[Federal Register Volume 74, Number 150 (Thursday, August 6, 2009)]
[Rules and Regulations]
[Pages 39384-39433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18553]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 405 and 418



Medicare Program; Hospice Wage Index for Fiscal Year 2010; Final Rule

  Federal Register / Vol. 74, No. 150 / Thursday, August 6, 2009 / 
Rules and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405 and 418

[CMS-1420-F]
RIN 0938-AP45


Medicare Program; Hospice Wage Index for Fiscal Year 2010

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

ACTION: Final rule.

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SUMMARY: This final rule will set forth the hospice wage index for 
fiscal year 2010. The final rule adopts a MedPAC recommendation 
regarding a process for certification and recertification of terminal 
illness. In addition, this final rule will also revise the phase-out of 
the wage index budget neutrality adjustment factor (BNAF), with a 10 
percent BNAF reduction in FY 2010. The BNAF phase-out will continue 
with successive 15 percent reductions from FY 2011 through FY 2016.

DATES: Effective Date: These regulations are effective on October 1, 
2009.

FOR FURTHER INFORMATION CONTACT: Randy Throndset, (410) 786-0131.
    Katie Lucas, (410) 786-7723.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
    A. General
    1. Hospice Care
    2. Medicare Payment for Hospice Care
    B. Hospice Wage Index
    1. Raw Wage Index Values (Pre-floor, Pre-reclassified Hospital 
Wage Index)
    2. Changes to Core-Based Statistical Area (CBSA) Designations
    3. Definition of Urban and Rural Areas
    4. Areas Without Hospital Wage Data
    5. CBSA Nomenclature Changes
    6. Wage Data for Multi-campus Hospitals
    7. Hospice Payment Rates
II. Provisions of the Proposed Rule and Analysis of and Responses to 
Public Comments
    A. FY 2010 Hospice Wage Index
    1. Background
    2. Areas without Hospital Wage Data
    3. FY 2010 Wage Index with Reduced Budget Neutrality Adjustment 
Factor (BNAF)
    4. Effects of Phasing out the BNAF
    B. Change to the Physician Certification and Recertification 
Process, Sec.  418.22
    C. Update of Covered Services, Sec.  418.202(f)
    D. Clarification of Payment Procedures for Hospice Care, Sec.  
418.302
    E. Clarification of Intermediary Determination and Notice of 
Amount of Program Reimbursement, Sec.  405.1803
    F. Technical and Clarifying Changes
III. Comments on Other Policy Issues
    A. Recertification Visits, Sec.  418.22
    B. Hospice Aggregate Calculation
    C. Hospice Payment Reform
IV. Update on Additional Hospice Data Collection
V. Provisions of the Final Regulations
VI. Collection of Information Requirements
VII. Regulatory Impact Analysis


I. Background

A. General

1. Hospice Care
    Hospice care is an approach to treatment that recognizes that the 
impending death of an individual warrants a change in the focus from 
curative care to palliative care for relief of pain and for symptom 
management. The goal of hospice care is to help terminally ill 
individuals continue life with minimal disruption to normal activities 
while remaining primarily in the home environment. A hospice uses an 
interdisciplinary approach to deliver medical, nursing, social, 
psychological, emotional, and spiritual services through use of a broad 
spectrum of professional and other caregivers, with the goal of making 
the individual as physically and emotionally comfortable as possible. 
Counseling services and inpatient respite services are available to the 
family of the hospice patient. Hospice programs consider both the 
patient and the family as a unit of care. Section 1861(dd) of the 
Social Security Act (the Act) provides for coverage of hospice care for 
terminally ill Medicare beneficiaries who elect to receive care from a 
participating hospice. Section 1814(i) of the Act provides payment for 
Medicare participating hospices.
2. Medicare Payment for Hospice Care
    Sections 1812(d), 1813(a)(4), 1814(a)(7), 1814(i) and 1861(dd) of 
the Act, and our regulations at 42 CFR part 418, establish eligibility 
requirements, payment standards and procedures, define covered 
services, and delineate the conditions a hospice must meet to be 
approved for participation in the Medicare program. Part 418, subpart G 
provides for payment in one of four prospectively-determined rate 
categories (routine home care, continuous home care, inpatient respite 
care, and general inpatient care) to hospices based on each day a 
qualified Medicare beneficiary is under a hospice election.

B. Hospice Wage Index

    Our regulations at Sec.  418.306(c) require that the wage index for 
all labor markets in which Medicare-participating hospices do business 
be established using the most current hospital wage data available, 
including any changes by Office of Management and Budget (OMB) to the 
Metropolitan Statistical Areas (MSAs) definitions. OMB revised the MSA 
definitions beginning in 2003 with new designations called the Core 
Based Statistical Areas (CBSAs). For the purposes of the hospice 
benefit, the term ``MSA-based'' refers to wage index values and 
designations based on the previous MSA designations before 2003. 
Conversely, the term ``CBSA-based'' refers to wage index values and 
designations based on the OMB revised MSA designations in 2003, which 
now include CBSAs. In the August 11, 2004 IPPS final rule (69 FR 
49026), the revised labor market area definitions were adopted at Sec.  
412.64(b), which were effective October 1, 2004 for acute care 
hospitals. We also revised the labor market areas for hospices using 
the new OMB standards that included CBSAs. In the FY 2006 hospice wage 
index final rule (70 FR 45130), we finalized a 1-year transition policy 
using a 50/50 blend of the CBSA-based wage index values and the MSA-
based wage index values for FY 2006. The one-year transition policy 
ended on September 30, 2006. For FY 2007, FY 2008, and FY 2009, we used 
wage index values based on CBSA designations.
    The hospice wage index is used to adjust payment rates for hospice 
agencies under the Medicare program to reflect local differences in 
area wage levels. The original hospice wage index was based on the 1981 
Bureau of Labor Statistics hospital data and had not been updated since 
1983. In 1994, because of disparity in wages from one geographical 
location to another, a committee was formulated to negotiate a wage 
index methodology that could be accepted by the industry and the 
government. This committee, functioning under a process established by 
the Negotiated Rulemaking Act of 1990, was comprised of national 
hospice associations; rural, urban, large and small hospices; multi-
site hospices; consumer groups; and a government representative. On 
April 13, 1995, the Hospice Wage Index Negotiated Rulemaking Committee 
signed an agreement for the methodology to be used for updating the 
hospice wage index.
    In the August 8, 1997 Federal Register (62 FR 42860), we published 
a final rule promulgating a new methodology for calculating the hospice 
wage index based on the recommendations of the negotiated rulemaking 
Committee, using a hospital wage index rather than continuing to use 
the Bureau of Labor Statistics (BLS) data. The committee statement was

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included in the appendix of that final rule (62 FR 42883). The 
reduction in overall Medicare payments if a new wage index were adopted 
was noted in the November 29, 1995 notice transmitting the 
recommendations of the negotiated rulemaking committee (60 FR 61264). 
Therefore, the Committee also decided that for each year in updating 
the hospice wage index, aggregate Medicare payments to hospices would 
remain budget neutral to payments as if the 1983 wage index had been 
used.
    As decided upon by the Committee, budget neutrality means that, in 
a given year, estimated aggregate payments for Medicare hospice 
services using the updated hospice wage index values will equal 
estimated payments that would have been made for these services if the 
1983 hospice wage index values had remained in effect. Although 
payments to individual hospice programs may change each year, the total 
payments each year to hospices would not be affected by using the 
updated hospice wage index because total payments would be budget 
neutral as if the 1983 wage index had been used. To implement this 
policy, a BNAF would be computed and applied annually to the pre-floor, 
pre-reclassified hospital wage index, when deriving the hospice wage 
index.
    The BNAF is calculated by computing estimated payments using the 
most recent completed year of hospice claims data. The units (days or 
hours) from those claims are multiplied by the updated hospice payment 
rates to calculate estimated payments. For this final rule, that means 
estimating payments for FY 2010 using FY 2008 hospice claims data, and 
applying the FY 2010 hospice payment rates (updating the FY 2009 rates 
by the FY 2010 hospital market basket update factor). The FY 2010 
hospice wage index values are then applied to the labor portion of the 
payment rates only. The procedure is repeated using the same claims 
data and payment rates, but using the 1983 BLS-based wage index instead 
of the updated pre-floor, pre-reclassified hospital wage index (note 
that both wage indices include their respective floor adjustments). The 
total payments are then compared, and the adjustment required to make 
total payments equal is computed; that adjustment factor is the BNAF.
    The hospice wage index is updated annually. Our most recent update, 
published in the Federal Register (73 FR 46464) on August 8, 2008, set 
forth updates to the hospice wage index for FY 2009. That update also 
finalized a provision for a 3-year phase-out of the BNAF, which was 
applied to the wage index values. As discussed in detail in section 
I.B.1 below, the update was later revised with the February 17, 2009 
passage of the American Recovery and Reinvestment Act (ARRA), which 
eliminated the BNAF phase-out for FY 2009.
1. Raw Wage Index Values (Pre-floor, Pre-reclassified Hospital Wage 
Index)
    As described in the August 8, 1997 hospice wage index final rule 
(62 FR 42860), the pre-floor and pre-reclassified hospital wage index 
is used as the raw wage index for the hospice benefit. These raw wage 
index values are then subject to either a BNAF or application of the 
hospice floor calculation to compute the hospice wage index used to 
determine payments to hospices.
    Pre-floor, pre-reclassified hospital wage index values of 0.8 or 
greater are adjusted by the BNAF. Pre-floor, pre-reclassified hospital 
wage index values below 0.8 are adjusted by the greater of: (1) The 
hospice BNAF; or (2) the hospice 15 percent floor adjustment, which is 
a 15 percent increase subject to a maximum wage index value of 0.8. For 
example, if County A has a pre-floor, pre-reclassified hospital wage 
index (raw wage index) value of 0.4000, we would perform the following 
calculations using the BNAF (which for this example is 0.060988; we 
added 1 to simplify the calculation) and the hospice floor to determine 
County A's hospice wage index:
    Pre-floor, pre-reclassified hospital wage index value below 0.8 
multiplied by the BNAF: (0.4000 x 1.060988 = 0.4244).
    Pre-floor, pre-reclassified hospital wage index value below 0.8 
multiplied by the hospice 15 percent floor adjustment: (0.4000 x 1.15 = 
0.4600).
    Based on these calculations, County A's hospice wage index would be 
0.4600.
    The BNAF has been computed and applied annually to the labor 
portion of the hospice payment. Currently, the labor portion of the 
payment rates is as follows: for Routine Home Care, 68.71 percent; for 
Continuous Home Care, 68.71 percent; for General Inpatient Care, 64.01 
percent; and for Respite Care, 54.13 percent. The non-labor portion is 
equal to 100 percent minus the labor portion for each level of care. 
Therefore the non-labor portion of the payment rates is as follows: for 
Routine Home Care, 31.29 percent; for Continuous Home Care, 31.29 
percent; for General Inpatient Care, 35.99 percent; and for Respite 
Care, 45.87 percent.
    The August 8, 2008 FY 2009 Hospice Wage Index final rule (73 FR 
46464) promulgated a phase-out of the hospice BNAF over 3 years, 
beginning with a 25 percent reduction in the BNAF in FY 2009, an 
additional 50 percent reduction for a total of 75 percent in FY 2010, 
and complete phase-out of the BNAF in FY 2011. However, subsequent to 
the publication of the FY 2009 rule, the American Recovery and 
Reinvestment Act of 2009 (P.L. 111-5) (ARRA) eliminated the BNAF 
reduction for FY 2009. Specifically, division B, section 4301(a) of 
ARRA prohibited the Secretary from beginning the phasing-out or 
eliminating of the BNAF in the Medicare hospice wage index before 
October 1, 2009, and instructed the Secretary to recompute and apply 
the final Medicare hospice wage index for FY 2009 as if there had been 
no reduction in the BNAF. We did so in an administrative instruction to 
our intermediaries, which was issued as Change Request (CR) 
6418 (Transmittal 1701, dated 3/13/2009). CR 6418 is 
available on the Web at http://www.cms.hhs.gov/Hospice/Transmittals/itemdetail.asp?filterType=none&filterByDID=0&sortByDID=1&sortOrder=descending&itemID=CMS1222448&intNumPerPage=10.
    While ARRA eliminated the BNAF phase-out for FY 2009, it neither 
changed the 75 percent reduction in the BNAF for FY 2010, nor 
prohibited the elimination of the BNAF in FY 2011, as set out in the 
August 8, 2008 Hospice Wage Index final rule. The provision in the ARRA 
that eliminated the FY 2009 BNAF reduction provided the hospice 
industry additional time to prepare for the FY 2010 75 percent BNAF 
reduction and the FY 2011 BNAF elimination. Therefore, in accordance 
with the August 8, 2008 FY 2009 Hospice Wage Index final rule, the 
rationale presented in that final rule, and consistent with section 
4301(a) of ARRA, in our proposed rule we said we planned to reduce the 
BNAF by 75 percent in FY 2010 and ultimately eliminate the BNAF in 
2011. We accepted comments on the BNAF reductions.
2. Changes to Core Based Statistical Area (CBSA) Designations
    The annual update to the hospice wage index is published in the 
Federal Register and is based on the most current available hospital 
wage data, as well as any changes by OMB to the definitions of MSAs, 
which now include CBSA designations. The August 4, 2005 hospice wage 
index final rule (70 FR 45130) set forth the adoption of the changes 
discussed in the OMB Bulletin No. 03-04 (June 6, 2003),

[[Page 39386]]

which announced revised definitions for Micropolitan Statistical Areas 
and the creation of MSAs and Combined Statistical Areas. In adopting 
the OMB CBSA geographic designations, we provided for a 1-year 
transition with a blended hospice wage index for all hospices for FY 
2006. Subsequent fiscal years have used the full CBSA-based hospice 
wage index.
3. Definition of Rural and Urban Areas
    Each hospice'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) through (C), and have been 
used for the Medicare hospice benefit since implementation.
    In the August 22, 2007 FY 2008 Inpatient Prospective Payment System 
(IPPS) final rule with comment period (72 FR 47130), Sec.  
412.64(b)(1)(ii)(B) was revised such that the two ``New England deemed 
Counties'' that had been considered rural under the OMB definitions 
(Litchfield County, CT and Merrimack County, NH) but deemed urban, were 
no longer considered urban effective for discharges occurring on or 
after October 1, 2007. Therefore, these two counties are considered 
rural in accordance with Sec.  412.64(b)(1)(ii)(C). The recommendations 
to adjust payments to reflect local differences in wages are codified 
in Sec.  418.306(c) of our regulations; however there had been no 
explicit reference to Sec.  412.64 in Sec.  418.306(c) before the 
promulgation of the August 8, 2008 FY 2009 Hospice Wage Index final 
rule. Although Sec.  412.64 had not been explicitly referred to, the 
hospice program has used the definition of urban in Sec.  
412.64(b)(1)(ii)(A) and (b)(1)(ii)(B), and the definition of rural as 
any area outside of an urban area in Sec.  412.64(b)(1)(ii)(C). With 
the promulgation of the August 8, 2008 FY 2009 Wage Index final rule, 
we now explicitly refer to those provisions in Sec.  412.64 to make it 
absolutely clear how we define urban and rural for purposes of the 
hospice wage index. Litchfield County, CT and Merrimack County, NH are 
considered rural areas for hospital IPPS purposes in accordance with 
Sec.  412.64. Effective October 1, 2008, Litchfield County, CT was no 
longer considered part of urban CBSA 25540 (Hartford-West Hartford-East 
Hartford, CT), and Merrimack County, NH was no longer considered part 
of urban CBSA 31700 (Manchester-Nashua, NH). Rather, these counties are 
now considered to be rural areas within their respective States under 
the hospice payment system. When the pre-floor, pre-reclassified 
hospital wage index was adopted for use in deriving the hospice wage 
index, it was decided not to take into account IPPS geographic 
reclassifications. This policy of following OMB designations of rural 
or urban, rather than considering some Counties to be ``deemed'' urban, 
is consistent with our policy of not taking into account IPPS 
geographic reclassifications in determining payments under the hospice 
wage index.
4. Areas Without Hospital Wage Data
    When adopting OMB's new labor market designations in FY 2006, we 
identified some geographic areas where there were no hospitals, and 
thus, no hospital wage index data on which to base the calculation of 
the hospice wage index. Beginning in FY 2006, we adopted a policy to 
use the FY 2005 pre-floor, pre-reclassified hospital wage index value 
for rural areas when no hospital wage data were available. We also 
adopted the policy that for urban labor markets without a hospital from 
which hospital wage index data could be derived, all of the CBSAs 
within the State would be used to calculate a statewide urban average 
pre-floor, pre-reclassified hospital wage index value to use as a 
reasonable proxy for these areas. Consequently, in subsequent fiscal 
years, we applied the average pre-floor, pre-reclassified hospital wage 
index data from all urban areas in that state, to urban areas without a 
hospital. The only affected CBSA is 25980, Hinesville-Fort Stewart, 
Georgia.
    Under the CBSA labor market areas, there are no hospitals in rural 
locations in Massachusetts and Puerto Rico. Since there was no rural 
proxy for more recent rural data within those areas, in the FY 2006 
hospice wage index proposed rule (70 FR 22394, 22398), we proposed 
applying the FY 2005 pre-floor, pre-reclassified hospital wage index 
value to rural areas where no hospital wage data were available. In the 
FY 2006 final rule and in the FY 2007 update notice, we applied the FY 
2005 pre-floor, pre-reclassified hospital wage index data to areas 
lacking hospital wage data in rural Massachusetts and rural Puerto 
Rico.
    In the FY 2008 hospice wage index final rule (72 FR 50217), we 
considered alternatives to our methodology to update the pre-floor, 
pre-reclassified hospital wage index for rural areas without hospital 
wage data. We indicated that we believed that the best imputed proxy 
for rural areas would--(1) use pre-floor, pre-reclassified hospital 
data; (2) use the most local data available to impute a rural pre-
floor, pre-reclassified hospital wage index; (3) be easy to evaluate; 
and (4) be easy to update from year-to-year.
    Therefore, in FY 2008, and again in FY 2009, in cases where there 
was a rural area without rural hospital wage data, we used the average 
pre-floor, pre-reclassified hospital wage index data from all 
contiguous CBSAs to represent a reasonable proxy for the rural area. 
This approach does not use rural data; however, the approach uses pre-
floor, pre-reclassified hospital wage data, is easy to evaluate, is 
easy to update from year-to-year, and uses the most local data 
available. In the FY 2008 hospice wage index final rule (72 FR 50217), 
we noted that in determining an imputed rural pre-floor, pre-
reclassified hospital wage index, we interpret the term ``contiguous'' 
to mean sharing a border. For example, in the case of Massachusetts, 
the entire rural area consists of Dukes and Nantucket Counties. We 
determined that the borders of Dukes and Nantucket Counties are 
contiguous with Barnstable and Bristol Counties. Under the adopted 
methodology, the pre-floor, pre-reclassified hospital wage index values 
for the Counties of Barnstable (CBSA 12700, Barnstable Town, MA) and 
Bristol (CBSA 39300, Providence-New Bedford-Fall River, RI-MA) would be 
averaged resulting in an imputed pre-floor, pre-reclassified rural 
hospital wage index for FY 2008. We noted in the FY 2008 final hospice 
wage index rule that while we believe that this policy could be readily 
applied to other rural areas that lack hospital wage data (possibly due 
to hospitals converting to a different provider type, such as a 
Critical Access Hospital, that does not submit the appropriate wage 
data), if a similar situation arose in the future, we would re-examine 
this policy.
    We also noted that we do not believe that this policy would be 
appropriate for Puerto Rico, as there are sufficient economic 
differences between hospitals in the United States and those in Puerto 
Rico, including the payment of hospitals in Puerto Rico using blended 
Federal/Commonwealth-specific rates. Therefore, we believe that a 
separate and distinct policy for Puerto Rico is necessary. Any 
alternative methodology for imputing a pre-floor, pre-reclassified 
hospital wage index for rural Puerto Rico would need to take into 
account the economic differences between hospitals in the United States 
and those in Puerto Rico. Our policy of imputing a rural pre-floor, 
pre-reclassified

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hospital wage index based on the pre-floor, pre-reclassified hospital 
wage index(es) of CBSAs contiguous to the rural area in question does 
not recognize the unique circumstances of Puerto Rico. While we have 
not yet identified an alternative methodology for imputing a pre-floor, 
pre-reclassified hospital wage index for rural Puerto Rico, we will 
continue to evaluate the feasibility of using existing hospital wage 
data and, possibly, wage data from other sources. For FY 2008 and FY 
2009, we used the most recent pre-floor, pre-reclassified hospital wage 
index available for Puerto Rico, which is 0.4047.
5. CBSA Nomenclature Changes
    The Office of Management and Budget (OMB) regularly publishes a 
bulletin that updates the titles of certain CBSAs. In the FY 2008 
hospice wage index final rule (72 FR 50218) we noted that the FY 2008 
rule and all subsequent hospice wage index rules and notices would 
incorporate CBSA changes from the most recent OMB bulletins. The OMB 
bulletins may be accessed at http://www.whitehouse.gov/omb/bulletins/index.html.
6. Wage Data From Multi-Campus Hospitals
    Historically, under the Medicare hospice benefit, we have 
established hospice wage index values calculated from the pre-floor, 
pre-reclassified hospital wage data (also called the IPPS wage index) 
without taking into account geographic reclassification under sections 
1886(d)(8) and (d)(10) of the Act. The wage adjustment established 
under the Medicare hospice benefit is based on the location where 
services are furnished without any reclassification.
    For FY 2010, the data collected from cost reports submitted by 
hospitals for cost reporting periods beginning during FY 2005 were used 
to compute the 2009 pre-floor, pre-reclassified hospital wage index 
data without taking into account geographic reclassification under 
sections 1886(d)(8) and (d)(10) of the Act. This 2009 pre-floor, pre-
reclassified hospital wage index was used to derive the applicable wage 
index values for the hospice wage index because these data (FY 2005) 
are the most recent complete cost data.
    Beginning in FY 2008, the IPPS apportioned the wage data for multi-
campus hospitals located in different labor market areas (CBSAs) to 
each CBSA where the campuses are located (see the FY 2008 IPPS final 
rule with comment period (72 FR 47317 through 47320)). We are 
continuing to use the pre-floor, pre-reclassified hospital wage data as 
a basis to determine the hospice wage index values for FY 2010 because 
hospitals and hospices both compete in the same labor markets, and 
therefore, experience similar wage-related costs. We note that the use 
of pre-floor, pre-reclassified hospital (IPPS) wage data, used to 
derive the FY 2010 hospice wage index values, reflects the application 
of our policy to use that data to establish the hospice wage index. The 
FY 2010 hospice wage index values presented in this notice were 
computed consistent with our pre-floor, pre-reclassified hospital 
(IPPS) wage index policy (that is, our historical policy of not taking 
into account IPPS geographic reclassifications in determining payments 
for hospice). As finalized in the August 8, 2008 FY 2009 Hospice Wage 
Index final rule, for the FY 2009 Medicare hospice benefit, the hospice 
wage index was computed from IPPS wage data (submitted by hospitals for 
cost reporting periods beginning in FY 2004 (as was the FY 2008 IPPS 
wage index)), which allocated salaries and hours to the campuses of two 
multi-campus hospitals with campuses that are located in different 
labor areas, one in Massachusetts and another in Illinois. Thus, the FY 
2009 hospice wage index values for the following CBSAs were affected by 
this policy: Boston-Quincy, MA (CBSA 14484), Providence-New Bedford-
Falls River, RI-MA (CBSA 39300), Chicago-Naperville-Joliet, IL (CBSA 
16974), and Lake County-Kenosha County, IL-WI (CBSA 29404).
7. Hospice Payment Rates
    Section 4441(a) of the Balanced Budget Act of 1997 (BBA) amended 
section 1814(i)(1)(C)(ii) of the Act to establish updates to hospice 
rates for FYs 1998 through 2002. Hospice rates were to be updated by a 
factor equal to the percentage increase in the hospital market basket 
index, minus 1 percentage point. However, neither the BBA nor 
subsequent legislation specified alteration to the hospital market 
basket adjustment to be used to compute hospice payments for fiscal 
years beyond 2002. Payment rates for FYs since 2002 have been updated 
according to section 1814(i)(1)(C)(ii)(VII) of the Act, which states 
that the update to the payment rates for subsequent fiscal years will 
be the market basket percentage for the fiscal year. It has been 
longstanding practice to use the inpatient hospital market basket as a 
proxy for a hospice market basket. In the FY 2010 Inpatient Prospective 
Payment System/Rate Year (RY) 2010 Long Term Care Hospital Prospective 
Payment System proposed rule (74 FR 24154), we proposed to rebase and 
revise the inpatient hospital operating market basket.
    Historically, the rate update has been published through a separate 
administrative instruction issued annually, in the summer, to provide 
adequate time to implement system change requirements. Hospices 
determine their payments by applying the hospice wage index in this 
final rule to the labor portion of the published hospice rates.

II. Provisions of the Proposed Rule and Analysis of and Responses to 
Public Comments

    On April 24, 2009 we published a proposed rule in the Federal 
Register (74 FR 18912) that set forth the proposed hospice wage index 
for FY 2010. We received 729 timely items of correspondence. In 
general, those who commented strongly opposed the policy to reduce the 
BNAF adjustment in hospice and were supportive of modifications to the 
hospice certification and recertification of the terminal illness 
process. An in-depth summary of the public comments and our responses 
to those comments are set forth under the appropriate headings.

A. FY 2010 Hospice Wage Index

1. Background
    The hospice final rule published in the Federal Register on 
December 16, 1983 (48 FR 56008) provided for adjustment to hospice 
payment rates to reflect differences in area wage levels. We apply the 
appropriate hospice wage index value to the labor portion of the 
hospice payment rates based on the geographic area where hospice care 
was furnished. As noted earlier, each hospice's labor market area is 
based on definitions of MSAs issued by the OMB. For this final rule, we 
will use the pre-floor, pre-reclassified hospital wage index, based 
solely on the CBSA designations, as the basis for determining wage 
index values for the FY 2010 hospice wage index.
    As noted above, our hospice payment rules utilize the wage 
adjustment factors used by the Secretary for purposes of section 
1886(d)(3)(E) of the Act for hospital wage adjustments. We will again 
use the pre-floor and pre-reclassified hospital wage index data as the 
basis to determine the hospice wage index, which is then used to adjust 
the labor portion of the hospice payment rates based on the geographic 
area where the beneficiary receives hospice care. We believe the use of 
the pre-floor, pre-reclassified hospital wage index data, as a basis 
for the hospice wage index, results in the appropriate

[[Page 39388]]

adjustment to the labor portion of the costs. For the FY 2010 update to 
the hospice wage index, we will continue to use the most recent pre-
floor, pre-reclassified hospital wage index available at the time of 
publication.
    Comment: A commenter noted that the hospital-based wage index has 
undergone multiple changes over the past 10 years and that providers 
were not invited to provide comment for CMS to consider when 
formalizing these changes. This commenter stated that CMS previously 
cited the BNAF as a mitigating factor that offset some of the adverse 
impacts on hospice of changes in the hospital wage index. A few 
commenters wrote that the existence of exceptions to the hospital wage 
index system in the form of reclassifications demonstrates the 
unfairness and inadequacy of the hospital-based wage index system, and 
one suggested it puts hospices at a disadvantage in attracting and 
retaining employees. One commenter suggested that limits be established 
on the allowable annual changes in index values from one year to the 
next to achieve wage index stability. Several commenters mentioned that 
a 2007 MedPAC report on the hospital wage index suggested that CMS 
repeal the existing hospital wage index and develop a new one. The 
commenter stated that MedPAC recommended that CMS evaluate the use of 
the revised wage index in other Medicare payment systems, which 
includes hospice.
    Response: The pre-floor, pre-reclassified hospital wage index was 
adopted in 1998 as the wage index from which the hospice wage index is 
derived. The Negotiated Rulemaking Committee considered several wage 
index options: (1) Continuing with Bureau of Labor Statistics data; (2) 
using updated hospital wage data; (3) using hospice-specific data; and 
(4) using data from the physician payment system. The Committee 
determined that the pre-floor, pre-reclassified hospital wage index was 
the best option for hospice. The pre-floor, pre-reclassified hospital 
wage index is updated annually, and reflects the wages of highly 
skilled hospital workers.
    We agree that the hospital-based wage index has undergone some 
changes in the past 10 years. Those changes were implemented through 
rulemaking, which provided the public an opportunity to provide 
comments. Therefore, we disagree that hospice providers have not had an 
opportunity to comment on hospital wage index changes.
    The reclassification provision provided at section 1886(d)(10) of 
the Act is specific to hospitals. We believe the use of the most recent 
available pre-floor and pre-reclassified hospital wage index results in 
the most appropriate adjustment to the labor portion of hospice costs 
as required in 42 CFR 418.306(c). Additionally, use of the pre-floor, 
pre-reclassified hospital wage data avoids further reductions in 
certain rural statewide wage index values that result from 
reclassification. We also note that the wage index adjustment is based 
on the geographic area where the beneficiary is located, and not where 
the hospice is located.
    We continue to believe that the pre-floor, pre-reclassified 
hospital wage index, which is updated yearly and is used by many other 
CMS payments systems including home health, appropriately accounts for 
geographic variances in labor costs for hospices. Home health agencies 
and hospices are Medicare's only home-based benefits, and home health 
agencies and hospices share labor pools. Home health agencies 
experience the same wage index fluctuations, but do not receive an 
adjustment such as the BNAF. We believe that in the interest of parity, 
both home-based benefits should use a hospital-based wage index without 
a BNAF applied. In the future, when looking into reforming the hospice 
payment system, we will consider wage index alternatives, to include 
those recommended by MedPAC.
2. Areas Without Hospital Wage Data
    In adopting the CBSA designations, we identified some geographic 
areas where there are no hospitals, and no hospital wage data on which 
to base the calculation of the hospice wage index. These areas are 
described in section I.B.4 of this final rule. Beginning in FY 2006, we 
adopted a policy that, for urban labor markets without an urban 
hospital from which a pre-floor, pre-reclassified hospital wage index 
can be derived, all of the urban CBSA pre-floor, pre-reclassified 
hospital wage index values within the State would be used to calculate 
a statewide urban average pre-floor, pre-reclassified hospital 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 will to continue this policy for FY 2010.
    Currently, the only rural areas where there are no hospitals from 
which to calculate a pre-floor, pre-reclassified hospital wage index 
are Massachusetts and Puerto Rico. In August 2007 (72 FR 50217) we 
adopted a methodology for imputing rural pre-floor, pre-reclassified 
hospital wage index values for areas where no hospital wage data are 
available as an acceptable proxy; that methodology is also described in 
section I.B.4 of this final rule. In FY 2010, Dukes and Nantucket 
Counties are the only areas in rural Massachusetts which are affected. 
We are again applying this methodology for imputing a rural pre-floor, 
pre-reclassified hospital wage index for those rural areas without 
rural hospital wage data in FY 2010.
    However, as noted in section I.B.4 of this final rule, we do not 
believe that this policy is appropriate for Puerto Rico. For FY 2010, 
we are continuing to use the most recent pre-floor, pre-reclassified 
hospital wage index value available for Puerto Rico, which is 0.4047. 
This pre-floor, pre-reclassified hospital wage index value will then be 
adjusted upward by the hospice 15 percent floor adjustment in the 
computing of the FY 2010 hospice wage index.
    We received no comments on this section of the proposed rule.
3. FY 2010 Wage Index With a Reduced Budget Neutrality Adjustment 
Factor (BNAF)
    The hospice wage index set forth in this final rule will be 
effective October 1, 2009 through September 30, 2010. We are not 
incorporating any modifications to the hospice wage index methodology. 
In accordance with our regulations at 42 CFR 418.306(c) and the 
agreement signed with other members of the Hospice Wage Index 
Negotiated Rulemaking Committee, we are using the most current hospital 
data available. For this final rule, the FY 2009 hospital wage index 
was the most current hospital wage data available for calculating the 
FY 2010 hospice wage index values. We used the FY 2009 pre-floor, pre-
reclassified hospital wage index data for this calculation.
    As noted above, for FY 2010, the hospice wage index values will be 
based solely on the adoption of the CBSA-based labor market definitions 
and the hospital wage index. We continue to use the most recent pre-
floor and pre-reclassified hospital wage index data available (based on 
FY 2005 hospital cost report wage data). A detailed description of the 
methodology used to compute the hospice wage index is contained in the 
September 4, 1996 hospice wage index proposed rule (61 FR 46579), the 
August 8, 1997 hospice wage index final rule (62 FR 42860), and the 
August 8, 2008 FY 2009 Hospice Wage Index final rule (73 FR 46464).
    The August 8, 2008 FY 2009 Hospice Wage Index final rule finalized 
a provision to phase out the BNAF over 3 years, starting with a 25 
percent reduction in the BNAF in FY 2009, an

[[Page 39389]]

additional 50 percent reduction for a total of a 75 percent reduction 
in FY 2010, and complete phase out in FY 2011. However, on February 17, 
2009, the President signed ARRA (Pub. L. 111-5); Section 4301(a) of 
ARRA eliminated the BNAF phase-out for FY 2009. Therefore, in an 
administrative instruction (Change Request 6418, Transmittal 1701, 
dated 3/13/2009) entitled ``Revision of the Hospice Wage Index and the 
Hospice Pricer for FY 2009,'' we instructed CMS contractors to use the 
revised FY 2009 hospice Pricer, which included a revised hospice wage 
index to reflect a full (unreduced) BNAF rather than the 25 percent 
reduced BNAF promulgated in the August 8, 2008 FY 2009 Hospice Wage 
Index final rule.
    While ARRA eliminated the BNAF phase-out for FY 2009, it did not 
change the 75 percent reduction in the BNAF for FY 2010, or the 
complete phase-out of the BNAF in FY 2011 that was previously 
promulgated in the August 8, 2008 FY 2009 Hospice Wage Index final 
rule.
    The history of the BNAF and a detailed discussion of the events 
which led to its application to the hospice wage index were included in 
the August 8, 2008 FY 2009 Hospice Wage Index final rule. We proposed 
and finalized the BNAF reduction in that final rule based on the 
following rationale.
    First, the original purpose of the BNAF was to prevent reductions 
in payments to the majority of hospices whose wage index was based on 
the original hospice wage index, which was artificially high due to 
flaws in the 1981 BLS data. Additionally, the BNAF was adopted to 
ensure that aggregate payments made to the hospice industry would not 
be decreased or increased as a result of the wage index change. While 
incorporating a BNAF into hospice wage indices could be rationalized in 
1997 as a way to smooth the transition from an old wage index to a new 
one, since hospices have had plenty of time to adjust to the then new 
wage index, it is difficult to justify maintaining in perpetuity a BNAF 
which was in part compensating for artificially high data to begin 
with.
    Second, the new wage index adopted in 1997 resulted in increases in 
wage index values for hospices in certain areas. The BNAF applies to 
hospices in all areas. Thus, hospices in areas that would have had 
increases without the BNAF received an artificial boost in the wage 
index for the past 11 years. We believe that continuation of this 
excess payment can no longer be justified.
    Third, an adjustment factor that is based on 24-year-old wage index 
values is not in keeping with our goal of using a hospice wage index 
that is as accurate, reliable, and equitable as possible in accounting 
for geographic variation in wages. We believe that those goals can be 
better achieved by using the pre-floor, pre-reclassified hospital wage 
index, without the outdated BNAF, which would be consistent with other 
providers. For instance, Medicare payments to home health agencies, 
that utilize a similar labor mix, are adjusted by the pre-floor, pre-
reclassified hospital wage index without any budget neutrality 
adjustment. We believe that using the pre-floor, pre-reclassified 
hospital wage index provides a good measure of area wage differences 
for both these home-based reimbursement systems.
    Fourth, in the 13 years since concerns about the impact of 
switching from an old to a new wage index were voiced, the hospice 
industry and hospice payments have grown substantially. Hospice 
expenditures in 2006 were $9.2 billion, compared to about $2.2 billion 
in 1998. Aggregate hospice expenditures are increasing at a rate of 
about $1 billion per year. MedPAC reports that expenditures are 
expected to grow at a rate of 9 percent per year through 2015, 
outpacing the growth rate of projected expenditures for hospitals, 
skilled nursing facilities, and physician and home health services. We 
believe that this growth in Medicare spending for hospice indicates 
that the original rationale of the BNAF, to cushion the impact of using 
the new wage index, is no longer justified. These spending growth 
figures also indicate that any negative financial impact to the hospice 
industry as a result of eliminating the BNAF is no longer present, and 
thus the need for a transitional adjustment has passed.
    Fifth, 13 years ago the industry also voiced concerns about the 
negative financial impact on individual hospices that could occur by 
adopting a new wage index. In August 1994 there were 1,602 hospices; 
currently there are 3,328 hospices. Clearly any negative financial 
impact from adopting a new wage index in 1997 is no longer present, or 
we would not have seen this growth in the industry. The number of 
Medicare-certified hospices has continued to increase, with a 26 
percent increase in the number of hospice providers from 2001 to 2005. 
This ongoing growth in the industry also suggests that phasing out the 
BNAF would not have a negative impact on access to care. Therefore, for 
these reasons, we believe that continuing to apply a BNAF for the 
purpose of mitigating any adverse financial impact on hospices or 
negative impact on access to care is no longer necessary. In the April 
24, 2009 proposed rule, we stated that we intended to continue the 
phase-out of the BNAF with a 75 percent reduction in FY 2010 and 
complete elimination in FY 2011.
    Comment: All but one of those who commented on the BNAF were 
opposed to the BNAF phase-out. One commenter felt that any reductions 
in payment, such as the BNAF, need to be in ``sync'' with overall 
health care reform as it relates to hospice. Others felt that any 
phase-out should be delayed to see if or how the BNAF fits into future 
hospice payment reform. Another commenter noted inconsistent levels of 
per-capita health care spending across states, particularly at the end 
of life.
    One commenter believed that CMS proposed to reduce the BNAF by 75 
percent in the FY 2010 hospice wage index proposed rule, and believes 
that this proposal is contrary to the intent of Congress. This 
commenter believed that the provision in ARRA which eliminated the FY 
2009 25 percent BNAF reduction, showed that Congress intended CMS to 
delay the first year of the three-year BNAF phase-out to begin the 25 
percent reduction of the BNAF in FY 2010 instead of FY 2009. While this 
commenter strongly recommended that CMS withdraw its proposal to phase 
out the BNAF, he also suggested that at a minimum we should spread the 
phase out over a 3-year period, starting in FY 2010 with a 25 percent 
reduction. A number of commenters also suggested different phase-out 
options from the current policy that we described in the proposed rule. 
One suggested a 7-year phase-out, with a 10 percent reduction in FY 
2010, and an additional 15 percent reduction over each of the following 
6 fiscal years. Another suggested a 4-year phase-out, at 25 percent per 
year, starting in FY 2010. Another suggested that we phase out the BNAF 
over 2 years, at 50 percent per year, starting in FY 2010. Another 
commenter suggested an even phase-out over 3 years starting in FY 2010. 
Several commenters noted that a more gradual phase-out would minimize 
the impact on hospices given the economic downturn, and the increased 
costs that hospices would incur in complying with the new CoPs, which 
were published on June 5, 2008 (73 FR 32088) and effective December 2, 
2008; and with the new data collection requirements.
    Response: The FY 2010 hospice wage index proposed rule did not re-
propose the 75 percent BNAF reduction, though we did accept comments on 
the BNAF reductions. Instead, we promulgated the

[[Page 39390]]

BNAF reductions in the FY 2009 hospice wage index final rule. At that 
time, we announced a 25 percent reduction in FY 2009, an additional 50 
percent reduction for a total of 75 percent in FY 2010, and complete 
elimination of the BNAF in FY 2011. ARRA eliminated the BNAF reduction 
in FY 2009, but the bill's language did not address the reduction in FY 
2010 and the elimination of the BNAF in FY 2011 that were finalized in 
the FY 2009 hospice wage index final rule. Though the BNAF phase-out 
was finalized in the FY 2009 rule, we accepted comments on it in this 
rule. While we explained in the FY 2010 hospice wage index proposed 
rule that ARRA's delay allowed additional time to prepare for the BNAF 
reduction, ARRA's delay was not our rationale for the 75 percent 
reduction. Our rationale for the BNAF phase-out was presented in the FY 
2009 hospice wage index proposed and final rules and was discussed 
above.
    We appreciate the commenters' concerns about how the BNAF phase-out 
would fit into the larger scenario of health care reform. Health care 
reform is a major agenda item for the Administration, and may affect 
the Medicare hospice benefit. We are not clear what the commenter is 
referring to regarding inconsistent health care spending by state, and 
believe this comment is outside the scope of our rule. While we cannot 
speak to the various health care reform measures under discussion in 
Congress, we continue to believe that the BNAF is an outdated 
adjustment, for the reasons previously mentioned in this section. 
However, we concur with the commenter that we should evaluate the 
impact of the BNAF reduction in the context of how this type of 
adjustment will fit into our plans for future hospice payment reform.
    A more gradual phase-out provides additional opportunity to 
evaluate the impact of the BNAF reduction in the context of how this 
type of adjustment will fit into hospice payment reform. As we describe 
in section IV of this final rule, we are moving forward with our plans 
to collect additional data from hospices to advance our goals for 
increasing the accuracy of hospice payments. This longer BNAF phase-out 
allows us the opportunity to more thoroughly assess the impact of 
iterative BNAF reductions while we are performing our hospice payment 
reform analyses. As such, we believe that a more gradual phase-out 
would be appropriate at this time. Therefore, in response to public 
comments recommending this course of action, we are finalizing a phase-
out of the BNAF over 7 years, with a 10 percent reduction in FY 2010, 
and additional 15 percent reduction for a total of 25 percent in FY 
2011, an additional 15 percent reduction for a total 40 percent in FY 
2012, an additional 15 percent reduction for a total of 55 percent in 
FY 2013, an additional 15 percent reduction for a total of 70 percent 
in FY 2014, an additional 15 percent reduction for a total of 85 
percent in FY 2015, and an additional 15 percent reduction for complete 
elimination in FY 2016. We will continue to evaluate the impact of the 
BNAF. To move reform forward, we look to the industry for their 
participation (for example, in providing technical assistance and/or 
offering to serve as pilot or demonstration sites in testing a new 
payment system). We reserve the right to revisit the BNAF phase-out 
should plans for hospice payment reform be delayed, or for other 
reasons the Secretary deems appropriate.
    Comment: One commenter wrote in support of the BNAF reduction, 
citing possibly fraudulent behaviors by a specific hospice, and citing 
what the commenter believed to be inappropriate spending by that 
hospice, including trips to Las Vegas and dinners at five-star 
restaurants.
    Response: We appreciate the support for the BNAF phase-out, but 
note that we proposed and finalized the phase-out based on the 
rationale presented earlier in this section. We cannot comment on the 
discretionary spending patterns of individual hospices. We have 
forwarded the comment to our Program Integrity group for review and 
possible action.
    Comment: A commenter believes that the BNAF phase-out was advanced 
to meet short-term budget goals, without collecting and analyzing data 
to determine if substantive changes to the hospice payment system were 
needed, and how any proposed changes would affect hospice programs and 
beneficiaries. He added that MedPAC had made recommendations related to 
reform of the hospice payment system, and that MedPAC had suggested 
that those changes be undertaken in a budget neutral fashion, with a 
transition period, and that the changes would require Congressional 
action. The commenter wrote that MedPAC had pointed out the lack of 
sufficient data to accurately model payment changes, and suggested that 
those changes could not be implemented before 2013 at the earliest. The 
commenter felt that the payment reduction resulting from the BNAF 
reduction would disproportionately impact some segments of the hospice 
community more than others and that CMS did not have the data to 
determine whether improvements in the rate structure could be made, and 
what such changes should look like. The commenter felt that 
implementing an across-the-board cut is inappropriate and unfounded. 
Some asked that no reduction in the BNAF occur until a full review of 
the data related to the cost of providing services is completed. 
Finally, one commenter suggested we do a full study of the utility and 
efficacy of hospice.
    Response: MedPAC's discussion of payment reform refers to an 
evaluation of and possible change to the entire hospice payment system. 
We agree with MedPAC's assessment that we do not have sufficient data 
yet to reform the entire hospice payment system, which would require 
legislative authority to do, and we are in the process of collecting 
the data that MedPAC has recommended. The BNAF phase-out was not 
included in MedPAC's discussion on reform of the entire hospice payment 
system. We proposed and finalized the policy to phase out the BNAF to 
remove an outdated adjustment from the wage index, to increase accuracy 
of payments, and to bring about parity with the home health wage index, 
since both home health agencies and hospices compete in the same labor 
market.
    The rationale for the BNAF phase-out in the FY 2009 proposed and 
final rules is set out in section II.A.3 of this final rule. Discussion 
of the regulatory and economic impacts of the BNAF phase-out were set 
out in the FY 2009 proposed and final rules, in the FY 2010 proposed 
rule, and are in this final rule.
    Comment: Several commenters wrote that CMS should use negotiated 
rulemaking to collaborate fully with hospice stakeholders before 
reducing or eliminating the BNAF. Some commenters noted that there is 
no requirement to phase out the BNAF, and that the negotiated 
rulemaking was not intended to be temporary or transitional. Several 
suggested that the BNAF should not be phased out without going through 
a negotiated rulemaking process. One commenter noted that CMS never 
suggested that the BNAF had ever been calculated inappropriately or 
that it was not achieving its intended goal of keeping total hospice 
payments under the new wage index the same as they would have been 
under the old BLS wage index. This commenter wrote that since the BNAF 
is achieving its intended purpose, CMS has no legal requirement or 
policy reason to eliminate it. This commenter also wrote that CMS 
insists on budget neutrality in all of its payment systems, and 
therefore

[[Page 39391]]

the public expected the BNAF implemented by the Committee to continue.
    Other commenters stated that while CMS asserted that the purpose of 
the BNAF was to smooth the transition from an outdated BLS-based wage 
index to the hospital-based wage index in 1998, the language in several 
payment rules suggested that the BNAF was not a time limited adjustment 
and was to be applied annually, during and after the transition to the 
hospital-based wage index. A few commenters noted that hospices have 
adjusted to the BNAF as an integral part of the wage index. A commenter 
said CMS' rationale for phasing out the BNAF suggested that eliminating 
the BNAF would restore fairness to the hospice wage index, when in 
reality no wage index methodology is perfect.
    Response: As we stated in the FY 2009 proposed and final rules, we 
continue to believe that the hospice wage index negotiating committee 
intended the BNAF to mitigate the negative financial impact of the 1998 
hospice wage index change. We continue to believe that because of the 
growth in the industry and the amount of time that has passed since the 
wage index change, the rationale for maintaining the BNAF is no longer 
justified and it is time for a policy change. In addition, from a 
parity perspective, we believe that a pre-floor, pre-reclassified 
hospital wage index is appropriate for use in adjusting rates for 
geographic variances in both of our home-based benefits, hospice and 
home health. Nothing in our data analysis has shown us that hospice 
labor costs differ substantially from home health labor costs. 
Therefore, we believe we cannot justify the 6 percent increase in the 
hospice wage index and the corresponding approximate 4 percent increase 
in aggregate payments as a result of the BNAF. We believe that the BNAF 
was originally put into place protect beneficiary access to hospice 
care. We believe the Negotiated Rulemaking Committee was primarily 
concerned about those areas of the country that would see their 
payments dramatically reduced as a result of the wage index change. The 
Committee was concerned that the payment reductions might affect the 
viability of hospices in these areas, thus ultimately risking access to 
care. The Committee also intended that aggregate payments to hospices 
not be reduced as a result of the wage index change. While we agree 
with the commenter that our 1998 regulation describes that the BNAF be 
applied during and after the transition to the new wage index, we also 
note that that same regulation describes that in the event that we 
decide to change this methodology, we would propose to do so in 
rulemaking. In the beginning of this section of the FY 2010 hospice 
wage index final rule, we cited our rationale from the FY 2009 hospice 
wage index final rule as to why we believe a policy change was 
warranted. However, as noted previously, we are phasing out the BNAF 
more gradually, over a 7 year period. We are reducing the BNAF in FY 
2010 by 10 percent, and then reducing it further by an additional 15 
percent for each of the next 6 years, so that it is fully phased-out by 
FY 2016. We will evaluate the impact of the BNAF reduction in the 
context of how this type of adjustment will fit into our plans for 
future hospice payment reform. As such, we believe that a more gradual 
phase-out is appropriate at this time.
    As previously noted, the decision to transition from the BLS-based 
wage index to the hospital-based wage index was a long process. In the 
October 14, 1994 proposed rule (59 FR 52130), we noted that both CMS 
(formally HCFA) and industry projections indicated that most hospices 
would have their wage indices lowered if a new wage index were based on 
unadjusted hospital data. The preamble of the final rule stated that, 
``During the discussions preliminary to developing a new wage index, 
the industry voiced concerns over the adverse financial impact of a new 
wage index on individual hospices and a possible reduction in overall 
Medicare hospice care payments'' (59 FR 52130). There were also 
concerns that access to hospice care could be affected. We noted that 
as a result of the impact of the lower payments to hospices in the 
aggregate, the new wage index would have to be at least budget neutral 
(59 FR 52131). The Committee Statement of April 13, 1995, which was 
published in a notice on November 29, 1995 (60 FR 61265), said that we 
would apply a factor to achieve budget neutrality, and noted that 
budget neutrality meant that aggregate Medicare hospice payments using 
the new hospital-based wage index would have to equal estimated 
payments that would have been made under the original hospice wage 
index.
    We disagree with the commenter who wrote that Medicare insists on 
budget neutrality in all of its payment systems, and therefore we 
should keep the BNAF. The commenter is correct that in many (but not 
all) of our other payment systems, we apply a budget neutrality 
adjustment each year when a wage index change occurs to ensure that 
aggregate payments made using the new wage index are the same as 
payments made using the prior year's wage index. A wage index is 
essentially an index of wage weights which are relative to 1, 
reflecting relative geographic differences in labor costs. Because the 
hospital wage data are updated each year, and these are the usual data 
upon which our wage indices are built, the year-to-year change in total 
Medicare benefit payments is minor. The yearly update enables the 
relative weight values of the wage indices to reflect current 
geographic wage fluctuations. The hospice budget neutrality adjustment 
factor differs from these budget neutrality adjustments in a 
significant way. Because the original, 1981 Bureau of Labor Statistics 
based hospice wage index wasn't updated since it was first created, the 
relative weights of the wage index values became inaccurate over the 
years, ultimately resulting in inaccurate hospice payments in most 
areas of the country, and erroneously low payments in other areas of 
the country. By the mid-1990s the weights were so distorted and 
inaccurate, that we were paying hospices more in the aggregate than we 
would have paid had a wage index which was reflective of more current 
geographic wage variances in labor costs been used, such as the yearly 
updated hospital wage index. This inaccuracy resulted in an unintended 
increase in payments. By continuing to apply the BNAF in perpetuity, we 
are no longer simply adjusting hospice payments for differences in 
geographic variances in labor costs; rather we are perpetrating 
artificially-inflated payments associated with inaccurate wage weights.
    As we described in the rationale provided at the beginning of this 
section, we do not believe that the Committee foresaw the tremendous 
growth in the hospice industry that has occurred in the past 12 years. 
As a result of this growth, the surge of new entrants into the industry 
over the past 12 years has benefited from this adjustment. We continue 
to believe that the Committee adopted the BNAF to help existing 
hospices transition to the 1998 wage index change. We note that in the 
late 1990's almost all hospices were not-for-profit. Impact analysis 
performed by participants in the negotiating process showed pockets of 
the country where the migration to the new hospital wage index would 
result in wage index values dramatically decreasing nearly 30 percent 
during the 3-year transition. The Committee was clearly concerned about 
hospice viability in those areas of the country, with a corresponding 
concern about access to care. We continue to believe that the unique 
BNAF

[[Page 39392]]

methodology, coupled with the 3-year transition period, served to 
address those concerns. It also continues to be our belief that because 
of the growth in the number of hospices, and the growth in the 
beneficiaries served that has occurred during the last decade, the 
Committee's goal to ensure that access to hospice care not be reduced 
as a result of the wage index change has been achieved. Therefore, we 
believe that this unique methodology for achieving budget neutrality 
has served its purpose and is no longer necessary, and we are phasing 
out this adjustment.
    We agree with the commenter that the language in the August 8, 1997 
final rule indicated that the BNAF would be applied during and after 
the transition period (62 FR 42862), which we believe we have done; 
however, this language did not imply that the BNAF could never be 
changed or eliminated. That same final rule clearly stated that if it 
became necessary to change the wage index methodology, we would do so 
through notice and comment rulemaking (62 FR 42863).
    Comment: A commenter wrote that CMS tried to diminish the size of 
the BNAF reduction by noting that they will be ``mitigated'' by market 
basket updates. The commenter said that market basket updates are 
essentially cost of living increases intended to keep providers' 
payments in line with increased costs. The commenter felt that by doing 
away with the BNAF through a regulatory process, CMS is essentially 
eliminating the hospice payment update, and then making a further cut, 
and making an end-run around the congressionally-established payment 
system for hospice services. He added that CMS had implemented the BNAF 
phase-out without seeking input from knowledgeable stakeholders, 
including Congress, and without relying on a deliberative and inclusive 
process, over a short three-month timeframe.
    Response: The commenter appears to suggest that, because Congress 
has determined that hospice payment rates are to be increased each year 
by the market basket update factor, it therefore follows that hospice 
payments must increase each year by the same percentage. We disagree, 
and believe that the commenter is looking at the market basket update 
alone, when instead Medicare payments to hospices are affected by other 
things--including the hospice wage index. Calculating the hospice 
payment rates for the four types of hospice services is merely the 
first step in determining how much hospices will be paid for services 
in any particular year. Once those rates are determined (by taking the 
prior year's rates and adjusting them by the market basket update 
factor), we apply the hospice wage index to the labor component of the 
payment rate. The values in that index change from year to year based 
on data CMS collects regarding hospital wages in different labor 
markets. Some hospices end up being paid at a rate lower than what they 
would have received based solely on the market basket update factor, 
while some end up being paid at a higher rate. These fluctuations occur 
every year, and they would continue to occur regardless of whether or 
not we phase out the BNAF. By requiring the hospice payment rates to be 
adjusted annually using the market basket update factor, Congress was 
not guaranteeing that hospices, individually or in the aggregate, would 
always receive an identical adjustment in payments. On the contrary, 
although Congress imposes a statutory cap on payments and sets the 
payment rates for the four categories of hospice services (based on the 
market basket update factor), it otherwise gives the Secretary the 
exceedingly broad authority to develop (and revise as necessary) the 
administrative tools used to calculate actual hospice payments under 
Medicare. See Section 1814(i)(1)(A) of the Act (``[T]he amount paid to 
a hospice program with respect to hospice care for which payment may be 
made under this part shall be an amount equal to the costs which are 
reasonable and related to the cost of providing hospice care or which 
are based on such other tests of reasonableness as the Secretary may 
prescribe in regulations * * * ''). Following the commenter's 
reasoning, the Secretary would be prohibited from taking any action 
that would result in hospices receiving less than what they would 
receive if the adjusted rates (i.e., with the market basket update 
factor applied) were applied with no further modification. Indeed, we 
would be prohibited from using the wage index entirely, because using 
that index necessarily means that some hospices will receive less in 
payments than they would if the market basket update-adjusted rates 
were applied without further alteration. While we have on occasion 
sought industry input before proposing changes, we are not required to 
seek stakeholder input beyond that of providing a comment period.
    Comment: A commenter wrote that CMS justified phasing out the BNAF 
in part because the combination of increases in the wage index in 
certain areas with the BNAF led to an artificial boost in the wage 
index for the past 11 years, which CMS concluded was an excess payment. 
While this commenter disagrees that some hospices received an 
``artificial boost'' in payments due to the BNAF, this commenter 
suggested that CMS change the methodology for the limited number of 
hospices that CMS believes benefited unduly from the ''artificial 
boost'' given by the BNAF. This commenter felt that CMS has failed to 
analyze the impact of the elimination of the BNAF on hospices and on 
Medicare beneficiaries in need of hospice services. The analysis should 
evaluate the current role and impacts of the BNAF phase-out in light of 
the other elements of the hospice wage index, and how those elements 
have changed over time, and the effects of those changes. As an 
example, this commenter noted that hospitals are allowed geographic 
reclassifications which hospices are not, and CMS has not shown whether 
and to what extent hospices are disadvantaged by this.
    Response: We continue to believe that applying the BNAF to the 
hospital-based wage index does not accurately, account for geographic 
variances in hospice labor costs. When the hospice industry changed 
from the BLS-based wage index to the pre-floor, pre-reclassified 
hospital wage index, it began using more accurate, more current data 
which are updated annually. When that transition occurred, there were 
hospices whose wage index value increased, but many hospices saw their 
wage index value decrease. This is because the BLS-based wage index 
values, which were applied to hospice payments, were artificially high 
in some areas of the country. The Committee itself acknowledged that 
the BLS data were ``inaccurate and outdated'' in its Committee 
Statement (62 FR 42883). The hospital-based wage index was considered 
more accurate by the Committee, even though its wage index values were 
lower for many hospices. Therefore before the transition to the 
hospital-based wage index, many hospices were receiving payments that 
were inflated due to the artificially high BLS-based wage index.
    In addition, the BNAF was put into place to mitigate the potential 
adverse financial impact to hospice providers of changing wage indices, 
since the change would lead to a reduction in payments, which could 
threaten access to care. However, as we previously described in the 
comment above, the BNAF has been applied not only to those hospices 
that were in existence at the time of the wage index change, but also 
to those new hospices that were established after 1998. We continue to 
believe that these new entrants have received an artificial boost to 
their payments as a result of the

[[Page 39393]]

BNAF, which was not the intent of the negotiating committee.
    As noted above, because of the inaccurate and outdated nature of 
the BLS-based wage data, those payments would also be inaccurate, and 
CMS must do its best to ensure the accuracy of Medicare payments. 
Therefore we believe that it is appropriate to phase-out the BNAF for 
all hospices, and not just those who are new entrants, or whose wage 
index values did not drop with the shift to the hospital-based wage 
index.
    The payment reduction which would occur as a result of a BNAF 
phase-out applies equally to all hospices except for providers eligible 
for the hospice floor calculation. That calculation lessens the effect 
on those providers eligible for the floor, which are typically in rural 
areas.
    There are no statutory provisions that explicitly permit entities 
other than hospitals to reclassify. We note that sections 1886(d)(8)(B) 
& 1886 (d)(10) of the Social Security Act explicitly permit hospitals 
to seek reclassification. By contrast, no language in Section 
1814(i)(1)(A) of the Act provides any indication that Congress intended 
hospices to reclassify. Our regulations at 42 CFR 418.306(c) state only 
that CMS will issue annually, in the Federal Register, a hospice wage 
index based on the most current available CMS hospital wage data, 
including changes to the definitions of Metropolitan Statistical Areas.
    As noted previously, we are assessing the impact of the BNAF phase-
out more slowly, due to the more gradual 7-year phase-out which is 
being finalized in this rule.
    Comment: A few commenters mentioned that CMS had said in 2008 that 
since hospices and home health agencies use a similar labor pool, and 
since the home health wage index does not include the BNAF, this 
further supports phasing out the BNAF. The commenter wrote that there 
are significant differences between hospice and home health, and said 
that the issue is the difference in the payment systems. The commenter 
wrote that it is inappropriate to assume, without any analysis, that 
the absence of a BNAF in the home health wage index is evidence that 
the BNAF can and should be eliminated from the hospice wage index, and 
that do so would result in a more accurate and equitable payment 
methodology.
    Response: There are differences in the home health and hospice 
payment systems. However, the purpose of a wage index is to account for 
geographic variances in labor costs, regardless of the system used to 
reimburse those costs, along with non-labor costs. As we described in 
our FY 2009 proposed and final rules, we believe that there should be a 
level playing field for recruiting and retaining staff for home-based 
benefits such as hospice and home health. Because hospices and home 
health agencies share labor pools, we believe that there should be 
consistency in the wage index used by both these home-based benefits. 
Nothing in our data analysis has shown us that hospice labor costs 
differ substantially from home health labor costs, making it difficult 
to justify the BNAF which provides a 6 percent increase in the hospice 
wage index, which equals about 4 percent more in payments over the 
payments otherwise applicable. We continue to believe that the pre-
floor, pre-reclassified hospital wage index provides a good measure to 
account for geographic variances in labor costs for both these home-
based benefits. Home health agencies also experience annual 
fluctuations in the hospital wage index values, however, they do not 
receive a BNAF adjustment. Phasing-out the BNAF enables us to achieve 
this consistency.
    Comment: Several commenters stated that CMS has concluded that the 
growth in the hospice benefit was due to the BNAF, in order to justify 
its elimination. The commenters noted a number of factors that have 
contributed to the hospice industry's growth, including an increased 
number of beneficiaries using the benefit, longer lengths of stay, 
increased acceptance of hospices for end-of-life care by the physician 
and patient/family communities, changes in the mix of patients using 
hospice, and educational efforts by providers and by CMS to 
beneficiaries and health care providers. One commenter noted that the 
number of Medicare certified hospices had decreased from the 3,255 
reported by CMS in December 2008 to the 3,206 hospices reported as of 
January 29, 2009. Another commenter stated that hospice is a small 
portion of all Medicare spending.
    Response: We disagree with the comment that we concluded that the 
growth in the hospice industry was due to the BNAF or that the BNAF 
reduction is a reaction to the growth in hospice reimbursements. 
However, the commenters correctly noted several factors that have 
contributed to industry growth. In our FY 2009 proposed and final 
rules, we indicated that the BNAF phase-out was not a reaction to that 
growth--in the proposed rule, rather we stated that the BNAF was put in 
place to mitigate any adverse financial impact that then-existing 
individual hospices might have experienced as a result of transitioning 
to the new hospital-based wage index in 1998. We note that industries 
do not typically expand and grow during times of financial adversity; 
often there is industry contraction instead. We stated that the growth 
in the industry is an indication that any adverse financial effects of 
transitioning to a new wage index had ended.
    We disagree with the commenter who believes that the numbers of 
Medicare-certified hospices have decreased, and can explain the 
differences in the figures which might lead to that conclusion. The 
report from Data Compendium dated December 2008 showed Medicare-
certified hospices; these data are drawn from survey and certification 
records. The data in the impact tables in our wage index proposed and 
final rules are also originated from survey and certification data, but 
those data are limited to those Medicare-certified hospices which have 
filed claims. Because of the time allowed for claims to be submitted 
and for the claims files to be finalized, the claims files used in 
proposed and final rules typically lag. Therefore, the data presented 
in the impact tables in our proposed and final rules show the numbers 
of Medicare-certified hospices which have filed claims, and are 
typically less than the numbers which the survey and certification 
system reports, which simply show the number of Medicare-certified 
hospices. That number often increases between the proposed and final 
rules, since we receive updated claims information which we use for the 
final rule. Additionally, with respect to newly-certified Medicare 
hospices, there may be a lag between certification and submission of 
Medicare claims. Thus, the total number of Medicare-certified hospices 
may legitimately be greater in number than the number of Medicare-
certified hospices that submit Medicare hospice claims in a given year.
    To make a proper comparison, one must either compare impact table 
data for one year to impact table data for another year, or compare 
survey and certification data without ties to claims filed for one year 
to survey and certification data without ties to claims filed to 
another year. For example, the Table 1 of this FY 2010 final rule shows 
that there are 3,328 hospices. We used January 29, 2009 survey and 
certification data, but tied it to FY 2008 claims as of March 2009. In 
the FY 2009 final rule, there were 3,111 hospices; that rule tied 
February 2008 survey and certification data to FY 2007 claims as of 
March 2008. Based on these data, the number of hospices increased by 
217,

[[Page 39394]]

which represents a 7 percent increase from 2008 to 2009.
    We agree that hospice spending relative to all Medicare spending is 
a small portion that will account for an estimated 2.3 percent of 
Medicare spending overall in FY 2009. The growth in hospice spending 
has outpaced the rate of growth for other Medicare provider types, and 
the CMS Office of the Actuary projects that it will continue to do so 
over the next decade. Furthermore, CMS has a responsibility to 
safeguard trust fund dollars by paying accurately and appropriately for 
all Medicare services.
    Comment: Several comments suggested other ways that CMS could save 
Medicare dollars without phasing out the BNAF. Many commenters said 
that we should encourage more patients to elect hospice care, and cited 
a Duke University study which found that hospice can save Medicare 
money at the end of life; one suggested we focus on assisting 
physicians and hospitals in providing more education about hospice. 
Several suggested we target fraud and abuse. One commenter suggested we 
target the for-profit hospices whose practices have inappropriately 
raised Medicare costs, rather than making a payment reduction which 
impacts non-profits and for-profits equally. A commenter also suggested 
we focus payment reductions on hospices with aberrant lengths of stay. 
Other commenters felt that phasing out the BNAF penalizes hospices that 
do the right thing with a substantial rate cut because large for-profit 
hospices have managed to ``game'' the system. Several commenters felt 
that rather than addressing potential abuses, CMS is choosing to 
implement across-the-board actions without regard to the impact on the 
lowest and most efficient end of the provider spectrum, or on access. A 
commenter wrote that instead of focusing on the root cause of 
increasing hospice expenditures (an aging population, quality services, 
increased understanding of the benefit, etc.), CMS is simply cutting 
reimbursement. One wrote that the rationale for payment reduction seems 
at odds with a careful and thoughtful consideration of changes in the 
payment approach that will best serve hospice patients, agencies, and 
the Federal budget.
    Response: We encourage eligible Medicare beneficiaries who would 
like to receive hospice care to consider electing the benefit. We also 
support educational outreach to all provider types to increase 
understanding of the benefits associated with hospice care. We believe 
that hospice provides quality, compassionate care for those at the end 
of life, and often does so in a cost-effective fashion. We agree that 
hospice can save Medicare dollars, though it does not always do so.
    The BNAF phase-out was not promulgated because of growing hospice 
expenditures, although those expenditures did suggest a favorable 
business climate for the hospice industry. We are aware that those 
rising expenditures also indicated increasing numbers of eligible 
beneficiaries and increasing understanding and use of the benefit which 
we have encouraged. The BNAF phase-out was also not promulgated as a 
means of limiting fraud or abuse or of recovering dollars due to 
questionable or inappropriate practices by some hospices. Rather, our 
rationale for promulgating the BNAF phase-out is the same as that 
described in the FY 2009 proposed and final rules, and is included at 
the beginning of this section of the FY 2010 hospice wage index final 
rule. The rationale was carefully considered as part of a thoughtful 
process. We determined that a special adjustment which was adopted to 
mitigate the impact of wage index change in 1998, which results in a 
greater than 4 percent annual aggregate increase in payments over what 
would have been paid otherwise, could not continue to be justified. We 
recognize that the BNAF reductions affect providers equally unless the 
providers are eligible for the hospice floor calculation, in which case 
the reductions may have less effect. The hospice floor calculation 
limits the impact that the BNAF reduction can have on some smaller, 
rural providers. As noted previously, we are phasing out the BNAF more 
gradually, reducing it in FY 2010 by 10 percent instead of by 75 
percent, as promulgated in the FY 2009 final rule and as presented in 
the FY 2010 hospice wage index proposed rule. We will continue the 
phase-out over the next 6 years, at an additional 15 percent each year. 
We will evaluate the impact of the BNAF reduction in the context of how 
this type of adjustment will fit into our goals for future hospice 
payment reform. As such, we believe that a more gradual phase-out is 
appropriate at this time.
    The impact of the 10 percent BNAF reduction for FY 2010 is shown in 
section VII of this final rule.
    Regarding the comment about targeting some for-profit hospices for 
a payment reduction, we typically do not adjust payments based on type 
of ownership, and do not have the statutory authority to do so, nor do 
we believe that such an approach is appropriate.
    We believe that the vast majority of hospices provide care to their 
patients in a legal and ethical fashion that is not fraudulent or 
abusive of Medicare or its requirements. However, we realize that there 
is a small minority of providers who engage in fraud or abuse, and we 
remind commenters that they can report suspected fraud or abuse to the 
Office of the Inspector General at 1-800-HHS-TIPS or to the Medicare 
Customer Service Center at 1-800-MEDICARE.
    After considering the comments received and alternate phase-out 
scenarios provided by commenters, we are finalizing the FY 2010 hospice 
wage index final rule with a BNAF which has been reduced by 10 percent, 
rather than continuing with the 75 percent reduction which was 
promulgated in the FY 2009 hospice wage index final rule, and planned 
for FY 2010. We are finalizing a 7-year phase-out, with a 10 percent 
reduction in FY 2010, an additional 15 percent reduction for a total of 
25 percent in FY 2011, an additional 15 percent reduction for a total 
of 40 percent in FY 2012, an additional 15 percent reduction for a 
total of 55 percent in FY 2013, an additional 15 percent reduction for 
a total of 70 percent in FY 2014, an additional 15 percent reduction 
for a total of 85 percent in FY 2015, and an additional 15 percent 
reduction for complete phase-out in FY 2016. We will continue to 
evaluate the impact of the BNAF reduction as we perform our hospice 
payment reform analyses.
    We believe that a more gradual phase-out is appropriate given the 
hospice payment reform analyses which are underway; however, we reserve 
the right to change this phase-out timeframe through notice and comment 
rulemaking should hospice payment reform be delayed or for other 
reasons that the Secretary deems appropriate.
    The unreduced BNAF for FY 2010 is computed to be 0.061775 (or 
6.1755 percent). A 10 percent reduced BNAF, which is subsequently 
applied to the pre-floor, pre-reclassified hospital wage index values 
greater than or equal to 0.8, is computed to be 0.055598 (or 5.5598 
percent). Pre-floor, pre-reclassified hospital wage index values which 
are less than 0.8 are subject to the hospice floor calculation; that 
calculation is described in section I.B.1.
    The hospice wage index for FY 2010 is shown in Addenda A and B. 
Specifically, Addendum A reflects the FY 2010 wage index values for 
urban areas under the CBSA designations. Addendum B reflects the FY 
2010 wage index values for rural areas under the CBSA designations.

[[Page 39395]]

4. Effects of Phasing Out the BNAF
    The full (unreduced) BNAF calculated for FY 2010 is 6.1775 percent. 
As noted in the previous subsection, we are phasing out the BNAF over a 
total of 7 years. We are reducing the BNAF by 10 percent for FY 2010, 
with additional 15 percent reductions for each of the next 6 years. 
Therefore total phase-out will occur in FY 2016.
    For FY 2010, this is mathematically equivalent to taking 90 percent 
of the full BNAF value, or multiplying 0.061775 by 0.90, which equals 
0.055598 (5.5598 percent). The BNAF of 5.5598 percent reflects a 10 
percent reduction in the BNAF. The 10 percent reduced BNAF (5.5598 
percent) will be applied to the pre-floor, pre-reclassified hospital 
wage index values of 0.8 or greater in the FY 2010 hospice wage index.
    The hospice floor calculation will still apply to any pre-floor, 
pre-reclassified hospital wage index values less than 0.8. Currently, 
the hospice floor calculation has 4 steps. First, pre-floor, pre-
reclassified hospital wage index values that are less than 0.8 are 
multiplied by 1.15. Second, the minimum of 0.8 or the pre-floor, pre-
reclassified hospital wage index value times 1.15 is chosen as the 
preliminary hospice wage index value. Steps 1 and 2 are referred to in 
this final rule as the hospice 15 percent floor adjustment. Third, the 
pre-floor, pre-reclassified hospital wage index value is multiplied by 
the BNAF. Finally, the greater result of either step 2 or step 3 is 
chosen as the final hospice wage index value. The hospice floor 
calculation is unchanged by the BNAF reduction. We note that steps 3 
and 4 will become unnecessary once the BNAF is eliminated.
    We examined the effects of a 10 percent reduction in the BNAF 
versus using the full BNAF of 6.1775 percent on the FY 2010 hospice 
wage index. The FY 2010 BNAF reduction of 10 percent resulted in 
approximately a 0.57 to 0.59 percent reduction in most hospice wage 
index values. The phase-out of the BNAF over the following 6 fiscal 
years at 15 percent per year will result in an additional estimated 
annual reduction of the hospice wage index values of approximately 0.9 
percent per year.
    Those CBSAs whose pre-floor, pre-reclassified hospital wage index 
values had the hospice 15 percent floor adjustment applied before the 
BNAF reduction would not be affected by this phase-out of the BNAF. 
These CBSAs, which typically include rural areas, are protected by the 
hospice 15 percent floor adjustment. We have estimated that 18 CBSAs 
are already protected by the hospice 15 percent floor adjustment, and 
are therefore completely unaffected by the BNAF reduction. There are 
over 120 hospices in these 18 CBSAs.
    Additionally, some CBSAs with pre-floor, pre-reclassified wage 
index values less than 0.8 will become newly eligible for the hospice 
15 percent floor adjustment as a result of the 10 percent reduced BNAF. 
Areas where the hospice floor calculation would have yielded a wage 
index value greater than 0.8 if the full BNAF were applied, but which 
will have a final wage index value less than 0.8 after the 10 percent 
reduced BNAF is applied, will now be eligible for the hospice 15 
percent floor adjustment. These CBSAs will see a smaller reduction in 
their hospice wage index values since the hospice 15 percent floor 
adjustment will apply. We have estimated that 3 CBSAs will have their 
pre-floor, pre-reclassified hospital wage index value become newly 
protected by the hospice 15 percent floor adjustment due to the 10 
percent reduction in the BNAF. This will affect those hospices with 
lower wage index values, which are typically in rural areas. There are 
9 hospices located in these 3 CBSAs.
    Finally, the hospice wage index values only apply to the labor 
portion of the payment rates; the labor portion is described in section 
I.B.1 of this final rule. Therefore the projected reduction in payments 
due to the updated wage data and the 10 percent reduction of the BNAF 
will be less than the projected reduction in the wage index value 
itself. We estimated a projected reduction in payments of -0.7 percent, 
as described in column 4 of Table 1 in section VII of this final rule. 
In addition, the estimated effects of the phase-out of the BNAF will be 
lessened by any hospital market basket updates to payments. The 
hospital market basket update for FY 2010 is 2.1 percent and will be 
officially communicated through an administrative instruction. The 
combined effects of the updated wage data, the 10 percent reduction of 
the BNAF and a hospital market basket update of 2.1 percent for FY 2010 
is an overall estimated increase in payments to hospices in FY 2010 of 
1.4 percent (column 5 of Table 1 in section VII of this final rule).
    Comment: Many commenters wrote that they had already pared back 
expenses, and that they could not absorb any cuts, particularly with 
the present economic downturn; smaller providers and rural providers in 
particular said that they may not be able to survive the payment 
reduction. A number of commenters indicated that because of the 
economy, their hospices had already implemented a variety of spending 
reductions, including hiring or wage freezes, and a few said that they 
had already laid off some personnel. Some indicated that they would 
postpone hiring for vacant positions. Many also wrote that hiring and 
wage freezes, layoffs, and wage reductions would lead to higher 
caseloads, and likely lower the quality or quantity of services 
provided, as well as reduce morale. Some were concerned that they would 
lose nursing staff to hospitals if they could not pay nurses 
competitively. One wrote that when the upswing finally comes, it will 
be difficult to hire and train quality employees in a timely manner, 
adding to staffing costs overall.
    Many commenters, particularly in rural areas, said that a payment 
reduction would force them to reduce their service area, leaving some 
rural beneficiaries without access to any hospice care. One commenter 
noted that smaller hospices generally provide better, more personal 
care, but if they cannot survive, only large hospices will remain in 
business; this commenter felt that patients and families will have 
lower quality care as a result. Others noted that they would cut back 
services provided, and mentioned that bereavement programs, outreach 
programs, proven alternative therapies, staff training, and volunteer 
training would be targeted. A number of commenters felt that the BNAF 
reduction would ultimately increase Medicare costs, as patients in a 
crisis would go to the hospital if hospice staffing was too low to 
respond quickly, or if patients lost access to care and were forced 
into other post-acute settings or into hospitals at the end of life.
    One commenter reported that hospices had also postponed a planned 
expansion of services or of facilities. This commenter mentioned the 
closure of an inpatient unit or consolidation of offices as other cost 
cutting measures taken due to the economic climate. Multiple commenters 
wrote that a payment cut would force them to lay off workers, which is 
contrary to the Obama Administration's stated goal of preserving jobs 
and stimulating growth. A few stated that ARRA's delay of the FY 2009 
BNAF reduction saved 3,000 jobs, and that these jobs will be at risk if 
the BNAF reduction is implemented for FY 2010.
    Several commenters also indicated that donations usually help them 
to meet their expenses, but that with the recession and stock market 
decline, their donors had less to give; they wrote that donations were 
greatly reduced and fundraising was more difficult. As a

[[Page 39396]]

result, some said they were already operating with negative margins. 
Several commenters said that small or medium hospices would be more 
affected than larger hospices, and that their margins could not absorb 
greater expenses or a payment reduction. Some cited MedPAC's margin 
analysis, which showed average hospice margins at 3.4 percent, stating 
that they could not survive the 3.2 percent payment reduction reported 
in the FY 2010 proposed rule. A few noted that for some, the payment 
reduction is far greater than 3.2 percent, citing 5 percent or 9 
percent reductions overall for their CBSA.
    Additionally, several commenters said that a payment reduction 
would force them to reduce or eliminate care to indigent patients and 
to the uninsured. They noted that they had previously accepted all 
patients without regard to ability to pay, and that their revenues from 
Medicare and from donations enabled them to absorb the costs of 
providing care to the uninsured; one commenter wrote that her hospice 
is ``mandated'' to accept all eligible patients, regardless of ability 
to pay. Given the economic climate, particularly the current 
unemployment rate, many felt that this was the wrong time to be 
reducing payments.
    Response: While we are sensitive to the issues raised by 
commenters, and to the possible effects of the BNAF reduction, we 
continue to believe that we cannot justify an adjustment factor which 
was adopted to mitigate the impact of a 1998 wage index change, and 
which results in what we believe to be an inappropriate increase in 
overall hospice payments of approximately 4 percent annually over what 
would have been paid in absence of the BNAF. Therefore, for the reasons 
described in this FY 2010 hospice wage index final rule and in the FY 
2009 hospice wage index final rule, we will phase out the BNAF. 
However, as noted in the previous section, given the efforts to reform 
the hospice payment system, we are finalizing a more gradual phase-out 
of the BNAF over 7 years. We believe it would be prudent to take 
additional time to evaluate the BNAF phase-out in the context of these 
reforms, in order to allow for further consideration of any 
consequences that might result from the phase-out.
    Regarding MedPAC's margin analysis, we refer commenters to MedPAC's 
2008 report entitled ``Report to the Congress: Reforming the Payment 
System'' [http://www.medpac.gov/documents/Jun08_EntireReport.pdf], 
which lists limitations of the analysis which could lead to an 
underestimation of hospice margins. In response to the commenters who 
believed that the impact of the BNAF reduction is greater in some 
areas, we note that the reductions in payments which exceed the 3.2 
percent reported in our FY 2010 proposed rule impact summary are not 
due to the BNAF phase-out, but are due to the normal fluctuations in 
the pre-floor, pre-reclassified hospital wage index. The BNAF affects 
all hospices equally, except for those eligible for the hospice floor 
calculation (i.e., hospices with pre-floor, pre-reclassified hospital 
wage index values less than 0.8). Those hospices which are eligible for 
the hospice floor calculation are either completely protected from the 
effects of the BNAF reduction, or will experience lessened effects. 
Most of these hospices are in rural areas.
    We applaud hospices which provide care to the uninsured and to 
indigent patients. We note that Medicare hospice patients have nearly 
all of their hospice care paid for by Medicare; the co-payments for 
prescription drugs and for respite care are very small. This benefits 
all hospice patients, but particularly low income patients, as the out-
of-pocket costs are minimal. We also note that hospices develop their 
own policies about taking eligible patients without insurance or the 
means to pay; Medicare does not ``mandate'' that hospices take all 
eligible patients regardless of ability to pay or insurance status.
    Finally, the costs of complying with the new CoPs and with the data 
collection requirements are normal costs of doing business, for which 
hospices have had ample time to prepare.
    Comment: One commenter wrote that the Negotiated Rulemaking 
Committee was familiar with the serious disruptions that could occur in 
the delivery of healthcare services through a change in the payment 
distribution methodology. The commenter felt that stability in delivery 
of hospice care is dependent on payment stability, which is lost if CMS 
phases out the BNAF. A few commenters wrote that we did not have enough 
data or data analysis to justify the elimination of the decade old 
BNAF, and felt that our eliminating the BNAF was arbitrary and 
capricious. One said that without a careful analysis of all the effects 
of the phase-out, phasing out the BNAF would be arbitrary and 
capricious and a violation of the Administrative Procedures Act. Some 
wrote that we had not carefully analyzed the impact of this action. One 
commenter wrote that historically, Congress has rejected the 
Administration's requests to reduce hospice reimbursement rates, 
understanding that any reduction in rate must necessarily reduce 
quality of care or access to care. This commenter felt that the 2009 
NPRM is inconsistent with the legislative intent to maintain and ensure 
adequate hospice funding levels.
    Response: We presented our rationale for the BNAF phase-out in the 
FY 2009 proposed and final rules and in section II.A.3 of this final 
rule. Commenters have argued that we have not considered the effects of 
reducing the BNAF on hospices; we disagree, and refer the commenters to 
the impact section of our rule, which set out detailed information on 
the effects of reducing the BNAF.
    More than adequate access to hospice care was reported by MedPAC 
[see ``Report to the Congress: Reforming the Payment System'', chapter 
8, available at http://www.medpac.gov/documents/Jun08_EntireReport.pdf], and suggests that a BNAF phase-out will not impede 
access to hospice care. Given this information, we continue to believe 
that a BNAF phase-out will not impede access to hospice care. Congress 
mandated the payment rates and the market basket updates. Congress did 
not mandate that we apply in perpetuity a special adjustment to the 
hospice wage index that has the effect of raising aggregate hospice 
payments by about 4 percent annually over what CMS would have paid 
absent the BNAF.
    We appreciate the commenters' concerns regarding possible effects 
of a payment reduction. The BNAF affects all hospices equally, except 
for those eligible for the hospice floor calculation (i.e., hospices 
with a pre-floor, pre-reclassified hospital wage index values less than 
0.8). Those hospices which are eligible for the hospice floor 
calculation are either completely protected from the effects of a BNAF 
reduction, or experienced lessened effects. Most of these hospices are 
in rural areas.
    We also do not believe that our actions in phasing-out the BNAF 
were arbitrary or capricious. We believe that the rationale and impacts 
provided in the FY 2009 and FY 2010 proposed and final rules are clear, 
and that we met all the requirements of the Administrative Procedures 
Act.
    Comment: Many commenters wrote that this is the wrong time for a 
payment reduction due to rising costs, particularly gasoline. Rural 
providers in particular cited the rising cost of gasoline combined with 
service areas that cover thousands of square miles and generate 
significant mileage costs. Additionally, others wrote that the 1983 per 
diems were not designed to cover the costs of technology and of 
expensive palliative treatments, and said hospices couldn't afford a 
payment reduction on

[[Page 39397]]

top of that. Another wrote that hospices had had to spend more to 
implement the new Conditions of Participation and data collection 
requirements, but received no additional reimbursement to cover the 
cost of these changes. They felt that if the BNAF were phased out as 
described in the proposed rule, hospices would be subjected to multiple 
significant changes over a short period of time, and that too many 
reforms at once could have a negative impact on access to quality 
hospice services and relations operations. Others cited rising wages, 
benefit costs, and insurance costs.
    Many commenters also felt that this was the wrong time to reduce 
reimbursement given the nation's demographics. Some expressed concern 
that access to hospice would be reduced if hospices could not survive 
the BNAF reductions or if they had to reduce their service areas, at a 
time when there are more baby boomers eligible for hospice. They noted 
that the demand for hospice would be increasing as the geriatric 
population increases, and one said she was disconcerted to hear of CMS' 
concern over the growing utilization of hospice. One wrote that 
demographers in his state projected more persons without caregivers in 
the home; less money for hospices erodes hospices' capacity to provide 
care, and may lead to an increase in costly nursing home stays.
    A few noted that a payment reduction was inconsistent with the 
health care reform being discussed in Washington, as hospice saves 
Medicare money and should be supported and expanded. Many commenters 
noted that a study done at Duke University has shown that hospice is 
cost-effective, and saves Medicare dollars overall while providing 
quality end-of-life care. A commenter also referred to the Dartmouth 
Atlas Report (2008) which found that hospices were the only post-acute 
provider to significantly reduce hospitalizations. Another commenter 
wrote that if patients could not access hospice and end up in 
hospitals, it would burden an already strained hospital healthcare 
delivery system. Two commenters suggested we also consider the 
``secondary savings'' that hospice brings by positively affecting 
conditions unrelated to the patient's terminal diagnosis, by 
benefitting the physical and emotional health of the caregivers, and of 
the children of hospice patients.
    Response: We appreciate the commenters' concerns about rising costs 
and about access to hospice care. We understand that costs are rising 
and that it is vital to preserve access to hospice care for Medicare 
beneficiaries. The hospital market basket update which is used to 
update payment rates for all hospices includes an energy component that 
is sensitive to petroleum costs among other costs. It is reasonable to 
expect that future market basket updates will continue to account for 
any continuation of rising fuel costs.
    In addition, we believe that the requirements associated with the 
CoPs and data collection are part of the cost of doing business, and 
that the industry has had ample time to plan and budget for these 
changes. We do not believe that these requirements will have adverse 
affects on admissions or services, but instead expect that the emphasis 
on quality and the increased awareness of visits provided could enhance 
services.
    We believe that in a time of economic pressures, all businesses, 
including hospices, will seek to operate more efficiently. However, we 
plan to monitor the effect of the BNAF reduction to assess whether 
unanticipated effects occur.
    We agree that the Medicare hospice benefit has been of tremendous 
benefit to those at the end of life and to their families, and applaud 
those who serve the dying as hospice staff and volunteers. We also 
agree that the hospice benefit often saves Medicare money, and 
appreciate the studies which have highlighted the areas where it 
provides costs savings to the Medicare program. However, hospice care 
does not save money in every instance. In their June 2008 report, 
MedPAC noted that ``hospice's net reduction in Medicare spending 
decreases the longer the patient is enrolled and beneficiaries with 
very long hospice stays may incur higher Medicare spending than those 
who do not elect hospice.'' (MedPAC, Report to the Congress: Reforming 
the Delivery System, chapter 8, ``Evaluating Medicare's Hospice 
Benefit'', MedPAC: Washington, DC, p. 209).
    We agree that we should evaluate the impact of the BNAF reduction 
in the context of how this type of adjustment will fit into our goals 
for future hospice payment reform that could affect payment to 
hospices. As such, we believe that a more gradual phase-out would be 
appropriate at this time. For the reasons described above, we do not 
believe that hospice access will be impeded due to a 10 percent BNAF 
reduction, and therefore, do not believe that Medicare costs would be 
shifted from hospice to more expensive forms of care.
    The hospice industry is growing and the demand for hospice services 
is likely to grow in the future, particularly with an aging population. 
CMS has encouraged hospice usage, and we expect the hospice benefit to 
continue to grow. We will monitor the impact of the BNAF phase-out for 
any unintended impact.
    Comment: A few commenters wrote that any reductions in Medicare 
reimbursement will trickle down to the private sector and to Medicaid, 
affecting funding for care for all patients, not just those on 
Medicare. One wrote that CMS had not considered the effects of the BNAF 
reduction on Medicaid.
    Response: Our Medicare payments are intended to be accurate and to 
adequately pay for resource use in providing care to Medicare patients. 
We do not develop Medicare payment policy to enable providers to offset 
the costs of non-Medicare patients. Indeed, the Act at section 
1861(v)(1) prohibits providers subject to reasonable-cost payment from 
using Medicare funds to subsidize care for non-Medicare patients.
    We received several comments which were outside the scope of this 
rule, and which we are set out below.
    Comment: A commenter wrote that in addition to payment reductions 
that would result from the elimination of the BNAF, hospices may also 
be faced with cuts imposed through the productivity adjustment factor 
proposed in the draft health reform bill being circulated by the House 
of Representatives.
    Response: Because this comment concerns potential future 
legislative changes, this comment is outside the scope of this rule. 
Therefore we are unable to respond.
    We received several other comments which were outside the scope of 
this rule, and which are set out below. However because they are 
related to hospice payments, we will briefly address them.
    Comment: A few commenters requested that CMS conduct a study to 
determine the appropriate hospice per diem for services to rural areas.
    Response: This comment is outside the scope of this rule, however 
we will address it briefly. Medicare pays one of four daily rates to 
hospice providers, based on the intensity level of care the patient 
requires. These per diem payment rates are the same, regardless of 
whether the services are provided in an urban area or a rural area. The 
hospice wage index, which includes a floor calculation which benefits 
many rural providers, is the vehicle we use to adjust for geographic 
variances in labor costs. In a time of high gasoline costs, we are 
sensitive to concerns from rural hospices that the additional time and 
distance required to visit a rural patient

[[Page 39398]]

adds significantly to their costs, and their assertion that payments 
are not adequate. However, an additional payment for rural providers, 
which is sometimes called a rural add-on payment, would have to be 
legislated. We will consider the situation of rural providers once we 
begin the process of hospice payment system reform.
    Comment: One person suggested we rate all end-of-life care and fund 
only those hospices which provide excellent services.
    Response: While outside the scope of this rule, we will consider 
this as we move forward hospice payment reform.
    Comment: As alternative cost-cutting measures, a commenter 
suggested we regulate the standards of care, and ensure that providers 
follow the Conditions of Participation; another suggested more frequent 
surveys. Another suggested that unnecessary medical tests and 
procedures performed to avoid litigation and paid for by Medicare 
should be the target of funding cuts. One commenter suggested we 
eliminate the tax credit for not-for-profit nursing homes and hospices 
that don't embody that not-for-profit spirit, and make them pay taxes 
on their income. One suggested we focus on nursing home chains that 
create hospice chains solely for additional billing opportunities. 
Another suggested we go after providers who exploit the dying with 
false hope that curative measures will lengthen their lives or improve 
their quality of life. Two commenters felt that if the BNAF phase-out 
occurs, politicians would have excellent health insurance and hospice 
care, but that the average American would have bare-bones hospice 
coverage. A commenter wrote that we should require all hospices to be 
non-profits, so that more money goes to patient care.
    Response: We appreciate these comments, but they are outside the 
scope of this rule.

B. Change to the Physician Certification and Recertification Process, 
Sec.  418.22

    The Medicare Payment Advisory Commission (MedPAC) has noted an 
increasing proportion of hospice patients with stays exceeding 180 
days, and significant variation in hospice length of stay. MedPAC has 
questioned whether there is sufficient accountability and enforcement 
related to certification and recertification of Medicare hospice 
patients. Currently, our policy requires the hospice medical director 
or physician member of the interdisciplinary group and the patient's 
attending physician (if any) to certify the patient as having a 
terminal illness for the initial 90-day period of hospice care. 
Subsequent benefit periods only require recertification by the hospice 
medical director or by the physician member of the hospice 
interdisciplinary group. These certifications must indicate that the 
patient's life expectancy is 6 months or less if the illness runs its 
normal course, and must be signed by the physician. The medical record 
must include documentation that supports the terminal prognosis.
    At their November 6, 2008 public meeting, MedPAC presented the 
findings of an expert panel of hospice providers convened in October 
2008; that panel noted that while many hospices comply with the 
Medicare eligibility criteria, some are enrolling and recertifying 
patients who are not eligible.
    The expert panel noted that there were several reasons for the 
variation in compliance. First, they noted that in some cases there was 
limited medical director engagement in the certification or 
recertification process. Physicians had delegated this responsibility 
to the staff involved with patients' day-to-day care, and simply signed 
off on the paperwork. Second, inadequate charting of the patient's 
condition or a lack of staff training had led some physicians to 
certify patients who were not truly eligible for Medicare's hospice 
benefit. Finally, some panelists cited financial incentives associated 
with long-stay patients. The panelists mentioned anecdotal reports of 
hospices using questionable marketing strategies to recruit patients 
without mentioning the terminal illness requirement, and of hospices 
failing to discharge patients who had improved or enrolling patients 
who had already been discharged or turned away from other hospices. 
Consensus emerged among the panelists that more accountability and 
oversight of certification and recertification are needed. MedPAC used 
the panel's input in making recommendations related to the 
certification process, which can be found in chapter 6 (``Reforming 
Medicare's Hospice Benefit'') of MedPAC's March 2009 report entitled 
``Report to the Congress: Medicare Payment Policy'' which is available 
at http://www.medpac.gov/chapters/Mar09_Ch06.pdf.
    We believe that those physicians that are certifying a hospice 
patient's eligibility can reasonably be expected to synthesize in a few 
sentences the clinical aspects of the patient's condition that support 
the prognosis. We believe that such a requirement, as suggested by the 
expert panel and by MedPAC, would encourage greater physician 
engagement in the certification and recertification process by focusing 
attention on the physician's responsibility to set out the clinical 
basis for the terminal prognosis indicated in the patient's medical 
record.
    To increase accountability related to the physician certification 
and recertification process, we are making a change to Sec.  418.22. 
Specifically, we are adding a new paragraph (b)(3) to Sec.  418.22, to 
require that physicians that certify or recertify hospice patients as 
being terminally ill include a brief narrative explanation of the 
clinical findings that support a life expectancy of 6 months or less. 
We originally proposed that the narrative should be written or typed on 
the certification form itself.
    In our proposed rule, we wrote that we do not believe that an 
attachment should be permissible because an attachment could easily be 
prepared by someone other than the physician. We solicited comments on 
whether this requirement would increase physician engagement in the 
certification and recertification process.
    Comment: Many commenters stated that this requirement would be a 
burden to hospices. Commenters referred to our regulations at Sec.  
418.22 which require that the clinical information and other 
documentation supporting the terminal prognosis must be included in the 
medical record, stating that the narrative would duplicate information 
in the medical record. Several commenters further stated that many 
hospice doctors have no clinical contact with the hospice patients, and 
that doctors currently base the certification of terminal illness on 
the medical record information alone. Therefore, they believe that this 
requirement would result in physicians simply rephrasing what was 
already in the medical record. Several commenters suggested CMS 
determine whether this requirement is feasible for small hospices with 
only a part-time medical director. Other commenters suggested that CMS 
require the narrative only on recertifications, stating that MedPAC's 
suggestion was intended to ensure that long-stay hospice patients 
continue to be hospice-eligible. Additionally, they said given that two 
physicians determine initial eligibility, a narrative at initial 
certification is unnecessary and burdensome. One commenter suggested an 
alternative to the narrative, suggesting that an attestation statement 
be included on the certification and recertification form stating that 
the pertinent medical record information has been reviewed by the 
physician.
    Many commenters supported this requirement as a way to ensure more

[[Page 39399]]

physician involvement with the patient and increase engagement in the 
certification of terminal illness. Some cautioned CMS to not allow a 
typed narrative, fearing that the hospice nurse would type it, and the 
physician would simply sign off without performing the sort of 
physician review and involvement that CMS intended.
    Some commenters supported the requirement, but encouraged CMS to 
reconsider that the narrative must be present on the certification and 
recertification form, asking CMS to consider accepting an attachment. A 
few commenters believed that hospices which have electronic medical 
records may incur costly software modifications if the narrative must 
be included on the certification and recertification. The commenters 
believed that as long as the physician's written or electronic 
signature was included on the narrative, it would make no difference if 
the narrative was an addendum.
    Several commenters stated that CMS should provide illustrative 
examples to help hospices and physicians understand the scope of 
acceptable responses.
    Many commenters were supportive of the proposal, but cautioned CMS 
that not all patients show measurable indications of decline at the 
time of every recertification. These commenters cautioned CMS to not 
regulate the process such that hospices will be encouraged to discharge 
patients inappropriately.
    Another commenter encouraged that CMS be clear that neither check 
boxes nor standard language should be permitted to satisfy the 
requirement, that we clarify that this narrative must be composed by 
the physician performing the certification or recertification, and that 
the certification and recertification forms containing the narrative 
should include under the physician's signature a statement indicating 
that by signing, the physician confirms that he/she composed the 
narrative based on his/her review.
    Response: We thank the writers for their comments. We concur with 
the commenter who states that 42 CFR 418.22(b) requires clinical 
information and other documentation supporting the terminal prognosis 
to be included in the medical record. However, we disagree that the 
inclusion of the clinical narrative duplicates the medical record 
information, or that the narrative should be completed only at the time 
of recertification. Rather, as we stated in the proposed rule, we 
believe that the physician must synthesize the patient's comprehensive 
medical information in order to compose this brief clinical 
justification narrative, which we believe will increase physician 
accountability associated with the terminal prognosis. This synthesis 
should not be a simple restatement of the medical record facts, but 
instead sets out the physician's rationale as to how the facts justify 
the prognosis. We also disagree that a statement on the certification 
and recertification form that the physician attests he has reviewed the 
medical record accomplishes the increased physician accountability 
goal. Our intent is for the physician to justify his prognosis, rather 
than simply sign a form. While our regulations have always required the 
physician to perform this sort of review, we believe often the 
physician relies too heavily on the hospice staff for the prognosis 
determination in both the certification and recertification of terminal 
illness.
    Because the physician has always been required to perform the 
review needed to make a terminal illness prognosis, we disagree that 
the corresponding short narrative which describes the physician's 
clinical justification associated with the prognosis is overly 
burdensome. However, we do understand that many physicians prefer to 
dictate rather than hand-write their clinical findings. And we agree 
with commenters who stated that some electronic health record systems 
may more easily produce an addendum containing the clinical 
justification. Therefore, we have decided that a typed addendum 
containing the narrative which is electronically or hand signed by the 
physician will be acceptable. We also agree with the commenters who 
suggested that the narrative include an attestation, and that we 
clarify some criteria associated with the narrative requirement. 
Therefore, we clarify that: (1) The narrative must be composed by the 
physician performing the certification or recertification and not by 
other hospice personnel; (2) the narrative should include, under the 
physician signature, a statement indicating that by signing, the 
physician confirms that he/she composed the narrative based on his/her 
review of the patient's medical record or, if applicable, examination 
of the patient; (3) the narrative reflects the patient's individual 
clinical circumstances, and should not contain checked boxes or 
standard language used for all patients; and (4) in the case of the 
initial certification, we require either the attending physician or the 
hospice medical director to compose and sign the clinical narrative.
    We believe that the narrative will curtail the practice described 
by one commenter who stated that the physician relies solely on hospice 
staff and hospice staff entries in the medical record for the prognosis 
determination, and has little interaction with the patient.
    While we agree with the commenter who stated that this requirement 
helps address MedPAC concerns associated with long stays in hospice, we 
also believe that this requirement on the initial certification helps 
ensure that only hospice- eligible patients are admitted to hospice. We 
disagree with the commenter who suggested CMS include an illustrative 
example of narrative language, since the intent of the narrative is to 
capture the physician's synthesis of each patient's unique conditions.
    In response to the commenter who cautioned CMS that not all 
patients show measurable indications of decline at the time of every 
recertification, we believe this commenter was concerned that CMS may 
regulate the process such that hospices will be encouraged to discharge 
patients inappropriately. This comment appears to suggest that the 
physician narrative may risk patients being discharged inappropriately 
at recertification time. We disagree that this is a risk. CMS 
regulations at 42 CFR 418.22, certification of terminal illness, 
describe in detail the requirements that are necessary to certify and 
recertify patients that are terminally ill. We also acknowledge that at 
recertification, not all patients may show measurable decline. We 
believe that the physician may choose to include facts such as that as 
part of his narrative, if he or she believes it to be pertinent in his 
or her justification.
    We are finalizing our proposal to require that physicians who 
certify or recertify hospice patients as terminally ill include a brief 
narrative explanation of the clinical findings that support a life 
expectancy of six months or less. We are modifying our original 
proposal in that we will allow the narrative to either be part of the 
certification and recertification forms, or it may be on an addendum to 
the certification and recertification forms which is electronically or 
hand signed by the physician. If the narrative is part of the 
certification or recertification form, then the narrative must be 
located immediately prior to the physician's signature. If the 
narrative exists as an addendum to the certification or recertification 
form, in addition to the physician's signature on the certification or 
recertification form, the physician must also sign immediately 
following the narrative in the addendum. The narrative must reflect

[[Page 39400]]

the patient's individual clinical circumstances. The narrative must not 
contain check boxes or standard language used for all patients. In the 
case of the initial certification, we require either the attending 
physician or the hospice medical director to compose and sign the 
narrative. We also require that the narrative include under the 
physician signature, a statement indicating that by signing, the 
physician confirms that he/she composed the narrative based on his/her 
review of the patient's medical record or, if applicable, examination 
of the patient.

C. Update of Covered Services, Sec.  418.202

    In Part 418, subpart F, we describe covered hospice services. In 
Sec.  418.200, Requirements for Coverage, we note that covered services 
must be reasonable and necessary for the palliation or management of 
the terminal illness as well as related conditions. We also note that 
services provided must be consistent with the plan of care. The 
language at Sec.  418.202, ``Covered services'', describes specific 
types of hospices services that are covered. Section 418.202(f) 
describes the coverage of medical appliances and supplies, including 
drugs and biologicals. The last sentence of Sec.  418.202(f) states 
that covered medical supplies ``include those that are part of the 
written plan of care.''
    The updated CoPs, which were effective as of December 2008, now 
require that hospices include all comorbidities in the plan of care, 
even if those comorbidities are not related to the terminal diagnosis. 
In Sec.  418.54(c)(2) we refer to assessing the patient for 
complications and risk factors that affect care planning. Comorbidities 
that are unrelated to the terminal illness need to be addressed in the 
comprehensive assessment and should be on the plan of care, clearly 
marked as comorbidities unrelated to the terminal illness. However, the 
hospice is not responsible for providing care for the unrelated 
comorbidities. Because the hospice is not responsible for providing the 
care for these unrelated comorbidities, we are revising Sec.  
418.202(f) to state that medical supplies covered by the Medicare 
hospice benefit include only those that are part of the plan of care 
and that are for the palliation or management of the terminal illness 
or related conditions.
    Comment: Commenters supported the proposed clarification in Sec.  
418.202 which currently states that medical supplies covered by the 
hospice benefit include those that are part of the plan of care and 
that are related to the palliation and management of the terminal 
illness or related conditions. One commenter stated that because it is 
difficult for hospices to determine which conditions are related to the 
terminal illness, that CMS should also require hospices to have written 
policies describing their processes for determining whether care is 
related to the terminal illness or related conditions. One commenter 
wrote that in the absence of companion rules in SNFs, this rule as 
written has the potential to cause confusion and conflict within the 
facilities as the facility providers seek resolution on the integration 
of the care plan and the related cost and responsible party.
    Response: We appreciate the support received for the clarification 
at 42 CFR section 418.202. The comments regarding written policies 
describing the processes for determining what is related to the 
terminal illness, and about companion rules in SNFs, are outside the 
scope of this payment rule, and therefore we are unable to respond. 
However, we have forwarded these comments to the group within CMS which 
handles facility Conditions of Participation, for their consideration 
in future rulemaking.
    We are finalizing the change to Sec.  418.202 as proposed.

D. Clarification of Payment Procedures for Hospice Care, Sec.  418.302

    Section 1861(dd) of the Act limits coverage of and payment for 
inpatient days for hospice patients. There are sometimes situations 
when a hospice patient receives inpatient care but is unable to return 
home, even though the medical situation no longer warrants general 
inpatient care (GIP), or even though 5 days of respite have ended. In 
computing the inpatient cap, the hospice can only count inpatient days 
in which GIP or respite care is provided and billed as GIP or respite 
days. For example, assume a patient received 5 days of respite care 
while a caregiver was out of town, but the caregiver's return was 
delayed for a day due to circumstances beyond her control. The patient 
had to remain as an inpatient for a 6th day, but was no longer eligible 
for respite care. According to Sec.  418.302(e)(5), the hospice should 
switch from billing for respite care to billing for routine home care 
on the 6th day. The hospice should only count 5 days toward the 
inpatient cap, not 6 days, since only 5 inpatient days were provided 
and billed to Medicare as respite days.
    Because we have received several inquiries about how to count 
inpatient days that are provided and billed as routine home care, we 
are revising Sec.  418.302(f)(2) to clarify that only inpatient days in 
which GIP or respite care is provided and billed are counted as 
inpatient days when computing the inpatient cap.
    Comment: Commenters supported the proposal to clarify that 
inpatient care provided and billed as GIP or respite should be the only 
inpatient care included in the inpatient cap calculation. However one 
commenter wrote that her hospice does not agree that inpatient respite 
services should be charged against the inpatient cap, given the changes 
in the CoP regulations with respect to 24-hour RN coverage.
    Response: We appreciate commenters' support for this proposal. The 
Social Security Act requires the inclusion of respite services in the 
inpatient cap calculation (see section 1861(dd)(2)(A)(iii) of the Act). 
Therefore, we cannot make a change to this requirement. We are 
finalizing the change to 42 CFR Sec.  418.302 as proposed.

E. Clarification of Intermediary Determination and Notice of Amount of 
Program Reimbursement, Sec.  405.1803

    Currently, hospices that exceed either the inpatient cap or the 
aggregate cap are sent a letter by their contractor (regional home 
health and hospice intermediary (RHHI) or fiscal intermediary (FI)), 
detailing the cap results, along with a demand for repayment. As 
described in an administrative instruction (CR 6400, Transmittal 1708, 
issued April 3, 2009) effective July 1, 2009, this letter of 
determination of program reimbursement will be sent to every hospice 
provider, regardless of whether or not the hospice has exceeded the 
cap. A demand for repayment will be included for those hospices which 
have exceeded either cap. If a hospice disagrees with the contractor's 
cap calculations, the hospice has appeal rights which are set out at 42 
CFR Sec.  418.311 and Part 405, subpart R. The letter of determination 
of program reimbursement shall include language describing the 
hospice's appeal rights. We proposed clarifying the language at Sec.  
405.1803 to note that for the purposes of hospice, the determination of 
program reimbursement letter sent by the contractors serves as the 
written notice reflecting the intermediary's determination of the total 
amount of reimbursement due the hospice, which is commonly called a 
Notice of Program Reimbursement or NPR. Additionally, we proposed 
clarifying Sec.  405.1803(a)(1)(i) to note that in the case of hospice, 
the reporting period covered by the determination of

[[Page 39401]]

program reimbursement letter is the hospice cap year and the bases for 
the letter are the cap calculations rather than reasonable cost from 
cost report data.
    Comment: Commenters supported the proposed clarification, but asked 
that CMS also clarify that the time period for filing cap appeals does 
not begin until the hospice receives the letter of determination of 
program reimbursement. Additionally, they asked CMS to clarify that 
hospices should not be required to wait until they receive these 
letters to appeal issues unrelated to the caps. Many commenters also 
were dissatisfied with the amount of time between the end of a cap year 
and the hospice receiving the determination letter.
    Response: We thank commenters for their support of this 
clarification, and for their questions, which point out an addition to 
regulatory text which would be helpful. Several commenters had 
questions related to the timing of appeals because of the location of 
the proposed changes to the regulatory text. To avoid confusion, we 
have established a separate subsection at Sec.  405.1803(a)(3) entitled 
``Hospice Caps''. This section includes the language originally 
proposed for Sec.  405.1803(a) and Sec.  405.1803(a)(1)(i). 
Additionally, we are adding a sentence to the regulatory text at Sec.  
405.1803(a)(3) which notes that the timeframe for hospice cap appeals 
begins with receipt of the determination of program reimbursement 
letter.
    Commenters also asked about the timing when appealing issues 
unrelated to the caps. The timing of all other claims appeals is 
unrelated to the determination of program reimbursement letters, and 
those appeals are governed under 42 CFR 418.311. When appealing claims 
decisions, providers should continue to follow the procedures and 
timeframes outlined in the CMS Claims Processing Manual (IOM 100-04), 
Chapter 29 (``Appeals of Claims Decisions''), which can be accessed 
through the CMS Hospice Center Web page at http://www.cms.hhs.gov/center/hospice.asp.
    Finally, we have taken note of the long timeframe some commenters 
currently report in receiving the results of their cap calculations, 
and will consider this information in any changes to the cap 
calculation methodology that might be made in the future.
    For this final rule, we are revising the proposed changes to Sec.  
405.1803. Specifically, we are creating a separate section at Sec.  
405.1803(a)(3) subtitled ``Hospice Caps'', providing the same 
information that we had proposed be in Sec.  405.1803(a) and Sec.  
405.1803(a)(1)(i). The regulatory text at Sec.  405.1803(a) and Sec.  
405.1803(a)(1)(i)is to be unchanged. Additionally, we will add a 
sentence to the new section at Sec.  405.1803(a)(3) to note that the 
timeframe for appeals of cap calculation results begins with receipt of 
the determination of program reimbursement letter.

F. Technical and Clarifying Changes

    We are incorporating the following technical changes to clarify 
existing regulations text, correct errors that we have identified in 
the regulations, remove obsolete cross references, or to ensure 
consistent use of terminology in our regulations.
1. Clarification of the Statutory Basis for Hospice Regulation, Sec.  
418.1
    Currently, the statutory basis for the hospice regulations is 
described at Sec.  418.1, and notes that Part 418 implements section 
1861(dd) of the Act. The regulation describes section 1861(dd) of the 
Act as specifying covered hospice services and the conditions that a 
hospice program must meet to participate in the Medicare program. While 
that is correct, section 1861(dd) of the Act also specifies some 
limitations on coverage and payment for inpatient hospice care. In the 
proposed rule we proposed clarifying Sec.  418.1 by adding a sentence 
noting that section 1861(dd) of the Act limits coverage and payment for 
inpatient hospice care.
    We received no comments on this proposal, and are finalizing the 
changes as proposed.
2. Update of the Scope of Part, Sec.  418.2
    The current regulations at Sec.  418.2 (``Scope of part.'') 
describe each of the subparts in Part 418. Some of these subparts have 
been revised or removed due to the update of the hospice conditions of 
participation (CoPs) in 2008 (73 FR 32088). Specifically, subpart B 
specifies the eligibility and election requirements, along with the 
duration of benefits. Subparts C and D specify the Conditions of 
Participation, with subpart C now entitled ``Patient Care'' rather than 
``General Provisions and Administration'', and subpart D now entitled 
``Organizational Environment'' rather than ``Core Services''. Subpart 
E, which was previously described as specifying reimbursement methods 
and procedures, was removed and reserved for future use with the update 
of the CoPs. Subparts F and G now relate to payment policy, to include 
covered services and hospice payment; currently subpart F is 
incorrectly described in Sec.  418.2 as specifying coinsurance amounts. 
Finally, subpart H should be referred to as specifying coinsurance 
amounts applicable to hospice care, rather than subpart F as the 
regulation currently reads. Accordingly, we proposed to update section 
Sec.  418.2 to reflect the current organization and scope of Part 418.
    We received no comments on this proposal, and are finalizing the 
changes as proposed.
3. Revision of Hospice Aide and Homemaker Services, Sec.  418.76
    In the proposed rule, we proposed to incorporate a technical 
correction at Sec.  418.76(f)(1) to clarify that home health agencies 
that have been found out of compliance with paragraphs (a) or (b) of 
Sec.  484.36, regarding home health aide qualifications, are prohibited 
from providing hospice aide training. The word ``out'' was 
inadvertently omitted from the regulation text in the June 5, 2008 
hospice final rule.
    We received no comments on this proposal, and are finalizing the 
changes as proposed.
4. Clarification of Hospice Multiple Location, Sec.  418.100
    For the sake of clarity, in the proposed rule we proposed to delete 
the word ``that'' from Sec.  418.100(f)(1)(iii), regarding multiple 
locations. The revised element would require that the lines of 
authority and professional and administrative control must be clearly 
delineated in the hospice's organizational structure and in practice, 
and must be traced to the location which was issued the certification 
number.
    We received no comments on this proposal, and are finalizing the 
changes as proposed.
5. Revision to Short Term Inpatient Care, Sec.  418.108
    In the proposed rule, we proposed to correct in Sec.  
418.108(b)(1)(ii) an erroneous reference to Sec.  418.110(f), ``Patient 
rooms''. This section, which addresses facilities that are considered 
acceptable for the provision of respite care to hospice patients, was 
intended to reference the standard at Sec.  418.110(e), ``Patient 
areas''. The published reference to standard (f) was a typographic 
error, and we are correcting it by changing the reference to standard 
(e).
    We received no comments on this proposal, and are finalizing the 
changes as proposed.
6. Clarification of the Requirements for Coverage, Sec.  418.200
    Section 418.200 describes the requirements for coverage for 
Medicare

[[Page 39402]]

hospice services, and references Sec.  418.58 (``Conditions of 
Participation--Plan of care''). This cross reference is no longer 
accurate; section Sec.  418.58 was updated with the publication of the 
new CoPs in 2008, and is now Sec.  418.56. In the proposed rule we 
proposed to detail the requirements for coverage related to the plan of 
care rather than cross refer to the CoPs regulations. This revision 
would make clearer that the statute requires review of the plan of care 
as a condition for coverage of hospice services. However, we are 
continuing to include a reference to the updated CoP section (418.56) 
for a comprehensive description of our expectations associated with the 
plan of care.
    The statute specifies requirements for hospice coverage in section 
1814(a)(7)(A) through (C) of the Act. The Act requires that the hospice 
medical director and the patient's attending physician certify the 
terminal illness for the initial period of hospice care and that the 
medical director recertify the terminal illness for each subsequent 
benefit period. Additionally, the Act requires that a plan of care 
exist before care is provided; that the plan of care be reviewed 
periodically by the attending physician, the medical director, and the 
interdisciplinary group; and that care be provided in accordance with 
the plan of care. In the proposed rule, we proposed to clarify Sec.  
418.200 to incorporate each of these requirements for coverage, rather 
than cross referencing other CoPs.
    We received no comments on this proposal, and are finalizing the 
changes as proposed, except that we are continuing to include the CoP 
cross-reference.
7. Incorporation of the Term ``Hospice Aide,'' Sec.  418.202, Sec.  
418.204, and Sec.  418.302
    Over the last several years, we have worked with the industry to 
update the hospice CoPs. These efforts culminated in publication of a 
final rule in 2008, which was effective December 2, 2008. The revised 
CoPs redesignated the ``home health aide'' who works in hospice as a 
``hospice aide''. We are revising Sec.  418.202(g), Sec.  418.204(a), 
and Sec.  418.302 to include the new terminology.
    Comment: One commenter suggested we remove the language ``home 
health aide'' and just use the term ``hospice aide''.
    Response: We appreciate this comment. However, we are keeping the 
reference to a ``home health aide'' in the regulations, because that is 
how the Social Security Act refers to aides in hospice. Consequently, 
we are finalizing the change as proposed.
8. Clarification of Administrative Appeals Sec.  418.311
    A hospice that does not believe its payments have been properly 
determined may request a review from the intermediary or from the 
Provider Reimbursement Review Board (PRRB), depending on the amount in 
controversy. Section 418.311 details the procedures for appealing a 
payment decision and also refers to Part 405, Subpart R.
    In the proposed rule, we proposed to clarify the last sentence of 
this section, which currently notes that ``the methods and standards 
for the calculation of the payment rates by CMS are not subject to 
appeal.'' The payment rates referred to are the national rates which 
are set by statute, and updated according to the statute using the 
hospital market basket (unless Congress instructs us to update the 
rates differently). To ensure better understanding of what is not 
subject to appeal, we proposed to revise Sec.  418.311 to provide that 
methods and standards for the calculation of the statutorily defined 
payment rates by CMS are not subject to appeal.
    We received no comments on this proposal, and are finalizing the 
changes as proposed.

III. Comments on Other Policy Issues

A. Recertification Visits, Sec.  418.22

    As noted earlier, MedPAC convened an expert panel from the hospice 
industry in late 2008. That panel noted that some hospices were 
enrolling and recertifying patients who they determined were not 
eligible for hospice care under the Medicare benefit, and a consensus 
emerged that greater accountability and oversight were needed in the 
certification and recertification process. To further increase 
accountability in the recertification process, several of the panelists 
suggested to MedPAC that an additional policy change be made to the 
recertification process. Several panelists supported a requirement that 
a hospice physician or advanced practice nurse visit the patient at the 
time of the 180-day recertification to assess continued eligibility, 
and at every recertification thereafter to assess the patient's 
continued eligibility. MedPAC recommended that the physician or 
advanced practice nurse be required to attest that the visit took 
place. MedPAC used the panel's input in making recommendations related 
to the certification process, which can be found in chapter 6 
(``Reforming Medicare's Hospice Benefit'') of MedPAC's March 2009 
report entitled ``Report to the Congress: Medicare Payment Policy'' 
which is available at http://www.medpac.gov/chapters/Mar09_Ch06.pdf.
    At this time, we are not making any policy change to require visits 
by physicians or advanced practice nurses in order to recertify 
patients. We note that the statute requires a physician to certify and 
recertify terminal illness for hospice patients, and specifically 
precludes nurse practitioners from doing so at 1814(a)(7)(A) of the 
Act. A recertification visit to a hospice patient by a nurse 
practitioner would not relieve the physician of his or her legal 
responsibility to recertify the terminal illness of such hospice 
patient. The physician is ultimately responsible for the 
recertification determination. However, the visit, if performed by a 
nurse practitioner, could potentially serve as an additional, objective 
source of information for the physician in the recertification of 
terminal illness decision. We are also considering other options 
related to a nurse practitioner making recertification visits. For 
example, a nurse practitioner who is involved in a patient's day-to-day 
care may not be as objective in assessing eligibility for 
recertification as a nurse practitioner who is not caring for that 
patient regularly. One option to better ensure that a nurse 
practitioner visit results in additional, objective clinical assessment 
of the patient's condition might be to require that such nurse 
practitioner not be involved in the hospice patient's day-to-day care. 
Also, there are different possible approaches regarding the timeframe 
for making visits. Visits by a physician or nurse practitioner could be 
made within a timeframe close to the recertification deadline, such as 
the 2 week period centered around the recertification date, thereby 
allowing a window of time surrounding the recertification timeframe for 
a visit to occur.
    While we are not making a policy change regarding recertification 
visits at this time, we did solicit comments on the suggestion to 
require physician or nurse practitioner visits for hospice 
recertifications at or around 180 days and for every benefit period 
thereafter. We solicited comments on all aspects of this suggestion, 
including practical issues of implementation. We will analyze and 
consider the comments received in possible future policy development.
    Comment: Many commenters supported this requirement, but only if 
the visits were adequately reimbursed, stating that current payments 
are not sufficient to cover the costs of these visits, especially where 
patients reside in remote areas. Some commenters

[[Page 39403]]

urged the visits be performed by a physician experienced in end-of-life 
care. Others stated that the visit be thorough and comprehensive, and 
include patient and family counseling about alternate care arrangements 
if appropriate. Many commenters stated that advanced practice nurses 
should not perform the visits, stating that the goal of increased 
physician accountability would be achieved with a physician visit. 
Other commenters suggested that the visits occur only at the 180 day 
recertification. Similarly, many commenters suggested that the visits 
occur at 180 days and at every other recertification after that. Many 
commenters suggested the visit could occur within two or three week 
window around the recertification timeframe. One commenter suggested an 
alternative process to review non-cancer patients at 90 and 180 days. 
Commenters encouraged CMS to work with the industry to identify all 
issues which may be associated with such a requirement.
    In the April 24, 2009 hospice wage index proposed rule, we 
suggested that if it were determined appropriate for a nurse 
practitioner to render such a visit, that an option to better ensure 
that an objective clinical assessment of the patient's condition 
occurred might be to require that the nurse practitioner not be 
involved in the day-to-day care for that hospice patient. One commenter 
suggested that, due to shortages in nurse practitioners, we consider 
allowing the nurse practitioner who was involved in the patient's day-
to-day care to perform some but not all of the recertification visits. 
The commenter further suggested that the nurse practitioner who was 
involved in the patient's day-to-day care not be allowed to render the 
first recertification visit and not be allowed to render such visits 
for consecutive recertifications. Additionally, this same commenter 
stated that the recertification visits should occur over a reasonable 
timeframe before the recertification date. This commenter believes that 
if the ``visit were to occur after the recertification date, it could 
create a disincentive for hospices to discharge a patient since it 
would result in a lack of payment for days of care already provided 
beyond the recertification date.'' One commenter suggested that nurse 
training be developed to certify nurses in hospice eligibility 
evaluations. Another commenter stated that the visit must be performed 
by someone familiar with the patient so that changes in the patient's 
condition are identified.
    Many commenters opposed this requirement. Commenters were concerned 
that this recertification requirement would be burdensome to providers 
and would result in decreased access to care. These same commenters 
were concerned that the lack of physician resources in small and rural 
hospices that only have a part-time medical director would make it 
impossible to perform these visits. Some commenters indicated that 
nurse practitioners are just as scarce in rural areas as physicians. 
Some commenters stated that there would be no increased quality 
associated with these visits, and that visits should be used to improve 
care, not monitor eligibility. Similarly, other commenters suggested we 
target for contractor review hospices with long-stay patients rather 
than penalize all hospices with this costly requirement. A commenter 
stated that these visits would upset the families, and are not an 
efficient use of resources. One commenter stated that it would be 
difficult for hospices to hire medical directors if this requirement 
were adopted.
    Response: We appreciate the comments received from the public 
concerning this matter and will continue to analyze and consider those 
comments and suggestions in future rulemaking.

B. Hospice Aggregate Cap Calculation

    As described in section 1814(i)(2)(A) through (C) of the Act, when 
the Medicare hospice benefit was implemented, the Congress included an 
aggregate cap on hospice payments. The hospice aggregate cap limits the 
total aggregate payment any individual hospice can receive in a year. 
The Congress stipulated that a ``cap amount'' be computed each year. 
The cap amount was set at $6,500 per beneficiary when first enacted in 
1983 and is adjusted annually by the change in the medical care 
expenditure category of the consumer price index for urban consumers 
from March 1984 to March of the cap year. The cap year is defined as 
the period from November 1st to October 31st, and was set in place in 
the December 16, 1983 hospice final rule (48 FR 56022). This timeframe 
was chosen as the cap year since the Medicare hospice program began on 
November 1, 1983 (48 FR 56022). For the 2008 cap year, the cap amount 
was $22,386.15 per beneficiary. This cap amount is multiplied by the 
number of Medicare beneficiaries who received hospice care in a 
particular hospice during the year, resulting in its hospice aggregate 
cap, which is the allowable amount of total Medicare payments that 
hospice can receive for that cap year. A hospice's total reimbursement 
for the cap year cannot exceed the hospice aggregate cap. If its 
aggregate cap is exceeded, then the hospice must repay the excess back 
to Medicare.
    Using the most recent (2008) payment rates before wage adjustment, 
the 2008 cap amount ($22,386.15) is roughly equal to the cost of 
providing routine home care for 166 days. Because the hospice aggregate 
cap is computed in the aggregate for the entire hospice, rather than on 
a per beneficiary basis, hospices that admit a mix of short-stay and 
long stay Medicare beneficiaries will rarely exceed the cap. On 
average, lower expenditures made on behalf of Medicare beneficiaries 
with shorter hospice stays offset the expenditures made on behalf of 
Medicare beneficiaries with longer stays such that in the aggregate, 
the majority of hospices do not exceed the calculated aggregate cap.
    Until recently, very few hospices ever exceeded the aggregate cap. 
The Government Accountability Office (GAO) found that between 1999 and 
2002, less than 2 percent of hospices exceeded the aggregate cap 
(United States Government Accountability Office, ``Medicare Hospice 
Care. Modifications to Payment Methodology May Be Warranted''. October 
2004, Washington, DC. p. 18). MedPAC reported that the number of 
hospices that exceeded the aggregate cap has grown steadily between 
2002 and 2005, but remains just under 8 percent as of 2005 (Medicare 
Payment Advisory Commission, ``Report to the Congress: Reforming the 
Delivery System''. June 2008. Washington, DC. p. 212). We do not 
believe that hospices are exceeding the aggregate cap due to our 
intermediaries' method of calculating the aggregate cap. Rather, 
MedPAC's analyses suggest that certain hospices exceed the aggregate 
cap due to ``significantly longer lengths of stay'' than hospices that 
do not exceed the cap [MedPAC, p. 214-15]. MedPAC suggests that longer 
average lengths of stay at certain hospices could be due, in part, to a 
change in their patient case-mix that has brought in more patients with 
less predictable disease trajectories [MedPAC, p. 213-14]. However, 
patient case-mix was not found to account for all of the discrepancy in 
length of stay [MedPAC, p. 214-15]. MedPAC also found that for-profit 
ownership, smaller patient loads, and being a freestanding facility 
were correlated with longer lengths of stay and the consequent 
likelihood of exceeding the aggregate cap [MedPAC, p. 212-215].
    As stated above, in our current hospice aggregate cap calculation 
methodology, the intermediary calculates each hospice's aggregate cap

[[Page 39404]]

amount by multiplying the per-beneficiary cap amount by the number of 
Medicare beneficiaries counted in each cap year. Patients who receive 
hospice care in more than one cap year are counted so that, in the 
aggregate, the ``number of Medicare beneficiaries'' for each year is 
reduced to reflect the proportion of time patients receive in other 
years. Hospices are currently required to submit a report of their 
Medicare beneficiary unduplicated census to their intermediary within 
30 days of the end of the cap year. Our current methodology also 
apportions the beneficiary across multiple hospices if the beneficiary 
receives care from more than one hospice during the cap year, with the 
proportional shares summing to 1. The intermediary reduces each 
hospice's Medicare beneficiary count by that fraction which represents 
proportional days of care the beneficiary received in another hospice 
during the year, with all the proportional shares summing to 1.
    In counting the Medicare beneficiaries for the unduplicated census 
report, we instruct hospices to use a slightly different timeframe from 
the cap year used to count payments. When determining a hospice's 
expenditures during a cap year, the intermediary sums all claims 
submitted by the hospice for services performed during the cap year, 
which begins on November 1st of each year and ends on the October 31st 
of the following year. However, we instruct hospices to include those 
beneficiaries who elect the benefit between September 28th of each year 
and September 27th of the following year, rather than following the 
November 1st to October 31st cap year. CMS (then HCFA) used mean length 
of stay from demonstration project data to determine the point at which 
to include a beneficiary in calculating the hospice cap. Using half of 
the mean length of stay, or 70 days/2 = 35 days, CMS implemented a 
timeframe for counting beneficiaries that began less than 35 days from 
the end of the cap year. Therefore, the timeframe for counting 
beneficiaries was set as September 28th through September 27th (48 FR 
56022). This method of reducing the number of Medicare beneficiaries 
counted in a cap year to reflect time spent in other years was 
implemented because it allows for counting the beneficiary in the 
reporting period where he or she used most of the days of covered 
hospice care (48 FR 38158). We believe that the regulation complies 
with the statutory requirements without being unduly burdensome. This 
approach has the major advantage of allowing each hospice to estimate 
its aggregate cap calculation within a short period of time after the 
close of a cap year. While we believe that the current hospice 
aggregate cap methodology equitably meets the statutory requirements 
for calculating the hospice aggregate cap set out at section 1814(i)(2) 
of the Act, the availability of more sophisticated databases and data 
systems provides us with an opportunity to incorporate efficiencies in 
the cap calculation process. The lack of sophisticated data systems in 
place in the 1980's limited our options for how to efficiently compute 
the hospice aggregate cap. In the 1980's access to claims data was very 
slow, and searchable claims databases were virtually non-existent. 
While the current system still has limitations, the advancement of 
technology has brought with it provider access to benefit period 
information in the Common Working File (CWF), which was created in the 
1990's, and faster processing speeds, which allow contractors and 
hospices easier access to claims information for hospice aggregate cap 
calculation purposes. Therefore, we are now able to consider more 
efficient approaches to calculating the aggregate cap.
    The time required for intermediaries to compute each hospice's 
aggregate cap and send demand letters when overpayments exist delays 
our recovery of those overpayments and may also contribute to some 
hospices exceeding the cap in subsequent years. Hospices have described 
receiving demands for cap overpayments more than a year after the end 
of the cap year, and have expressed concern that they are not timely 
notified about their cap overpayments. Hospices which don't closely 
monitor compliance with their aggregate cap may not have anticipated an 
overpayment, and the lag in notification may contribute to the risk of 
a hospice exceeding its aggregate cap in the subsequent year. More 
timely notification of overpayments would enable hospices to more 
quickly review their admissions practices, and make necessary changes 
to ensure that all their patients meet the eligibility requirements for 
hospice care.
    We are exploring a number of different hospice aggregate cap 
implementation methodology changes to address these issues, and to take 
advantage of the technological efficiencies available. Specifically, we 
are exploring enhancements to our current methodology which will 
improve the timeliness of hospices' notification of cap overpayments, 
will enable such overpayments to be collected more quickly, and which 
will encourage hospices to be more proactively involved in managing 
their admissions practices such that they do not exceed their hospice 
aggregate cap. We are considering several changes to the annual hospice 
aggregate cap calculation implementation methodology which could help 
hospices avoid exceeding the aggregate cap.
    If a beneficiary receives hospice care for an extended period of 
time, or elects hospice toward the end of a cap year, he or she is more 
likely to cross into more than 1 cap year, or to receive care from more 
than 1 hospice. If we made a mathematically precise determination of 
the proportion of time each patient spent in each cap year at each 
hospice from which they received care, in order for a given cap year 
report to be final, adjustments to that cap year report would have to 
continue until the beneficiary actually died. Only then could a final 
determination of the aggregate cap be made for a given year for each 
hospice that had treated the beneficiary. Such an approach could be 
viewed as particularly burdensome to the hospice as a hospice's 
financial system would likely need to be able to continually react to 
subsequent hospice aggregate cap calculations, readjusting payments to 
Medicare to account for an overpayment amount that is ever-changing, 
that is, until the beneficiary dies.
    A variation of this approach would allow apportioning of 
beneficiaries who receive care in more than 1 cap period over 2 
consecutive years. This approach would minimize, but not completely 
eliminate, the adjustments required to prior year cap calculations. 
This method still has the effect of delaying the final cap 
determination. However, it raises questions about scenarios where a 
beneficiary received hospice care in his first and second cap year, 
either revoked or was discharged from the benefit, and returned to a 
different hospice at a much later date, such as in the third cap year. 
We would like public input from hospices, patient groups, other 
provider types, academics, and members of the general public on how to 
best handle this or similar scenarios.
    Besides considering different approaches to counting beneficiaries, 
another option is to require hospices to compute their own hospice 
aggregate cap and submit a certified cap report to their contractors, 
along with any overpayment, 7 months after the end of the cap year. The 
information used for the hospice aggregate cap calculation originates 
with hospices, and is available to them through the CWF or through 
their own accounting records. Requiring hospices to compute and

[[Page 39405]]

report their own hospice aggregate cap would result in hospices being 
proactive in managing their cap calculations. In this approach, 
contractors would still verify the reported cap.
    We solicited comments on these and other policy options in an 
effort to gather more information on this issue, and any other possible 
underlying issues that may exist.
    Comment: Most commenters encouraged CMS to more timely notify 
providers of their cap overpayments, stating that the current delay in 
notification is burdensome, results in overpayments generated for prior 
years, and does not allow providers to make timely corrections. Many 
commenters suggested CMS apportion the cap over consecutive years if 
the patient received service over more than 1 year. Some hospices were 
agreeable to CMS' suggestion that hospices should calculate and report 
their own certified cap report, with the caveat that patients' full 
utilization history be made available to hospices in order for them to 
accurately compute the report. Others expressed concern that there 
should be penalties imposed for erroneous reporting. Other commenters 
opposed submission of a cap report, for burden reasons, and because 
patients' full utilization is not currently available to them. Several 
commenters suggested that cap amount be adjusted for geographic 
variances in costs. Commenters also requested that CMS allow a new cap 
amount for readmitted beneficiaries who experience a break in hospice 
utilization. Some commenters suggested we consider common ownership as 
a factor in the cap calculation. Many commenters stated that the cap 
needs to be modernized. Others stated that the suggestions CMS 
described in the solicitation for comments will only exacerbate the cap 
problems, suggesting CMS instead should consider methods that will 
ensure admissions and discharge decisions are not based on fears of 
financial liability associated with a cap. One commenter expressed 
concerns about how we would transition to a new calculation 
methodology. Another commenter stated that all hospices should receive 
cap feedback from the fiscal intermediary to enable them to monitor 
their cap better.
    Many submitted comments that were beyond the scope of the 
solicitation for suggestions associated with cap calculation 
methodology improvements. Some stated that the cap currently encourages 
hospice providers to focus on their financial bottom line instead of 
patient needs, and incentivizes hospices to inappropriately discharge 
patients, and not admit patients with less predictable trajectories. 
Others suggested that CMS suspend the aggregate cap until hospice 
payment reform occurs, and suggesting CMS improve national coverage 
determination processes. One commenter stated that the cap doesn't 
account for geographic factors that may affect a hospice's patient 
population, which may increase their risk of exceeding the cap. Many 
commenters expressed support for the aggregate cap, with one stating 
that CMS should generate alerts to physicians and hospice medical 
directors with a high percentage of long-stay patients, and ultimately 
revoke their billing privileges.
    Response: We appreciate the comments received from the public 
concerning this matter and will continue to analyze and consider those 
comments and suggestions in future rulemaking.

C. Hospice Payment Reform

    Since the inception of the hospice benefit in 1983, the amount that 
the Medicare program has spent on this benefit has grown considerably. 
The number of unduplicated hospice Medicare beneficiaries has increased 
from 401,140 in FY 1998 to 986,435 in FY 2007, which represents a 146 
percent increase. Additionally, at the inception of the benefit, most 
hospice patients elected hospice care due to terminal cancer. The 
profile of the hospice patient has changed in recent years such that 
hospices now provide care to beneficiaries with a wide range of 
terminal conditions. In calendar year (CY) 1998, 54 percent of hospice 
patients had terminal cancer diagnoses. In CY 2007, only 28 percent of 
hospice patients had terminal cancer diagnoses. With the diversity of 
diagnoses, hospice stays began to increase. The national average length 
of stay for patients in hospice has risen from 48 days per patient in 
CY 1998 to 73 days per patient in CY 2006. Additionally, long hospice 
stays have grown even longer by about 50 percent. Between 2000 and 
2005, hospices in the 90th percentile for average length of stay 
increased their average length of stay from 144 to 212 days.
    MedPAC has performed extensive analysis of the hospice benefit over 
the past few years, and has recommended that CMS reform the hospice 
payment structure to ensure greater accountability in the hospice 
benefit. MedPAC believes that the current hospice payment system 
contains incentives that make long hospice stays more profitable, which 
may result in misuse of the benefit.
    Medicare spending for hospice is rapidly growing, more than 
tripling between 2000 and 2007. In fiscal year (FY) 1998, expenditures 
for the Medicare hospice benefit were $2.2 billion, while in FY 2007, 
expenditures for the Medicare hospice benefit were $10.6 billion, more 
than the Medicare program spends on inpatient rehabilitation hospitals, 
critical access hospitals, long term care hospitals, or psychiatric 
hospitals. Medicare hospice spending is expected to continue to grow, 
and will account for roughly 2.3 percent of overall Medicare spending 
in FY 2009.
    The number of hospice agencies has also grown by over 80 percent 
since 1997. The growth is overwhelmingly in the for-profit category. In 
1997, there were 1,834 hospices, about 20 percent of which were for-
profit and 80 percent were non-profit. In 2009, there were 3,328 
hospices, and 51 percent of these are for-profit entities. Since 2000, 
nearly all hospices newly participating in Medicare are for-profit 
entities. MedPAC reports that the newly participating hospices have 
margins five to six times higher than more established hospices. MedPAC 
estimates that, on average, hospice Medicare margins were approximately 
3.4 percent in 2005. However, the for-profit hospices are estimated to 
have margins ranging from 15.9 percent in 2003 to 11.8 percent in 2005.
    In their analyses of the hospice benefit in their June 2008 
``Report to the Congress,'' MedPAC found that hospice care is more 
costly at the beginning and end of an episode of hospice care, because 
of the intensity of services provided during those times. Hospices 
provide more visits to a patient right after a patient elects hospice 
and in the time shortly before death, than they provide during the 
middle of the episode. In its March, 2009 report entitled ``Report to 
the Congress: Medicare Payment Policy'', MedPAC suggested that payments 
to hospices should decline as the beneficiary's length of stay 
increases, thus better reflecting intensity and frequency of the 
hospice services provided over the course of treatment. MedPAC also 
suggested that payment to hospices should increase during the period 
just prior to the patient's death to reflect the higher resource usage 
during this time [see, chapter 6 (``Reforming Medicare's Hospice 
Benefit'') of MedPAC's March 2009 report entitled ``Report to the 
Congress: Medicare Payment Policy'' which is available at http://

[[Page 39406]]

www.medpac.gov/chapters/Mar09_Ch06.pdf].
    MedPAC believes this payment structure would better reflect hospice 
patient resource usage and hospice costs, and would encourage hospices 
to admit patients at the time in their illness which provides the most 
benefit to the patient.
    We solicited comments regarding MedPAC's suggestions on reforming 
the hospice payment system, as well as broader comments and suggestions 
regarding hospice payment reform. We note that MedPAC's suggested 
payment reforms would require Congressional action to change the 
statute.
    Comment: Many commenters supported MedPAC's payment model. Some 
made specific recommendations regarding which time periods in the stay 
should warrant a higher payment. Some commenters suggested that a 
hospice payment system that is a case-mix adjusted would be 
appropriate. One commenter suggested a site of care adjustment, to 
reflect more adequate compensation for hospices in rural versus urban 
areas, and for care provided to patients in congregate living 
arrangements. The commenter suggested that CMS also require Medicaid to 
pay room and board charges directly to the nursing home in the case of 
dually eligible routine home care patients who reside in nursing homes. 
This commenter also suggested CMS analyze the appropriateness of 
payments for respite and continuous home care. Commenters feared that 
the MedPAC payment model would result in decreased access to hospice 
care, especially for patients with non-cancer diagnoses, with one 
commenter suggesting that CMS shouldn't change the payment structure 
simply because a small number of providers are abusing the system. 
Rather, this commenter suggested that CMS deal with inappropriate use 
of hospice via increased surveying.
    Other commenters feared that MedPAC's suggestion would create 
incentives for inappropriate hospice provider behavior such as 
incentivizing admission late in a patient's disease trajectory. One 
commenter suggested instead of reforming hospice payments, CMS should 
consider the role of hospice and costs in the total health care 
picture. Other commenters encouraged CMS to consider the impact payment 
changes would have on quality of care. Some commenters expressed 
concern about the administrative burden associated with a payment 
system change, with one suggesting that CMS consider an approach that 
would blend rates. One commenter encouraged CMS to consider other 
possible payment models. Commenters urged CMS to carefully analyze all 
data including cost data before reforming the hospice payment 
structure, to avoid unintended consequences. A few commenters suggested 
that CMS consider a pilot or demonstration to test a revised payment 
model prior to national implementation. Commenters also suggested that 
CMS involve the industry by holding technical expert panel (TEP) 
sessions in order to more fully identify, address, and consider the 
issues surrounding hospice payment reform. Many commenters urged CMS to 
ensure that payment reform would be effectuated in a budget neutral 
way.
    Response: We appreciate the comments received from the public 
concerning possible hospice payment reform. We will continue to review 
and consider those comments received as we analyze hospice data (to 
include recent expansions of the hospice data collected on the claim) 
in our work towards ensuring the accuracy and appropriateness of 
payments to hospices.

IV. Update on Additional Hospice Data Collection

    Over the past several years MedPAC, the GAO, and the Office of the 
Inspector General have all recommended that CMS collect more 
comprehensive data in order to better evaluate trends in utilization of 
the Medicare hospice benefit. We have been phasing in this process to 
collect more comprehensive data on hospice claims. We also began 
collecting additional data on hospice claims beginning in January 2007 
through an administrative instruction (CR 5245, Transmittal 1011, 
issued July 28, 2006), when we started required reporting of a HCPCS 
code on the claim to describe the location where services were provided 
(Phase 1). In addition, we issued an administrative instruction (CR 
5567, Transmittal 1494, issued April 29, 2008) requiring Medicare 
hospices to provide detail on their claims about the number of 
physician, nurse, aide, and social worker visits provided to 
beneficiaries. The start date of this mandatory CR 5567 reporting 
requirement was July 2008 (Phase 2). On several occasions, industry 
representatives have communicated to CMS that the newly required claims 
information was not comprehensive enough to accurately reflect hospice 
care. A major concern was that CMS was not requiring reporting of the 
visit intensity. As a result of these concerns, we committed to working 
with the industry to expand the data collection requirements. In 
October 2008, we solicited comments via a posting on CMS' hospice 
center Web site (http://www.cms.hhs.gov/center/hospice.asp) on an 
approach to collecting additional data about hospice resource use. We 
asked about data collection using hospice claims, along with data 
collection using hospice cost reports. This final rule provides an 
update on the additional data collection.
    Based on the feedback received from our October 2008 Web posting, 
we revised our plans for Phase 3 of the claims data collection. Those 
plans were described in CR 6440 (Transmittal 1738), which was issued on 
May 15, 2009, and will have a mandatory effective date of January 1, 
2010.
    Phase 3 will involve collecting new data on hospice claims. In 
addition to the existing visit reporting requirement, we are requiring 
visit time reporting in 15 minute increments for nurses, social 
workers, and aides. We are requiring visit and visit time reporting in 
15 minute increments from physical therapists, occupational therapists, 
and speech language therapists. We are also requiring reporting of some 
social worker phone calls and their associated time, within certain 
limits. Specifically, we are requiring the reporting of social worker 
calls that are necessary for the palliation and management of the 
terminal illness and related conditions as described in the patient's 
plan of care (for example, counseling, speaking with a patient's 
family, or arranging for a placement). Furthermore, only social worker 
phone calls related to providing and or coordinating care to the 
patient and family, and documented as such in the clinical records, are 
to be reported. Visit and time data collection for respite and general 
inpatient care provided by non-hospice staff in contract facilities 
would be exempt from the reporting requirement. Finally, travel time, 
documentation time, and interdisciplinary group time are not to be 
included in the time reporting. These changes necessitate line-item 
billing on hospice claims.
    While other Medicare provider types (for example, home health 
agencies) have had to provide similar information on their claims, 
hospices have historically not been required to provide this 
information. This additional data collection will bring the 
requirements for hospice claims more in line with the claim 
requirements of other Medicare benefits, and provide valuable 
information about services provided to Medicare beneficiaries.
    We also note that this additional data collection uses existing 
revenue codes and existing UB-04 and 837I claim forms. Those claims 
forms were

[[Page 39407]]

previously approved by the OMB under control number 0938-0997. 
As stated above, these changes were issued through an administrative 
instruction (CR 6440, Transmittal 1738) issued on May 15, 2009.
    Additionally, we are developing plans to revise the hospice cost 
reports to include additional sources of revenue, and to gather more 
detailed data on services provided by volunteers, by chaplains, by 
counselors, and by pharmacists. We will continue to work with the 
industry to seek out the best approach to these and any other changes 
we may make in order to collect useful information on hospice services.

V. Provisions of the Final Regulations

    This final rule incorporates many of the provisions of the proposed 
rule. Those provisions of this final rule that differ from the proposed 
rule are as follows:
    In section II.A.3, instead of reducing the BNAF by 75 percent in FY 
2010 and eliminating it in FY 2011, we are finalizing the BNAF phase-
out over 7 years, with a 10 percent BNAF reduction in FY 2010, an 
additional 15 percent reduction for a total of 25 percent in FY 2011, 
an additional 15 percent reduction for a total of 40 percent in FY 
2012, an additional 15 percent reduction for a total of 55 percent in 
FY 2013, an additional 15 percent reduction for a total of 70 percent 
in FY 2014, an additional 15 percent reduction for a total of 85 
percent in FY 2015, and an additional 15 percent reduction for complete 
phase-out in FY 2016.
    In section II.B, we are finalizing our proposal to require that 
physicians who certify or recertify hospice patients as terminally ill 
include a brief narrative explanation of the clinical findings that 
support a life expectancy of six months or less. We are revising our 
original proposal to allow the narrative to either be part of the 
certification and recertification forms, or an addendum to the 
certification and recertification forms which is electronically or hand 
signed by the physician. If the narrative is part of the certification 
or recertification form, then the narrative must be located immediately 
prior to the physician's signature. If the narrative exists as an 
addendum to the certification or recertification form, in addition to 
the physician's signature on the certification or recertification form, 
the physician must also sign immediately following the narrative in the 
addendum. The narrative must reflect the patient's individual clinical 
circumstances. The narrative must not contain checked boxes or standard 
language used for all patients. In the case of the initial 
certification, we require either the attending physician or the hospice 
medical director compose and sign the narrative. We also require that 
the narrative include under the physician signature, a statement 
indicating that by signing, the physician confirms that he/she composed 
the narrative based on his/her review of the patient's medical record 
or, if applicable, examination of the patient.
    In section II.E, we are modifying our proposal to change regulatory 
text in 42 CFR 405.1803. We are creating a separate section at Sec.  
405.1803(a)(3) which will be subtitled ``Hospice Caps'' and which will 
provide the same information that we had proposed be in Sec.  
405.1803(a) and Sec.  405.1803(a)(1)(i). We are leaving the regulatory 
text at Sec.  405.1803(a) and Sec.  405.1803(a)(1)(i) unchanged. 
Additionally, we are adding a sentence to the new section at Sec.  
405.1803(a)(3) to note that the timeframe for appeals of cap 
calculation results begins with receipt of the determination of program 
reimbursement letter.
    In section II.F, we are modifying our proposal to change the 
regulatory text in 42 CFR Sec.  418.200. We are continuing to include a 
reference to the updated CoP section (418.56) for a comprehensive 
description of our expectations associated with the plan of care, 
rather than the removing the reference as proposed.

VI. Collection of Information Requirements

    Under the Paperwork Reduction Act 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 Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on the issue for the following 
section of this document that contains information collection 
requirements (ICRs):
    Section 418.22 Certification of terminal illness.
    Section 418.22 requires the physician to include on or with the 
certification or recertification a brief narrative explanation of the 
clinical findings that support a life expectancy of 6 months or less.
    The burden associated with this requirement is the time and effort 
put forth by the physician to include a brief narrative explanation of 
the clinical findings that supports a life expectancy of 6 months or 
less. We received the following comment during the 60-day comment 
period for the proposed stage of this rule:
    Comment: One commenter felt that the burden on hospices would be 
more than 5 minutes, suggesting that it would take physicians 30 
minutes per certification to comply with the narrative requirements.
    Response: We disagree that requiring a narrative on the 
certification would take 30 minutes of the physician's time. As we 
stated in the proposed rule, physicians are already supposed to be 
reviewing the patient's clinical record when certifying or recertifying 
a patient. If hospices are complying with the current certification 
requirements, then the additional time to add a narrative would only be 
the time to synthesize the medical information. After reviewing the 
data, we still believe that composing the narrative should take a 
physician approximately 5 minutes. However, in re-examining the data 
and our previous assumptions and estimates from the proposed rule, we 
have re-estimated our burden estimate, which is now consistent with 
those assumptions used in the associated PRA package.
    We estimate that a narrative would be provided on 1,138,653 
certifications and recertifications annually. At 5 minutes per 
narrative, the total annual burden associated with this requirement is 
5 minutes x 1,138,653/60 minutes per hour = 94,888 hours. The current 
requirements for Sec.  418.22 are approved under OMB 0938-0302 
with an expiration date of 8/31/2009. We will revise the PRA package to 
reflect this change in burden.
    If you would like to comment on this information collection and 
recordkeeping requirement, please submit your comments to the Office of 
Information and Regulatory Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, [1420-F]
    Fax: (202) 395 6974; or E-mail: [email protected].

[[Page 39408]]

VII. 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), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)). We 
estimated the impact on hospices, as a result of the changes to the FY 
2010 hospice wage index and of reducing the BNAF by 10 percent.
    As discussed previously, the methodology for computing the hospice 
wage index was determined through a negotiated rulemaking committee and 
promulgated in the August 8, 1997 hospice wage index final rule (62 FR 
42860). The BNAF, which was promulgated in the August 8, 1997 rule, is 
being phased out. This rule updates the hospice wage index in 
accordance with the August 8, 2008 FY 2009 Hospice Wage Index final 
rule (73 FR 46464), which originally finalized a 75 percent reduced 
BNAF for FY 2010 as the second year of a 3-year phase-out of the BNAF. 
However, as noted previously, we believe that a more gradual phase-out 
provides additional opportunity to evaluate the impact of the BNAF 
reduction in the context of how this type of adjustment will fit into 
our goals for hospice payment reform. We are finalizing a 10 percent 
BNAF reduction in FY 2010 as the first year of a 7-year phase-out, with 
an additional 15 percent BNAF reduction to occur in each of the next 6 
years. Total phase-out will be complete by FY 2016.
    Executive Order 12866 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). We have determined that 
this final rule is not an economically significant rule under this 
Executive Order.
    Column 4 of Table 1 shows the combined effects of the updated wage 
data (the 2009 pre-floor, pre-reclassified hospital wage index) and of 
the 10 percent reduction in the BNAF, comparing estimated payments for 
FY 2010 to estimated payments for FY 2009. In keeping with the American 
Recovery and Reinvestment Act (ARRA) mentioned earlier in this final 
rule, the FY 2009 payments used for comparison have a full (unreduced) 
BNAF applied. We estimate that the total hospice payments for FY 2010 
will decrease by $90 million as a result of the application of the 
updated wage data (-$40 million) and the 10 percent reduction in the 
BNAF (-$50 million). This estimate does not take into account any 
hospital market basket update, which is 2.1 percent for FY 2010. The 
final hospital market basket update and associated payment rates will 
be communicated through an administrative instruction. The effect of a 
2.1 percent hospital market basket update on payments to hospices is 
approximately $260 million. Taking into account a 2.1 percent hospital 
market basket update (+$260 million), in addition to the updated wage 
data (-$40 million) and the 10 percent reduction in the BNAF (-$50 
million), it is estimated that hospice payments would increase by $170 
million in FY 2010 ($260 million -$90 million = $170 million). The 
percent change in payments to hospices due to the combined effects of 
the updated wage data, the 10 percent reduction in the BNAF, and the 
hospital market basket update of 2.1 percent is reflected in column 5 
of the impact table (Table 1).
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. The majority of hospices and most other 
providers and suppliers are small entities, either by nonprofit status 
or by having revenues of less than $7 million to $34.5 million in any 1 
year (for details, see http://www.sba.gov/contractingopportunities/officials/size/index.html). While the Small Business Administration 
(SBA) does not define a size threshold in terms of annual revenues for 
hospices, they do define one for home health agencies ($13.5 million; 
see http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf). For the purposes of this final rule, because the 
hospice benefit is a home-based benefit, we are applying the SBA 
definition of ``small'' for home health agencies to hospices; we will 
use this definition of ``small'' in determining if this final rule has 
a significant impact on a substantial number of small entities (for 
example, hospices). Using 2007 Medicare hospice claims data, we 
estimate that 96 percent of hospices have Medicare revenues below $13.5 
million. Additionally, using available 2007 Medicare cost report data, 
we estimate that roughly 94 percent of hospices have total patient 
revenues below $13.5 million.
    As indicated in Table 1 below, there are 3,328 hospices as of 
January 29, 2009. Approximately 48.5 percent of Medicare certified 
hospices are identified as voluntary or government agencies and, 
therefore, are considered small entities. Most of these and most of the 
remainder are also small hospice entities because, as noted above, 
their revenues fall below the SBA size thresholds.
    We note that the hospice wage index methodology was previously 
guided by consensus, through a negotiated rulemaking committee that 
included representatives of national hospice associations, rural, 
urban, large and small hospices, multi-site hospices, and consumer 
groups. Based on all of the options considered, the committee agreed on 
the methodology described in the committee statement, and after notice 
and comment, it was adopted into regulation in the August 8, 1997 final 
rule. In developing the process for updating the hospice wage index in 
the 1997 final rule, we considered the impact of this methodology on 
small hospice entities and attempted to mitigate any potential negative 
effects. Small hospice entities are more likely to be in rural areas, 
which are less affected by the BNAF reduction than entities in urban 
areas. Generally, hospices in rural areas are protected by the hospice 
floor adjustment, which lessens the effect of the BNAF reduction.
    The effects of this rule on hospices are shown in Table 1. Overall, 
Medicare payments to all hospices will decrease by an estimated 0.7 
percent, reflecting the combined effects of the updated wage data and 
the 10 percent reduction in the BNAF. The combined effects of the 
updated wage data and the 10 percent reduction to the BNAF on small or 
medium sized hospices (as defined by routine home care days rather than 
by the SBA definition), is -0.6 or -0.7 percent, respectively. 
Furthermore, when including the hospital market basket update of 2.1 
percent into these estimates, the combined effects on Medicare payment 
to all hospices would result in an estimated increase of approximately 
1.4 percent. For small and medium hospices (as defined by routine home 
care days), the estimated effects on revenue when accounting for the 
updated wage data, the 10 percent BNAF reduction, and the hospital 
market basket update are increases in payments of 1.5 percent and 1.4 
percent, respectively. Overall average hospice revenue effects will be 
slightly less than these estimates since according the

[[Page 39409]]

National Hospice and Palliative Care Organization, about 16 percent of 
hospice patients are non-Medicare. HHS' practice in interpreting the 
RFA is to consider effects economically ``significant'' only if they 
reach a threshold of 3 to 5 percent or more of total revenue or total 
costs. As noted above, the combined effect of only the updated wage 
data and the 10 percent reduced BNAF for all hospices is -0.7 percent. 
Since, by SBA's definition of ``small'' (when applied to hospices), 
nearly all hospices are considered to be small entities, the combined 
effect of only the updated wage data and the 10 percent reduced BNAF (-
0.7 percent) does not exceed HHS' 3.0 percent minimum threshold. 
However, HHS' practice in determining ``significant economic impact'' 
has considered either total revenue or total costs. Total hospice 
revenues include the effect of the market basket update. When we 
consider the combined effect of the updated wage data, the 10 percent 
BNAF reduction, and the 2.1 percent 2009 market basket update, the 
overall impact is an increase in hospice payments of 1.4 percent for FY 
2010. Therefore, the Secretary has determined that this final rule does 
not create a significant economic impact on a substantial number of 
small entities.
    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 604 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 a metropolitan 
statistical area and has fewer than 100 beds. Therefore, the Secretary 
has determined that this final rule will not have a significant impact 
on the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of about 
$100 million or more in 1995 dollars, updated for inflation. That 
threshold is currently approximately $133 million in 2009. This final 
rule is not anticipated to have an effect on State, local, or Tribal 
governments or on the private sector of $133 million or more.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. We have 
reviewed this final rule under the threshold criteria of Executive 
Order 13132, Federalism, and have determined that it will not have an 
impact on the rights, roles, and responsibilities of State, local, or 
Tribal governments.

B. Anticipated Effects

    This section discusses the impact of the projected effects of the 
hospice wage index, including the effects of a 2.1 percent hospital 
market basket update that will be communicated separately through an 
administrative instruction. This final rule continues to use the CBSA-
based pre-floor, pre-reclassified hospital wage index as a basis for 
the hospice wage index and continues to use the same policies for 
treatment of areas (rural and urban) without hospital wage data. The 
final FY 2010 hospice wage index is based upon the 2009 pre-floor, pre-
reclassified hospital wage index and the most complete claims data 
available (FY 2008) with a 10 percent reduction in the BNAF.
    For the purposes of our impacts, our baseline is estimated FY 2009 
payments (without any BNAF reduction) using the 2008 pre-floor, pre-
reclassified hospital wage index. Our first comparison (column 3, Table 
1) compares our baseline to estimated FY 2010 payments (holding payment 
rates constant) using the updated wage data (2009 pre-floor, pre-
reclassified hospital wage index). Consequently, the estimated effects 
illustrated in column 3 of Table 1 show the distributional effects of 
the updated wage data only. The effects of using the updated wage data 
combined with the 10 percent reduction in the BNAF are illustrated in 
column 4 of Table 1.
    We have included a comparison of the combined effects of the 10 
percent BNAF reduction, the updated wage data, and a 2.1 percent 
hospital market basket increase for FY 2010 (Table 1, column 5). 
Presenting these data gives the hospice industry a more complete 
picture of the effects on their total revenue of the hospice wage index 
discussed in this rule, the BNAF phase-out, and the FY 2010 hospital 
market basket update. Certain events may limit the scope or accuracy of 
our impact analysis, because such an analysis is susceptible to 
forecasting errors due to other changes in the forecasted impact time 
period. 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 hospices.

  Table 1--Anticipated Impact on Medicare Hospice Payments of Updating the Pre-Floor, Pre-Reclassified Hospital
  Wage Index Data, Reducing the BNAF by 10 Percent and Applying a 2.1 Percent Hospital Market Basket Update for
        the FY 2010 Hospice Wage Index, Compared to the FY 2009 Hospice Wage Index With No BNAF Reduction
----------------------------------------------------------------------------------------------------------------
                                                                                                  Percent change
                                                                                  Percent change    in hospice
                                                                  Percent change    in hospice     payments due
                                                     Number of      in hospice     payments due    to wage index
                                     Number of     routine home    payments due    to wage index    change, 10%
                                     hospices*     care days in   to FY2010 wage  change and 10%   reduction in
                                                     thousands     index change    reduction  in     BNAF  and
                                                                                       BNAF       market  basket
                                                                                                       update
                                             (1)             (2)             (3)             (4)             (5)
----------------------------------------------------------------------------------------------------------------
ALL HOSPICES....................           3,328          71,440            -0.3            -0.7             1.4
    URBAN HOSPICES..............           2,291          61,856            -0.3            -0.7             1.4
    RURAL HOSPICES..............           1,037           9,584            -0.3            -0.6             1.4
BY REGION--URBAN:
    NEW ENGLAND.................             128           2,286            -0.3            -0.8             1.3
    MIDDLE ATLANTIC.............             226           6,479            -0.5            -0.9             1.2

[[Page 39410]]

 
    SOUTH ATLANTIC..............             331          13,701            -0.7            -1.1             1.0
    EAST NORTH CENTRAL..........             318           8,796            -0.8            -1.2             0.8
    EAST SOUTH CENTRAL..........             176           4,459            -0.5            -0.9             1.2
    WEST NORTH CENTRAL..........             178           4,098             0.0            -0.4             1.7
    WEST SOUTH CENTRAL..........             431           8,181            -0.3            -0.7             1.4
    MOUNTAIN....................             214           5,372            -0.3            -0.7             1.4
    PACIFIC.....................             253           7,315             1.1             0.7             2.8
    OUTLYING....................              36           1,170            -1.2            -1.2             0.9
BY REGION--RURAL:
    NEW ENGLAND.................              26             184             0.1            -0.3             1.8
    MIDDLE ATLANTIC.............              45             496            -0.8            -1.2             0.9
    SOUTH ATLANTIC..............             131           1,893            -0.5            -0.9             1.2
    EAST NORTH CENTRAL..........             146           1,592            -1.0            -1.4             0.7
    EAST SOUTH CENTRAL..........             152           1,957            -0.5            -0.9             1.2
    WEST NORTH CENTRAL..........             192           1,029             0.3            -0.1             2.0
    WEST SOUTH CENTRAL..........             184           1,386             0.5             0.2             2.3
    MOUNTAIN....................             108             610            -0.8            -1.1             0.9
    PACIFIC.....................              52             426             1.3             0.9             3.0
    OUTLYING....................               1              11             0.0             0.0             2.1
ROUTINE HOME CARE DAYS:
    0-3499 DAYS (small).........             647           1,128            -0.2            -0.6             1.5
    3500-19,999 DAYS (medium)...           1,616          16,297            -0.3            -0.7             1.4
    20,000+ DAYS (large)........           1,065          54,016            -0.3            -0.7             1.4
TYPE OF OWNERSHIP:**
    VOLUNTARY...................           1,190          30,071            -0.3            -0.7             1.4
    PROPRIETARY.................           1,713          35,548            -0.3            -0.7             1.4
    GOVERNMENT..................             425           5,822            -0.6            -0.9             1.1
HOSPICE BASE:
    FREESTANDING................           2,156          54,293            -0.3            -0.7             1.4
    HOME HEALTH AGENCY..........             595          10,195            -0.2            -0.6             1.5
    HOSPITAL....................             559           6,714            -0.2            -0.6             1.5
    SKILLED NURSING FACILITY....              18             238            -0.5            -1.0             1.1
----------------------------------------------------------------------------------------------------------------
BNAF = Budget Neutrality Adjustment Factor
*OSCAR data as of January 29, 2009, for hospices with claims filed in FY 2008
**In previous years, there was also a category labeled ``Other''; these were Other Government hospices, and have
  been combined with the ``Government'' category.
Note: Comparison is to FY 2009 estimated payments from the August 8, 2008 FY 2009 Hospice Wage Index final rule
  (73 FR 46464), but with no BNAF reduction.
REGION KEY: New England = Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont; Middle
  Atlantic = Pennsylvania, New Jersey, New York; South Atlantic = Delaware, District of Columbia, Florida,
  Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia; East North Central = Illinois,
  Indiana, Michigan, Ohio, Wisconsin; East South Central = Alabama, Kentucky, Mississippi, Tennessee; West North
  Central = Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota; West South Central =
  Arkansas, Louisiana, Oklahoma, Texas; Mountain = Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah,
  Wyoming; Pacific = Alaska, California, Hawaii, Oregon, Washington; Outlying = Guam, Puerto Rico, Virgin
  Islands.

    Table 1 shows the results of our analysis. In column 1, we indicate 
the number of hospices included in our analysis as of January 29, 2009 
which had also filed claims in FY 2008. In column 2, we indicate the 
number of routine home care days that were included in our analysis, 
although the analysis was performed on all types of hospice care. 
Columns 3, 4, and 5 compare FY 2010 estimated payments with those 
estimated for FY 2009. The estimated FY 2009 payments incorporate a 
BNAF which has not been reduced. Column 3 shows the percentage change 
in estimated Medicare payments from FY 2009 to FY 2010 due to the 
effects of the updated wage data only, with estimated FY 2009 payments. 
Column 4 shows the percentage change in estimated hospice payments from 
FY 2009 to FY 2010 due to the combined effects of using the updated 
wage data and reducing the BNAF by 10 percent. Column 5 shows the 
percentage change in estimated hospice payments from FY 2009 to FY 2010 
due to the combined effects of using updated wage data, a 10 percent

[[Page 39411]]

BNAF reduction, and a 2.1 percent hospital market basket update.
    Table 1 also categorizes hospices by various geographic and hospice 
characteristics. The first row of data displays the aggregate result of 
the impact for all Medicare-certified hospices. The second and third 
rows of the table categorize hospices according to their geographic 
location (urban and rural). Our analysis indicated that there are 2,291 
hospices located in urban areas and 1,037 hospices located in rural 
areas. The next two row groupings in the table indicate the number of 
hospices by census region, also broken down by urban and rural 
hospices. The next grouping shows the impact on hospices based on the 
size of the hospice's program. We determined that the majority of 
hospice payments are made at the routine home care rate. Therefore, we 
based the size of each individual hospice's program on the number of 
routine home care days provided in FY 2008. The next grouping shows the 
impact on hospices by type of ownership. The final grouping shows the 
impact on hospices defined by whether they are provider-based or 
freestanding.
    As indicated in Table 1, there are 3,328 hospices. Approximately 
48.5 percent of Medicare-certified hospices are identified as voluntary 
(non-profit) or government agencies. Because the National Hospice and 
Palliative Care Organization estimates that approximately 83.6 percent 
of hospice patients in 2007 were Medicare beneficiaries, we have not 
considered other sources of revenue in this analysis.
    As stated previously, the following discussions are limited to 
demonstrating trends rather than projected dollars. We used the pre-
floor, pre-reclassified hospital wage indexes as well as the most 
complete claims data available (FY 2008) in developing the impact 
analysis. The FY 2010 payment rates will be adjusted to reflect the 
full hospital market basket, as required by section 
1814(i)(1)(C)(ii)(VII) of the Act. As previously noted, we publish 
these rates through administrative instructions rather than in a 
proposed rule. The FY 2010 hospital market basket update is 2.1 
percent. Since the inclusion of the effect of a hospital market basket 
increase provides a more complete picture of projected total hospice 
payments for FY 2010, the last column of Table 1 shows the combined 
impacts of the updated wage data, the 10 percent BNAF reduction, and 
the 2.1 percent hospital market basket update. As discussed in the FY 
2006 hospice wage index final rule (70 FR 45129), hospice agencies may 
use multiple hospice wage index values to compute their payments based 
on potentially different geographic locations. Before January 1, 2008, 
the location of the beneficiary was used to determine the CBSA for 
routine and continuous home care and the location of the hospice agency 
was used to determine the CBSA for respite and general inpatient care. 
Beginning January 1, 2008, the hospice wage index utilized is based on 
the location of the site of service. As the location of the 
beneficiary's home and the location of the facility may vary, there 
will still be variability in geographic location for an individual 
hospice. We anticipate that the location of the various sites will 
usually correspond with the geographic location of the hospice, and 
thus we will continue to use the location of the hospice for our 
analyses of the impact of the changes to the hospice wage index in this 
rule. For this analysis, we use payments to the hospice in the 
aggregate based on the location of the hospice.
    The impact of hospice wage index changes has been analyzed 
according to the type of hospice, geographic location, type of 
ownership, hospice base, and size. Our analysis shows that most 
hospices are in urban areas and provide the vast majority of routine 
home care days. Most hospices are medium-sized followed by large 
hospices. Hospices are almost equal in numbers by ownership with 1,615 
designated as non-profit or government hospices and 1,713 as 
proprietary. The vast majority of hospices are freestanding.
1. Hospice Size
    Under the Medicare hospice benefit, hospices can provide four 
different levels of care days. The majority of the days provided by a 
hospice are routine home care (RHC) days, representing about 97 percent 
of the services provided by a hospice. Therefore, the number of RHC 
days can be used as a proxy for the size of the hospice, that is, the 
more days of care provided, the larger the hospice. As discussed in the 
August 4, 2005 final rule, we currently use three size designations to 
present the impact analyses. The three categories are: (1) Small 
agencies having 0 to 3,499 RHC days; (2) medium agencies having 3,500 
to 19,999 RHC days; and (3) large agencies having 20,000 or more RHC 
days. The FY 2010 updated wage data without any BNAF reduction are 
anticipated to decrease payments to small hospices by 0.2 percent, and 
to decrease payments to medium and large hospices by 0.3 percent 
(column 3); the updated wage data and the 10 percent BNAF reduction are 
anticipated to decrease estimated payments to small hospices by 0.6 
percent, and to medium and large hospices by 0.7 percent (column 4); 
and finally, the updated wage data, the 10 percent BNAF reduction, and 
the 2.1 percent hospital market basket update are projected to increase 
estimated payments by 1.5 percent for small hospices, and by 1.4 
percent for medium and large hospices (column 5).
2. Geographic Location
    Column 3 of Table 1 shows that the updated wage data without the 
BNAF reduction would result in a small reduction in estimated payments. 
Urban and rural hospices are both anticipated to experience a decrease 
of 0.3 percent. For urban hospices, an increase of 1.1 percent is 
anticipated to be experienced in the Pacific regions. No change in 
payments is anticipated for hospices in the West North Central region. 
The remaining urban regions are anticipated to experience a decrease 
ranging from 0.3 percent in the New England, West South Central, and 
Mountain regions to a 1.2 percent decrease in Outlying regions.
    Column 3 shows that for rural hospices, Outlying regions are 
anticipated to experience no change. Five regions are anticipated to 
experience a decrease ranging from 0.5 percent in the South Atlantic 
and East South Central regions, to 1.0 percent in the East North 
Central region. The remaining regions are anticipated to experience an 
increase ranging from 0.1 percent in the New England region to 1.3 
percent in the Pacific region.
    Column 4 shows the combined effect of the updated wage data and the 
10 percent BNAF reduction on estimated payments, as compared to the FY 
2009 estimated payments using a BNAF with no reduction. Overall urban 
hospices are anticipated to experience a 0.7 percent decrease in 
payments, while rural hospices expect a 0.6 percent decrease. Pacific 
urban hospices are anticipated to see a payment increase of 0.7 
percent. All other urban hospices are anticipated to experience a 
decrease in payment ranging from -0.4 percent in the West North Central 
region to 1.2 percent in the East North Central and Outlying regions.
    Rural hospices are estimated to experience an increase in payments 
of 0.2 percent in the West South Central region and 0.9 percent in the 
Pacific region, while Outlying regions are estimated to experience no 
change in payments. The remaining rural hospices are anticipated to 
experience estimated decreases in payment ranging from 0.1 percent in 
the West North Central region

[[Page 39412]]

to 1.4 percent in the East North Central region.
    Column 5 shows the combined effects of the updated wage data, the 
10 percent BNAF reduction, and the 2.1 percent hospital market basket 
update on estimated payments as compared to the estimated FY 2009 
payments. Note that the FY 2009 payments had no BNAF reduction applied 
to them. Overall, urban and rural hospices are anticipated to 
experience a 1.4 percent increase in payments. Urban hospices are 
anticipated to experience an increase in estimated payments in every 
region, ranging from a 0.8 percent increase in the East North Central 
region to a 2.8 percent increase in the Pacific region. Rural hospices 
in every region are estimated to see an increase in payments ranging 
from 0.7 percent in the East North Central region to 3.0 percent in the 
Pacific region.
3. Type of Ownership
    Column 3 demonstrates the effect of the updated wage data on FY 
2010 estimated payments versus FY 2009 estimated payments with no BNAF 
reduction applied to them. We anticipate that using the updated wage 
data would decrease estimated payments to voluntary (non-profit) and 
proprietary (for-profit) hospices by 0.3 percent. We estimate a 
decrease in payments for government hospices of 0.6 percent.
    Column 4 demonstrates the combined effects of the updated wage data 
and of the 10 percent BNAF reduction. Estimated payments to voluntary 
(non-profit) and proprietary (for-profit) hospices are anticipated to 
decrease by 0.7 percent, while government hospices are anticipated to 
experience decreases of 0.9 percent.
    Column 5 shows the combined effects of the updated wage data, the 
10 percent BNAF reduction, and the 2.1 percent hospital market basket 
update on estimated payments, comparing FY 2010 to FY 2009 (using a 
BNAF with no reduction). Estimated FY 2010 payments are anticipated to 
increase by 1.4 percent for voluntary (non-profit) and proprietary 
(for-profit) hospices, and by 1.1 percent for government hospices.
4. Hospice Base
    Column 3 demonstrates the effect of using the updated wage data, 
comparing estimated payments for FY 2010 to FY 2009 (using a BNAF with 
no reduction). Estimated payments are anticipated to decrease by 0.3 
percent for freestanding facilities. Home health and hospital based 
facilities are anticipated to experience a 0.2 percent decrease in 
estimated payments. Hospices based out of skilled nursing facilities 
are anticipated to experience a decrease in estimated payments of 0.5 
percent.
    Column 4 shows the combined effects of the updated wage data and 
reducing the BNAF by 10 percent, comparing FY 2010 to FY 2009 (using a 
BNAF with no reduction) estimated payments. Skilled nursing facility 
based hospices are estimated to see a 1.0 percent decrease, 
freestanding hospices are estimated to see a 0.7 percent decrease, and 
hospital and home health agency based hospices are each anticipated to 
experience a 0.6 percent decrease in payments.
    Column 5 shows the combined effects of the updated wage data, the 
10 percent BNAF reduction, and the 2.1 percent hospital market basket 
update on estimated payments, comparing FY 2010 to FY 2009 (using a 
BNAF with no reduction). Estimated payments are anticipated to increase 
by 1.1 percent for skilled nursing based facilities, to increase by 1.4 
percent for freestanding facilities, and to increase by 1.5 percent for 
home health agency and hospital based facilities.

C. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 2 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this rule. This table 
provides our best estimate of the decrease in Medicare payments under 
the hospice benefit as a result of the changes presented in this final 
rule on data for 3,328 hospices in our database. All expenditures are 
classified as transfers to Medicare providers (that is, hospices).

       Table 2-- Accounting Statement: Classification of Estimated
                  Expenditures, From FY 2009 to FY 2010
                              [in millions]
------------------------------------------------------------------------
               Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.......  $-90
From Whom to Whom....................  Federal Government to Hospices.
------------------------------------------------------------------------
*The $90 million reduction in transfers includes the 10 percent
  reduction in the BNAF and the updated wage data. It does not include
  the hospital market basket update, which is 2.1 percent.

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

List of Subjects

42 CFR Part 405

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medical devices, Medicare, Reporting and 
recordkeeping requirements, Rural areas, X-rays.

42 CFR Part 418

    Health Facilities, Hospice care, Medicare, 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 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

0
1. The authority citation for part 405 subpart R continues to read as 
follows:

    Authority: Secs. 205, 1102, 1814(b), 1815(a), 1833, 1861(v), 
1871, 1872, 1878, and 1886 of the Social Security Act (42 U.S.C. 
405, 1302, 1395f(b), 1395g(a), 1395l, 1395x(v), 1395hh, 1395ii, 
1395oo, and 1395ww).

Subpart R--Provider Reimbursement Determinations and Appeals

0
2. Section 405.1803 is amended by adding paragraph (a)(3) as follows:


Sec.  405.1803  Intermediary determination and notice of amount of 
program reimbursement.

* * * * *
    (a) * * *
    (3) Hospice caps. With respect to a hospice, the reporting period 
for the cap calculation is the cap year; and the intermediaries' 
determination of program reimbursement letter, which provides the 
results of the inpatient and aggregate cap calculations, shall serve as 
a notice of program reimbursement. The time period for filing cap 
appeals begins with receipt of the determination of program 
reimbursement letter.
* * * * *

PART 418--HOSPICE CARE

0
3. The authority citation for part 418 continues to read as follows:

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

[[Page 39413]]

Subpart A--General Provision and Definitions

0
4. Section 418.1 is amended by revising the introductory text to read 
as follows:


Sec.  418.1  Statutory basis.

    This part implements section 1861(dd) of the Social Security Act 
(the Act). Section 1861(dd) of the Act specifies services covered as 
hospice care and the conditions that a hospice program must meet in 
order to participate in the Medicare program. Section 1861(dd) also 
specifies limitations on coverage of, and payment for, inpatient 
hospice care. The following sections of the Act are also pertinent:
* * * * *

0
5. Section 418.2 is revised to read as follows:


Sec.  418.2  Scope of part.

    Subpart A of this part sets forth the statutory basis and scope and 
defines terms used in this Part. Subpart B specifies the eligibility 
and election requirements and the benefit periods. Subparts C and D 
specify the conditions of participation for hospices. Subpart E is 
reserved for future use. Subparts F and G specify coverage and payment 
policy. Subpart H specifies coinsurance amounts applicable to hospice 
care.

Subpart B--Eligibility, Election and Duration of Benefits

0
6. Section 418.22 is amended by adding a new paragraph (b)(3) to read 
as follows:


Sec.  418.22  Certification of terminal illness.

* * * * *
    (b) * * *
    (3) The physician must include a brief narrative explanation of the 
clinical findings that supports a life expectancy of 6 months or less 
as part of the certification and recertification forms, or as an 
addendum to the certification and recertification forms.
    (i) If the narrative is part of the certification or 
recertification form, then the narrative must be located immediately 
prior to the physician's signature.
    (ii) If the narrative exists as an addendum to the certification or 
recertification form, in addition to the physician's signature on the 
certification or recertification form, the physician must also sign 
immediately following the narrative in the addendum.
    (iii) The narrative shall include a statement under the physician 
signature attesting that by signing, the physician confirms that he/she 
composed the narrative based on his/her review of the patient's medical 
record or, if applicable, his or her examination of the patient.
    (iv) The narrative must reflect the patient's individual clinical 
circumstances and cannot contain check boxes or standard language used 
for all patients.
* * * * *

Subpart C--Conditions of Participation: Patient Care Non-Core 
Services

0
7. Section 418.76 is amended by revising paragraph (f)(1) to read as 
follows:


Sec.  418.76  Condition of participation: Hospice aide and homemaker 
services.

    (f) Standard: Eligible competency organizations.
* * * * *
    (1) Had been out of compliance with the requirements of Sec.  
484.36(a) and Sec.  484.36 (b) of this chapter.
* * * * *

Subpart D--Conditions of Participation: Organizational Environment

0
8. Section 418.100 is amended by revising paragraph (f)(1)(iii) to read 
as follows:


Sec.  418.100  Condition of participation: Organization and 
administration of service.

* * * * *
    (f) * * *
    (1) * * *
    (iii) The lines of authority and professional and administrative 
control must be clearly delineated in the hospice's organizational 
structure and in practice, and must be traced to the location which was 
issued the certification number.
* * * * *


Sec.  418.108  [Amended]

0
9. In paragraph (b)(1)(ii), the cross reference to ``Sec.  418.110(f)'' 
is revised to read ``Sec.  418.110(e)''.

Subpart F--Covered Services

0
10. Section 418.200 is revised to read as follows:


Sec.  418.200  Requirements for coverage.

    To be covered, hospice services must meet the following 
requirements. They must be reasonable and necessary for the palliation 
and management of the terminal illness as well as related conditions. 
The individual must elect hospice care in accordance with Sec.  418.24. 
A plan of care must be established and periodically reviewed by the 
attending physician, the medical director, and the interdisciplinary 
group of the hospice program as set forth in Sec.  418.56. That plan of 
care must be established before hospice care is provided. The services 
provided must be consistent with the plan of care. A certification that 
the individual is terminally ill must be completed as set forth in 
section Sec.  418.22.

0
11. Section Sec.  418.202 is amended by revising paragraphs (f) and (g) 
to read as follows:


Sec.  418.202  Covered services.

* * * * *
    (f) Medical appliances and supplies, including drugs and 
biologicals. Only drugs as defined in section 1861(t) of the Act and 
which are used primarily for the relief of pain and symptom control 
related to the individual's terminal illness are covered. Appliances 
may include covered durable medical equipment as described in Sec.  
410.38 of this chapter as well as other self-help and personal comfort 
items related to the palliation or management of the patient's terminal 
illness. Equipment is provided by the hospice for use in the patient's 
home while he or she is under hospice care. Medical supplies include 
those that are part of the written plan of care and that are for 
palliation and management of the terminal or related conditions.
    (g) Home health or hospice aide services furnished by qualified 
aides as designated in Sec.  418.94 and homemaker services. Home health 
aides (also known as hospice aides) may provide personal care services 
as defined in Sec.  409.45(b) of this chapter. Aides may perform 
household services to maintain a safe and sanitary environment in areas 
of the home used by the patients, such as changing bed linens or light 
cleaning and laundering essential to the comfort and cleanliness of the 
patient. Aide services may include assistance in maintenance of a safe 
and healthy environment and services to enable the individual to carry 
out the treatment plan.
* * * * *

0
12. Section Sec.  418.204 is amended by revising paragraph (a) to read 
as follows:


Sec.  418.204  Special coverage requirements.

    (a) Periods of crisis. Nursing care may be covered on a continuous 
basis for as much as 24 hours a day during periods of crisis as 
necessary to maintain an individual at home. Either homemaker or home 
health aide (also known as

[[Page 39414]]

hospice aide) services or both may be covered on a 24-hour continuous 
basis during periods of crisis but care during these periods must be 
predominantly nursing care. A period of crisis is a period in which the 
individual requires continuous care to achieve palliation and 
management of acute medical symptoms.
* * * * *

Subpart G--Payment for Hospice Care

0
13. Section 418.302 is amended by revising paragraphs (b)(2) and (f)(2) 
to read as follows:


Sec.  418.302  Payment procedures for hospice care.

* * * * *
    (b) * * *
    (2) Continuous home care day. A continuous home care day is a day 
on which an individual who has elected to receive hospice care is not 
in an inpatient facility and receives hospice care consisting 
predominantly of nursing care on a continuous basis at home. Home 
health aide (also known as a hospice aide) or homemaker services or 
both may also be provided on a continuous basis. Continuous home care 
is only furnished during brief periods of crisis as described in Sec.  
418.204(a) and only as necessary to maintain the terminally ill patient 
at home.
* * * * *
    (f) * * *
    (2) At the end of a cap period, the intermediary calculates a 
limitation on payment for inpatient care to ensure that Medicare 
payment is not made for days of inpatient care in excess of 20 percent 
of the total number of days of hospice care furnished to Medicare 
patients. Only inpatient days that were provided and billed as general 
inpatient or respite days are counted as inpatient days when computing 
the inpatient cap.
* * * * *

0
14. Section 418.311 is revised to read as follows:


Sec.  418.311  Administrative appeals.

    A hospice that believes its payments have not been properly 
determined in accordance with these regulations may request a review 
from the intermediary or the Provider Reimbursement Review Board (PRRB) 
if the amount in controversy is at least $1,000 or $10,000, 
respectively. In such a case, the procedure in 42 CFR part 405, subpart 
R, will be followed to the extent that it is applicable. The PRRB, 
subject to review by the Secretary under Sec.  405.1874 of this 
chapter, shall have the authority to determine the issues raised. The 
methods and standards for the calculation of the statutorily defined 
payment rates by CMS are not subject to appeal.

(Catalog of Federal Domestic Assistance Program No. 93.778, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: July 20, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 29, 2009.
Kathleen Sebelius,
Secretary.

    Editor's note: The following addenda will not appear in the Code 
of Federal Regulations.

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