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



[[Page 49761]]

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

Part II





Department of Health and Human Services





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



Centers for Medicare & Medicaid Services



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



42 CFR Part 484



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

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

[[Page 49762]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 484

[CMS-1541-FC]
RIN 0938-AO32


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

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

ACTION: Final rule with comment period.

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

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

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

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

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

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

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

Table of Contents

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

[[Page 49763]]

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

I. Background

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

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

B. Deficit Reduction Act of 2005

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

C. Updates to the HH PPS

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

[[Page 49764]]

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

D. System for Payment of Home Health Services

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

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

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

[[Page 49765]]

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

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

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

[[Page 49766]]

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

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

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

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

[[Page 49767]]

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

[[Page 49768]]

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

[[Page 49769]]

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

[[Page 49770]]

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

B. Case-Mix Model Refinements

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

[[Page 49771]]

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

[[Page 49772]]

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

[[Page 49773]]

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

[[Page 49774]]

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

[[Page 49775]]

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

Chronic Ischemic Heart Disease

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

[[Page 49776]]

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

[[Page 49777]]

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

[[Page 49778]]

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

[[Page 49779]]

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

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

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

[[Page 49780]]

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

[[Page 49781]]

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

[[Page 49782]]

[GRAPHIC] [TIFF OMITTED] TR29AU07.000


[[Page 49783]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.001


[[Page 49784]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.002


[[Page 49785]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.003


[[Page 49786]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.004


[[Page 49787]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.005


[[Page 49788]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.006


[[Page 49789]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.007


[[Page 49790]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.008


[[Page 49791]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.009


[[Page 49792]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.010


[[Page 49793]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.011


[[Page 49794]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.012


[[Page 49795]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.013


[[Page 49796]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.014


[[Page 49797]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.015


[[Page 49798]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.016


[[Page 49799]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.017


[[Page 49800]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.018


[[Page 49801]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.019


[[Page 49802]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.020


[[Page 49803]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.021


[[Page 49804]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.022


[[Page 49805]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.023


[[Page 49806]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.024


[[Page 49807]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.025


[[Page 49808]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.026


[[Page 49809]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.027


[[Page 49810]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.028


[[Page 49811]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.029


[[Page 49812]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.030


[[Page 49813]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.031


[[Page 49814]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.032


[[Page 49815]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.033


[[Page 49816]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.034


[[Page 49817]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.035


[[Page 49818]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.036


[[Page 49819]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.037


[[Page 49820]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.038


[[Page 49821]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.039


[[Page 49822]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.040


[[Page 49823]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.041


[[Page 49824]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.042


[[Page 49825]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.043


[[Page 49826]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.044


[[Page 49827]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.045


[[Page 49828]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.046


[[Page 49829]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.047


[[Page 49830]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.048


[[Page 49831]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.049


[[Page 49832]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.050

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

[[Page 49833]]

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

[[Page 49834]]

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

[[Page 49835]]

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

[[Page 49836]]

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

[[Page 49837]]

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

[[Page 49838]]

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

[[Page 49839]]

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

[[Page 49840]]

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

[[Page 49841]]

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

[[Page 49842]]

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

[[Page 49843]]

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

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


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

[[Page 49844]]

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


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

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

[[Page 49845]]

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

[[Page 49846]]

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

C. Payment Adjustments

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

[[Page 49847]]

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

[[Page 49848]]

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

[[Page 49849]]

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

[[Page 49850]]

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

[[Page 49851]]

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

[[Page 49852]]

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

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


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

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

[[Page 49853]]



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


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


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

[[Page 49854]]

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

[[Page 49855]]

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

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

D. The Outlier Policy

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

[[Page 49856]]

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

[[Page 49857]]

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

E. The Update of the HH PPS Rates

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

[[Page 49858]]

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

[[Page 49859]]

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

[[Page 49860]]

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

[[Page 49861]]

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

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

[[Page 49862]]

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

[[Page 49863]]

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

[[Page 49864]]

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

[[Page 49865]]



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

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

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

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

[[Page 49866]]

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

[[Page 49867]]

[GRAPHIC] [TIFF OMITTED] TR29AU07.051

BILLING CODE 4120-01-C

[[Page 49868]]

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

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

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

[[Page 49869]]

[GRAPHIC] [TIFF OMITTED] TR29AU07.052


[[Page 49870]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.053

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

Example 3. Calculation of an Outlier Payment

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

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

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

= $2,270.32

    Calculate the case-mix adjusted episode payment:

[[Page 49871]]

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

$2,270.32 x 1.9413 = $4,407.37

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

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

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

0.9860 x $3,397.29 = $3,349.73

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

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

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

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

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

$2,270.32 x 0.89 = $2,020.58

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

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

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

$1,557.50 x 0.9860 = $1,535.70

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

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

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

$551.00 x 0.89 = $490.39

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

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

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

$378.00 x 0.9860 = $372.71

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

$372.71 + $112.39 = $485.10

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

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

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

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

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

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

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

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

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

0.9860 x $2,426.00 = $2,392.04

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

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

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

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

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

0.9860 x $732.43 = $722.18

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

$722.18 + $217.77 = $939.95

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

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

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

0.9860 x $1,149.47 = $1,133.38

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

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

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

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

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

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

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

$617.62 x 0.80 = $494.10 = outlier payment

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

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

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

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

[[Page 49872]]



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

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

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

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

[[Page 49873]]



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

IV. Provisions of the Final Rule With Comment Period

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

V. Collection of Information Requirements

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

[[Page 49874]]

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

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

VI. Regulatory Impact Analysis

A. Overall Impact

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

[[Page 49875]]

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

B. Anticipated Effects

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

[[Page 49876]]

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

[[Page 49877]]

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

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

[[Page 49878]]

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

C. Accounting Statement

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

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

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

List of Subjects in 42 CFR Part 484

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

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

PART 484--HOME HEALTH SERVICES

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

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

Subpart E--Prospective Payment System for Home Health Agencies


Sec.  484.205  [Amended]

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

[[Page 49879]]

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


Sec.  484.205  Basis of payment.

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

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


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

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

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


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

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


Sec.  484.237  [Removed]

0
5. Remove Sec.  484.237.

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


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

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

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


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

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

BILLING CODE 4120-01-P

[[Page 49880]]

[GRAPHIC] [TIFF OMITTED] TR29AU07.054


[[Page 49881]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.055


[[Page 49882]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.056


[[Page 49883]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.057


[[Page 49884]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.058


[[Page 49885]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.059


[[Page 49886]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.060


[[Page 49887]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.061


[[Page 49888]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.062


[[Page 49889]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.063


[[Page 49890]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.064


[[Page 49891]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.065


[[Page 49892]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.066


[[Page 49893]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.067


[[Page 49894]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.068


[[Page 49895]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.069


[[Page 49896]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.070


[[Page 49897]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.071


[[Page 49898]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.072


[[Page 49899]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.073


[[Page 49900]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.074


[[Page 49901]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.075


[[Page 49902]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.076


[[Page 49903]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.077


[[Page 49904]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.078


[[Page 49905]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.079


[[Page 49906]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.080


[[Page 49907]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.081


[[Page 49908]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.082


[[Page 49909]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.083


[[Page 49910]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.084


[[Page 49911]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.085


[[Page 49912]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.086


[[Page 49913]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.087


[[Page 49914]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.088


[[Page 49915]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.089


[[Page 49916]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.090


[[Page 49917]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.091


[[Page 49918]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.092


[[Page 49919]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.093


[[Page 49920]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.094


[[Page 49921]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.095


[[Page 49922]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.096


[[Page 49923]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.097


[[Page 49924]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.098


[[Page 49925]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.099


[[Page 49926]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.100


[[Page 49927]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.101


[[Page 49928]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.102


[[Page 49929]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.103


[[Page 49930]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.104


[[Page 49931]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.105


[[Page 49932]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.106


[[Page 49933]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.107


[[Page 49934]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.108


[[Page 49935]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.109


[[Page 49936]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.110


[[Page 49937]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.111


[[Page 49938]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.112


[[Page 49939]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.113


[[Page 49940]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.114


[[Page 49941]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.115


[[Page 49942]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.116


[[Page 49943]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.117


[[Page 49944]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.118


[[Page 49945]]


[GRAPHIC] [TIFF OMITTED] TR29AU07.119

[FR Doc. 07-4184 Filed 8-22-07; 4:00 pm]
BILLING CODE 4120-01-C