of the PPS rates. 
Section 484.215 has been revised to read ``Initial establishment of the 
calculation of the national 60-day episode payment.'' We revised 
paragraph (d)(4) to reflect the amounts that are added to the 
nonstandardized episode amount for the OASIS adjustment for the one 
time implementation costs associated with assessment scheduling form 
changes and amounts for Part B therapies that could have been unbundled 
to Part B prior to PPS implementation.

Section 424.220

    We revised Sec. 484.220 to specify that HCFA adjusts the national 
60-day episode payment rate to account for geographic differences in 
wage levels using an appropriate wage index based on the site of the 
service for the beneficiary.

Section 484.225(c)

    We revised paragraph (c) to reflect that for each of FYs 2002 and 
2003 the rates are updated by the applicable home health market basket 
minus 1.1 percentage points.

Section 484.230

    We revised the language in this section to reflect the higher per-
visit amounts that will be used to calculate the LUPA payments. The 
amounts will be referred to as national per-visit amounts. We also 
clarified that the wage

[[Page 41206]]

index are based on the site of service for the beneficiary.

Section 484.235

    We revised paragraph (b) to reflect the use of billable visit dates 
as the defining points for the PEP adjustment. The following phrase 
will be added to the end of the sentence, ``* * * based on the first 
billable visit date through and including the last billable visit 
date.''

Section 484.237

    We revised paragraphs (b)(1) and (b)(2) governing the SCIC 
adjustment to reflect the use of billable visit dates to define the 
span of days used to calculate the proportional payments both before 
and after a patient experiences a significant change in condition. In 
Secs. 484.237(b)(1) and (b)(2) we inserted the phrase ``(the first 
billable visit date through and including the last billable visit 
date)'' after the phrase ``span of days.''

Section 484.240

    We revised paragraph (d) to reflect the higher per- visit amounts 
that will be used to calculate the imputed costs for each episode for 
outlier payment determination. The amounts are referred to as national 
per-visit amounts.

Section 484.245

    We added new Sec. 484.245 that sets forth the processes involving 
accelerated payment requests by an HHA under PPS if there is a delay by 
the intermediary in making payment.

VI. Collection of Information Requirements

    Under the Paperwork Reduction Act 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 Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    However, the requirements summarized below are currently approved 
as indicated by the appropriate OMB control number.

Section 409.43  Plan of Care Requirements

    Section 409.43(c) states that a plan of care must be signed and 
dated by a physician and meets the certification and recertification 
requirements of Sec. 424.22 of this chapter, before the episode claim 
for services is submitted for the final percentage payment. This 
provision also states that any changes in the plan must be signed and 
dated by the physician. The requirements and burden associated with the 
plan of care are currently approved under OMB control numbers 0938-
0357, with a current expiration date of 11/30/2000, 0938-0760 with a 
current expiration date of 09/30/2000, and 0938-0761 with a current 
expiration date of 09/30/2000.
    Section 409.43(e) states that a plan of care must be reviewed, 
signed, and dated by the physician who reviews the plan of care (as 
specified in Sec. 409.42(b))in consultation with agency professional 
personnel at least every 60 days. The requirements and burden 
associated with the plan of care are currently approved under OMB 
control numbers 0938-0357, with a current expiration date of 11/30/
2000, 0938-0760 with a current expiration date of 09/30/2000, and 0938-
0761 with a current expiration date of 09/30/2000.

Section 424.22  Requirements for Home Health Services

    Section 424.22(b) states that a 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 
requirements and burden associated with the plan of care are currently 
approved under OMB control numbers 0938-0357, with a current expiration 
date of 11/30/2000, 0938-0760 with a current expiration date of 09/30/
2000, and 0938-0761 with a current expiration date of 09/30/2000.

Section 484.55  Comprehensive Assessment of Patients

    Section 484.55 states that an HHA must update the comprehensive 
assessment by completing the appropriate OASIS schedule the last five 
days of every 60 days beginning with the start of care date unless 
there is a PEP adjustment or SCIC adjustment. The new requirement 
replaces the current language regarding ``every second calendar month'' 
with every 60 days.'' The requirements and burden associated with the 
plan of care are currently approved under OMB control numbers 0938-
0357, with a current expiration date of 11/30/2000, 0938-0760 with a 
current expiration date of 09/30/2000, and 0938-0761 with a current 
expiration date of 09/30/2000.

Section 484.250  Patient Assessment Data.

    Section 484.250 states that an HHA must submit OASIS data to HCFA 
as 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. The requirements and burden associated with the plan of care 
are currently approved under OMB control numbers 0938-0357, with a 
current expiration date of 11/30/2000, 0938-0760 with a current 
expiration date of 09/30/2000, and 0938-0761 with a current expiration 
date of 09/30/2000.

VII. Regulatory Impact Analysis

    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 final rule would range from a positive $428 million for 
freestanding not-for-profit agencies to a negative $363 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 final 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

[[Page 41207]]

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 302 
of the BBRA amends section 1895(b)(3)(A)(ii) of the Act and delays the 
application of a 15 percent reduction in HHA PPS payment amounts until 
1 year after its implementation. Section 306 of the BBRA amends section 
1895(b)(3)(B)(ii) of 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 each of FYs 2002 and 
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 final 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 final 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 final 
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 March 16, 2000.

                Table 10.--Number of HHAs by Provider Type
------------------------------------------------------------------------
                                                                 Number
                       HHA Provider Type                         of HHAs
------------------------------------------------------------------------
Visiting Nurse Association....................................       451
Combination of Government & Voluntary.........................        35
Official Health Agency........................................       910
Rehabilitation Facility Based.................................         0
Hospital Based................................................     2,278
Skilled Nursing Facility Based................................       161
Other.........................................................     3,801
                                                               ---------
    Total.....................................................    7,636
------------------------------------------------------------------------
Source: HCFA--On Line Survey Certification and Reporting System Standard
  Report 10--March 16, 2000.

    The following RIA/RFA analysis, together with the rest of this 
preamble, explains the rationale for and purposes of this final rule.

A. Background

    This final rule establishes 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 OCESAA 
and sections 302, 305, and 306 of BBRA. The requirements include the 
implementation of a prospective payment system for home health agencies 
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. This final rule sets forth a 
prospective payment system for all costs of home health services under 
section 1895 of the Act.

B. Revisions to the Proposed Rule

    Below are listed a number of the significant changes to the 
proposed rule that are reflected in the final rule.
Section 409.100
    Section 305 of the BBRA excludes DME covered as a home health 
service from the consolidated billing requirements. Specifically, the 
law requires, ``in the case of home health services (including medical 
supplies described in section 1861(m)(5), but excluding durable medical 
equipment to the extent provided for in such section) 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, under HHA PPS there is a separate payment for DME items 
and services currently provided as a home health service and paid under 
the DME fee schedule. As discussed earlier, 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. Further, 
in accordance with the statue, as amended by section 305 of BBRA, DME 
is also excluded from the consolidated billing requirements. 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.
    HHAs will no longer be able to ``unbundle'' home health services 
(other than DME) to an outside supplier that can then submit a separate 
bill directly to the Part B carrier or DMERC. Instead, the HHA itself 
will have to furnish the home health services (except DME) 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, except in the case of DME. Beneficiaries receiving DME prior 
to establishment of a home health plan of care can continue the 
relationship with that same DME supplier. 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) (including medical supplies described in section 1861(m)(5), 
but excluding DME to the extent provided in such section) of the Act 
under a plan of care must be billed by the HHA.
Section 484.205
     We revised paragraph (a)(1) and (b) to clarify that the 
osteoporosis drug covered under the home health benefit is the only 
home health service listed in section 1861(m) of the Act that continues 
to be paid on a reasonable cost basis under PPS.
     We added paragraphs (b)(1) and (b)(2) that provides for 
the requirements governing the final split percentage payment approach. 
New paragraph (b)(1) governs the split percentage payment approach for 
initial episodes. The initial percentage payment for initial episodes 
is paid at 60 percent of the case-mix and wage adjusted 60 day episode 
rate. The residual final payment for initial episodes is paid at 40 
percent

[[Page 41208]]

of the case-mix and wage adjusted 60 day episode rate. New paragraph 
(b)(2) governs the split percentage payment approach for subsequent 
episodes. The initial percentage payment for subsequent episodes is 
paid at 50 percent of the case-mix and wage adjusted 60 day episode 
rate. The residual final payment for subsequent episodes is paid at 50 
percent of the case-mix and wage adjusted 60 day episode rate.
Section 484.215
    We revised paragraph (d)(4) to reflect the amounts that are added 
to the nonstandardized episode amount for the OASIS adjustment for the 
one time implementation costs associated with assessment scheduling 
form changes and amounts for Part B therapies that could have been 
unbundled to Part B prior to PPS implementation.
Section 484.225
    We revised paragraph (c) to reflect that for each of FYs 2002 and 
2003 the rates are updated by the applicable home health market basket 
minus 1.1 percentage points.
Section 484.230
    We revised the language in this section to reflect the higher per-
visit amounts that will be used to calculate the LUPA payments.
Section 484.235
    We revised paragraph (b) to reflect the use of billable visit dates 
as the defining points for the PEP adjustment.
Section 484.237
    We revised paragraphs (b)(1) and (b)(2) governing the SCIC 
adjustment to reflect the use of billable visit dates to define the 
span of days used to calculate the proportional payments both before 
and after a patient experiences a significant change in condition.
Section 484.240
    We revised paragraph (d) to reflect the higher per-visit amounts 
that will be used to calculate the imputed costs for each episode for 
outlier payment determination.

C. Effects of This Final Rule

    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). We also adopted the most current complete 
utilization data available from 1998.
    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 IPS. 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 and updating each agency's per-
beneficiary cap for FY 2000 by this same percentage. 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 563 Audited Cost
                         Report Sample Agencies
------------------------------------------------------------------------
                                                           Percentage
                    Type of agency                      change from  IPS
                                                             to PPS
------------------------------------------------------------------------
All Agencies.........................................                0.0
By Urban/Rural and Provider Type:
    Rural:
        Freestanding: For-Profit.....................              -7.50
            Governmental.............................              29.98
            Non-Profit...............................              13.28
        Provider Based...............................               5.31
    Urban:
        Freestanding: For-Profit.....................             -14.25
            Governmental.............................              20.58
            Non-Profit...............................              18.89
        Provider Based...............................              -2.50
By Provider Type:
    Freestanding: For-Profit.........................             -12.77
        Governmental.................................              26.50
        Non-Profit...................................              17.88
    Provider Based...................................              -1.03
By Urban/Rural:
    Rural Agencies...................................               5.94
    Urban Agencies...................................              -0.08
By Region:
    Midwest States...................................              14.77
    Northeast States.................................              15.37
    Southern States..................................             -16.75
    Western States...................................              17.84
------------------------------------------------------------------------


[[Page 41209]]

    Table 11 represents the projected effects of the HHA PPS and is 
based on the 563 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 IPS payment methodology to the PPS payment methodology. 
These cost limits have already had the effect of reducing many extremes 
in the cost of the system; therefore, as a result of IPS, 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. The 
effect of IPS payment restraint combined with the improvements in this 
final rule have significantly reduced the degree of variation between 
providers and regions as well as the overall impact of the rule. 
Because we believe it was important that the impact tables provide the 
most accurate representation possible, it was necessary for us to use 
the data set drawn upon from the audited cost report file. This file of 
course is nationally representative and these data become decreasingly 
valid when divided into smaller geographic areas. Thus, the lowest 
level of analysis we could reasonably provide using this data is the 
four census regions. Any finer level of analysis would introduce a 
level of statistical error that we believe would be unacceptable.
    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 IPS 
payment methodology to the final PPS payment methodology. Because the 
statute requires aggregate payments under the HHA PPS and HHA IPS 
payment methodology to be budget neutral, the effect on agencies in the 
aggregate is zero.
    Rural freestanding for-profit HHAs experience an 7.50 percent 
decrease in moving from the IPS payment methodology to the PPS payment 
methodology. Rural freestanding governmental HHAs experience an 29.98 
percent increase in moving from the IPS payment methodology to the PPS 
payment methodology. Rural freestanding nonprofit HHAs experience an 
13.28 percent increase in moving from the IPS payment methodology to 
the PPS payment methodology. Rural provider-based HHAs, in the 
aggregate, experience an 5.31 percent increase in moving from the IPS 
payment methodology to the PPS payment methodology. Rural agencies, in 
the aggregate, experience an 5.94 percent increase in moving from the 
IPS payment methodology to the PPS payment methodology.
    Urban freestanding for-profit HHAs experience an 14.25 percent 
decrease in moving from the IPS payment methodology to the PPS payment 
methodology. Urban freestanding governmental HHAs experience an 20.58 
percent increase in moving from the IPS payment methodology to the PPS 
payment methodology. Urban freestanding nonprofit HHAs experience an 
18.89 percent increase in moving from the IPS payment methodology to 
the PPS payment methodology. Urban provider-based HHAs, in the 
aggregate, experience an 2.50 percent decrease in moving from the IPS 
payment methodology to the PPS payment methodology. Urban agencies, in 
the aggregate, experience an 0.08 percent decrease in moving from the 
IPS payment methodology to the PPS payment methodology.
    The current IPS 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 12.77 
percent decrease in moving from the IPS payment methodology to the PPS 
payment methodology. Freestanding governmental HHAs, in the aggregate, 
experience an 26.50 percent increase in moving from the IPS payment 
methodology to the PPS payment methodology. Freestanding nonprofit 
HHAs, in the aggregate, experience an 17.88 percent increase in moving 
from the IPS payment methodology to the PPS payment methodology. 
Provider-based HHAs, in the aggregate, experience an 1.03 percent 
decrease in moving from the IPS 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 IPS 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 3.8 
percent of total home health expenditures and, therefore, the large 
increase attributed to them has little impact in the aggregate system 
costs.
    Provider-based agencies historically tended to have, as a group, 
higher per-visit costs. As could be anticipated, the payment 
differential reflected in this impact table for provider-based agencies 
is in a negative direction, but relatively modest, probably due to the 
cost discipline already in place due to IPS.
    HHAs in the Midwest region experience an 14.77 percent increase in 
moving from the IPS payment methodology to the PPS payment methodology. 
HHAs in the Northeast region experience an 15.37 percent increase in 
moving from the IPS payment methodology to the PPS payment methodology. 
HHAs in the South region experience an 16.75 percent decrease in moving 
from the IPS payment methodology to the PPS payment methodology. HHAs 
in the West region experience an 17.84 percent increase in moving from 
the IPS

[[Page 41210]]

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 IPS 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, that region that had the highest unexplained costs 
for home health services is the most impacted area (South region). In 
contrast, the Midwest, Northeast, and West regions 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.
    It should be noted that to the degree that agencies respond to the 
incentives of the prospective payment system and apply resources 
commensurate with the measured characteristics of their patients, the 
impacts predicted in this model will further be reduced.

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.

Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct compliance costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have reviewed this final rule under the threshold 
criteria of Executive Order 13132, Federalism. We have determined that 
this final 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 is 
amended as follows:

PART 409--HOSPITAL INSURANCE BENEFITS

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

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

    2. Amend Sec. 409.43 as follows:
    A. Revise paragraphs (c) and (e).
    B. Amend paragraph (f) by removing the phrase ``62-day'' and adding 
in its place the phrase ``60-day.''


Sec. 409.43  Plan of care requirements.

* * * * *
    (c) Physician signature. (1) Request for Anticipated payment 
signature requirements. If the physician signed plan of care is not 
available at the time the HHA requests an anticipated payment of the 
initial percentage prospective payment in accordance with Sec. 484.205, 
the request for the anticipated payment must be based on--
    (i) A physician's verbal order that--
    (A) Is recorded in the plan of care;
    (B) Includes a description of the patient's condition and the 
services to be provided by the home health agency;
    (C) Includes an attestation (relating to the physician's orders and 
the date received) signed and dated by the registered nurse or 
qualified therapist (as defined in 42 CFR 484.4) responsible for 
furnishing or supervising the ordered service in the plan of care; and
    (D) Is copied into the plan of care and the plan of care is 
immediately submitted to the physician; or
    (ii) A referral prescribing detailed orders for the services to be 
rendered that is signed and dated by a physician.
    (2) Reduction or disapproval of anticipated payment requests. HCFA 
has the authority to reduce or disapprove requests for anticipated 
payments in situations when protecting Medicare program integrity 
warrants this action. Since the request for anticipated payment is 
based on verbal orders as specified in paragraph (c)(1)(i) and/or a 
prescribing referral as specified in (c)(1)(ii) of this section and is 
not a Medicare claim for purposes of the Act (although it is a 
``claim'' for purposes of Federal, civil, criminal, and administrative 
law enforcement authorities, including but not limited to the Civil 
Monetary Penalties Law (as defined in 42 U.S.C. 1320a-7a (i) (2)), the 
Civil False Claims Act (as defined in 31 U.S.C. 3729(c)), and the 
Criminal False Claims Act (18 U.S.C. 287)), the request for anticipated 
payment will be canceled and recovered unless the claim is submitted 
within the greater of 60 days from the end of the episode or 60 days 
from the issuance of the request for anticipated payment.
    (3) Final percentage payment signature requirements. The plan of 
care must be signed and dated--
    (i) By a physician as described who meets the certification and 
recertification requirements of Sec. 424.22 of this chapter; and
    (ii) Before the claim for each episode for services is submitted 
for the final percentage prospective payment.
    (4) Changes to the plan of care signature requirements. Any changes 
in the plan must be signed and dated by a physician.
* * * * *
    (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 or more frequently 
when 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.
    (2) Each review of a beneficiary's plan of care must contain the 
signature of the

[[Page 41211]]

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 (including medical supplies described 
in section 1861(m)(5) of the Act, but excluding durable medical 
equipment to the extent provided for in such section) 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 (42 
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 (including 
medical supplies described in section 1861(m)(5) of the Act, but 
excluding durable medical equipment to the extent provided for in such 
section) 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).

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 (42 
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 (including medical supplies described in 
section 1861(m)(5) of the Act, but excluding durable medical equipment 
to the extent provided for in such section) 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. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a),(i) and 
(n), 1861(v), 1871, 1881, 1883, and 1866 of the Social Security Act 
(42 U.S.C. 1302, 1395f(b), 1395g, 1395l(a),(i) and (n), 1395x(v), 
1395hh, 1395rr, 1395tt, and 1395ww).

    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 (except 
durable medical equipment and the covered osteoporosis drug as provided 
for in that section) 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. Amend Sec. 413.64 by:
    A. Amending paragraph (h)(1) to remove the phrase ``and for both 
Part A and Part B HHA services'' at the end of the paragraph.
    B. Removing paragraph (h)(2)(iv) and redesignating paragraphs 
(h)(2)(v) and (h)(2)(vi) as paragraphs (h)(2)(iv) and (h)(2)(v) 
respectively.

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 (42 
U.S.C. 1302 and 1895hh).

    2. In Sec. 424.22, revise paragraph (b)(1) to read as follows:


Sec. 424.22  Requirements for home health services.

* * * * *
    (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 when 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), unless otherwise indicated.

    2. Revise the heading for part 484 to read as set forth above.
    3. Add a new paragraph (a)(3) to Sec. 484.1 to read as follows:


Sec. 484.1  Basis and scope.

    (a) Basis and scope. * * *
    (3) Section 1895 provides for the establishment of a prospective 
payment system for home health services covered under Medicare.
* * * * *


Sec. 484.18  [Amended]

    4. In Sec. 484.18, in paragraph (b), remove the phrase ``62 days'' 
and in its place add the phrase ``60 days or more frequently when 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.''

    5. In Sec. 484.55, revise paragraph (d)(1) to read as follows:


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

* * * * *

[[Page 41212]]

    (d) Standard: Update of the comprehensive assessment. 
* * * * *
    (1) The last five days of 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.
* * * * *
    6. Add and reserve a new subpart D.
    7. Add a new subpart E 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   Initial establishment of 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.
484.245   Accelerated payments for home health agencies.
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.
    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).
    Home health 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. An HHA receives a national prospective 60-
day episode payment of a predetermined rate for a home health service 
previously paid on a reasonable cost basis (except the osteoporosis 
drug defined in section 1861(kk) of the Act) as of August 5, 1997. The 
national 60-day episode payment is determined in accordance with 
Sec. 484.215. The national prospective 60-day episode payment is 
subject to the following adjustments and additional payments:
    (1) A low-utilization payment adjustment (LUPA) of a predetermined 
per-visit rate as specified in Sec. 484.230.
    (2) A partial episode payment (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. The PEP adjustment 
is determined in accordance with Sec. 484.235.
    (3) A significant change in condition (SCIC) payment 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. The SCIC adjustment is determined in accordance 
with Sec. 484.237.
    (4) An outlier payment is determined in accordance with 
Sec. 484.240.
    (b) Episode payment. The national prospective 60-day episode 
payment represents payment in full for all costs associated with 
furnishing home health services previously paid on a reasonable cost 
basis (except the osteoporosis drug listed in section 1861(m) of the 
Act as defined in section 1861(kk) of the Act) as of August 5, 1997 
unless the national 60-day episode payment is subject to a low-
utilization payment adjustment set forth in Sec. 484.230, a partial 
episode payment adjustment set forth at Sec. 484.235, a significant 
change in condition payment set forth at Sec. 484.237, or an additional 
outlier payment set forth in Sec. 484.240. All payments under this 
system may be subject to a medical review adjustment reflecting 
beneficiary eligibility, medical necessity determinations, and HHRG 
assignment. DME provided as a home health service as defined in section 
1861(m) of the Act continues to be paid the fee schedule amount.
    (1) Split percentage payment for initial episodes. The initial 
percentage payment for initial episodes is paid to an HHA at 60 percent 
of the case-mix and wage adjusted 60-day episode rate. The residual 
final payment for initial episodes is paid at 40 percent of the case-
mix and wage adjusted 60-day episode rate. Split percentage payments 
are made in accordance with requirements at Sec. 409.43(c) of this 
chapter.
    (2) Split percentage payment for subsequent episodes. The initial 
percentage payment for subsequent episodes is paid to an HHA at 50 
percent of the case-mix and wage adjusted 60-day episode rate. The 
residual final payment for subsequent episodes is paid at 50 percent of 
the case-mix and wage adjusted 60-day episode rate. Split percentage 
payments are made in accordance with requirements at Sec. 409.43(c) of 
this chapter.
    (c) Low-utilization payment. An HHA receives a national 60-day 
episode payment of a predetermined rate for home health services 
previously 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. A low- 
utilization payment adjustment is determined in accordance with 
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 
previously 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 as defined in Sec. 424.22 of this chapter. Those situations 
would be considered services provided under arrangement on behalf

[[Page 41213]]

of the originating HHA by the receiving HHA with the common ownership 
interest for the balance of the 60-day episode. The common ownership 
exception to the transfer PEP adjustment does not apply if the 
beneficiary moves to a different MSA or Non-MSA during the 60-day 
episode before the transfer to the receiving HHA. The transferring HHA 
in situations of common ownership not only serves as a billing agent, 
but must also exercise professional responsibility over the arranged-
for services in order for services provided under arrangements to be 
paid. 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. A partial episode payment adjustment 
is determined in accordance with 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. A SCIC adjustment is determined in accordance with 
Sec. 484.237.
    (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 imputed cost of 
the 60-day episode exceeds a threshold amount. The outlier payment is 
defined to be a proportion of the imputed 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. An outlier payment is 
determined in accordance with 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  Initial establishment of 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 calculates the unadjusted 
national 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 the amount derived in paragraph (d)(3) of this 
section, amounts for nonroutine medical supplies, an OASIS adjustment 
for estimated ongoing reporting costs, an OASIS adjustment for the one 
time implementation costs associated with assessment scheduling form 
changes and amounts for Part B therapies that could have been unbundled 
to Part B prior to October 1, 2000. The resulting amount is the 
unadjusted national 60-day episode rate.
    (e) Standardization of the data for variation in area wage levels 
and case-mix. HCFA standardizes--
    (1) 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;
    (2) The cost data for geographic variation in wage levels using the 
hospital wage index; and
    (3) 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 adjusted national 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--
    (a) HHA case-mix using a case-mix index to explain the relative 
resource utilization of different patients; and
    (b) Geographic differences in wage levels using an appropriate wage 
index based on the site of service of the beneficiary.


Sec. 484.225  Annual update of the unadjusted national 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 home health market 
basket index factors.
    (c) For fiscal years 2002 and 2003, the unadjusted national 
prospective 60-day episode payment rate is updated by a factor equal to 
the applicable home health market basket minus 1.1 percentage points.
    (d) For subsequent fiscal years, the unadjusted national rate is 
equal to the rate for the previous fiscal year increased by the 
applicable home health 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 per-visit 
amount by

[[Page 41214]]

discipline updated annually by the applicable market basket for each 
visit type. The national per-visit amount is determined by using cost 
data set forth in Sec. 484.210(a) and adjusting by the appropriate wage 
index based on the site of service for the beneficiary.


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

    (a) HCFA makes a PEP 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 based on the first billable visit date through and including the 
last billable visit date.
    (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 SCIC 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 payment adjustment is calculated in two parts.
    (1) The first part of the SCIC payment 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 (the first 
billable visit date through and including the last billable visit date) 
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 payment 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 (the 
first billable visit date through and including the last billable visit 
date) through 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 imputes the cost for each episode by multiplying the 
national per-visit amount of each discipline by the number of visits in 
the discipline and computing the total imputed cost for all 
disciplines.
    (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 payment under home health PPS.


Sec. 484.245  Accelerated payments for home health agencies.

    (a) General rule. Upon request, an accelerated payment may be made 
to an HHA that is receiving payment under the home health prospective 
payment system if the HHA is experiencing financial difficulties 
because there is a delay by the intermediary in making payment to the 
HHA.
    (b) Approval of payment. An HHA's request for an accelerated 
payment must be approved by the intermediary and HCFA.
    (c) Amount of payment. The amount of the accelerated payment is 
computed as a percentage of the net payment for unbilled or unpaid 
covered services.
    (d) Recovery of payment. Recovery of the accelerated payment is 
made by recoupment as HHA bills are processed or by direct payment by 
the HHA.


Sec. 484.250  Patient assessment data.

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


Sec. 484.260  Limitation on review.

    An HHA is not entitled to judicial or administrative review under 
sections 1869 or 1878 of the Act, or otherwise, with regard to the 
establishment of the payment unit, including the national 60-day 
prospective episode payment rate, adjustments and outlier payments. An 
HHA is not entitled to the review regarding 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: June 19, 2000.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Dated: June 22, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 00-16432 Filed 6-28-00; 2:00 pm]
BILLING CODE 4120-01-P